POWER ONE INC, S-1/A, 1997-09-12

POWER ONE INC
S-1/A, 1997-09-12
ELECTRONIC COMPONENTS, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 12, 1997

REGISTRATION NO. 333-32889

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 1
TO
FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

POWER-ONE, INC.

(Exact name of Registrant as specified in its charter)

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DELAWARE 3679 77-0420182
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or organization) Number)
</TABLE>

740 CALLE PLANO
CAMARILLO, CALIFORNIA 93012
(805) 987-8741

(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)

STEVEN J. GOLDMAN
POWER-ONE, INC.
740 CALLE PLANO
CAMARILLO, CALIFORNIA 93012
(805) 987-8741

(Name and address, including zip code, and telephone number, including area
code, of agent for service)
--------------------------

COPIES TO:

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<S> <C>
KENDALL R. BISHOP, ESQ. C. DOUGLAS BUFORD, JR., ESQ.
O'MELVENY & MYERS LLP WRIGHT, LINDSEY & JENNINGS
1999 AVENUE OF THE STARS, SUITE 700 200 WEST CAPITOL AVENUE
LOS ANGELES, CALIFORNIA 90067-6035 LITTLE ROCK, ARKANSAS 72201
(310) 553-6700 (501) 212-1239
</TABLE>

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
--------------------------

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
--------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY
DETERMINE.

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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>

SUBJECT TO COMPLETION, DATED SEPTEMBER 12, 1997

PROSPECTUS

5,000,000 SHARES

[LOGO]

COMMON STOCK
----------------

All of the shares of Common Stock, par value $0.001 per share (the "Common
Stock"), offered hereby are being sold by Power-One, Inc. (the "Company" or
"Power-One") through the Underwriters named herein (the "Offering").

Prior to the Offering, there has not been a public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price will be between $11.00 and $13.00. See "Underwriting" for information
relating to the factors considered in determining the initial public offering
price.

The Company has applied for listing of the Common Stock on the Nasdaq
National Market under the symbol "PWER."

SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(3).................................. $ $ $
</TABLE>

(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended.

(2) Before deducting expenses of the Offering payable by the Company estimated
at $1,000,000.

(3) The Company has granted to the several Underwriters a 30-day option to
purchase up to an additional 750,000 shares of Common Stock solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. See "Underwriting." If such option is exercised in full, the
total Price to Public, Underwriting Discounts and Commissions and Proceeds
to Company will be $ , $ and $ , respectively.

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

The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as and if issued to and accepted by them and
subject to certain conditions. The Underwriters reserve the right to withdraw,
cancel or modify such offer and to reject orders in whole or in part. It is
expected that delivery of the shares of Common Stock will be made on or about
, 1997.

STEPHENS INC. ROBERTSON, STEPHENS & COMPANY MONTGOMERY SECURITIES

The date of this Prospectus is , 1997.
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THE INSIDE FRONT The following titles with the following pictures and captions under
COVER them are on the inside front cover:

TOP MARGIN "POWERING CUSTOMERS' TECHNOLOGIES"

UPPER LEFT COMMUNICATIONS
Two pictures are under this title. The first picture is an isle in
a telecommunications equipment room. In the foreground is a circuit
board extended out from an equipment rack. In the background is a
technician, in a kneeling position, testing another circuit board.
The second picture is of a row of microwave antennas. The caption
is "Powering network and telecommunications systems to transmit
data throughout the world."

MIDDLE LEFT SEMICONDUCTOR TEST EQUIPMENT
The picture under this title is a close-up of a semiconductor
device being handled with tweezers under an inspection lamp. The
caption is "Powering automation equipment that tests semiconductor
circuitry."

BOTTOM LEFT INDUSTRIAL/INSTRUMENTATION
Two pictures are under this title. The first picture is of the
inside of a flight simulator showing a hand on a control stick and
the flight simulator display screens which have three airplanes on
them. The second picture is of a hand pushing a button on a control
panel. The caption is "powering flight simulators."

UPPER RIGHT Power-One logo and name

MIDDLE RIGHT MEDICAL
A picture of a nurse holding a probe on a patient's neck with the
caption "Powering medical diagnostic equipment."

LOWER RIGHT COMPUTERS/PERIPHERALS
A picture of a man working at a computer terminal with a futuristic
car on the computer screen. The caption is "Powering workstations
for graphics manipulation."

THE INSIDE BACK The top of the page has a Power-One logo in the Upper Right corner
COVER and a title stating:

"POWERING TECHNOLOGY ONE TO 4,000 WATTS"

Below the title is a picture with two groups of Power-One products.
The first group of products has the caption "AC/DC, switchers and
linears". The second group of products has the caption "DC/DC, over
80 models."

The bottom of the page has the Power-One logo.
</TABLE>

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING TRANSACTIONS EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."

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PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL
INFORMATION IN THIS PROSPECTUS ASSUMES (I) THE UNDERWRITERS' OVER-ALLOTMENT
OPTION WILL NOT BE EXERCISED (II) THE COMPANY'S RECAPITALIZATION, AS SET FORTH
UNDER "RECAPITALIZATION," HAS BEEN COMPLETED AND (III) THE INITIAL PUBLIC
OFFERING PRICE WILL BE $12.00 PER SHARE OF THE COMMON STOCK OF THE COMPANY, THE
MIDPOINT OF THE OFFERING PRICE RANGE SET FORTH ON THE COVER PAGE OF THIS
PROSPECTUS. UNLESS THE CONTEXT INDICATES OTHERWISE, ALL REFERENCES HEREIN TO THE
COMPANY OR POWER-ONE REFER COLLECTIVELY TO POWER-ONE, INC., ITS WHOLLY-OWNED
SUBSIDIARIES POWER-ELECTRONICS, INC. ("P-E") AND PODER UNO DE MEXICO, S.A. DE
C.V. ("PODER UNO"), AND THE COMPANY'S PREDECESSORS. INVESTORS SHOULD ALSO
CAREFULLY CONSIDER THE INFORMATION SET FORTH UNDER THE HEADING "RISK FACTORS."

Power-One is a leading designer and manufacturer of power supplies for
electronic equipment manufacturers in the United States. The Company
manufactures a broad line of more than 700 high-quality brand name products that
it sells to both distributors and OEMs who place a premium on quality,
reliability and service. The Company's products are sold to an installed base of
more than 10,000 end-users in the communications, automatic test equipment,
medical equipment, industrial and other electronic equipment industries.
Power-One's customers include OEMs which are industry leaders such as Cisco
Systems, General Electric, Hewlett-Packard, Siemens, Teradyne and Texas
Instruments. The Company is also a leading provider of power supplies to
electronic distribution customers in the U.S., including Capstone (Arrow), Kent
Electronics, Pioneer Standard Electronics and Sterling Electronics.

Power supplies perform many essential functions relating to the supply,
regulation and distribution of electrical power within electronic equipment.
Virtually every electronic device that plugs into an AC wall socket requires
some type of AC/DC power supply. The Company's power supplies encompass both
standard and modified standard products, as well as a unique modular high-power
product line. Standard power supplies are not typically industry-wide standards;
rather, they are power supplies that a company manufactures as its standard
catalog products that can be used for many different applications. Unlike some
technology products, power supplies, whether standard, modified standard or
custom, can be difficult to match exactly or replace with products manufactured
by another supplier without considerable investment. Modified standard products
are the Company's standard products that have been slightly altered to meet a
customer's needs. Power-One's unique modular designs have allowed it to create
more than 1,400 configurations of high-power supplies with custom-like features
that meet its customers' diverse requirements. In contrast to custom products,
Power-One's standard and modular designs reduce time-to-market and minimize
costs for new product introductions.

According to Micro-Tech Consultants, the worldwide market for switching
power supplies in 1995 (the latest year for which information is available) was
estimated to be over $15.0 billion, with the U.S. accounting for approximately
$6.0 billion. The U.S. switching power supply industry grew at a compound annual
rate of 11.6% from 1993 to 1995, and is anticipated to grow at a compound annual
rate of 10.1% from 1995 to 2000. Switching power supplies accounted for
approximately 74% of the Company's 1996 net sales; linear power supplies
accounted for the remainder. The Company is benefiting from the proliferation of
electronic products and services, from the increasing demand for electronic
equipment and from the shorter product life cycles brought about by today's
changing technology. Power-One's net sales increased to $74.2 million in 1996
from $47.0 million in 1992. For this same period, income from operations
increased to $8.0 million from $2.0 million.

OEMs increasingly must meet shorter time-to-market demands and greater
performance pressures if they are to compete successfully. In an effort to do
so, OEMs are moving toward flexible, scaleable, low-cost sub-systems and
components that facilitate their goals of rapid and cost-effective product
development and introduction. These increasing performance demands on OEMs
translate into several significant trends in the power supply industry,
including (i) consolidation of supplier base; (ii) shift in customer

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preference from custom to standard and modified standard products; and (iii)
increased outsourcing by captive power supply manufacturers.

Power-One's business strategy is to power its customers' technologies by
offering one of the broadest ranges of standard and modified standard power
supplies available from any manufacturer. Power-One's broad line of standard,
modified standard and unique modular products permit the Company to capitalize
on its customers' desire to reduce their supplier base to include only vendors
that can meet diverse product and service requirements. Moreover, this strategic
approach allows the Company to quickly and reliably meet its customers' power
supply demands in less time, and generally at a lower cost, than manufacturers
who provide custom products. This, in turn, allows the Company's customers to
get their new products to market more rapidly. Key elements of the Company's
strategy are to (i) further expand its standard product line; (ii) target its
primary market of small and medium-volume purchasers; (iii) expand relationships
with key OEMs; (iv) leverage relationships with distributors; and (v) pursue
external growth opportunities.

The Company was incorporated in Delaware in January 1996. The principal
executive offices of the Company are located at 740 Calle Plano, Camarillo,
California 93012, and its telephone number is (805) 987-8741.

THE OFFERING

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Common Stock offered........................................ 5,000,000 shares

Common Stock to be outstanding after the Offering(1)(2)..... 16,490,653 shares

Use of proceeds............................................. Repay all bank indebtedness,
payment of amounts owed to
certain officers and general
corporate purposes, including
possible acquisitions. See
"Use of Proceeds."

Proposed Nasdaq National Market symbol...................... PWER
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(1) Excludes 499,750 shares of Common Stock subject to outstanding stock options
at a weighted average exercise price of $1.05 per share, 80,000 shares
subject to options to be granted to Non-Employee Directors at the initial
public offering price upon effectiveness of the Company's Registration
Statement (the "Registration Statement") and 420,250 additional shares of
Common Stock reserved for issuance under the Company's 1996 Stock Incentive
Plan. See "Management--Executive Compensation" and "--Stock Option Plan."

(2) Excludes an additional 392 shares per day from June 30, 1997 to the date of
the consummation of the Offering as a result of the accrual of dividends on
the Company's Redeemable Preferred Stock and the accrual of interest on
certain amounts owed to executive officers, all of which will be exchanged
for Common Stock. See "Recapitalization."

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SUMMARY FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following summary financial data are qualified in their entirety by, and
should be read in conjunction with, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements, the
notes thereto and other financial and statistical information included elsewhere
in this Prospectus.

PREDECESSOR COMPANY(1)(2) COMPANY(1)
---------------------------------------------- --------------------------------------------------
NINE MONTHS THREE MONTHS SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, ENDED ENDED YEAR ENDED JUNE 30,
------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------------------
1992 1993 1994 1995 1995 1996 1996 1997
--------- --------- --------- ------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............. $ 46,997 $ 50,846 $ 55,702 $ 52,732 $ 20,670 $ 74,210 $ 40,743 $ 40,173
Gross profit.......... 15,406 16,768 19,951 21,207 6,322 28,905 16,034 15,825
Income from
operations.......... 2,012 2,553 5,159 7,863 903 8,002 4,692 5,395
Pro forma net
income(3)........... 1,345 2,034 3,359 4,635 (38) 2,869 2,048 2,568
--------- --------- --------- ------------- ------------- ------------- --------- ---------
--------- --------- --------- ------------- ------------- ------------- --------- ---------
Pro forma net income
per share(4)........ $ 0.24 $ 0.22
------------- ---------
------------- ---------
Pro forma weighted
average shares
outstanding(4)...... 11,875 11,947

SELECTED OPERATING DATA:
Gross margin.......... 32.8% 33.0% 35.8% 40.2% 30.6% 39.0% 39.4% 39.4%
EBITDA(5)............. $ 2,830 $ 3,368 $ 5,957 $ 8,564 $ 1,718 $ 12,215 $ 6,582 $ 7,455
Cash flows from:
Operating
activities........ 2,755 1,738 4,049 6,420 (2,152) 4,249 1,943 1,682
Investing
activities........ (359) (785) (1,663) (1,945) (49,840) (3,457) (2,080) (940)
Financing
activites......... (1,107) (476) (620) (688) 55,743 (2,859) 106 (374)
</TABLE>

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<CAPTION>
AT JUNE 30, 1997
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(4) ADJUSTED(4)(6)
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<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 11,343 $ 11,343 $ 36,428
Total assets......................................................... 76,939 76,939 87,924
Total debt........................................................... 45,237 44,480 662
Redeemable preferred stock........................................... 17,122 232 --
Total stockholders' equity........................................... 2,852 20,499 75,534
</TABLE>

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(1) The Company's and the Predecessor Company's fiscal year is the 52- or
53-week period ending on the Sunday nearest to December 31, and its fiscal
quarters are the 13- or 14-week periods ending on the Sunday nearest to
March 31, June 30, September 30 and December 31. For clarity of presentation
throughout this Prospectus, the Company has described year-ends presented as
if the year ended on December 31 and quarter-ends presented as if the
quarters ended on March 31, June 30, September 30 and December 31. As such,
the years ended December 31, 1993 through 1996 represent 52-week years,
while the year ended December 31, 1992 represents a 53-week year.

(2) Effective September 27, 1995, the Company acquired substantially all of the
assets and liabilities of Power-One, Inc., a California corporation, and the
outstanding capital stock of P-E and Poder Uno (collectively, the
"Predecessor Company"). For financial reporting purposes, this acquisition
has been treated as if it were effective on October 1, 1995, the beginning
of the Company's fourth quarter. See Note 1 of Notes to Consolidated
Financial Statements.

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income taxes have not been provided on earnings of P-E as there is no
intention to remit these earnings. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Certain Income Tax
Matters."

(4) Gives effect to the exchange of (i) 14,950,848 shares of the Redeemable
Preferred Stock of the Company and accrued dividends thereon with a
liquidation value of $17,131,180, and (ii) $756,648 owed to the executive
officers, all at an assumed public offering price of $12.00 per share, the
midpoint of the offering price range set forth on the cover page of this
Prospectus, into 1,490,653 shares of Common Stock which is intended to occur
upon the closing of the Offering. Pursuant to applicable rules, pro forma
net income per share and weighted average shares outstanding information is
presented only for the most recent fiscal year and interim period. See Note
2 of Notes to Consolidated Financial Statements.

(5) EBITDA, which the Company calculates as income from operations before
depreciation, amortization and compensation charges for stock option plans,
is a supplemental financial measurement used by the Company in the
evaluation of its business and by many analysts in the Company's industry.
However, EBITDA should only be read in conjunction with all of the Company's
financial data summarized above and its financial statements prepared in
accordance with generally accepted accounting principles appearing elsewhere
herein, and should not be construed as an alternative either to income from
operations (as determined in accordance with generally accepted accounting
principles) as an indicator of the Company's operating performance or to
cash flows from operating activities (as determined in accordance with
generally accepted accounting principles) as a measure of liquidity.

(6) Adjusted to reflect the sale of the 5,000,000 shares of Common Stock offered
hereby at $12.00 per share, the midpoint of the offering price range set
forth on the cover page of this Prospectus, and the application of the
estimated net proceeds therefrom. See "Use of Proceeds."

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RISK FACTORS

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE SPECIFIC FACTORS SET
FORTH BELOW AS WELL AS THE OTHER INFORMATION INCLUDED ELSEWHERE IN THIS
PROSPECTUS BEFORE DECIDING TO PURCHASE THE SHARES OF COMMON STOCK OFFERED
HEREBY.

DEPENDENCE ON ELECTRONIC EQUIPMENT INDUSTRIES

Many of Power-One's existing customers are in the electronic equipment
industries and produce products that are subject to rapid technological change,
obsolescence and large fluctuations in product demand. These industries are
characterized by intense competition and end-user demand for increased product
performance at lower prices. Power-One's customers make similar demands on their
suppliers, including the Company. There can be no assurance that the Company
will properly assess developments in the electronic equipment industries and
identify product groups and customers with the potential for continued and
future growth. Factors affecting the electronic equipment industries, in
general, or any of the Company's major customers or their products, in
particular, could have a material adverse effect on the Company's financial
statements. See "Business--Customers."

RELIANCE ON MAJOR CUSTOMERS

During 1996 and the first six months of 1997, the Company's top three
customers for each period, consisting of two distributors and one OEM in 1996
and one distributor and two OEMs in 1997, accounted for approximately 30% and
35%, respectively, of the Company's net sales. The loss of any of the Company's
major customers could have a material adverse effect on the Company's financial
statements. The Company's customers are not contractually obligated to utilize
the Company's products or services. There can be no assurance that a customer
will not transfer, reduce the volume of, or cancel a power supply order, each of
which could adversely affect the Company's financial statements. In addition,
there is a risk that a distributor could cease distributing the Company's
products, either because it no longer desires to distribute the Company's
products or because the distributor merges with another company that distributes
competing products. In the summer of 1997, one of the Company's primary
distributors, who accounted for 5.6% of the Company's total sales in 1996,
merged with another distributor. As a result, the distributor no longer carries
the Company's products. While the Company believes, based on its discussions
with various distributors and other customers, that most of the major end-users
who previously purchased the Company's products from this distributor will
continue to purchase such products through other distributors or directly from
the Company, there is no assurance that such a termination in the future will
not cause a loss of sales which could have a material adverse effect on the
Company's financial statements. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Sales and
Marketing."

FLUCTUATIONS IN QUARTERLY RESULTS

The Company's quarterly results of operations have fluctuated in the past
and may continue to fluctuate in the future. Variations in volume production
orders and in the mix of products sold by the Company have significantly
affected net sales and gross profit. Operating results generally may also be
affected by other factors, including the receipt and shipment of large orders,
plant utilization, product mix, manufacturing process yields, the timing of
expenditures in anticipation of future sales, raw material availability and
pricing, product and price competition, the length of sales cycles and economic
conditions in the electronics industry. Many of these factors are outside the
control of the Company.

The Company does not obtain long term purchase orders or commitments from
its customers, and a substantial portion of sales in a given quarter may depend
on obtaining orders for products to be manufactured and shipped in the same
quarter in which those orders are received. Sales for future quarters may be
difficult to predict. The Company relies on its estimates of anticipated future
volumes

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when making commitments regarding the level of business that it will seek and
accept, the mix of products that it intends to manufacture, the timing of
production schedules and the levels and utilization of personnel, inventory and
other resources. A variety of conditions, both specific to the individual
customer and generally affecting the customer's industry, may cause customers to
cancel, reduce or delay orders that were previously made or anticipated. At any
time, a significant portion of the Company's backlog may be subject to
cancellation or postponement without penalty. The Company cannot ensure the
timely replacement of canceled, delayed or reduced orders. Significant or
numerous cancellations, as well as reductions or delays in orders by a customer
or group of customers, could materially adversely affect the Company's financial
statements. The Company's expense levels are relatively fixed and are based, in
part, on expectations of future revenues. Consequently, if revenue levels are
below expectations, the Company's financial statements could be materially
adversely affected. Additionally, if the Company increases its percentage of
high-volume business, the Company's gross margin will decrease since high-volume
power supply sales typically have a lower gross margin than small to
medium-volume sales. High-volume orders, especially custom orders, if cancelled,
may substantially increase the risk of inventory obsolescence, write-offs due to
excess manufacturing capacity and collection problems. Due to all of the
foregoing factors, in some future quarter or quarters the Company's operating
results may be below the expectations of securities analysts and investors and
the Company's gross margins may decrease. In such event, the price of the
Company's Common Stock could likely be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

COMPETITION

The design, manufacture and sale of power supplies is highly competitive.
Power-One's competition includes numerous companies located throughout the
world, some of which have advantages over the Company in terms of labor and
component costs and technology. Certain of the Company's competitors have
substantially greater resources and geographic presence than the Company. There
can be no assurance that the Company will not encounter increased competition
from existing competitors or new market entrants. Power-One also faces
competition from current and prospective customers that may design and
manufacture their own power supplies. There can be no assurance that the Company
will be able to compete favorably on the basis of value by offering superior
customer service and design engineering services, continuously improving quality
and reliability levels, and offering flexible, reliable delivery schedules, and
a competitive price. In times of an economic downturn, or when dealing with
high-volume orders, price becomes an increasingly important competitive factor,
which could cause the Company to reduce price levels on its products and thereby
adversely affect the Company's financial statements. There can be no assurance
that the Company will continue to be able to compete successfully against
current or future competitors in the market. See "Business--Competition."

DEPENDENCE ON INTERNATIONAL OPERATIONS

The Company has manufacturing operations outside of the U.S. that are
subject to certain inherent risks, including tariffs, quotas, taxes and other
market barriers, political and economic instability including work stoppages or
strikes, restrictions on the export or import of technology, potentially limited
intellectual property protection, difficulties in staffing and managing
international operations and potentially adverse tax consequences. There can be
no assurance that any of these factors will not have a material adverse effect
on the Company's financial condition or results of operations. In addition,
while the Company transacts business predominantly in U.S. dollars and most of
its revenues are collected in U.S. dollars, a substantial portion of the
Company's labor costs are denominated in other currencies such as the Mexican
peso and the Dominican Republic peso and a portion of the Company's material
costs are denominated in Asian and European currencies. Fluctuations in the
value of the U.S. dollar relative to foreign currencies will affect the
Company's cost of goods sold and operating margins and could result in exchange
losses. The impact of future exchange rate fluctuations on the Company's
financial statements

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cannot be accurately predicted. Historically, the Company has not actively
engaged in substantial exchange rate hedging activities.

IMPACT OF LOSS OF PUERTO RICAN TAX EXEMPTIONS

The Puerto Rican government has granted the Company's wholly owned Puerto
Rican subsidiary, P-E, a 90% partial tax exemption from income and property
taxes, and a 60% exemption on municipal license taxes. These exemptions are
valid through 2010. The Company does not provide for U.S. federal and state
income taxes that would be paid on earnings of its Puerto Rico operation if
remitted to the U.S., as there is no intention to remit these earnings. At June
30, 1997 accumulated unremitted earnings totaled approximately $3.6 million for
the Puerto Rico operation. In the event the Company repatriates any of these
funds into the U.S., the Company may have to pay U.S. federal and state taxes on
such funds at the normal rates. There can be no assurance that the Company will
not bring funds into the U.S. in the future. Should the Company fail to meet any
of the requirements under these tax exemptions (which are not significant and
with which the Company is in compliance) or if these tax exemptions are revoked
or terminated prior to their expiration, the increased income tax expense could
have a material adverse effect upon the Company's financial statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SUPPLIER DEPENDENCE

The Company is dependent on its suppliers for timely shipments of components
and typically uses a primary source of supply for each component used in its
products. Establishing alternate sources of supply, if needed, could take a
significant period of time which might result in supply shortages for the
Company. In some cases components are sourced from only one manufacturer and an
interruption in supply could materially adversely affect the Company. Any
shortages of particular components may adversely affect the Company's business
by increasing product delivery times, increasing costs associated with
manufacturing, and reducing gross margins. Additionally, such shortages could
cause a substantial loss of business due to shipment delays. Any significant
shortages or price increases of such components could have a material adverse
effect on the Company's financial statements. The electronic equipment industry
is currently, and for the past few years has been, experiencing significant
growth. If this industry continues to grow, it is foreseeable that a shortage of
components and a resulting increase in the price of the components may occur
which could have a material adverse effect on the Company's financial
statements. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business-- Suppliers."

TECHNOLOGICAL CHANGE

The Company's products are subject to technological change as improvements
to power supply designs are continually taking place. If the Company does not
adequately anticipate significant technological advances or develop and market
product enhancements or new products that respond to any significant
technological change in a timely manner, the Company's financial statements
could be materially adversely affected. There can be no assurance that the
Company's research and development efforts will result in commercially
successful new technology and products in the future. In addition, as the
technical complexity of new products increases, it may become increasingly
difficult to introduce new products quickly and according to schedule, and there
can be no assurance that any such new products will be accepted by the Company's
customers. See "Business--Customers."

ABILITY TO ATTRACT AND RETAIN KEY PERSONNEL

The success of the Company depends to a significant degree on the efforts of
the Company's senior management, especially its Chief Executive Officer, Chief
Financial Officer and other executive officers. The Company's operations may be
adversely affected if one or more members of senior management cease

9
<PAGE>
to be active in the Company. The Company's ability to maintain and enhance
product and manufacturing technologies and to manage any future growth will also
depend on its success in attracting and retaining personnel with highly
technical skills, and the competition for such qualified technical personnel is
intense due to the relatively limited number of power supply engineers
worldwide. There can be no assurance that the Company will be able to attract
and retain qualified management or other highly technical personnel. See
"Management."

RISKS RELATING TO GROWTH

The Company's growth, through acquisition or otherwise, may require
additional personnel at all levels of the Company, including highly technical
personnel and management, and there can be no assurance that the Company will be
able to attract and retain such individuals. Moreover, the Company's ability to
make successful acquisitions is dependent on numerous factors including the
Company's ability to identify acceptable acquisition opportunities, obtain
adequate financing on terms acceptable to the Company, consummate acquisitions
and successfully integrate new businesses into the Company. The Company may
incur additional indebtedness in connection with a future business acquisition,
and the incurrence of substantial amounts of debt in connection with such
acquisitions could increase the risk of the Company's operations. If the
Company's cash flow and existing working capital are not sufficient to fund its
general working capital requirements or to service its indebtedness, the Company
would have to raise additional funds through the sale of its equity securities,
the refinancing of all or part of its indebtedness or the sale of assets or
subsidiaries. There can be no assurance that any of these alternatives to raise
additional funds would be available in amounts sufficient for the Company to
meet its obligations. The Company has not completed any acquisitions, and there
can be no assurance that the Company will be successful in making future
acquisitions. Failure to effectively integrate acquired businesses into the
Company could adversely affect the Company's financial statements. See
"Business--Business Strategy."

MANUFACTURING CAPACITY

The Company believes its long-term competitive position depends in part on
its ability to increase manufacturing capacity and there can be no assurance
that the Company will be able to acquire sufficient capacity or successfully
integrate and manage such additional facilities. The Company is currently
utilizing approximately 85% of its manufacturing capacity and expects that, if
it constructs a new facility in Mexico as anticipated, its present operations
would utilize approximately 65% of its manufacturing capacity. Increasing
manufacturing capacity may require substantial additional capital, and there can
be no assurance that such capital will be available. In addition, the Company's
expansion of its manufacturing capacity has increased and may continue to
increase its fixed costs, and the future profitability and gross margins of the
Company will partially depend on its ability to utilize its manufacturing
capacity in an effective manner. The failure to obtain sufficient capacity or to
successfully integrate and manage additional manufacturing facilities could
adversely impact the Company's relationships with its customers and suppliers
and materially adversely affect the Company's financial statements. The Company
has large manufacturing facilities in various locations, and a natural disaster
in any such area that results in an interruption of manufacturing could have a
material adverse effect on the Company's financial statements. Additionally, if
the Company is unable to successfully renew any of its leases, it could be
forced to relocate; any delay in relocating may result in an interruption of
manufacturing which could have a material adverse effect on the Company's
financial statements. See "Business--Manufacturing" and "--Facilities."

INFORMATION TECHNOLOGY CHANGES AND EXPANSION

The Company has implemented two software systems to manage its operations
and such systems have yet to be totally integrated. The integration of these
systems is expected to be completed by the end of 1999. In the event that the
implementation results in computer software or hardware problems or does not
achieve the anticipated results, orders and customer deliveries could be
adversely affected, which could

10
<PAGE>
have a material adverse impact on the Company's financial statements. See
"Business--Management Information Technology."

INTELLECTUAL PROPERTY

The Company currently relies upon a combination of patents, trademarks and
trade secret laws to establish and protect its proprietary rights in its
products. There can be no assurance that the steps taken by the Company in this
regard will be adequate to prevent misappropriation of its technology or that
the Company's competitors will not independently develop technologies that are
substantially equivalent or superior to the Company's technology. In addition,
the laws of some foreign countries do not protect the Company's proprietary
rights to the same extent as do the laws of the U.S. The Company has a number of
patents and may apply for additional patents. There can be no assurance that
patents will be issued from any applications filed by the Company or that, if
patents are issued, the claims will be sufficiently broad to protect the
technology developed by the Company. No assurance can be given that any patents
issued to the Company will not be challenged, invalidated or circumvented or
that the rights granted thereunder will provide competitive advantages. The
Company may have infringement claims asserted against it in the future or may
need to assert an infringement claim against another company. Litigation
relating to such claims could result in substantial time and money expenditures
by the Company that could result in a material adverse effect on the Company's
financial statements.

PRODUCT AND WARRANTY LIABILITY

The Company's sales to certain customers entail the risk of involvement in
product liability actions. Although the Company has product liability insurance
coverage, there can be no assurance that current or future policy limits will be
sufficient to cover all possible liabilities. Further, there can be no assurance
that adequate product liability insurance will continue to be available to the
Company in the future or that it can be maintained at reasonable cost to the
Company. In the event of a successful product liability claim against the
Company, lack or insufficiency of insurance coverage could have an adverse
effect on the Company's financial statements. Additionally, the Company's
standard warranty policy is to replace or repair defective products. Product
warranty claims and costs associated with related recalls, if substantial, could
have a material adverse effect on the Company's financial statements.

CONCENTRATION OF OWNERSHIP

Immediately after consummation of the Offering and the other transactions to
be consummated therewith, Stephens Group, Inc., its employees, affiliates and
other investors introduced to the Company by them (collectively, the "Stephens
Investors") will own approximately 48.6% (46.5% if the Underwriters'
over-allotment option is exercised in full) of the Company's outstanding Common
Stock. Accordingly, the Stephens Investors may effectively elect the entire
Board of Directors of the Company (the "Board" or the "Board of Directors"),
approve any action requiring stockholder approval (except as otherwise provided
by law) and otherwise control its management, operations and affairs. See
"Principal Stockholders."

RISKS RELATED TO GOVERNMENT REGULATIONS AND PRODUCT CERTIFICATION

The Company's operations, like most businesses, are subject to general laws,
regulations and government policies in the U.S. and abroad relating to areas
such as minimum wage, employee safety and other health and welfare regulations.
Additionally, the Company's product standards are certified by agencies in
various countries including the U.S., Canada, Germany, and the United Kingdom.
As many customers will not order uncertified products, changes in such
certification standards could negatively affect the demand for the Company's
products, result in the need to modify its existing products or affect the
development of new products, each of which may involve substantial costs or
delays in sales and could have a material adverse effect on the Company's
financial statements.

11
<PAGE>
ENVIRONMENTAL RISKS

Power-One is subject to federal, state and local environmental laws and
regulations (in both the U.S. and abroad) that govern the handling,
transportation and discharge of materials into the environment, including into
the air, water and soil. Environmental laws could become more stringent over
time, imposing greater compliance costs and increasing risks and penalties
associated with violations. Should there be an environmental occurrence,
incident or violation, the Company's financial results may be adversely
affected. The Company could be held liable for significant damages for violation
of environmental laws and could also be subject to a revocation of certain
licenses or permits, thereby materially adversely affecting the Company's
financial statements.

NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE

There has been no public market for the Common Stock prior to the Offering,
and there can be no assurance that an active trading market will develop or be
sustained after the Offering. The initial public offering price will be
determined through negotiations among the Company and the representatives of the
Underwriters. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The negotiated
public offering price may not be indicative of the market price for the Common
Stock following the Offering. In recent years, the stock market in general and
the stock prices of new public companies and many high technology companies in
particular have experienced extreme price fluctuations, sometimes without regard
to the operating performance of particular companies. Factors such as variations
in actual or anticipated quarterly operating results (which the Company has
experienced in past years and recent quarters), changes in or failure to meet
earnings estimates of securities analysts, market conditions in the industry,
regulatory actions and general economic conditions may have a significant effect
on the market price of the Common Stock. Following periods of volatility in the
market price of a corporation's securities, securities class action litigation
has often resulted. There can be no assurance that such litigation will not
occur in the future with respect to the Company. Such litigation could result in
substantial costs and a diversion of management's attention and resources, which
could have a material adverse impact on the Company's financial statements. See
"--Fluctuations in Quarterly Results."

SUBSTANTIAL AND IMMEDIATE DILUTION

The initial public offering price is substantially higher than the tangible
book value per share of the Common Stock. Investors purchasing shares of Common
Stock in the Offering will therefore incur immediate and substantial dilution.
See "Dilution."

EFFECT ON MARKET PRICE OF COMMON STOCK OF SHARES ELIGIBLE FOR FUTURE SALE

Upon consummation of the Offering, the Company will have outstanding
16,490,653 shares of Common Stock. On the date of this Prospectus, only shares
offered hereby will be immediately eligible for sale in the public market.
Subject to volume limitations on sales pursuant to Rule 144 under the Securities
Act, and taking into account the effect of lock-up agreements binding on
substantially all the Company's stockholders, 11,427,599 additional shares of
Common Stock will be eligible for sale beginning 180 days after the date of this
Prospectus, unless earlier released by Robertson, Stephens & Company LLC. Sales
of substantial amounts of such shares in the public market or the prospect of
such sales could adversely affect the market price of the Common Stock. See
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

Effective upon the closing of the Offering, the Board of Directors of the
Company will be divided into three classes. Generally, each director (other than
those directors elected to fill vacancies on the Board of

12
<PAGE>
Directors) will serve until the date of the third annual meeting following the
annual meeting at which the director is elected and until his or her successor
is elected and qualified. The Company's Certificate of Incorporation and Bylaws
require that stockholders give advance notice to the Company's Secretary of any
nominations of directors made or other business to be brought by stockholders at
any stockholders' meeting. The Certificate of Incorporation also requires the
approval of 75% of the Company's voting stock to amend certain of its
provisions. The Company's Board of Directors has the authority to issue up to 30
million shares of Preferred Stock and to determine the price, rights,
preferences and privileges of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject to,
and may be adversely affected by, the rights of the holders of Preferred Stock
that may be issued in the future. The staggered Board provision, the issuance of
Preferred Stock and other charter provisions may discourage certain types of
transactions involving an actual or potential change in control of the Company,
including transactions in which the stockholders might otherwise receive a
premium for their shares over then current market prices, and may limit the
ability of the stockholders to approve transactions that they may deem to be in
their best interests. See "Management--Directors and Executive Officers" and
"Description of Capital Stock--Certain Anti-Takeover Effects."

FORWARD-LOOKING STATEMENTS

This Prospectus contains forward-looking statements that can be identified
by the use of forward-looking terminology such as "may," "will," "should,"
"expect," "anticipate," "estimate" or "continue" or the negative thereof or
other variations thereon or comparable terminology. The matters set forth under
"Risk Factors" constitute cautionary statements identifying important factors
with respect to such forward-looking statements, including certain risks and
uncertainties, that could cause actual results to differ materially from those
in such forward-looking statements.

13
<PAGE>
COMPANY FORMATION AND ORGANIZATION

Prior to September 27, 1995, Power-One, Inc., a California corporation
("Power CA"), Power-Electronics, Inc., a Puerto Rico corporation ("P-E"), and
Poder Uno de Mexico, S.A. de C.V., a Mexican corporation ("Poder Uno"), were
owned by a small group of investors, including management, each in similar
ownership percentages, and were operated collectively by management located
primarily in California. The financial statements contained in this Prospectus
for periods prior to October 1, 1995 reflect the combined results and financial
condition of Power CA, P-E and Poder Uno (collectively referred to for the
period prior to September 30, 1995 as the "Predecessor Company"). On September
27, 1995, Power-One LLC, a Delaware limited liability company ("Power-One LLC"),
acquired the assets of Power CA and the stock of P-E and Poder Uno
(collectively, the "Acquisition"). The Stephens Investors acquired approximately
65% of the membership interests of Power-One LLC, with the remainder being
acquired by the Company's senior management. As of February 1, 1996, Power-One
LLC was reorganized (the "Reorganization") when it was merged with and into
Power-Merger, Inc., a Delaware corporation, which changed its name to Power-One,
Inc. Power-One was incorporated in Delaware in January 1996, and Power CA was
incorporated in California in 1973.

Power CA had elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended (the "Code"). No federal income tax liability
was incurred by either Power CA (when it was an S corporation) or Power-One LLC,
and the stockholders and members of those entities were directly subject to
federal income taxes on their respective interests in the entities' taxable
income. Power-One is a C corporation and following the Reorganization has paid
federal and state taxes on its income. All financial statements contained in
this Prospectus reflect provisions for federal and state income taxes for all
periods as if Power CA had not been treated as an S corporation and Power-One
LLC had not been treated as a limited liability company.

RECAPITALIZATION

The Company has offered each holder of Redeemable Series A Preferred Stock
(a "Holder") the option to exchange all or part of the Holder's Redeemable
Series A Preferred Stock (the "Redeemable Preferred") and the Holder's accrued
dividends on such Redeemable Preferred for shares of Common Stock valued at the
Price to Public set forth on the cover page of this Prospectus. Except for one
Holder who is holding Redeemable Preferred with a liquidation value of
approximately $232,000, all of the Holders have agreed to exchange their
Redeemable Preferred and the dividends accrued thereon, with a liquidation value
of approximately $17.1 million, for shares of Common Stock (the "Exchange"). As
a result, contemporaneous with the consummation of the Offering, 1,427,599
shares will be issued in exchange for the Redeemable Preferred and the dividends
accrued thereon through June 30, 1997 assuming an initial public offering price
of $12.00 per share, the midpoint of the offering price range set forth on the
cover page of this Prospectus. The Redeemable Preferred accrues dividends at a
rate of 10% per annum or an aggregate of $4,506 per day on the Redeemable
Preferred Shares that will be converted into Common Stock; thus, the exact
number of shares to be issued in exchange for the accrued dividends will
continue to increase at the rate of 376 shares of Common Stock per day, until
the consummation of the Offering. The Company's Board of Directors has called
for redemption immediately after consummation of the Offering and the Exchange
of all the Redeemable Preferred that is not exchanged for Common Stock. The
redemption price is equal to the liquidation value of the Redeemable Preferred.

In addition, on August 11, 1997 the Board offered certain officers of the
Company the option to receive shares of Common Stock valued at the Price to
Public set forth on the cover page of this Prospectus in exchange for certain
amounts owed to such officers under their employment and compensation
agreements. The officers in the aggregate have agreed to exchange approximately
$757,000 for Common Stock. Accordingly, the Company will issue, upon
consummation of the Offering, 63,054 shares of Common Stock to such officers,
assuming an initial public offering price of $12.00 per share, the midpoint of
the offering price range set forth on the cover page of this Prospectus.
Additionally, the amount owed to the executive officers accrues interest at a
rate of 10% per annum or an aggregate of $193 per day on the amount owed that
will be converted into Common Stock; thus, the exact number of shares to be
issued to

14
<PAGE>

the officers will continue to increase at a rate of 16 shares of Common Stock
per day, until the consummation of the Offering. The Company has also agreed to
pay all amounts owing to the management, approximately $5.5 million, in one lump
sum rather than over 20 quarterly periods. The Exchange and the transactions
described in this paragraph are collectively referred to as the
"Recapitalization." See "Certain Transactions--Future Transactions."

USE OF PROCEEDS

The net proceeds to the Company, assuming an initial public offering price
of $12.00 per share, the midpoint of the offering price range set forth on the
cover page of this Prospectus, from the sale of the 5,000,000 shares of Common
Stock offered hereby are estimated to be $54.8 million ($63.2 million if the
Underwriters' over-allotment option is exercised in full) after deducting
underwriting discounts and commissions and estimated offering expenses. The
Company intends to use a portion of the net proceeds from the Offering to repay
all the amounts outstanding (including both short and long term debt) under the
Company's existing bank credit facility (the "Credit Facility"), which amount
was $38.4 million at June 30, 1996. Borrowing under the Credit Facility at June
30, 1997 bore interest at approximately 8% and the Credit Facility matures in
2002. Amounts borrowed under the Credit Facility in the last 12 months have been
used for working capital purposes. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Approximately $5.5 million will
be used to pay amounts owed to certain of the Company's officers pursuant to
their employment and compensation agreements which bear interest at 10% per
annum and approximately $232,000 will be used to redeem the Redeemable Preferred
that is not exchanged for Common Stock. See "Recapitalization." The remainder of
the net proceeds of the Offering will be used for general corporate purposes,
including capital expenditures, working capital and possible future
acquisitions. The Company on occasion reviews possible acquisitions and expects
to continue to do so to supplement its internal growth. The Company is not
currently a party to any agreement or understanding with respect to any
acquisition. Pending use of the net proceeds for the above purposes, the Company
intends to invest such funds in short-term and medium-term, interest-bearing,
investment-grade obligations.

DIVIDEND POLICY

Prior to the Acquisition, Power CA elected to be an S corporation under the
Code and, accordingly, made periodic distributions to its stockholders which
distributions represented a substantial portion of Power CA's earnings. After
the Acquisition and prior to the Reorganization, Power-One LLC made one
distribution to its members to enable such members to pay taxes on their portion
of Power-One LLC's net income. Since the Reorganization, the Company has not
declared a dividend. As noted under "Recapitalization," the Company has called
for redemption of all shares of its Redeemable Preferred that are not exchanged
for Common Stock pursuant to the Exchange. The redemption price equals the
liquidation value of the Redeemable Preferred. All holders of Redeemable
Preferred, other than one holder of 202,850 shares, have agreed to exchange
their Redeemable Preferred and accrued dividends thereon for Common Stock. The
Company anticipates that all future earnings will be retained to finance the
continuing development of its business and does not anticipate paying cash
dividends on the Common Stock in the foreseeable future. The payment of any
future cash dividends will be at the discretion of the Board and will depend
upon, among other things, future earnings, capital requirements, the general
financial condition of the Company and general business conditions. In addition,
the Company's Credit Facility restricts, and the Company expects that its new
credit facility (that the Company expects to enter into upon the consummation of
the Offering) will restrict, the Company's ability to pay dividends. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

The Company's subsidiary, P-E, does not currently intend to declare any
dividends. If P-E does declare and pay a dividend to the Company, the Company
may be forced to pay taxes at the statutory rates on such amount. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Income Tax Matters."

15
<PAGE>
CAPITALIZATION

The following table sets forth as of June 30, 1997 (i) the actual
capitalization of the Company, (ii) the capitalization of the Company on a pro
forma basis to give effect to the Recapitalization and (iii) the pro forma
capitalization of the Company as adjusted to give effect to the Recapitalization
and the sale by the Company of the shares of Common Stock offered hereby at
$12.00 per share, the midpoint of the offering price range set forth on the
cover page of this Prospectus, and the application of the estimated net proceeds
therefrom.

<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Debt:
Note payable to bank............................ $10,600 $10,600 $
Current portion of long-term debt............... 4,162 4,162 662
Long-term debt, less current portion............ 24,250 24,250
Other liabilities(1)............................ 6,225 5,468
------- --------- -----------
Total debt.................................... 45,237 44,480 662
------- --------- -----------
Preferred Stock, 30,000,000 shares authorized,
30,000,000 shares authorized pro forma and pro
forma as adjusted:
Redeemable Preferred Stock, 15,253,698 shares
authorized, 15,153,698 shares outstanding, no
shares outstanding pro forma and pro forma as
adjusted...................................... 17,122 232
------- ---------
Stockholders' equity:
Common Stock, 20,000,000 shares authorized,
20,000,000 authorized pro forma, 60,000,000
shares authorized pro forma as adjusted;
10,000,000 shares outstanding, 11,490,653
shares outstanding pro forma, 16,490,653
shares outstanding pro forma as adjusted(2)... 10 11 16
Additional capital.............................. 94 17,982 72,777
Notes receivable from stockholders.............. (235) (235)
Retained earnings............................... 2,983 2,741 2,741
------- --------- -----------
Total stockholders' equity.................... 2,852 20,499 75,534
------- --------- -----------
Total capitalization.............................. $65,211 $65,211 $76,196
------- --------- -----------
------- --------- -----------
</TABLE>

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

(1) Represents amounts owed to certain officers under their employment and
compensation agreements.

(2) Excludes 499,750 shares issuable upon the exercise of outstanding stock
options at a weighted average exercise price of $1.05 per share, 80,000
shares subject to options to be granted to Non-Employee Directors at the
initial public offering price upon effectiveness of the Registration
Statement and 420,250 additional shares reserved for issuance under the
Company's 1996 Stock Incentive Plan. See "Management--Executive
Compensation" and "--Stock Option Plan."

16
<PAGE>
DILUTION

The pro forma net tangible book value (total tangible assets less total
liabilities) of the Company at June 30, 1997, after giving effect to the
Recapitalization, was a deficit of approximately $7.7 million, or $0.70 per
share of Common Stock. After giving effect to the sale by the Company of the
5,000,000 shares of Common Stock offered hereby, resulting in estimated net
proceeds of $54,800,000 based upon an assumed initial public offering price of
$12.00 per share, the midpoint of the offering price range set forth on the
cover page of this Prospectus, less the expected offering related expenses and
the repayment of stockholders' notes, the Company's pro forma net tangible book
value at June 30, 1997 would have been $47.3 million, or $2.87 per share. This
represents an immediate increase in pro forma net tangible book value of $3.57
per share to existing stockholders and an immediate dilution in net tangible
book value of $9.13 per share to new investors purchasing shares in the
Offering. The following table illustrates this per share dilution.

<TABLE>
<CAPTION>
<S> <C> <C>
Initial assumed public offering price per share............................ $ 12.00
Pro forma net tangible book value per share before the Offering and after
the Recapitalization................................................... $ (.70)
Increase per share attributable to new investors......................... 3.57
---------
Pro forma net tangible book value per share after the Offering............. 2.87
---------
Dilution per share to new investors........................................ $ 9.13
---------
---------
</TABLE>

The following table summarizes, on a pro forma basis, as of June 30, 1997,
after giving effect to the Recapitalization, the number of shares of Common
Stock purchased from the Company, the total consideration paid and the average
price per share paid by (i) existing stockholders after giving effect to the
Recapitalization and (ii) new investors (before deducting underwriting discounts
and commissions and estimated expenses payable by the Company):

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 11,490,653 69.7% $ 17,993,000 23.1% $ 1.57
New investors..................... 5,000,000 30.3% 60,000,000 76.9% 12.00
------------ ----- ------------- -----
Total........................... 16,490,653 100.0% $ 77,993,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>

The foregoing computations assume no exercise of outstanding stock options.
There are options outstanding to purchase 499,750 shares of Common Stock at a
weighted average exercise price of $1.05 per share. To the extent these options
are exercised, there will be further dilution to new investors. 80,000 shares
will be subject to options to be granted to Non-Employee Directors at the
initial public offering price upon effectiveness of the Registration Statement
and 420,250 additional shares are reserved for issuance under the Company's 1996
Stock Incentive Plan. See "Management--Executive Compensation" and "--Stock
Option Plan."

17
<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

The following table summarizes certain selected financial data, which should
be read in conjunction with the Company's financial statements and notes thereto
included elsewhere herein and with "Management's Discussion and Analysis of
Financial Condition and Results of Operations." The selected financial data as
of December 31, 1995 and 1996, and for each of the periods in the three years
ended December 31, 1996 have been derived from the Company's and the Predecessor
Company's consolidated and combined financial statements which have been audited
by Deloitte & Touche LLP, the Company's independent auditors. Other information
has been derived from other audited financial statements. The selected financial
data as of and for the six months ended June 30, 1996 and 1997 have been derived
from the Company's unaudited financial statements. In the opinion of management,
the unaudited financial statements have been prepared on the same basis as the
audited financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations as of such dates and for such periods.
The results for the six month period ended June 30, 1997 are not necessarily
indicative of the results to be expected for the entire year or the quarters
following in 1997.

<TABLE>
<CAPTION>
COMPANY(1)
PREDECESSOR COMPANY(1)(2) -----------------------------------------
---------------------------------------------- SIX
MONTHS
YEAR ENDED DECEMBER 31, NINE MONTHS THREE MONTHS ENDED
ENDED ENDED YEAR ENDED JUNE 30,
------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, ---------
1992 1993 1994 1995 1995 1996 1996
--------- --------- --------- ------------- --------------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 46,997 $ 50,846 $ 55,702 $ 52,732 $ 20,670 $ 74,210 $ 40,743
Cost of goods sold............. 31,591 34,078 35,751 31,525 14,348 45,305 24,709
--------- --------- --------- ------------- ------- ------------- ---------
Gross profit................... 15,406 16,768 19,951 21,207 6,322 28,905 16,034

Selling, general and
administrative expense....... 10,380 11,560 12,067 10,947 3,883 14,323 7,949
Engineering expense............ 3,014 2,655 2,725 2,397 1,064 3,964 2,441
Amortization of intangibles.... 472 2,003 952
Other expense.................. 613
--------- --------- --------- ------------- ------- ------------- ---------
Income from operations......... 2,012 2,553 5,159 7,863 903 8,002 4,692
Interest expense............... (726) (543) (629) (494) (1,026) (4,222) (1,951)
Other, net..................... 176 233 8 33 (36) 12 (35)
--------- --------- --------- ------------- ------- ------------- ---------
Income (loss) before income
taxes........................ 1,462 2,243 4,538 7,402 (159) 3,792 2,706
Income taxes................... 45 126 75 155 12 396 283
--------- --------- --------- ------------- ------- ------------- ---------
Net income (loss).............. $ 1,417 $ 2,117 $ 4,463 $ 7,247 $ (171) $ 3,396 $ 2,423
--------- --------- --------- ------------- ------- ------------- ---------
--------- --------- --------- ------------- ------- ------------- ---------
Pro forma amounts:(3)(4)
Income (loss) before income
taxes as reported............ $ 1,462 $ 2,243 $ 4,538 $ 7,402 $ (159) $ 3,792 $ 2,706
Pro forma income taxes......... 117 209 1,179 2,767 (121) 923 658
--------- --------- --------- ------------- ------- ------------- ---------
Pro forma net income (loss).... $ 1,345 $ 2,034 $ 3,359 $ 4,635 $ (38) $ 2,869 $ 2,048
--------- --------- --------- ------------- ------- ------------- ---------
--------- --------- --------- ------------- ------- ------------- ---------
Pro forma net income per
share........................ $ 0.24
-------------
-------------
Pro forma weighted average
shares outstanding........... 11,875
-------------
-------------

<CAPTION>
1997
---------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $ 40,173
Cost of goods sold............. 24,348
---------
Gross profit................... 15,825
Selling, general and
administrative expense....... 7,788
Engineering expense............ 1,628
Amortization of intangibles.... 1,014
Other expense..................
---------
Income from operations......... 5,395
Interest expense............... (2,009)
Other, net..................... 48
---------
Income (loss) before income
taxes........................ 3,434
Income taxes................... 866
---------
Net income (loss).............. $ 2,568
---------
---------
Pro forma amounts:(3)(4)
Income (loss) before income
taxes as reported............ $ 3,434
Pro forma income taxes......... 866
---------
Pro forma net income (loss).... $ 2,568
---------
---------
Pro forma net income per
share........................ $ 0.22
---------
---------
Pro forma weighted average
shares outstanding........... 11,947
---------
---------
</TABLE>

(FOOTNOTES ON FOLLOWING PAGE)

18
<PAGE>

<TABLE>
<CAPTION>
PREDECESSOR COMPANY(1)(2)
------------------------------------------------ COMPANY(1)
--------------------------------------------------
YEAR ENDED DECEMBER 31, NINE MONTHS THREE MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED ENDED JUNE 30,
------------------------------- SEPTEMBER 30, DECEMBER 31, DECEMBER 31, --------------------
1992 1993 1994 1995 1995 1996 1996 1997
--------- --------- --------- --------------- ------------- ------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Gross profit margin....... 32.8% 33.0% 35.8% 40.2% 30.6% 39.0% 39.4% 39.4%
EBITDA(5)................. $ 2,830 $ 3,368 $ 5,957 $ 8,564 $ 1,718 $ 12,215 $6,582 $7,455
Cash flows from:
Operating activities.... 2,755 1,738 4,049 6,420 (2,152 ) 4,249 1,993 1,682
Investing activities.... (359) (785) (1,663) (1,945 ) (49,840 ) (3,457 ) (2,080) (940)
Financing activities.... (1,107) (476) (620) (688 ) 55,743 (2,859 ) 106 (374)
</TABLE>

<TABLE>
<CAPTION>
AT JUNE 30, 1997
-----------------------------------------
PROFORMA AS
ACTUAL PRO FORMA(4) ADJUSTED(4)(6)
--------- ------------- ---------------

<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.......................................................... $ 11,343 $ 11,343 $ 36,428
Total assets............................................................. 76,939 76,939 87,924
Total debt............................................................... 45,237 44,480 662
Redeemable preferred stock............................................... 17,122 232 --
Total stockholders' equity............................................... 2,852 20,499 75,534
</TABLE>

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

(1) The Company's and the Predecessor Company's fiscal year is the 52- or
53-week period ending on the Sunday nearest to December 31 and its fiscal
quarters are the 13- or 14-week periods ending on the Sunday nearest to
March 31, June 30, September 30 and December 31. For clarity of presentation
throughout this Prospectus, the Company has described year-ends presented as
if the year ended on December 31 and quarter-ends presented as if the
quarters ended on March 31, June 30, September 30 and December 31. As such,
the years ended December 31, 1993 through 1996 represent 52-week years,
while the year ended December 31, 1992 represents a 53-week year.

(2) Effective September 27, 1995, the Company acquired substantially all of the
assets and liabilities of the Predecessor Company. For financial reporting
purposes, this acquisition has been treated as if it were effective on
October 1, 1995, the beginning of the Company's fourth quarter. See Note 1
of Notes to Consolidated Financial Statements.

(3) Pro forma information reflects the provision for U.S. federal and state
income taxes as if the Company and the Predecessor Company had been subject
to federal and state income taxation as a C corporation, prior to January
29, 1996, the date the Company converted from a limited liability company to
a C corporation. Prior to January 29, 1996, net income of the Company and
the Predecessor Company flowed through to their stockholders/members. For
presentation purposes, U.S. federal and state income taxes have not been
provided on earnings of P-E as there is no intention to remit these
earnings. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Certain Income Tax Matters."

(4) Gives effect to the exchange of (i) 14,950,848 shares of the Redeemable
Preferred Stock of the Company and accrued dividends thereon with a
liquidation value of $17,131,180, and (ii) $756,648 owed to the executive
officers, each at an assumed public offering price of $12.00 per share, the
midpoint of the offering price range set forth on the cover page of this
Prospectus, into 1,490,653 shares of Common Stock which is intended to occur
upon the closing of the Offering. Pursuant to applicable rules, pro forma
net income per share and weighted average shares outstanding information is
presented only for the most recent fiscal year and interim period. See Note
2 of Notes to Consolidated Financial Statements.

19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

THE FOLLOWING SHOULD BE READ IN CONJUNCTION WITH THE COMBINED AND
CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE NOTES THERETO, INCLUDED
ELSEWHERE IN THIS PROSPECTUS.

GENERAL

The Company is a successor to Power CA, which was incorporated in 1973 as a
manufacturer of AC/ DC power supplies. The Predecessor Company operated solely
from its Southern California facility until 1981, at which time it commenced
additional operations in Isabela, Puerto Rico. In 1988, the Predecessor Company
commenced operations in San Luis, Mexico. These foreign facilities were
established to take advantage of certain labor, manufacturing and, in Puerto
Rico, tax efficiencies. From 1994 to 1996, substantially all Puerto Rican
manufacturing operations were moved to Santo Domingo, Dominican Republic to
capitalize on certain labor benefits, while maintaining the tax benefits
associated with its Puerto Rican subsidiary. In September 1995, the Stephens
Investors and management of the Company purchased the Predecessor Company from
its previous owners and implemented a more aggressive growth strategy for the
Company. In April 1996, the Company further broadened its product offering
through the licensing of certain technology and associated rights from Calex
Manufacturing Company ("Calex"), providing the Company with a line of DC/DC
products.

The Company has recently formed a strategic accounts group which targets
existing and potential customers who are leaders in high-growth industries and
who typically purchase power supplies in large quantities. To the extent that
this group is effective, the Company's gross profit margin may decline since
high volume products typically have a lower gross profit margin than the
Company's other products.

RESULTS OF OPERATIONS

There are two statements of operations for the 1995 fiscal year. The first
statement of operations presents combined information for the Predecessor
Company during the nine months ended September 30, 1995, while the second
presents consolidated information for the Company for the three months ended
December 31, 1995. For ease of reference, information in this Management's
Discussion and Analysis of Financial Condition and Results of Operation for the
1995 fiscal year is presented based upon the sum of various amounts set forth in
the two income statements. The numbers are not reflective of the results that
would have occurred if the Acquisition had occurred as of January 1, 1995.

20
<PAGE>
The following table sets forth, for the periods indicated, certain Combined
and Consolidated Statements of Operations data as a percentage of net sales:

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................ 64.2 62.5 61.0 60.6 60.6
--------- --------- --------- --------- ---------
Gross profit.................................. 35.8 37.5 39.0 39.4 39.4
SG&A expense.................................. 21.7 20.2 19.3 19.6 19.4
Engineering expense........................... 4.9 4.7 5.4 6.0 4.1
Amortization of intangibles................... 0.0 0.6 2.7 2.3 2.5
Other expense................................. 0.0 0.0 0.8 0.0 0.0
--------- --------- --------- --------- ---------
Income from operations........................ 9.2 12.0 10.8 11.5 13.4
Interest expense.............................. (1.1) (2.1) (5.7) (4.8) (4.9)
Other, net.................................... 0.0 0.0 0.0 (0.1) 0.1
--------- --------- --------- --------- ---------
Income before income taxes.................... 8.1 9.9 5.1 6.6 8.6
Pro forma income taxes........................ 2.1 3.6 1.2 1.6 2.2
--------- --------- --------- --------- ---------
Pro forma net income.......................... 6.0% 6.3% 3.9% 5.0% 6.4%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>

SIX MONTHS ENDED JUNE 30, 1997 AND JUNE 30, 1996

NET SALES. Net sales decreased $570,000, or 1.4%, to $40.2 million for the
six months ended June 30, 1997 from $40.7 million for the six months ended June
30, 1996. The decrease resulted primarily from a downturn in certain electronic
market segments that began in 1996 and continued through the first quarter of
1997. In particular, this downturn resulted in lower sales to two of the
Company's largest customers in the first quarter of 1997. However, order rates
accelerated in the first quarter of 1997 and net sales in the second quarter of
1997 were the highest in the Company's history. Net sales for the second quarter
of 1997 grew 28% over the first quarter of 1997.

GROSS PROFIT. Gross profit decreased $209,000, or 1.3%, to $15.8 million
for the six months ended June 30, 1997 from $16.0 million for the six months
ended June 30, 1996. The decrease resulted primarily from lower sales for the
six months ended June 30, 1997 as compared to the six months ended June 30,
1996. Gross profit margin remained constant. Gross profit margin for the six
months ended June 30, 1997 was favorably impacted by lower costs of production
following the transfer of manufacturing from the Company's Puerto Rico facility
to its Dominican Republic facility, which was completed towards the end of 1996.
This gross margin improvement was offset by a shift in product mix for the six
months ended June 30, 1997 that included sales of more custom products, which
contribute lower gross margins than the Company's other product lines.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative ("SG&A") expense decreased $161,000, or 2.0%, to $7.8 million for
the six months ended June 30, 1997 from $7.9 million for the six months ended
June 30, 1996. As a percent of net sales, SG&A expense decreased to 19.4% for
the six months ended June 30, 1997 from 19.6% for the six months ended June 30,
1996. These decreases resulted primarily from reduced expenses associated with
temporary cost cutting measures undertaken in the third quarter of 1996. Most of
the savings occurred from reductions in the administrative area.

ENGINEERING EXPENSE. Engineering expense declined $813,000, or 33.3%, to
$1.6 million for the six months ended June 30, 1997 from $2.4 million for the
six months ended June 30, 1996. As a percent of net sales, engineering expense
decreased to 4.1% for the six months ended June 30, 1997 from 6.0% for the six
months ended June 30, 1996. Certain engineering expenses, which had been
increased in the first half of

21
<PAGE>

1996 based upon anticipated sales increases, were reduced, primarily by the
reduction of personnel, in the last half of 1996 as sales declined. The Company
believes that no strategic business was affected by this reduction. The Company
began to refill many of these positions toward the end of the second quarter.

AMORTIZATION OF INTANGIBLES. The amortization of intangibles, both in
dollar amount and as a percent of net sales, increased in the six months ended
June 30, 1997 as a result of expenses incurred in connection with a license
agreement for DC/DC products, that was entered into in April 1996.

INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased $703,000, or 15.0%, to $5.4 million for the six months
ended June 30, 1997 from $4.7 million for the six months ended June 30, 1996. As
a percent of sales, income from operations increased to 13.4% for the six months
ended June 30, 1997 from 11.5% for the six months ended June 30, 1996.

INCOME TAXES. Income tax expense increased to $866,000, or 2.2% of net
sales for the six months ended June 30, 1997, from the pro forma tax expense of
$658,000, or 1.6% of net sales for the six months ended June 30, 1996. The
percentage increase primarily reflects an increase in the Company's effective
tax rate from 24.3% in 1996 to 25.2% in 1997 resulting from a higher proportion
of the Company's earnings being generated in the U.S. than in Puerto Rico.

YEARS ENDED DECEMBER 31, 1996 AND DECEMBER 31, 1995

NET SALES. Net sales increased $808,000, or 1.1%, to $74.2 million in 1996
from $73.4 million in 1995. The Company believes that revenues did not grow at
historical rates because of the downturn in certain electronic equipment
markets, especially in the semiconductor industry, in the second half of 1996.
As a result, certain OEM customers reduced their purchasing levels from the
Company. Additionally, electronics distributors began experiencing lower sales
and higher inventory levels, and orders from the Company were significantly
reduced in the fourth quarter of 1996.

GROSS PROFIT. Gross profit increased $1.4 million, or 5.0%, to $28.9
million in 1996 from $27.5 million in 1995. Gross profit margins increased to
39.0% in 1996 from 37.5% in 1995. Gross profit margins in 1995 were adversely
affected by approximately two percentage points as a result of the sale of
certain inventory in the fourth quarter of 1995, the carrying value of which had
been increased by approximately $1.5 million as a result of the Acquisition.
After normalizing the gross margins for this increase, gross profit margins
decreased 0.5% in 1996. This 0.5% decrease resulted primarily from a different
product mix.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A expense decreased
$507,000, or 3.4%, to $14.3 million in 1996 from $14.8 million in 1995. As a
percent of net sales, SG&A expense decreased to 19.3% in 1996 from 20.2% in
1995. These decreases resulted primarily from decreases in bonuses of $1.2
million and the elimination of $363,000 in payments to the executive committee
of the Predecessor Company. These savings were offset in part by an increase in
bad debt expense of $335,000 and expenses relating to the expansion of the
Company's operations in the Dominican Republic totalling $767,000.

ENGINEERING EXPENSE. Engineering expense increased $503,000, or 14.5%, to
$4.0 million in 1996 from $3.5 million in 1995. As a percent of net sales,
engineering expense increased to 5.4% in 1996 from 4.7 % in 1995. These
increases were primarily the result of the increase in certain engineering
expenses in the first half of 1996 based upon anticipated sales increases,
offset in part by reductions in these expenses as sales declined in the last
half of the year.

AMORTIZATION OF INTANGIBLES. The amortization of intangibles, as a percent
of net sales, increased to 2.7% in 1996 from 0.6% in 1995. The $2.0 million in
1996 reflects a full year of amortization of intangible assets incurred in
connection with the Acquisition and a partial year's amortization of the license
for DC/DC power supplies entered into in April 1996. The $472,000 in 1995
reflects the amortization for the fourth quarter of 1995 of intangible assets
incurred in connection with the Acquisition.

22
<PAGE>
OTHER EXPENSE. Other expense was $613,000, or 0.8% of net sales in 1996.
This expense reflects costs incurred in connection with the transfer of
production from Puerto Rico to the Dominican Republic.

INCOME FROM OPERATIONS. As a result of the above factors, income from
operations decreased $764,000, or 8.7%, to $8.0 million in 1996 from $8.8
million in 1995. As a percent of net sales, income from operations decreased to
10.8% in 1996 from 12.0% in 1995.

INTEREST EXPENSE. Net interest expense increased $2.7 million, to $4.2
million in 1996 from $1.5 million in 1995. This increase relates primarily to
the full year effect in 1996 versus a partial year effect in 1995, of the debt
incurred in connection with the Acquisition in September 1995.

PRO FORMA INCOME TAXES. The pro forma income tax rate decreased in 1996 to
24.3% from 36.5% in 1995. The 1995 effective tax rate was higher than historical
pro forma levels because of lower earnings in Puerto Rico as a result of certain
duplicative expenses incurred while production was transferred to the Dominican
Republic, causing a disproportionate share of the Company's profits to be
generated and taxed in the U.S.

YEARS ENDED DECEMBER 31, 1995 AND DECEMBER 31, 1994

NET SALES. Net sales increased $17.7 million, or 31.8%, to $73.4 million in
1995 from $55.7 million in 1994. This increase was due largely to an increase of
approximately 61% in sales of the Company's high-range power product line, used
primarily by the semiconductor test equipment industry. Additionally, sales of
the mid-range power product line grew to $6.3 million in 1995 from $673,000 in
1994.

GROSS PROFIT. Gross profit increased $7.6 million, or 38.0%, to $27.5
million in 1995 from $20.0 million in 1994. Gross profit margin increased to
37.5% in 1995 from 35.8% in 1994. The 1996 increase resulted primarily from a
product mix shift to more profitable high-range power products, an increased
utilization of fixed overhead and the devaluation of the Mexican peso. These
increases would have been greater if gross profit margins in 1995 had not been
adversely affected by approximately two percentage points as a result of the
sale of certain inventory in the fourth quarter of 1995, the carrying value of
which had been increased by approximately $1.5 million as a result of the
Acquisition. Excluding this one-time increase, gross profit margin would have
been 39.5% for 1995.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. SG&A expense increased $2.8
million, or 22.9%, to $14.8 million in 1995 from $12.1 million in 1994. This
increase resulted primarily from higher variable costs related to increased
bonuses and commissions of $1.5 million as a result of higher sales and
approximately $500,000 in costs associated with the Acquisition. As a percent of
sales, SG&A expense decreased to 20.2% in 1995 from 21.7% in 1994, as fixed SG&A
costs were spread over a larger sales base.

ENGINEERING EXPENSE. Engineering expense increased $736,000, or 27.0%, to
$3.5 million in 1995 from $2.7 million in 1994. This increase was attributable
primarily to increased product development and sustaining engineering expense in
1995. As a percent of sales, engineering expense decreased to 4.7% in 1995 from
4.9% in 1994.

AMORTIZATION OF INTANGIBLES. The amortization of intangibles in 1995
reflects the amortization of intangible assets in the fourth quarter of 1995 as
a result of the Acquisition. Prior to the Acquisition in September 1995 the
Company did not have any intangibles on its balance sheet.

INCOME FROM OPERATIONS. As a result of the above factors, income from
operations increased $3.6 million, or 69.9%, to $8.8 million in 1995 from $5.2
million in 1994. As a percent of sales, income from operations increased to
12.0% in 1995 from 9.2% in 1994.

INTEREST EXPENSE. Interest expense increased $891,000 to $1.5 million in
1995 from $629,000 in 1994. This increase was due to the increased debt incurred
in connection with the Acquisition.

23
<PAGE>
PRO FORMA INCOME TAXES. Pro forma income taxes increased to $2.6 million in
1995 from $1.2 million in 1994. The increase reflects an increase in the
effective tax rate to 36.5% in 1995 from 26.0% in 1994 and the impact of the 63%
increase in income before income taxes. The increase in the effective income tax
rate reflects the disproportionate amount of earnings generated by the Company's
operations in the U.S. over historical pro forma levels.

QUARTERLY RESULTS

The following table presents unaudited quarterly operating results for the
Predecessor Company and the Company. In the opinion of management, this
information has been prepared on the same basis as the audited Combined and
Consolidated Financial Statements included in this Prospectus and includes all
adjustments (consisting of only normal recurring accruals) that management
considers necessary for a fair presentation of the results for such periods.
Such quarterly results are not necessarily indicative of the results of
operations for any future period. The ordering patterns of the Company's
customer base generally have resulted in a decline in sales from the second
quarter to the third quarter. The Company's results of operations have
fluctuated and may continue to fluctuate from period to period, including on a
quarterly basis.

<TABLE>
<CAPTION>
1995 QUARTERS ENDED
------------------------------------------------
PREDECESSOR COMPANY 1996 QUARTERS ENDED
------------------------------------------------
COMPANY
------------------------------------- -----------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEP. 30 DEC. 31
----------- ----------- ----------- --------- ----------- ----------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS:
Net sales................. $ 14,998 $ 19,594 $ 18,140 $ 20,670 $ 20,129 $ 20,614 $ 17,165 $ 16,302
Gross profit.............. 6,173 7,751 7,283 6,322 7,819 8,215 6,836 6,035
Income from operations.... 2,028 3,194 2,641 903 1,809 2,883 1,271 2,039
Pro forma net income
(loss).................. 1,177 1,898 1,560 (38) 613 1,435 195 626

<CAPTION>
1997 QUARTERS ENDED
------------------------
MAR. 31 JUNE 30
----------- -----------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS:
Net sales................. $ 17,617 $ 22,556
Gross profit.............. 7,015 8,810
Income from operations.... 2,295 3,100
Pro forma net income
(loss).................. 997 1,571
</TABLE>

CERTAIN INCOME TAX MATTERS

The Company has operated in Puerto Rico since 1981 under various exemptions
that provide for lower taxes on profits attributable to Puerto Rico. These
exemptions most recently have been granted pursuant to the Puerto Rico
Industrial Incentives Act of 1987. Under the provisions of the most recent
exemption, which was granted in 1994 when the Company's manufacturing activities
in Puerto Rico were moved to the Dominican Republic, the Company has been
granted a 90% partial tax exemption from property or income taxes on income
derived from distributing products from Puerto Rico and a 60% exemption on
municipal license taxes. This exemption is valid through 2010. Additionally, P-E
has operations in the Dominican Republic in a tax-free enterprise zone and,
accordingly, pays no income taxes in connection with its operations in that
country. The Company does not provide for U.S. federal and state income tax that
would be paid on earnings of its Puerto Rico operation if such earnings were
remitted to the U.S., as there is no intention to remit these earnings. At June
30, 1997, accumulated unremitted earnings totaled approximately $3.6 million for
the Puerto Rico operation. In the event that the Company does remit earnings to
the U.S., it may be required to pay taxes at the normal U.S. rate. The Company's
operations in Mexico are subject to various income and corporate taxes on
earnings generated in Mexico. These taxes have not been material to date.

The Predecessor Company operated as a Subchapter S corporation for tax
reporting purposes until the Acquisition on September 27, 1995. At such time,
the Company was organized as a limited liability company. Effective January 29,
1996, the Company converted from a limited liability company to a C corporation,
which is subject to both U.S. federal and state income taxes. During the periods
in which the Predecessor Company operated as an S corporation and the Company
operated as a limited liability

24
<PAGE>
company, taxes for federal and most state income tax purposes on earnings were
paid directly by the owners.

LIQUIDITY AND CAPITAL RESOURCES

During the six months ended June 30, 1997, the Company had cash flow from
operations of $1.7 million compared to cash flow from operations of $1.9 million
in the comparable period in 1996. Cash flow from operations decreased primarily
due to increases in accounts receivable of $3.8 million and increases in
inventories of $800,000 that were partially offset by an increase in accrued
expenses of $1.4 million. The increase in accounts receivable primarily resulted
from a change in billing terms with its distributors which increased days sales
outstanding from its distributors to an average of 45 days from an average of 15
days.

The Company has funded its operations primarily from cash flow provided by
operations and short and long-term borrowings. At the end of 1996, the Company's
balance of cash and cash equivalents was $1.7 million compared to $3.8 million
at the end of 1995, a decrease of $2.1 million. Net cash provided by operating
activities in 1996 was $4.2 million after giving effect to an increase of $1.5
million in accounts receivable and $1.8 million in accounts payable.
Depreciation and amortization was $4.2 million in 1996, compared with $1.5
million in 1995, primarily due to the Acquisition and the corresponding increase
in intangible assets of $30 million. Major cash expenditures in 1996 included
the purchase of $2.9 million of capital equipment and net repayment of $1.6
million of bank borrowings.

The Company currently anticipates that its capital expenditures for 1997
will be approximately $3.4 million, of which approximately $1.5 million
represents investments in surface mount manufacturing equipment. The amount of
these anticipated capital expenditures will frequently change based on future
changes in business plans and condition of the Company and changes in economic
conditions.

In September 1995, the Company obtained a term loan of $30 million and a
revolving line of credit of $15 million from a syndicate of banks led by
NationsBank of Texas, N.A. ("NationsBank") primarily to finance the Acquisition
and for working capital and other general corporate purposes. In September 1996,
the commitment on each of these loans was increased by $2.5 million. Both loans
are collateralized by substantially all of the Company's assets. The term loan
is due in full on September 30, 2002, with quarterly principal payments of
$750,000 due in September 1997, $1.0 million due in each of the next four
quarters and increasing thereafter each 12 months to a maximum of $1.75 million
due in the four quarters commencing on December 31, 2001. Interest on amounts
outstanding is payable monthly based on one of the following rates, as selected
by the Company: LIBOR plus 2.0% to 2.5% or the bank's base rate plus 1.0% to
1.5%. The interest rate was 8.03% at June 30, 1997.

The Company's revolving line of credit bears interest on amounts outstanding
payable monthly based on one of the following rates, as selected by the Company:
LIBOR plus 2.0% to 2.5% or the bank's base rate plus 1.0% to 1.5%. The interest
rate was 8.1875% at June 30, 1997. As of June 30, 1997, $6.9 million was
available under the revolving line of credit.

The credit agreement (i) provides for restrictions on additional borrowings,
dividends, leases and capital expenditures; (ii) prohibits the Company, without
prior approval, from paying dividends, liquidating, merging, consolidating or
selling its assets or business; and (iii) requires the Company to maintain a
specified net worth, minimum working capital and certain ratios of current
liabilities and total debt to net worth.

Effective October 30, 1995, the Company entered into an interest swap
agreement with a bank for a notional amount of $20.0 million. Under the
agreement, the Company has agreed to a fixed rate of 6.025% and the bank has
agreed to a floating rate equal to LIBOR. Interest payments are exchanged
quarterly. The Company will cancel this agreement upon repayment of the various
loans with the proceeds of the Offering. The Company does not expect to incur
any substantial costs as a result of such cancellation.

25
<PAGE>

On March 31, 1997, the Company amended the original termination date of its
interest swap from October 30, 2000 to April 30, 1999 and concurrently entered
into a swaption agreement. The Company entered into this amendment because it
believed that interest rates within the applicable period would not change
dramatically and that it could save a substantial amount by reducing the term of
the interest rate swap; however, due to the requirement of its lender that the
Company maintain an adequate interest rate hedge through October 2000, the
Company concurrently entered into the swaption agreement. Under the swaption
agreement, the Company may exercise on April 28, 1999 its option to enter into a
one-year interest swap agreement with a notional amount of $15.0 million. If
exercised, the Company would agree to pay a fixed rate of 10.0% and the bank
would agree to a floating rate equal to LIBOR.

The Company believes its existing working capital and borrowing capacity,
coupled with the funds generated from the Company's operations and the net
proceeds from the Offering, will be sufficient to fund its anticipated working
capital, capital expenditures and debt payment requirements for the foreseeable
future. The Company is currently in negotiations with NationsBank to establish a
$50 million line of credit that will become available simultaneous with the
Offering. This line of credit will be used to finance acquisitions, working
capital, and capital expenditure requirements. There is no assurance that a new
line will be established with NationsBank. Moreover if the Company makes a large
acquisition, it may be necessary to raise debt or equity in the private or
public securities markets.

26
<PAGE>
BUSINESS

GENERAL

Power-One is a leading designer and manufacturer of power supplies for
electronic equipment manufacturers in the U.S. The Company manufactures a broad
line of more than 700 high-quality brand name products that it sells to both
distributors and OEMs who place a premium on quality, reliability and service.
The Company's products are sold to an installed base of more than 10,000
end-users in the communications, automatic test equipment, medical equipment,
industrial and other electronic equipment industries. Power-One's customers
include OEM's which are industry leaders such as Cisco Systems, General
Electric, Hewlett-Packard, Siemens, Teradyne and Texas Instruments. The Company
is also a leading provider of power supplies to electronic distribution
customers in the U.S., including Capstone (Arrow), Kent Electronics, Pioneer
Standard Electronics and Sterling Electronics.

The Company's power supplies encompass both standard and modified standard
products, as well as a unique modular high-power product line. Standard power
supplies are not typically industry-wide standards; rather, they are power
supplies that a company manufactures as its standard catalog products that can
be used for many different applications. Unlike some technology products, power
supplies, whether standard, modified standard, or custom, can be difficult to
match exactly or replace with products manufactured by another supplier without
considerable investment. Modified standard products are the Company's standard
products that have been slightly modified to meet a customer's needs.
Power-One's unique modular designs have allowed it to create more than 1,400
configurations of high-power supplies with custom-like features that meet its
customers' diverse requirements. In contrast to custom products, Power-One's
standard and modular designs reduce time-to-market and minimize costs for new
product introductions. The Company is benefiting from the proliferation of
electronic products and services, from the increasing demand for electronic
equipment and from the shorter product life cycles brought about by today's
changing technology.

The Company is a successor to Power CA, which was incorporated in 1973 as a
manufacturer of AC/ DC power supplies. The Predecessor Company operated solely
from its Southern California facility until 1981, at which time it commenced
additional operations in Isabela, Puerto Rico. In 1988, the Predecessor Company
commenced operations in San Luis, Mexico. These foreign facilities were
established to take advantage of certain labor, manufacturing and, in Puerto
Rico, tax efficiencies. From 1994 to 1996, substantially all Puerto Rican
manufacturing operations were moved to Santo Domingo, Dominican Republic to
capitalize on certain labor benefits. Finished goods from such operations are
shipped to Puerto Rico and distributed from there in order to maintain the tax
benefits associated with its Puerto Rican subsidiary. In September 1995, the
Stephens Investors and management of the Company purchased the Predecessor
Company from its previous owners and implemented a more aggressive growth
strategy for the Company. In April 1996, the Company further broadened its
product offering through the licensing of certain technology and associated
rights from Calex, providing the Company with a line of DC/DC products.

INDUSTRY AND MARKET OVERVIEW

Power supplies perform many essential functions relating to the supply,
regulation and distribution of electrical power within electronic equipment.
Electronic systems require a precise and constant supply of electrical power at
one or more voltage levels. Traditional power supplies, known as AC/DC, convert
alternating current ("AC") from a primary power source, such as a utility
company, into a precisely controlled direct current ("DC"). Virtually every
electronic device that plugs into an AC wall socket requires some type of AC/DC
power supply. DC/DC converters modify one DC voltage level to other DC levels to
meet the needs of various electronic subsystems and components. Power supplies
are also used to regulate and monitor voltages to protect the electronic
components from surges or drops in voltage, to

27
<PAGE>
perform functions that prevent electronic equipment from being damaged by its
own malfunction, or to provide back-up power in the event that a primary power
source fails.

According to Micro-Tech Consultants, the worldwide market for switching
power supplies in 1995 (the latest year for which information is available) was
estimated to be over $15.0 billion, with the U.S. accounting for approximately
$6.0 billion. The U.S. switching power supply industry grew at a compound annual
rate of 11.6% from 1993 to 1995, and is anticipated to grow at a compound annual
rate of 10.1% from 1995 to 2000. The power supply industry is highly fragmented,
with more than 300 power supply manufacturers in the U.S. The Company believes
that most of these companies have sales under $10.0 million annually. Power
supplies are configured using two technologies: linear or switching. Linear
power supplies are relatively large and require a switch to accept different
voltages. In contrast, switching power supplies are smaller and use a technology
that eliminates the need for a switch when using different voltages. The market
for power supplies can be further segmented in several different ways, including
by (i) merchant and captive manufacturers, (ii) custom and standard products and
(iii) output wattage.

MERCHANT AND CAPTIVE MANUFACTURERS. Merchant manufacturers like the Company
design and manufacture power supplies for use by others. Captive manufacturers
are OEMs that design and manufacture power supplies in-house for use within
their own products. The merchant segment accounted for more than 50% of power
supplies sold in the U.S. in 1995 and is expected to increase to approximately
60% by 2000 as a result of increased outsourcing by captive manufacturers. The
merchant segment in the U.S. is expected to grow at a compound annual rate of
13.7% from 1995 to 2000, compared to 5.7% for the captive segment.

CUSTOM AND STANDARD PRODUCTS. Custom power supplies are designed for a
specific customer to meet the exact form, fit and function for a specific
application. Custom products are characterized by (i) long lead times of 4 to 12
months from initial prototype to full production; (ii) significant up-front
engineering costs; and (iii) relatively high volume production requirements.
Standard power supplies are products designed to appeal to a wide range of
customers and applications. Standard power supplies offer benefits to the OEM in
that there are no up-front engineering charges or minimum order quantities and
the product is readily available, which allows the OEM to reduce its
time-to-market for new products. In addition, standard products have lower risks
associated with technology, production ramps, and customer product
qualification. Modified standard power supplies are standard products that have
been altered in a way that does not change the basic product architecture.
Modified standard products are characterized by (i) short lead times; (ii) low
up-front engineering costs; and (iii) small minimum order quantities.

OUTPUT WATTAGE. Power supplies can be grouped by output (watt) ranges:
low-range power, mid-range power and high-range power. Low-range power supplies
(under 200 watts) tend to be less technologically complex, manufactured in high
volumes, and used in various lower cost applications, including personal
computers, small networking systems, small industrial instrumentation systems
and a host of other consumer applications. Mid-range power supplies (200 - 500
watts) tend to be more technologically complex, manufactured in moderate to high
volumes, and used in more sophisticated products, including workstations, data
and voice communications systems, and medical and diagnostic equipment.
High-range power supplies (over 500 watts) tend to be technologically complex,
higher priced products, manufactured in low volumes, and used in sophisticated
systems, including mainframe computers, semiconductor test systems,
telecommunications sub-stations, flight simulators and advanced medical imaging
equipment.

INDUSTRY TRENDS

The markets for electronic products are growing as a result of new product
introductions, technological change, demand for a wider variety of electronic
product features and increasingly powerful and less expensive electronic
components. As a result, OEMs are facing greater competition in their own
markets for more complex electronic products and to compete successfully, they
increasingly must meet shorter time-to-market demands and greater performance
pressures. In an effort to do so, OEMs are moving

28
<PAGE>
toward flexible, scaleable, low-cost sub-systems and components that facilitate
their goals of rapid and cost-effective product development and introduction.
These increasing performance demands translate into several significant trends
in the power supply industry, including:

CONSOLIDATION OF SUPPLIER BASE. In order to lower costs and accelerate
delivery schedules, OEMs and electronic distributors are increasingly reducing
their supplier base to include only vendors who can offer a broad range of
quality products and service most of their needs. This one-stop shopping
approach places increased requirements on power supply manufacturers to invest
in full product offerings and sophisticated engineering.

SHIFT IN CUSTOMER PREFERENCE FROM CUSTOM TO STANDARD AND MODIFIED STANDARD
PRODUCTS. Product life cycles within the electronic equipment industry are
decreasing. The reduced time-to-market for new products increases the demand for
standard and modified standard power supplies that can be delivered quickly and
cost-effectively, particularly when small and medium-volume purchases are
involved.

INCREASED OUTSOURCING BY CAPTIVE POWER SUPPLY MANUFACTURERS. Many OEMs have
historically built power supplies for use in their own products. As the level of
complexity and investment in designing and manufacturing power supplies have
increased, these OEMs are increasingly outsourcing their power supply needs in
order to focus on research, development and marketing of their own products.

BUSINESS STRATEGY

Power-One's business strategy is to power its customers' technologies by
offering one of the broadest ranges of standard and modified standard power
supplies available from any manufacturer. Power-One's broad line of standard,
modified standard and unique modular products permit the Company to capitalize
on its customers' desire to reduce their supplier base to include only vendors
which can meet their diverse product and service requirements. Moreover, the
Company utilizes flexible manufacturing which allows it to quickly and reliably
meet its customers' power supply demands in less time, and at a lower initial
cost, than manufacturers who provide custom products. This, in turn, permits the
Company's customers to get their new products to market more rapidly.

The Company believes the Power-One brand name is associated with high
quality, dependability and consistency in the power supply industry. The Company
prides itself on having each product meet all customer specifications and
ensuring that its products can work in multiple product applications. All of the
Company's manufacturing facilities are ISO 9001 or 9002 certified, which are
frameworks for quality assurance. The Company also focuses on offering its
customers superior service and support. In December 1995, Power-One received the
award for "Service Leader for Power Suppliers" from the readers of Electronic
Engineering Product News magazine.

Key elements of Power-One's strategy include:

FURTHER EXPAND STANDARD PRODUCT LINE. The Company plans to continue the
development and expansion of its standard product line to allow it to meet more
of the electronic industry's power supply requirements by offering standard and
modified standard solutions to custom problems. The Company's product marketing
and engineering departments will focus on the future power supply needs of
certain current and potential customers.

TARGET ITS PRIMARY MARKET. Power-One will continue to target customers in
the domestic merchant power supply market that utilize a variety of standard
products, place small to medium-volume annual orders of $500,000 to $3.0 million
and put a premium on quality, reliability and service. The Company intends to
continue to avoid selling to high-volume personal computer and consumer product
manufacturers. The small to medium-volume targeted market has historically been
less price sensitive than higher-volume markets.

29
<PAGE>
EXPAND RELATIONSHIPS WITH KEY OEMS. The Company has recently created its
national Strategic Accounts Program which is focused on selling to its current
and potential OEM customers who are leaders in high-growth industries and who
are expected in the future to order more than $3.0 million of products annually.

LEVERAGE RELATIONSHIPS WITH DISTRIBUTORS. The Company has been one of the
pioneers in selling power supplies through electronic distributors and has one
of the largest networks of industrial electronic distributors in the U.S. The
Company believes its reputation with its distributors gives it ready access to a
broader base of customers than the OEM customers alone. By leveraging its
existing network of distributors and expanding its current array of products,
the Company will continue to provide its power supply products to smaller OEMs
and other end-users in an efficient and cost-effective manner.

PURSUE EXTERNAL GROWTH OPPORTUNITIES. The Company is committed to pursuing
opportunities to grow its business through acquisitions of other power supply
manufacturers, joint ventures or licensing agreements, either in the U.S. or
internationally. In addition, the Company believes that the fragmented nature of
the power supply market, the shrinking of customers' supplier bases and the
relative undercapitalization of many competitors will present opportunities for
further consolidation. However, there can be no assurance that the Company will
consummate any acquisition, joint venture or license agreement.

PRODUCTS

The Company has developed its extensive catalog of power supply products
over the past 20 years. The Company produces over 700 standard and modified
standard power supplies and converters, as well as unique modular power supplies
that the Company has sold in over 1,400 configurations. All of these products
are sold under the Power-One brand name. These products cover a broad range of
applications, from 1 to 30 watts for DC/DC converters and from 5 to 4,000 watts
for AC/DC power supplies. In 1996, the Company shipped more than 900,000 power
supply units, with average sales prices ranging from $5 to $2,500.

The Company's products are divided into the following main categories:

<TABLE>
<CAPTION>
AVERAGE
TYPICAL REPRESENTATIVE SALES
POWER(1) CHARACTERISTICS APPLICATIONS PRICE RANGE
- --------------------- --------------------------- ----------------------------------------------- ------------
<S> <C> <C> <C>
Low-Range

Linear - 5 to 150 watts - Analog to digital converters $20-150
- Low noise - Operational amplifiers
- Excellent voltage - Medical electronics
regulation
- High voltage isolation

Switchers -30 to 200 watts - Printers $15-125
- Higher unit volume - High-speed modems
- Low technology - Electro-mechanical devices
- Point-of-sale terminals
- Low-end networking

Mid-Range - 200 to 500 watts - Networking systems $150-450
- Medium unit volume - Mini-computers
- Moderate technology - Medical diagnostic equipment
</TABLE>

30
<PAGE>
<TABLE>
<CAPTION>
AVERAGE
TYPICAL REPRESENTATIVE SALES
POWER(1) CHARACTERISTICS APPLICATIONS PRICE RANGE
- --------------------- --------------------------- ----------------------------------------------- ------------
<S> <C> <C> <C>
High-Range - 500 to 4,000 watts - Semiconductor test systems $500-2,500
- Lower unit volume - Telecommunications substations
- High technology - Large-scale computers/flight simulators
- Complex medical imaging equipment

DC/DC Converters - 1-30 watts - On-board power conversion $5-90
- More compatible with - Isolation from electronic noise
power supplies - Instrumentation
manufactured by
competitors
- Easily sold through
distributors
</TABLE>

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

(1) With the exception of DC/DC Converters, all products are AC/DC power
supplies.

LINEAR. Power-One is an industry leader in standard linear AC/DC products
and has manufactured linear products since the Company's founding in 1973.
Linear products offer low noise and excellent voltage regulation specifications,
characteristics required for specialized applications such as analog to digital
converters and operational amplifiers used in the instrumentation industry.
Certain applications that require low noise, such as high precision medical
equipment, will continue to use linear products. The Company, however, expects
the linear business, which accounted for less than 26% of its revenues in 1996,
to decline slightly in the coming years as end-users redesign their products to
use switching power supplies.

LOW-RANGE POWER SWITCHERS. The Company developed a line of low-range power
switchers as a complement to its linear power supply products in the early 1980s
when switching technology first became stable and cost-effective. A second
generation of low-range power products was developed by Power-One in 1989. These
switchers use enhanced, smaller components and a higher quality regulation
circuitry which allows the product to work in a broad range of applications
similar to those of the mature low-range power switchers described above. These
products use a universal input voltage circuit which automatically determines if
the AC line is 110 or 220 volts, allowing the products to be used worldwide
without modification. Power-One has recently introduced a third generation of
low-range power switchers which are targeted at the higher volume customers and
the communications markets. This new series provides Power Factor Correction,
which will be required to meet European standards in the coming years and which
allows more power to be taken from a standard AC wall outlet.

MID-RANGE POWER SWITCHERS. Power-One's mid-range power switchers were
introduced in 1993. These modular products are configured at the Company's
factories into a broad array of voltage and current combinations, making them
ideal for those customers requiring quick turnaround without incurring charges
for custom development. In September 1994, the Company began shipping a new line
of dedicated, non-modular products to provide its customers with additional
low-cost alternatives within the mid-range power area. The Company expanded the
mid-range power line's features and options in 1995 to include Power Factor
Correction.

HIGH-RANGE POWER SWITCHERS. The Company's high-range power switchers were
introduced in 1987. This line was one of the industry's first modular products
within the high-power range. The Company has been able to meet almost all of its
customers' high-power requirements with its modular high-range power line. In
1997, the Company expanded the upper-end of its high-power range from 2,500
watts to 4,000 watts.

DC/DC CONVERTERS. The Company manufactures over 80 different types of DC/DC
converters that range in power from 1-30 watts. Unlike AC/DC products, DC/DC
converters are typically more compatible

31
<PAGE>
with power supplies manufactured by others and can often replace competitors'
DC/DC products. DC/DC converters of more than 30 watts typically involve high
density packaging techniques. The Company is considering expanding its DC/DC
line beyond 30 watts, although it has not had any prior experience with high
density packaging. There can be no assurance that this line, if implemented,
will be successful or that the Company will be able to produce high density
packaged products. See "Risk Factors--Technological Change."

CUSTOM PRODUCTS. Power-One designs and manufactures custom products for
select OEM customers to meet unique requirements in size, wattage or
configuration. The volume of a custom product run must be sufficiently large to
offset the tooling and design charges incurred in association with the
customization. While Power-One's emphasis has been on standard products, the
Company believes its large technology base of standard products and standard
circuit designs can be used as "platforms" to allow the Company to quickly and
effectively address the needs of the "custom" market.

CUSTOMERS

The Company sells its power supplies to OEMs and distributors and,
indirectly through its distributors, to over 10,000 end-users. The percentages
of products sold by the Company to distributors and OEM customers, respectively,
in 1995, 1996 and the six months ended June 30, 1997, were as follows:

<TABLE>
<CAPTION>
1995 1996 1997 (TO JUNE 30)
----- ----- ---------------------
<S> <C> <C> <C>
Distributors.................................................. 48% 51% 43%
OEM Customers................................................. 52% 49% 57%
</TABLE>

Power-One's base of OEM customers are in diverse market segments such as
communications, automatic test equipment, medical equipment, and industrial.
Many of the OEMs are Fortune 500 companies and leaders in their respective
industries. Power-One's top 15 OEM customers include well-recognized names such
as General Electric, Hewlett-Packard, Siemens, Teradyne, Texas Instruments and
Unisys. OEM sales in 1996 and the six months ended June 30, 1997 were to the
following market segments (based on sales to the Company's largest 100 OEM
customers who account for approximately 90% of all OEM sales).

<TABLE>
<CAPTION>
MARKET SEGMENT(1) 1996 1997 (TO JUNE 30)
- ---------------------------------------------------------------- ----- ---------------------------
<S> <C> <C>
Communications.................................................. 26% 32%
Automatic Test Equipment........................................ 21% 27%
Medical Equipment............................................... 22% 16%
Industrial...................................................... 10% 11%
Retail Equipment/Gaming......................................... 11% 6%
Computer and Other.............................................. 10% 8%
</TABLE>

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

(1) The Company does not track the percentage of sales to each market segment by
its distributors. The Company believes, however, that the highest percentage
of such sales are to the industrial segment.

The Company's sales efforts target end-users who traditionally utilize
standard products and place small to medium-volume orders ranging from $500,000
to $3.0 million per year. The Company believes this market historically has been
less price competitive than higher-volume markets. Most small to medium size
orders for the Company's products are filled from product inventories maintained
by its distributors while orders from the Company's OEM customers are filled
from its work-in-progress or finished goods inventory.

The Company has found that OEMs generally prefer not to change suppliers
once a power supply has been designed into a product, due to the fact that such
change often requires time-consuming and costly re-testing and re-certification
by one or more regulatory agencies. It is also very difficult for another

32
<PAGE>
manufacturer to precisely replicate a power supply unit which is already
incorporated into a product. Thus, once the Company has supplied an end-user
with a quality product, the Company is usually able to retain the customer for
the duration of the life-cycle of that customer's particular product.

SALES AND MARKETING

At June 30, 1997 Power-One's sales department consisted of 19 professionals,
including five regional sales managers strategically located across the country,
three product line managers and a comprehensive technical support and service
staff. This group sells Power-One's products to distributors and OEMs. The
Company's newly formed strategic account sales team of three people generally
focuses on certain high growth OEM customers.

The Company has contractual agreements with 20 manufacturers'
representatives, who collectively have more than 200 salespeople in more than 40
offices throughout the U.S. These manufacturers' representatives, who are
indirectly managed by Power-One's regional managers, are the Company's primary
sales interface to OEMs. While the Company's manufacturers' representatives
handle a variety of products, none of them represent a competing power supply
manufacturer.

SMALL ACCOUNT SALES BY INDUSTRIAL DISTRIBUTORS. The Company estimates that
more than 10,000 end-users will purchase Power-One products through industrial
electronic distributors in 1997. Most of these customers are small electronics
companies who purchase their power supplies from industrial distributors, either
directly or through catalogs. Most small customers prefer to purchase all of
their electronic components, including power supplies, from distributors with
whom they have an established business relationship and terms of credit.

Power-One believes it has one of the largest domestic electronic
distribution networks in the power supply industry. The Company has contractual
agreements with over 30 distribution companies who have locations in more than
160 cities worldwide. Twenty-two of the distribution companies are located in
the U.S. and, collectively, have branches in every major city in the U.S. and
Canada. Many of these distributors have been selling Power-One's products for
over 10 years. Power-One believes that its distribution network is enhanced by
customer loyalty to the Power-One brand and the Company's wide range of
standardized products. Sales to the Company's largest distributor, Pioneer
Standard Electronics, accounted for 11%, 15% and 10% of the Company's net sales
in 1995, 1996 and the first six months of 1997, respectively. No other
distributor accounted for more than 10% of the Company's annual net sales during
the last three years or the first six months of 1997. The Pioneer relationship
has been in existence for more than ten years. See "Risk Factors--Reliance on
Major Customers."

OEM AND STRATEGIC ACCOUNT SALES. The Company does not rely on any one
customer or industry for the majority of its sales. Teradyne, which accounted
for 11% of the Company's net sales in 1995, 8% in 1996 and 12% in the first six
months of 1997, and Cisco, which accounted for 13% of net sales in the first six
months of 1997, are the only OEM customers to account for more than 10% of the
Company's net sales in any year since 1994 or in the six months ended June 30,
1997. The Company's top 15 OEM customers accounted for approximately 31% of the
Company's total sales in 1996. The percentage of the Company's OEM business is
expected to rise in the future, as more emphasis is placed on strategic
accounts. In 1997, the Company formed a strategic accounts program that
specifically targets existing and potential customers who are leaders in
high-growth industries and who have the potential of ordering over $3 million of
power supplies annually. See "Risk Factors--Reliance on Major Customers."

ADVERTISING. Power-One's advertising and promotional programs have helped
the Company achieve what it believes is one of the most recognized brand names
in the power supply industry. The Company regularly advertises in a variety of
industry journals to generate customer awareness and to reinforce the Power-One
brand. Advertising and promotion expenses have historically been approximately
.75% of sales. The Company also advertises through the use of press releases,
direct mail programs and catalogs.

33
<PAGE>
RESEARCH AND DEVELOPMENT; ENGINEERING

The Company's product research and development is performed at its
facilities in Camarillo by an engineering department of 29 professionals. The
Company's research and development activities are principally directed to the
development of new standard power supply products to satisfy general customer
needs and to "sustaining engineering" used to support existing products and
customers. Within its target markets, the Company strives to expand the number
of products using its power supplies by approaching current and potential
customers and discussing their future product directions and requirements. A
portion of the engineering activities are involved with creating custom
products, with the related expense of such work being partially reimbursed by
the customer through non-recurring engineering charges. Power-One's research
activities also focus on improving electromagnetic components in order to reduce
component costs, improve ease of manufacture, and accommodate product size
constraints. Customers in the Company's target markets require product designs
to be completed quickly. Thus, the Company focuses on reducing design time
without reducing the quality of the design.

MANUFACTURING

A typical power supply consists primarily of a printed circuit board,
electronic components, transformers and other electromagnetic components, and a
sheet metal chassis. The production of the Company's power supplies entails the
assembly of circuit boards using pin-through-hole and automated surface mount
interconnection technology. Pin-through-hole assembly involves attaching
electrical components to circuit boards by means of pins or leads that are
inserted into pre-drilled holes and soldered to the electrical circuits on the
boards. Surface mount technology permits reduction in board size by eliminating
the need for holes in the printed circuit boards, thus allowing components to be
placed on both sides of a board.

Power-One generally uses the low-cost labor force available in the Dominican
Republic and Mexico to manufacture and assemble its products. The Company
typically manufactures and assembles most of its low-range power products in the
Dominican Republic; the majority of the remaining products are manufactured in
Mexico. Some of the Company's high-power products are assembled in Camarillo.
The Company also performs some light manufacturing in Puerto Rico, a facility
that is primarily used as a distribution center. After the Company manufactures
products in the Dominican Republic, it transports the finished products to its
Puerto Rico facility. The products are then shipped to either the Company's
California headquarters or directly to customers. The Company believes that its
workers produce high-quality power supplies in an efficient, high-yield and
cost-effective manner. Furthermore, the use of manual assembly provides the
Company with a high degree of flexibility and fast production cycle times that
are required for a large variety, medium volume business such as the Company's.

Many of the Company's customers and other end-users increasingly require
that their power supplies meet or exceed established international safety and
quality standards as their operations expand internationally. In response to
this need, Power-One designs and manufactures power supplies in accordance with
the certification requirements of many international agencies, such as
Underwriters Laboratories Incorporated (UL) in the U.S.; the Canadian Standards
Association (CSA) in Canada; Technischer Uberwachungs-Verein (TUV) and Verband
Deutscher Electrotechniker (VDE) in Germany; the British Approval Board for
Telecommunications (BABT) in the United Kingdom; and International
Electrotechnical Committee (IEC), a European standards organization.

QUALITY MANAGEMENT

Quality products and responsiveness to the customer's needs are of critical
importance in Power-One's efforts to compete successfully. The Company strives
for continuous improvements in its processes, products, and services. The
Company's Camarillo facility is certified to ISO 9001, and its foreign locations
are certified to ISO 9002. Power-One's teamwork management approach involves
employees in implementing techniques to measure, monitor and improve
performance. Every new production employee in

34
<PAGE>

Puerto Rico, the Dominican Republic and Mexico is provided classroom training.
Selected employees participate in Power-One's annual planning sessions and
monitor adherence to their annual plans on a monthly basis. Power-One combines
these and other advanced management and manufacturing techniques with flexible
manufacturing technology, continuous process improvement and statistical process
control. These techniques allow the Company to decrease production costs by
improving the efficiency of production processes and increasing production
yields. Through its commitment to customer service and quality, the Company
believes it is able to provide superior value to its customers.

SUPPLIERS

Power-One typically designs products using components readily available from
several sources and attempts to avoid components that are only attainable
through one source. Although some components are sourced from only one
manufacturer, raw materials are generally available in large quantities from a
number of different suppliers. The Company has a number of volume purchase
agreements ("VPAs") with selected suppliers of key items such as wire, fuses,
resistors, connectors, capacitors, sheet metal and semiconductors. The use of
VPAs, typically 12 to 18 months in duration, are designed to provide Power-One
constant availability of required supplies, thereby reducing inventory expense
and producing substantial cost savings from volume discounts. The Company has
never had a significant supply shortage that has materially adversely affected
the Company. There can be no assurance, however, that such a supply shortage
will not occur in the future, particularly as the expanding electronics industry
increases demand for supplies. See "Risk Factors--Supplier Dependence."

MANAGEMENT INFORMATION TECHNOLOGY

Management information systems include various databases to measure and
improve delivery, process yields, quality and reliability, designs and
performance. The Mexico and Camarillo facilities are fully integrated, while the
Caribbean and Camarillo operations are partially integrated and are expected to
be fully integrated by the end of 1999. A wide area communications network is
installed in all manufacturing facilities. Manufacturing software is used in
conjunction with MRP II. In the event that future integration and updates to
these systems result in computer software or hardware problems or do not achieve
anticipated results, orders and customer deliveries could be adversely affected,
which could have a material adverse impact on the Company's financial
statements. See "Risk Factors--Information Technology Changes and Expansion."

BACKLOG

Sales are made pursuant to purchase orders rather than long-term contracts.
Backlog consists of purchase orders on hand having delivery dates scheduled
within the next six months. Power-One's backlog increased 37.7% to $27.1 million
at June 30, 1997, as compared to $19.7 million at June 30, 1996. Although
customers may cancel or reschedule deliveries without penalty, the Company's
backlog has historically been a reliable indicator of future financial results.
The Company does not expect backlog to be as reliable an indicator in the future
as customers switch more orders to just-in-time deliveries. As a result, backlog
may decrease even if sales increase. See "Risk Factors--Fluctuations in
Quarterly Results."

COMPETITION

The Company believes that there are more than 300 merchant power supply
manufacturers in the U.S. with Power-One being one of the 15 largest.
Power-One's competition in the highly fragmented and intensely competitive power
supply market includes companies located throughout the world, some of which
have advantages over the Company in terms of labor and component costs, and
which may offer products comparable in quality to those of the Company. Certain
of the Company's competitors have greater resources and geographic presence than
the Company. Management believes that the principal bases of competition in
Power-One's targeted market are breadth of product line, quality, reliability,

35
<PAGE>
technical knowledge, flexibility, readily available products and, to a lesser
degree, price. However, in times of an economic downturn, or when dealing with
high-volume orders, the Company believes price becomes an increasingly important
competitive factor. Additionally, captive power supply manufacturers are
expected to provide minimal amounts of competition to the Company since most
OEMs focus on their core businesses; however, there can be no assurance that
OEMs will not present greater competition to the Company in the future. See
"Risk Factors--Competition."

INTELLECTUAL PROPERTY MATTERS

Certain equipment, processes, information and knowledge developed by
Power-One and used in the design and manufacture of its products are regarded as
proprietary by the Company. The Company relies on a combination of trade secret
and other intellectual property laws, confidentiality agreements executed by
most of its Camarillo employees, and other measures to protect its proprietary
rights. Power-One currently holds three patents in the U.S. and one related
patent registered in Europe, Japan, Taiwan, and Mexico relating to proprietary
technology used in its products, as well as four trademarks. The remaining terms
for these trademarks vary from one to six years and, subject to use, the Company
expects to renew each mark for another 10 to 20 years. The Company's U.S.
patents expire in 2006, 2007 and 2008, its patent for Europe, Japan and Mexico
expires in 2008 and its patent for Taiwan expires in 2005. Patents and other
proprietary information are of value to the Company, but they are not key
factors in determining the Company's overall success, which depends principally
on its emphasis on quality, reliability, service and value. See "Risk
Factors--Intellectual Property."

The Company's DC/DC converters are manufactured under a license from Calex
which was entered into in 1996. Under the license agreement Power-One, subject
to certain exceptions and Calex' right to manufacture its own products, received
the exclusive right through 2001, which extends to 2006 if the Company is not in
default, and a non-exclusive right after 2001, to manufacture all Calex standard
DC/DC products of less than 60 watts as well as all new standard DC/DC products
of less than 60 watts that may be developed prior to the end of 2001 by Calex.
The Company pays a fixed royalty for the first three years of the license and
has no payment obligations thereafter. Calex also has obtained the right to
purchase materials from the Company's suppliers and pays the Company a royalty
on such purchases.

EMPLOYEES

At June 30, 1997, the Company had a total of 1,704 full-time employees, of
whom 194 were employed in California, 32 were employed in Puerto Rico, 777 were
employed in Mexico and 701 were employed in the Dominican Republic. The Company
considers its relations with its employees to be good. None of the Company's
employees is represented by a union.

36
<PAGE>
FACILITIES

The Company's facilities, all of which are leased by the Company, are
summarized as follows:

<TABLE>
<CAPTION>
APPROXIMATE EXPIRATION
FACILITY PRIMARY ACTIVITY SQUARE FOOTAGE OF LEASE
- ----------------------------------------- ---------------------------------- --------------- ------------------
<S> <C> <C> <C>

Camarillo, CA Administration, Research and 98,000 August 2004
Development, Manufacturing, Sheet
Metal Fabrication, Central
Storage, Marketing and Sales

Santo Domingo, Dominican Republic Low Power Manufacturing and 65,000 January 2000(1)
Assembly

Isabela, Puerto Rico Assembly and Administration 46,000 March 1998(2)

San Luis, Mexico Manufacturing and Assembly 33,000 Month-to-
month(3)

San Luis, Mexico Manufacturing and Assembly 11,000 May 1999(4)

San Luis, Mexico Manufacturing and Assembly 22,000 May 1999(4)
</TABLE>

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

(1) Subject to the Company's three consecutive two-year renewal options.

(2) Subject to an option for an additional 5 years.

(3) The Company is currently negotiating a new lease arrangement.

(4) Subject to an option for one additional year.

The Company believes that its facilities are sufficient to meet its current
needs; however, as more space is needed, if any lease is terminated, or if the
Company cannot negotiate extensions on any leases on terms satisfactory to the
Company, interruption in the Company's activities could result. See "Risk
Factors--Manufacturing Capacity."

In April 1996, Power-One purchased approximately 404,000 square feet of land
in San Luis, Mexico. The Company expects to commence construction of a new
110,000 square foot manufacturing facility on this land in the middle of 1998,
which would be expected to be completed in 1999. Upon completion, the current
leased facilities in San Luis would be phased out. As with any construction
project, this new facility will involve many risks and uncertainties, including,
but not limited to, material and labor shortages, work stoppages, legal
challenges, design changes and weather. Further, engineering, environmental or
geological problems and governmental regulations and approvals could give rise
to delays or cost overruns.

LEGAL PROCEEDINGS

The Company is involved in routine litigation arising in the ordinary course
of its business. In the opinion of the Company's management, none of the pending
litigation will have a material adverse effect on the Company's consolidated
financial condition or results of operations.

37
<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information concerning the directors, executive
officers and certain other key officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- -------------------------------------------------
<S> <C> <C>
Steven J. Goldman................... 40 President, Chief Executive Officer and Chairman
of the Board

Eddie K. Schnopp.................... 39 Vice President--Finance and Logistics, Chief
Financial Officer and Secretary

Dennis R. Roark..................... 50 Executive Vice President

Brad W. Godfrey..................... 38 Vice President--Worldwide Manufacturing

David J. Hage....................... 50 Vice President--Sales and Marketing

Donna M. Koep....................... 37 Vice President--Human Resources

John A. Martins..................... 38 Vice President--Quality Assurance

Jon E.M. Jacoby..................... 59 Director

Douglas H. Martin................... 44 Director
</TABLE>

STEVEN J. GOLDMAN. Mr. Goldman became the President and Chief Executive
Officer of the Company in 1990 and was named Chairman of the Board in February
1997. Mr. Goldman, who joined the Company in 1982, held several positions in the
Company from 1982 through 1988, including Vice President of Engineering. From
1988 to 1990, Mr. Goldman was a Senior Vice President and the Chief Financial
Officer of the Company. He received his B.S. degree in electrical engineering
from the University of Bridgeport and his M.B.A. degree from Pepperdine
University's Executive program. Mr. Goldman is a contributing member and
co-membership chairman of the San Fernando Valley Chapter of the Young
President's Organization.

EDDIE K. SCHNOPP. Mr. Schnopp was appointed Vice President of Finance and
Logistics of the Company in 1993 and Secretary and Chief Financial Officer of
the Company in 1995. Mr. Schnopp joined Power-One as a member of its Finance
department in 1981 and became its Controller in 1990. He received his B.S.
degree in Accounting from California State University Northridge and is
currently pursuing his M.B.A. degree. Mr. Schnopp is married to Ms. Koep.

DENNIS R. ROARK. Mr. Roark was appointed Executive Vice President of the
Company in 1990. Mr. Roark joined Power-One in 1988 and held the positions of
Director of Research & Development and Vice President of Engineering from 1988
to 1993. Prior to joining Power-One, Mr. Roark co-owned and managed California
D.C. Power Supplies, Inc., a designer and manufacturer of power supplies. He
received his B.S. degree in Engineering from California Polytechnic
University-Pomona.

BRAD W. GODFREY. Mr. Godfrey was appointed Vice President of Worldwide
Manufacturing for Power-One in 1993. He joined PE in 1988 as Plant Manager and
held that position until being appointed President of PE in 1990, a position he
held until he became a Vice President of the Company in 1993. Prior to joining
Power-One, Mr. Godfrey was the owner of Reflections Manufacturing, a furniture
and glass manufacturing company in Canada.

DAVID J. HAGE. Mr. Hage was appointed Vice President of Sales and Marketing
when he joined the Company in 1993. Prior to joining Power-One, Mr. Hage was the
Executive Vice President of Power Convertibles Corporation, a subsidiary of
Burr/Brown, Inc. His previous experience includes Marketing Manager of
International Electric Utility and Field Systems Support Manager at Honeywell,
and Director

38
<PAGE>
of Marketing Systems and Director of Marketing Planning at SGS-Thomson
Semiconductors. Mr. Hage received his B.S. degree in Electrical Engineering from
Northern Arizona University and his M.B.A. degree from Arizona State University.

DONNA M. KOEP. Ms. Koep was appointed Vice President of Human Resources for
the Company in 1995. She joined Power-One as a member of the Human Resource
staff in 1978 and has worked in various positions of increasing responsibility
within the Company. From 1986 to 1995 Ms. Koep served as the Company's Director
of Human Resources. Ms. Koep is married to Mr. Schnopp.

JOHN A. MARTINS. Mr. Martins joined the Company in 1992 as the Director of
Quality Assurance and was appointed Vice-President of Quality Assurance in 1995.
Prior to joining the Company, Mr. Martins held the position of Director of
Quality Assurance for Deltec and PowerMate. He received his B.S. degree in
Industrial Engineering from New Jersey Institute of Technology and is certified
as an ISO-9000 Assessor.

JON E.M. JACOBY. Mr. Jacoby became a director of the Company in 1995. Mr.
Jacoby is a director and an Executive Vice President of Stephens Group, Inc. Mr.
Jacoby is a Senior Executive Vice President of Stephens Inc., an affiliate of
Stephens Group, Inc., where he has been employed since 1963. He received his
B.S. degree from the University of Notre Dame and his M.B.A. from Harvard
Business School. He is a director of Delta & Pine Land Company, Medicus Systems,
Inc., and Beverly Enterprises, Inc.

DOUGLAS H. MARTIN. Mr. Martin became a director of the Company in 1995. Mr.
Martin is a Senior Vice President of Stephens Group, Inc. and a Senior Vice
President of Stephens Inc., where he has been employed since 1981. He received
his B.A. degree in physics and economics from Vanderbilt University and his
M.B.A. from the Stanford University Graduate School of Business.

The officers of the Company serve at the discretion of the Board. Each
director of the Company serves until such director's successor is elected and
qualified or until the director's death, retirement, resignation or removal.

The Company intends to appoint two additional independent directors to its
Board of Directors within three months of the consummation of the Offering. Upon
consummation of the Offering, the Company does not expect to pay its directors
who are employees of the Company for their services as directors. Directors who
are not employees are paid $5,000 per year, various amounts for attending
meetings, plus stock options. See "Management--Stock Option Plan."

COMMITTEES OF THE BOARD OF DIRECTORS

AUDIT COMMITTEE. Following the Offering, the Board of Directors intends to
establish an audit committee (the "Audit Committee"), to be comprised of Mssrs.
Jacoby and Martin, to make recommendations concerning the engagement of
independent public accountants, review with the independent public accountants
the plans and results of the audit engagement, approve professional services
provided by the independent public accountants, review independence of the
independent public accountants, consider the range of audit and non-audit fees
and review the adequacy of the Company's internal accounting controls.

COMPENSATION COMMITTEE. Following the Offering, the Board of Directors
intends to establish a compensation committee (the "Compensation Committee"), to
be comprised of Mssrs. Jacoby and Martin, to determine compensation of the
Company's executive officers and to administer the Company's 1996 Stock
Incentive Plan (the "Plan"). The current executive officer salaries were set by
the Board.

39
<PAGE>
EXECUTIVE COMPENSATION

The following table sets forth a summary of annual and long-term
compensation awarded to, earned by, or paid to the Chief Executive Officer of
the Company and each of the four other most highly compensated executive
officers (the "Named Executive Officers") of the Company whose total annual
salary and bonus for the 1996 fiscal year was in excess of $100,000:

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION -------------------
----------------------- OPTIONS TO PURCHASE ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS(1) COMMON STOCK COMPENSATION
- ------------------------------------------------------- ---------- ----------- ------------------- -------------
<S> <C> <C> <C> <C>
Steven J. Goldman...................................... $ 302,526 $ -- 82,000 $ *
President and Chief Executive Officer
Eddie K. Schnopp....................................... 110,084 -- 45,000 11,641(2)
Vice President--Finance and Logistics, Chief
Financial Officer and Secretary
Dennis R. Roark........................................ 141,024 -- 55,000 *
Executive Vice President
David J. Hage.......................................... 125,008 22,500 55,000 *
Vice President--Sales and Marketing
Brad W. Godfrey........................................ 107,660 200 45,000 32,784(3)
Vice President--Worldwide Manufacturing
</TABLE>

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

* Less than $50,000 or 10% of the total salary and bonus for 1996.

(1) In 1996, no bonuses were awarded to Mr. Goldman, Mr. Schnopp or Mr. Roark,
and only a minimal bonus was awarded to Mr. Godfrey. For 1997, each Named
Executive Officer may receive a bonus depending on the financial results of
the Company. See "--Employment Contracts."

(2) Includes a car allowance of $7,800 and 401k contributions of $3,841.

(3) Includes a car allowance of $13,260, living expenses of $18,000 and 401k
contributions of $1,524.

40
<PAGE>
The following table sets forth information for the Named Executive Officers
with respect to grants of options to purchase Common Stock of the Company made
during the year ended December 31, 1996.

OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS(1)

<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS POTENTIAL REALIZABLE VALUE AT
UNDERLYING GRANTED TO ASSUMED ANNUAL RATES OF STOCK PRICE
OPTIONS EMPLOYEES EXERCISE OR APPRECIATION FOR OPTION TERM(2)
GRANTED IN FISCAL BASE PRICE EXPIRATION --------------------------------------
NAME (#)(1) YEAR ($/SH) DATE 0% 5% 10%
- ----------------------- ----------- ------------- ------------- ----------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Steven J. Goldman...... 82,000 17.0% $ 1.00 2/22/06 $ 902,000 $ 1,330,671 $ 2,470,242
Eddie K. Schnopp....... 45,000 9.3 1.00 2/22/06 495,000 730,247 1,355,621
Dennis R. Roark........ 55,000 11.4 1.00 2/22/06 605,000 892,524 1,656,870
David J. Hage.......... 55,000 11.4 1.00 2/22/06 605,000 892,524 1,656,870
Brad W. Godfrey........ 45,000 9.3 1.00 2/22/06 495,000 730,247 1,355,621
</TABLE>

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

(1) The stock options listed above were granted on February 23, 1996 pursuant to
the Company's 1996 Stock Incentive Plan. The options become exercisable
beginning in the third year after the grant, at a rate of 10% in each year
for years three and four, 20% in year five, and 30% in years six and seven
(or at an accelerated rate if certain Company financial goals are met) as
long as the optionee remains an employee of the Company. The maximum term of
each option granted is 10 years from the date of grant. The exercise price
was in excess of the value of the stock on the grant date, as determined in
good faith by the Board of Directors on that date, based upon a review of a
number of factors, including the Company's operating results and financial
condition through the grant date. See "Management--Stock Option Plan."

(2) Potential gains are net of the exercise price but before taxes associated
with the exercise and assume that the options are exercised on the latest
possible date. The 0%, 5% and 10% assumed annual rates of compounded stock
appreciation, based upon an initial public offering price of $12.00 per
share, the midpoint of the offering price range set forth on the cover page
of this Prospectus, are pursuant to the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of the
future Common Stock price. Actual gains, if any, on stock option exercises
are dependent on the future financial performance of the Company, overall
market conditions and the option holders' continued employment through the
vesting period.

EMPLOYMENT CONTRACTS

On September 27, 1995 the Company entered into employment and compensation
agreements with each of the Named Executive Officers. Each agreement, as
amended, terminates on December 31, 1997, subject to the Company's right to
extend each contract for up to three years. The Company is presently in
discussion with the Named Executive Officers regarding the possible amendment
and extension of each of the agreements. Pursuant to the terms of said
agreements, Mr. Goldman, Mr. Schnopp, Mr. Roark, Mr. Hage, and Mr. Godfrey will
each receive (i) a yearly base salary in 1997 of $302,562, $130,104, $146,692,
$132,528, and $114,124, respectively, with such base salary being raised each
year if the Board so desires and (ii) a yearly bonus equal to as much as 62.5%
of their base salary (except for Mr. Hage whose bonus can be up to $100,000 and
Mr. Godfrey whose maximum bonus is 50% of his base salary) if, pursuant to the
terms of the Company's Management Bonus Plan (the "Management Bonus Plan")
certain Company financial goals are met. Further, in the employment and
compensation agreements, the Company agreed, upon certain occurrences, including
an initial public offering of the Company's common stock, to pay each officer
$3,002,428, $377,000, $754,278, $753,479, and $377,000, respectively, plus
interest at a rate of 10% compounded annually from September 27, 1995. Each
agreement may be terminated by death, disability and other similar occurrences,
or by either party for cause (as defined in the respective agreements).

41
<PAGE>
STOCK OPTION PLAN

In February 1996, the Company and its stockholders adopted the Company's
1996 Stock Incentive Plan (the "Plan"). The Plan provides a means to attract,
motivate, retain and reward key employees of the Company and its subsidiaries
and promote the success of the Company. In September 1997 the Plan was amended
to provide that (i) the maximum number of shares of Common Stock that may be
issued pursuant to outstanding grants and awards and are available for future
grants and awards under the Plan shall be equal to 1,000,000 shares plus 10% of
any increase in outstanding shares that occur after August 31, 1997 and (ii)
Non-Employee Directors will receive certain stock options. The maximum number of
shares that may be subject to all awards granted to any individual in any
calendar year is limited to 500,000 shares.

ADMINISTRATION AND ELIGIBILITY. The Plan provides that it will be
administered by the Board of Directors or a committee appointed by the Board of
Directors. The Board of Directors intends to appoint the Company's Compensation
Committee to administer the Plan after the Offering. The Plan empowers the
Compensation Committee, among other things, to interpret the Plan, to make all
determinations deemed necessary or advisable for the administration of the Plan
and to award to officers and other key employees of Company and its subsidiaries
("Eligible Employees"), as selected by the Compensation Committee, options,
including incentive stock options ("ISOs") as defined in the Code, stock
appreciation rights ("SARs"), shares of restricted stock, performance shares and
other awards valued by reference to Common Stock, based on the performance of
the participant, the performance of the Company or its Common Stock and/or such
other factors as the Compensation Committee deems appropriate. To date, only
non-qualified stock options have been granted under the Plan.

TRANSFERABILITY. Generally speaking, options under the Plan are not
transferable other than by will or the laws of descent and distribution, are
exercisable only by the participant, and may be paid only to the participant or
the participant's beneficiary or representatives. However, the Compensation
Committee may establish conditions and procedures under which exercise by and
transfers and payments to certain third parties are permitted, to the extent
permitted by law.

PAYMENT. The Plan permits optionees, with certain exceptions, to pay the
exercise price of options in cash, Common Stock (valued at its fair market value
on the date of exercise), a combination thereof or, if an option award so
provides, by delivering irrevocable instructions to a stockbroker to promptly
deliver the exercise price to the Company upon exercise (i.e., a so-called
"cashless exercise"). Cash received by the Company upon exercise will constitute
general funds of the Company and shares of Common Stock received by the Company
upon exercise will return to the status of authorized but unissued shares.

TERM AND EXERCISE PERIOD OF OPTIONS. The Plan provides that options may be
granted for such terms as the Compensation Committee may determine but not
greater than ten years after the date of the Option. The Plan does not impose
any minimum vesting period, post-termination exercise period or pricing
requirement, although in the ordinary course, customary restrictions will likely
be imposed. Options will generally be exercisable during the holder's employment
by the Company or by a related company. Generally speaking, options which have
become exercisable prior to termination of employment will remain exercisable
for ninety days thereafter (180 days in the case of disability or death). Such
periods, however, cannot exceed the expiration dates of the Options. The
Committee has the authority to accelerate the exercisability of Options or
(within the maximum ten-year term) extend the exercisability periods.

NON-EMPLOYEE DIRECTORS. Under the Plan, each director who is not an
employee (a "Non-Employee Director") will be granted stock options to purchase
40,000 shares of Common Stock upon becoming a director at an exercise price
equal to the market price of the Common Stock on that date. Non-Employee
Directors on the date of the Offering will be granted stock options to purchase
40,000 shares of Common Stock on the date of the Offering at the public offering
price. In addition, at the close of trading on the day

42
<PAGE>

of the annual stockholders meeting in each calendar year beginning in the fourth
year following the initial grant, each Non-Employee Director on such date will
be granted stock options to purchase 10,000 shares of Common Stock at an
exercise price equal to the market price of the Common Stock on that date. All
Non-Employee Director options have a 10-year term and will vest in equal annual
installments over a four-year period commencing on the first anniversary of the
grant date. If a Non-Employee Director's services are terminated for any reason
other than the director's death, disability or retirement, any portion of stock
options held by such director that are exercisable will remain exercisable for
three months after such termination of services or until the expiration of the
term of such option, whichever occurs first. If the Non-Employee Director dies,
becomes disabled or retires, stock options held by such director will become
exercisable immediately and remain exercisable for one year after the date of
such termination of services or until the expiration of the term of such option,
whichever first occurs.

TERMINATION, AMENDMENT AND ADJUSTMENT. The Plan may be terminated by the
Compensation Committee or by the Board of Directors at any time. In addition,
the Compensation Committee or the Board may amend the Plan from time to time,
without the authorization or approval of the Company's stockholders, unless that
approval is required by law, agreement or the rules of any exchange upon which
the stock of the Company is listed. No Option may be granted under the Plan
after February 22, 2006, although options previously granted may thereafter be
amended consistent with the terms of the Plan.

Upon the occurrence of a Change in Control Event (as defined in the Plan),
in addition to acceleration of vesting, an appropriate adjustment to the number
and type of shares or other securities or property subject to an option and the
price thereof may be made in order to prevent dilution or enlargement of rights
under options.

Individual awards may be amended by the Compensation Committee in any manner
consistent with the Plan, including amendments that effectively reprice options
without changes to other terms. Amendments that adversely affect the holder of
an option, however, are subject to his or her consent.

The Plan is not exclusive and does not limit the authority of the Board of
Directors or the Compensation Committee to grant other awards, in stock or cash,
or to authorize other compensation, under any other plan or authority.

MANAGEMENT BONUS PLAN

Under the Company's Management Bonus Plan, which covers certain key
employees, the Named Executive Officers can earn bonuses of up to 62.5% of their
salaries, except that Mr. Hage can earn a bonus of up to $100,000 under this
plan and the sales bonus plan described below and Mr. Godfrey's bonus cannot
exceed 50% of his salary. Bonuses are based on actual EBITDA realized by the
Company during any fiscal year as a percentage of planned EBITDA. Mr. Hage, who
is Vice President--Sales and Marketing, also participates in the Company's sales
bonus plan. Bonuses under this plan are based on increases in net sales over the
prior year.

401(k) SAVINGS AND THRIFT PLAN

The Company has a defined contribution 401(k) plan that covers substantially
all full-time Camarillo employees who have been employed during an open
enrollment period. The 401(k) plan allows all employees to defer amounts up to
the statutory limit each year. The Company has a discretionary matching program
under which, in 1996, the Company matched 50% of the first 3% and 25% of the
next 3% of employee contributions.

EMPLOYEE STOCK PURCHASE PLAN

The Company has adopted, effective January 1, 1998, the Employee Stock
Purchase Plan (the "Purchase Plan"), which is designed to furnish eligible
employees of the Company and its subsidiaries an incentive to advance the best
interests of the Company by providing a formal program whereby they may

43
<PAGE>

voluntarily purchase Common Stock of the Company at a favorable price and upon
favorable terms. Generally speaking, all employees who are scheduled to work an
average of at least 20 hours per week are eligible to participate in the
Purchase Plan.

Under the Purchase Plan, employees may designate between two and ten percent
of their base compensation to purchase Common Stock. The exercise price of the
Common Stock is 85% of the fair market value of the Common Stock. Generally
speaking, participants pay for the Common Stock through payroll deductions. The
Purchase Plan is administered by the Compensation Committee.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Prior to the Offering, the Company had no compensation committee or other
committee of the Board performing similar functions. Decisions concerning
compensation of executive officers were made by the Company's Board. No officer
or employee of the Company, other than Mr. Goldman, Mr. Schnopp and Ms. Koep,
participated in deliberations concerning such compensation matters.

CERTAIN TRANSACTIONS

NOTES PAYABLE TO THE COMPANY

Ms. Koep and Mr. Martins, each an officer of the Company, executed
promissory notes in favor of the Company on September 27, 1995 in connection
with their purchase of Redeemable Preferred Stock of the Company. Each note has
a face value of $100,000 and obligates the issuer to pay the Company the face
amount of the note plus accrued interest at a rate of 10% per annum on September
27, 2002. Mr. Martins also executed two additional promissory notes in favor of
the Company in 1997 in exchange for $11,000 that Mr. Martins requested for
personal financial matters. These notes have an aggregate face value of $11,000
and each bear interest at a rate of 8.5% per annum. Each of the notes may be
prepaid without penalty, and the Company has been informed that each officer
intends to pay off all such notes at the consummation of the Offering.

FUTURE TRANSACTIONS

The Company has implemented a policy requiring that any material transaction
with an affiliated party is subject to approval by a majority of the directors
not interested in such transaction, who must determine that the terms of any
such transaction are no less favorable to the Company than those that could be
obtained from an unaffiliated third party.

Upon consummation of the Offering, the Recapitalization will occur. See
"Recapitalization" and "Management--Employment Contracts."

44
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's outstanding Common Stock by (i) all those known by
the Company to be beneficial owners of more than 5% of the Company's outstanding
Common Stock, (ii) each director of the Company and executive officer of the
Company and (iii) all directors and executive officers of the Company as a
group. The address of each person listed is in care of the Company, 740 Calle
Plano, Camarillo, California 93012, unless otherwise indicated.

<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
OWNED(1) ------------------------------
----------- BEFORE AFTER
NAME OF BENEFICIAL OWNER NUMBER OFFERING(1) OFFERING(1)(2)
- ------------------------------------------------------------------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Stephens Group, Inc.(3)(4)............................................... 3,738,866 32.7% 22.7%
Warren A. Stephens(3)(5)................................................. 592,602 5.2 3.6
W. R. Stephens, Jr.(3)(6)................................................ 765,035 6.7 4.6
Elizabeth Stephens Campbell(3)(7)........................................ 675,034 5.9 4.1
Steven J. Goldman........................................................ 1,824,613 15.9 11.1
Eddie K. Schnopp(8)...................................................... 344,139 3.0 2.1
Dennis R. Roark.......................................................... 513,268 4.5 3.1
David J. Hage............................................................ 471,263 4.1 2.9
Brad W. Godfrey.......................................................... 234,680 2.0 1.4
Jon E.M. Jacoby(3)(9).................................................... 1,466,257 12.8 8.9
Douglas H. Martin(3)(10)................................................. 112,165 1.0 0.7
All executive officers and directors as a group (7 persons).............. 4,966,385 42.7 30.1
</TABLE>

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

(1) Gives effect to the Recapitalization as if such Recapitalization occurred on
June 30, 1997. See "Recapitalization." Percentage ownership is based on
11,490,653 shares of Common Stock outstanding before the Offering and
16,490,653 shares of Common Stock outstanding after the Offering.

(2) Excludes 750,000 shares of Common Stock subject to the Underwriters'
over-allotment option.

(3) Address is c/o Stephens Group, Inc., 111 Center Street, Little Rock,
Arkansas 72201.

(4) The following affiliates of Stephens Group, Inc. own, in the aggregate, an
additional 3,824,306 shares (33.3% of shares outstanding prior to the
Offering(1) and 23.2% of shares outstanding after the Offering(1)(2)):
Grandchild's Trust One UID 12/16/85 (40,058 shares); Grandchild's Trust Two
UID 12/16/85 (40,058 shares); Grandchild's Trust Three UID 12/89 (40,058
shares); Bess C. Stephens Trust UID 1/4/85 (140,817 shares); Warren A.
Stephens Trust UID 9/30/87 (92,550 shares); Stephens Inc. Custodian for
Warren A. Stephens IRA (53,412 shares); Warren & Harriet Stephens Children's
Trust UID 9/30/87 (133,530 shares); Harriet Calhoun Stephens Trust UID
3/22/84 (63,469 shares); Elizabeth Stephens Campbell Revocable Trust UID
8/25/92 (308,163 shares); W.R. Stephens Trust UID 1/4/85 (31,292 shares);
W.R. Stephens Jr. Revocable Trust UID 2/19/93 (368,164 shares); Jon E.M.
Jacoby (96,142 shares); J & J Partners (53,412 shares); Jacoby Enterprises,
Inc. (213,649 shares); Coral Two Corporation (146,884 shares); Delaware
Charter Guarantee & Trust F/B/O Jon E.M. Jacoby Keogh (24,035 shares);
Douglas H. Martin (69,435 shares); Stephens Inc. Custodian for Doug Martin
IRA (42,730 shares); K. Rick Turner (5,340 shares); Stephens Inc. Custodian
for K. Rick Turner IRA (5,340 shares); C. Ray Gash (26,705 shares); Robert
L. Schulte (13,352 shares); Michael B. Johnson (5,340 shares); Curtis F.
Bradbury (106,824 shares); Bradbury Enterprises, Inc. (53,412 shares);
William S. Walker (8,012 shares); Gordon D. and Amanda F. Grender JTWROS
(80,118 shares); Stephens Investment Partners I LLC (160,237 shares); Coral
Partners (96,142 shares); Jackson T. Stephens Trust No. One UID 1/4/88
(135,306 shares); Jackson T. Stephens Grandchildrens Trust AAAA UID 1/26/96
(492,289 shares); Pamela Diane Stephens Trust One UID 4/10/92 (366,871
shares); Warren Miles Amerine Stephens Trust UID 9/10/86 (63,720 shares);
John Calhoun Stephens Trust UID 12/1/87 (63,720 shares); Laura Whitaker
Stephens Trust UID 12/28/90 (63,720 shares); Susan Stephens Campbell 1995
Trust UID 12/4/95 (30,000 shares); Craig D. Campbell, Jr. 1995 Trust UID
12/4/95 (30,000 shares); Elizabeth Chisum Campbell 1995 Trust UID 12/4/95
(30,000 shares); W. R. Stephens, Jr. Children's Trust UID 3/1/95 (30,000
shares). The principal stockholders of Stephens Group, Inc. are the Jackson
T. Stephens Trust No. One UID 1/4/88 and the Bess C. Stephens Trust UID
1/4/85. Stephens Group, Inc. has advised the Company that it does not act as
a group with any of its affiliates. Mr. Jacoby is a director and an officer
of Stephens Group, Inc. and its subsidiary, Stephens Inc. Mr. Martin is an
officer of Stephens Group, Inc. Mr. Stephens is a director and an officer of
Stephens Group, Inc. and Stephens Inc. Mr. Stephens, Jr. is a director and
an officer of Stephens Group, Inc. The mailing address for the Stephens
Group, Inc. and its affiliates listed in this footnote is: c/o Stephens
Group, Inc., 111 Center Street, Little Rock, Arkansas 72201.

45
<PAGE>
(5) Includes: 92,550 shares owned by Warren A. Stephens Trust UID 9/30/87,
53,412 shares owned by Stephens Inc. Custodian for Warren A. Stephens IRA,
63,720 shares owned by Warren Miles Amerine Stephens Trust UID 9/10/86,
63,720 shares owned by John Calhoun Stephens Trust UID 12/1/87 and 63,720
shares owned by Laura Whitaker Stephens Trust UID 12/28/90, as to which Mr.
Stephens, as sole trustee, has sole power to vote and sole power of
disposition; also includes 135,306 shares owned by Jackson T. Stephens Trust
No. One UID 1/4/88, 40,058 shares owned by Grandchild's Trust One UID
12/16/85, 40,058 shares owned by Grandchild's Trust Two UID 12/16/85 and
40,058 shares owned by Grandchild's Trust Three UID 12/89, as to which Mr.
Stephens, as a co-trustee, had shared power to vote and shared power of
disposition. Does not include shares owned by Stephens Group, Inc. or other
of its affiliates, except for the affiliates mentioned in this footnote.

(6) Includes: 368,164 shares owned by W. R. Stephens, Jr. Revocable Trust UID
2/19/93, as to which Mr. Stephens, as sole trustee, has sole power to vote
and sole power of disposition; and includes 366,871 shares owned by Pamela
Diane Stephens Rose Trust One UID 4/10/92 and 30,000 shares owned by W. R.
Stephens, Jr. Children's Trust UID 3/1/95, as to which Mr. Stephens, as a
co-trustee, has shared power to vote and shared power of disposition. Does
not include shares owned by Stephen Group, Inc. or other of its affiliates,
except for affiliates mentioned in this footnote.

(7) Includes: 308,163 shares owned by Elizabeth Ann Stephens Campbell Revocable
Trust UID 8/25/92, as to which Ms. Campbell, as sole trustee, has sole power
to vote and sole power of disposition and includes 366,871 shares owned by
Pamela Diane Stephens Rose Trust One UID 4/10/92, as to which Ms. Campbell,
as a co-trustee, has shared power to vote and shared power of disposition.
Does not include shares owned by Stephens Group, Inc. or other of its
affiliates, except for the affiliates mentioned in this footnote.

(8) Includes 110,202 shares owned by Ms. Koep who is married to Mr. Schnopp. Mr.
Schnopp disclaims beneficial ownership of such shares.

(9) Includes: 53,412 shares owned by J & J Partners as to which Mr. Jacoby has
shared power to vote and shared power of disposition, 213,649 shares owned
by Jacoby Enterprises, Inc., as to which Mr. Jacoby has sole power to vote
and sole power of disposition, 146,884 shares owned by Coral Two Corporation
as to which Mr. Jacoby has sole power to vote and sole power of disposition,
24,035 shares owned by Delaware Charter Guarantee & Trust F/B/O Jon E.M.
Jacoby Keogh as to which Mr. Jacoby has sole power to vote and sole power of
disposition, and 96,142 shares owned by Coral Partners in which Mr. Jacoby
is a general partner, and as to which Mr. Jacoby has shared power to vote
and shared power of disposition; also includes shares held by the following
entities as to which Mr. Jacoby disclaims beneficial ownership: 133,530
shares owned by Warren and Harriet Stephens Children's Trust UID 9/30/87 and
492,289 shares owned by Jackson T. Stephens Grandchildren's Trust AAAA UID
1/26/96 as to which Mr. Jacoby, as sole trustee, has sole power to vote and
sole power of disposition; and includes 40,058 shares owned by Grandchild's
Trust One UID 12/16/85, 40,058 shares owned by Grandchild's Trust Two UID
12/16/85, 40,058 shares owned by Grandchild's Trust Three UID 12/89, 30,000
shares owned by Susan Stephens Campbell 1995 Trust UID 12/4/95, 30,000
shares owned by Craig D. Campbell, Jr. 1995 Trust UID 12/4/95 and 30,000
shares owned by Elizabeth Chisum Campbell 1995 Trust UID 12/4/95, as to
which Mr. Jacoby, as a co-trustee, has shared power to vote and share power
of disposition. Does not include shares owned by Stephens Group, Inc. or
other of its affiliates, except for the affiliates mentioned in this
footnote.

(10) Includes: 42,730 shares owned by Stephens Inc. Custodian for Douglas H.
Martin IRA, as to which Mr. Martin has sole power to vote and sole power of
disposition. Does not include shares owned by Stephens Group, Inc. or other
of its affiliates, except for the affiliates mentioned in this footnote.

46
<PAGE>
DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 60 million shares of
Common Stock, par value $0.001 per share, and 30 million shares of Preferred
Stock, that can be issued in one or more series. Immediately following the
completion of the Offering, an aggregate of 16,490,653 shares of Common Stock
will be issued and outstanding (assuming no exercise of the Underwriters'
over-allotment option) and no shares of Preferred Stock will be issued and
outstanding.

The following description of the Company's capital stock is a summary of the
material terms of such stock. It does not purport to be complete and is subject
in all respects to applicable Delaware law and to the provisions of the
Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") and Amended and Restated Bylaws (the "Bylaws"), copies of which
have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.

COMMON STOCK

The holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of the stockholders. Subject to
preferential rights with respect to any outstanding Preferred Stock, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of liquidation, dissolution or winding up of the Company,
the holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and satisfaction of preferential rights
of any outstanding Preferred Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. The outstanding shares of Common
Stock are, and the shares of Common Stock to be issued upon completion of the
Offering will be, fully paid and non-assessable.

PREFERRED STOCK

The Board of Directors is authorized to issue the Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
thereof, including dividend rights, dividend rates, conversion rights, voting
rights, terms of redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of such series,
without further vote or action by the stockholders. The issuance of Preferred
Stock may have the effect of delaying, deterring or preventing a change in
control of the Company without further action of the stockholders. The issuance
of Preferred Stock with voting and conversion rights may adversely affect the
voting power of the holders of Common Stock, including the loss of voting
control to others. See "Risk Factors--Possible Anti-Takeover Effect of Certain
Charter Provisions."

POSSIBLE ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS

The Company's Certificate of Incorporation establishes a classified Board
and requires that any action required or permitted to be taken by stockholders
of the Company must be effected at a duly called annual or special meeting of
stockholders and may not be effected by a consent in writing. In addition, the
Certificate of Incorporation and Bylaws of the Company require that stockholders
give advance notice to the Company's Secretary of any directorship nominations
or other business to be brought by stockholders at any stockholders' meeting.
The Certificate of Incorporation also requires the approval of 75% of the
Company's voting stock to amend certain provisions of the Certificate of
Incorporation. These provisions may have the effect of deterring hostile
takeovers or delaying changes in control or management of the Company. See "Risk
Factors--Possible Anti-Takeover Effect of Certain Charter Provisions."

CERTAIN PROVISIONS OF DELAWARE LAW

The Company is a Delaware corporation and is subject to Section 203 of the
Delaware General Corporations Law (the "DGCL"). In general, Section 203 prevents
an "interested stockholder" (defined

47
<PAGE>
generally as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" (as defined therein) with a
Delaware corporation for three years following the date such person became an
interested stockholder unless (i) before such person became an interested
stockholder, the board of directors of the corporation approved the transaction
in which the interested stockholder became an interested stockholder or approved
the business combination, (ii) upon consummation of the transaction that
resulted in the interested stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding shares owned by
persons who are both officers and directors of the corporation and shares held
by certain employee stock ownership plans) or (iii) following the transaction in
which such person became an interested stockholder, the business combination is
approved by the board of directors of the corporation and authorized at a
meeting of stockholders by the affirmative vote of the holders of at least
two-thirds of the outstanding voting stock of the corporation not owned by the
interested stockholder.

LIMITATION OF LIABILITY AND INDEMNIFICATION AGREEMENTS

The Company's Certificate of Incorporation provides that to the fullest
extent permitted by the DGCL, a director of the Company shall not be liable to
the Company or its stockholders for monetary damages for breach of fiduciary
duty as a director. Under the DGCL, liability of a director may not be limited
(i) for any breach of the director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law, (iii) in respect of
certain unlawful dividend payments or stock redemptions or repurchases and (iv)
for any transaction from which the director derives an improper personal
benefit. The effect of the provisions of the Company's Certificate of
Incorporation is to eliminate the rights of the Company and its stockholders
(through stockholders' derivative suits on behalf of the Company) to recover
monetary damages against a director for breach of the fiduciary duty of care as
a director (including breaches resulting from negligent or grossly negligent
behavior), except in the situations described in clauses (i) through (iv) above.
This provision does not limit or eliminate the rights of the Company or any
stockholder to seek nonmonetary relief such as an injunction or rescission in
the event of a breach of a director's duty of care. In addition, the Company's
Certificate of Incorporation provides that the Company shall indemnify its
directors, officers, employees and agents against losses incurred by any such
person by reason of the fact that such person was acting in such capacity.

The Company has entered into agreements with each of the directors,
executive officers and certain other officers of the Company pursuant to which
the Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of his or her
capacity as a director, officer, employee and/or agent of the Company or any
other corporation of which such person is a director or officer at the request
of the Company to the maximum extent provided by applicable law. In addition,
such director or officer is entitled to an advance of expenses to the maximum
extent authorized or permitted by law.

CERTAIN ANTI-TAKEOVER EFFECTS

The provisions of the Certificate of Incorporation and the Bylaws of the
Company summarized above may be deemed to have anti-takeover effects and may
delay, defer or prevent a tender offer or takeover attempt that a stockholder
might consider to be in such stockholder's best interest, including those
attempts that might result in a premium over the market price for the shares
held by stockholders. See "Risk Factors--Possible Anti-Takeover Effect of
Certain Charter Provisions."

TRANSFER AGENT OR REGISTRAR

The Transfer Agent and Registrar for the Common Stock is American Stock
Transfer and Trust.

48
<PAGE>
LISTING

Prior to the Offering, there has not been a public trading market for the
Common Stock. The Company has applied for listing of the Common Stock on the
NASDAQ National Market upon notice of issuance, under the symbol "PWER."

SHARES ELIGIBLE FOR FUTURE SALE

Upon the consummation of the Offering, the Company will have outstanding
16,490,653 shares of Common Stock (assuming no exercise of the Underwriters'
over-allotment option). All of the shares of Common Stock sold in the Offering
will be freely tradeable under the Securities Act, unless purchased by
"affiliates" of the Company as that term is defined under the Securities Act.
Upon the expiration of lock-up agreements between the Company, substantially all
the stockholders and the Underwriters, which will occur 180 days after the date
of this Prospectus (the "Effective Date"), 11,427,599 shares of Common Stock
owned by these stockholders (the "Restricted Shares") will become eligible for
sale, subject to compliance with Rule 144 of the Securities Act as described
below.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least one year, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 164,490 shares immediately after
the Offering) or (ii) the average weekly trading volume of the Company's Common
Stock on NASDAQ during the four calendar weeks immediately preceding the date on
which the notice of sale is filed with the Securities and Exchange Commission.
Substantially all of the Restricted Shares have been held for over one year.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at any time during the 90 days immediately
preceding the sale and who has beneficially owned Restricted Shares for at least
two years is entitled to sell such shares pursuant to Rule 144(k) without regard
to the limitations and requirements described above.

The Company, and its officers, directors and substantially all its current
stockholders have agreed with the Underwriters that until 180 days after the
Effective Date not to directly or indirectly, offer, sell, contract to sell,
grant any option to purchase or otherwise dispose of any Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock, or
in any manner transfer all or a portion of the economic consequences associated
with the ownership of the Common Stock, or cause a registration statement
covering any shares of Common Stock to be filed, without the prior written
consent of Robertson, Stephens & Company LLC, subject to certain limited
exceptions. The Company has also agreed not to directly or indirectly, offer,
sell, contract to sell, grant any option to purchase or otherwise dispose of any
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock or, in any manner, transfer all or a portion of the economic
consequences associated with the ownership of the Common Stock or cause a
registration statement covering any shares of Common Stock to be filed, for a
period of 180 days after the Effective Date, without the prior written consent
of Robertson, Stephens & Company LLC, subject to certain limited exceptions
including grants of options pursuant to, and issuance of shares of Common Stock
upon exercise of options under, the Plan. The lock-up agreements may be released
at any time as to all or any portion of the shares subject to such agreements at
the sole discretion of Robertson, Stephens & Company LLC. See "Risk
Factors--Effect on Market Price of Common Stock of Shares Eligible for Future
Sale."

The Company is unable to estimate the number of shares that may be sold in
the future by the existing stockholders or the effect, if any, that sales of
shares by such stockholders will have on the market price of the Common Stock.
Sales of substantial amounts of Common Stock by such stockholders could
adversely affect the market price of the Company's Common Stock.

49
<PAGE>
UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date of this Prospectus, each Underwriter named below has
severally agreed to purchase, and the Company has agreed to sell to such
Underwriter, the number of shares of Common Stock set forth opposite the name of
such Underwriter.

<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
- --------------------------------------------------------------------------------- ----------
<S> <C>
Stephens Inc.....................................................................
Robertson, Stephens & Company LLC................................................
Montgomery Securities............................................................

----------
Total.......................................................................... 5,000,000
----------
----------
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Stephens Inc., Robertson, Stephens & Company LLC
and Montgomery Securities are acting as Representatives, propose to offer part
of the shares directly to the public at the public offering price set forth on
the cover page of this Prospectus and part of the shares to certain dealers at a
price that represents a concession not in excess of $ per share under the
public offering price. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the Offering, the public offering price and such concessions may be changed by
the Underwriters. The Representatives of the Underwriters have advised the
Company that the Underwriters do not intend to confirm any Shares to any
accounts over which they exercise discretionary authority.

In connection with the Offering, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offering. Stabilizing transactions consist of
certain bids or purchases for the purpose of preventing or retarding a decline
in the market price of the shares of Common Stock; syndicate short positions
involve the sale by the Underwriters of a greater number of shares of Common
Stock than they are required to purchase from the Company in the Offering. The
Underwriters may also impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the shares of Common
Stock sold in the Offering for their account may be reclaimed by the syndicate
if the shares of Common Stock are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the shares of Common Stock, which may be higher than
the price that might otherwise prevail in the open market; and these activities,
if commenced, may be discontinued at any time. These transactions may be
effected on the NASDAQ National Market, in the over-the-counter market or
otherwise.

The Company has granted to the Underwriters an option, exercisable for 30
days from the date of this Prospectus, to purchase up to 750,000 additional
shares of Common Stock at the price to the public set forth on the cover page of
this Prospectus minus the underwriting discounts and commissions. The

50
<PAGE>
Underwriters may exercise such option solely for the purpose of covering
over-allotments, if any, in connection with the Offering. To the extent such
option is exercised, each Underwriter will be obligated, subject to certain
conditions, to purchase approximately the same percentage of such additional
shares as the number of shares set forth opposite each Underwriter's name in the
preceding table bears to the total number of shares listed in such table.

The Company, and its officers, directors and substantially all of its
current stockholders have agreed that, for a period of 180 days from the date of
this Prospectus, they will not, without the prior written consent of Robertson,
Stephens & Company LLC, offer, sell, contract to sell or otherwise dispose of
any shares of Common Stock of the Company or any securities convertible into, or
exercisable or exchangeable for, any class of Common Stock of the Company, other
than by the Company pursuant to its existing benefit plans.

Prior to the Offering, there has not been any public market for the Common
Stock of the Company. Consequently, the initial public offering price for the
shares of Common Stock included in the Offering has been determined by
negotiations between the Company and the Underwriters. Among the factors
considered in determining such price were the history of and prospects for the
Company's business and the industry in which it competes, an assessment of the
Company's management and the present state of the Company's development, the
past and present revenues and earnings of the Company, the prospects for growth
of the Company's revenues and earnings, the current state of the economy in the
U.S. and California and the current level of economic activity in the industry
in which the Company competes and in related or comparable industries, and
currently prevailing conditions in the securities markets, including current
market valuations of publicly traded companies which are comparable to the
Company.

The Company, on the one hand, and the Underwriters, on the other hand, have
agreed to indemnify each other against certain liabilities, including
liabilities under the Securities Act.

Under Rule 2720 of the National Association of Securities Dealers, Inc. (the
"NASD"), the Company may be deemed an affiliate of Stephens Inc. The Offering is
being conducted in accordance with Rule 2720, which provides that, among other
things, when a NASD member participates in the underwriting of an affiliates's
equity securities, the initial public offering price can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards.
In accordance with this requirement, Robertson, Stephens & Company LLC has
served in such role and has recommended a price in compliance with the
requirements of Rule 2720. In connection with the Offering, Robertson, Stephens
& Company LLC, in its role as a qualified independent underwriter has performed
due diligence investigations and reviewed and participated in the preparation of
the Prospectus and the Registration Statement of which this Prospectus forms a
part. In addition, the Underwriters may not confirm sales to any discretionary
account without the prior written approval of the customer.

LEGAL MATTERS

The validity of the Common Stock offered hereby will be passed upon for the
Company by O'Melveny & Myers LLP, Los Angeles, California. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Wright, Lindsey & Jennings, Little Rock, Arkansas.

EXPERTS

The financial statements of the Company as of December 31, 1995 and 1996 and
of the Company and its Predecessor Company for each of the periods in the three
years ended December 31, 1996, included in this Prospectus and the related
financial statement schedule included elsewhere in the Registration Statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein and elsewhere in this Registration Statement and
are included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.

51
<PAGE>
ADDITIONAL INFORMATION

The Company has filed with Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. Certain items are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
the Registration Statement and the exhibits filed as a part hereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is filed as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. The Company is currently subject to the informational requirements of
the Securities Exchange Act of 1934, as amended, except the proxy requirements,
and files reports and other information with the Commission. The Registration
Statement, including exhibits thereto, as well as the reports and other
information filed by the Company with the Commission, may be inspected without
charge at the public reference facilities maintained by the Commission in Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
regional offices located at the Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, 13th Floor, New York, NY
10048, and copies of all or any part thereof may be obtained from such office
after payment of fees prescribed by the Commission. The Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. In addition, after being approved for listing on NASDAQ,
upon notice of issuance, the Common Stock, reports and other information
concerning the Company may be inspected at the offices of NASDAQ.

The Company will issue to its stockholders annual reports and unaudited
quarterly reports for the first three quarters of each fiscal year. Annual
reports will include audited financial statements and a report of its
independent auditors with respect to the examination of such financial
statements. In addition, the Company will issue such other interim reports as it
deems appropriate.

52
<PAGE>
INDEX TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
---------

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

Consolidated Balance Sheets................................................................................ F-3

Consolidated and Combined Statements of Operations......................................................... F-4

Consolidated Statement of Redeemable Preferred Stock and Stockholders'/Members' Equity..................... F-5

Combined Statement of Stockholders' Equity--Predecessor Company............................................ F-6

Consolidated and Combined Statements of Cash Flows......................................................... F-8

Notes to Consolidated and Combined Financial Statements.................................................... F-10
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of
Power-One, Inc.:

We have audited the accompanying consolidated balance sheets of Power-One,
Inc. and its subsidiaries (the "Company") as of December 31, 1995 and 1996 and
the related consolidated and combined statements of operations, redeemable
preferred stock and stockholders'/members' equity, and of cash flows of the
Company and its Predecessor Company for each of the periods in the three years
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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, such consolidated financial statements present fairly, in
all material respects, the consolidated financial position of the Company as of
December 31, 1995 and 1996, and the consolidated and combined results of the
Company's and its Predecessor Company's operations and cash flows for each of
the periods in the three years ended December 31, 1996 in conformity with
generally accepted accounting principles.

As described in Note 1 to the financial statements, on September 27, 1995,
the net assets of the Predecessor Company were acquired by the Company. The
acquisition has been accounted for by the purchase method of accounting, and
accordingly, the acquisition price has been allocated to the assets acquired and
liabilities assumed based on the estimated fair values on the date of
acquisition. As such, the amounts reported for the Company are not comparable to
the amounts shown for the Predecessor Company in prior periods.

DELOITTE & TOUCHE LLP

Los Angeles, California
March 14, 1997

F-2
<PAGE>
POWER-ONE, INC.

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (NOTES 6 AND 7)
CURRENT ASSETS:
Cash...................................................... $ 3,751 $ 1,684 $ 2,052
Accounts receivable:......................................
Trade, less allowance for doubtful accounts: $203--
December 31, 1995; $638--December 31, 1996; $754--
June 30, 1997......................................... 9,024 10,391 14,342
Other................................................... 283 397 210
Inventories (Note 3)...................................... 19,786 18,840 19,617
Refundable income taxes................................... 54 29 29
Deferred tax assets--current (Notes 2 and 14)............. 834 873
Prepaid expenses and other current assets................. 528 380 710
------- ------- -----------
Total current assets.................................. 33,426 32,555 37,833
PROPERTY AND EQUIPMENT, net (Note 4)........................ 8,191 8,884 8,641
INTANGIBLE ASSETS, net (Note 2)............................. 29,817 29,210 28,196
OTHER ASSETS................................................ 1,411 1,574 1,715
DEFERRED TAX ASSETS, noncurrent (Notes 2 and 14)............ 482 554
------- ------- -----------
TOTAL....................................................... $72,845 $72,705 $76,939
------- ------- -----------
------- ------- -----------

LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY PRO FORMA
(NOTE 2)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Note payable to bank (Note 6)............................. $11,200 $10,400 $10,600
Current portion of long-term debt (Note 7)................ 2,500 3,929 4,162
Bank overdraft............................................ 1,405 656 1,935
Accounts payable.......................................... 4,663 2,892 3,269
Accrued payroll and related expenses...................... 807 536 827
Other accrued expenses (Note 8)........................... 4,775 4,631 5,697
------- ------- -----------
Total current liabilities............................. 25,350 23,044 26,490
------- ------- -----------
LONG-TERM DEBT, less current portion (Note 7)............... 27,500 26,326 24,250
------- ------- -----------
OTHER LIABILITIES (Note 9).................................. 5,399 5,923 6,225 $ 5,468
------- ------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 10 and 13).............
REDEEMABLE PREFERRED STOCK, stated value $1.00; aggregate
liquidation value of $16,543 at December 31, 1996 and
$17,364 at June 30, 1997 (Note 11)........................ 16,287 17,122 232
------- -----------
STOCKHOLDERS'/MEMBERS' EQUITY (Notes 11 and 12):
Members' capital (Note 2)................................. 14,972
Common stock, par value $0.001, 20,000,000 shares
authorized; 10,000,000 shares issued and outstanding at
December 31, 1996 and June 30, 1997 (unaudited),
respectively, (unaudited pro forma 11,490,653 shares)... 10 10 11
Additional capital........................................ 90 94 17,982
Notes receivable from stockholders (Note 5)............... (205) (225) (235) (235)
Retained earnings (deficit)............................... (171) 1,250 2,983 2,741
------- ------- ----------- -----------
Total stockholders'/members' equity................... 14,596 1,125 2,852 20,499
------- ------- ----------- -----------
TOTAL....................................................... $72,845 $72,705 $76,939 $76,939
------- ------- ----------- -----------
------- ------- ----------- -----------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
POWER-ONE, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
COMPANY
------------------------------------------------
PREDECESSOR COMPANY PERIOD FROM
------------------------ OCTOBER 1,
YEAR NINE MONTHS 1995
ENDED ENDED (INCEPTION) YEAR ENDED SIX MONTHS ENDED
DECEMBER SEPTEMBER THROUGH DECEMBER JUNE 30,
31, 30, DECEMBER 31, 31, --------------------
1994 1995 1995 1996 1996 1997
----------- ----------- ------------- ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
NET SALES....................... $ 55,702 $ 52,732 $ 20,670 $ 74,210 $ 40,743 $ 40,173
COST OF GOODS SOLD (Note 1)..... 35,751 31,525 14,348 45,305 24,709 24,348
----------- ----------- ------------- ----------- --------- ---------
GROSS PROFIT.................... 19,951 21,207 6,322 28,905 16,034 15,825
----------- ----------- ------------- ----------- --------- ---------
EXPENSES:
Selling....................... 6,283 5,680 1,778 6,865 3,852 3,894
General and administrative.... 5,784 5,267 2,105 7,458 4,097 3,894
Engineering................... 2,725 2,397 1,064 3,964 2,441 1,628
Amortization of intangibles... 472 2,003 952 1,014
Other......................... 613
----------- ----------- ------------- ----------- --------- ---------
Total expenses.............. 14,792 13,344 5,419 20,903 11,342 10,430
----------- ----------- ------------- ----------- --------- ---------
INCOME FROM OPERATIONS.......... 5,159 7,863 903 8,002 4,692 5,395
----------- ----------- ------------- ----------- --------- ---------
OTHER INCOME (EXPENSE):
Interest income............... 32 65 24 28 16 11
Interest expense.............. (629) (494) (1,026) (4,222) (1,951) (2,009)
Other income (expense)........ (24) (32) (60) (16) (51) 37
----------- ----------- ------------- ----------- --------- ---------
Total other expense......... (621) (461) (1,062) (4,210) (1,986) (1,961)
----------- ----------- ------------- ----------- --------- ---------
INCOME (LOSS) BEFORE INCOME
TAXES......................... 4,538 7,402 (159) 3,792 2,706 3,434
INCOME TAXES (Notes 2 and 14)... 75 155 12 396 283 866
----------- ----------- ------------- ----------- --------- ---------
NET INCOME (LOSS)............... $ 4,463 $ 7,247 $ (171) $ 3,396 $ 2,423 $ 2,568
----------- ----------- ------------- ----------- --------- ---------
----------- ----------- ------------- ----------- --------- ---------
PRO FORMA INFORMATION (Note 2)
(Unaudited):
Income (loss) before income
taxes as reported........... $ 4,538 $ 7,402 $ (159) $ 3,792 $ 2,706 $ 3,434
Pro forma income tax (benefit)
provision................... 1,179 2,767 (121) 923 658 866
----------- ----------- ------------- ----------- --------- ---------
Pro forma net income (loss)... $ 3,359 $ 4,635 $ (38) $ 2,869 $ 2,048 $ 2,568
----------- ----------- ------------- ----------- --------- ---------
----------- ----------- ------------- ----------- --------- ---------
Pro forma net income per
share....................... $ 0.24 $ 0.22
----------- ---------
----------- ---------
Pro forma weighted average
shares outstanding.......... 11,875 11,947
----------- ---------
----------- ---------
</TABLE>

See notes to consolidated financial statements.

F-4
<PAGE>
POWER-ONE, INC.

CONSOLIDATED STATEMENT OF REDEEMABLE PREFERRED STOCK AND
STOCKHOLDERS'/MEMBERS' EQUITY

PERIOD FROM OCTOBER 1, 1995 (INCEPTION) THROUGH DECEMBER 31, 1995 AND
YEAR ENDED DECEMBER 31, 1996 AND THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED)

<TABLE>
<CAPTION>
STOCKHOLDERS'/MEMBERS' EQUITY
REDEEMABLE PREFERRED -----------------------------------------------------------------
STOCK COMMON STOCK NOTES
--------------------- MEMBERS' ---------------------- ADDITIONAL RECEIVABLE FROM
SHARES AMOUNT CAPITAL SHARES AMOUNT CAPITAL STOCKHOLDERS
---------- --------- ----------- --------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, OCTOBER 1, 1995
(Inception)..................... $ -- $ --
Contribution of members
capital....................... 14,972 (200)
Interest on notes receivable
from stockholders............. (5)
Net loss........................
----------- -----
BALANCE, DECEMBER 31, 1995........ 14,972 (205)
Net distribution to members of
Power-One LLC.................
Effect of conversion from limited
liability company to C
corporation..................... 15,153,698 $ 14,872 (14,972) 10,000,000 $ 10 $ 90
Interest on notes receivable
from stockholders............. (20)
Accretion of preferred stock to
redemption value (Note 11).... 26
Accrual of preferred stock
dividend (Note 11)............ 1,389
Net income......................
---------- --------- ----------- --------- ----- ----------- -----
BALANCE, DECEMBER 31, 1996........ 15,153,698 16,287 -- 10,000,000 10 90 (225)
Interest on notes receivable
from stockholder
(unaudited)................... (10)
Accretion of preferred stock to
redemption value
(Unaudited)................... 14
Accrual of preferred stock
dividend (Unaudited).......... 821
Stock option compensation
expense-net...................
Net income (Unaudited).......... 4
---------- --------- ----------- --------- ----- ----------- -----
BALANCE, JUNE 30, 1997
(Unaudited)..................... 15,153,698 17,122 10,000,000 10 94 (235)
Conversion (on a pro forma
basis) of other liabilities to
common stock (unaudited) (Note
2)............................ 63,054 -- 757
Conversion (on a pro forma
basis) of preferred stock to
common stock (Unaudited) (Note
2)............................ (14,950,848) (16,890) 1,427,599 1 $ 17,131
---------- --------- ----------- --------- ----- ----------- -----
PRO FORMA BALANCE, JUNE 30, 1997
(Note 2) (Unaudited)............ 202,850 $ 232 $ -- 11,490,653 $ 11 $ 17,982 $ (235)
---------- --------- ----------- --------- ----- ----------- -----
---------- --------- ----------- --------- ----- ----------- -----

RETAINED
EARNINGS
(DEFICIT) TOTAL
----------- ---------
<S> <C> <C>
BALANCE, OCTOBER 1, 1995
(Inception)..................... $ -- $ --
Contribution of members
capital....................... 14,772
Interest on notes receivable
from stockholders............. (5)
Net loss........................ (171) (171)
----------- ---------
BALANCE, DECEMBER 31, 1995........ (171) 14,596
Net distribution to members of
Power-One LLC................. (560) (560)
Effect of conversion from limited
liability company to C
corporation..................... (14,872)
Interest on notes receivable
from stockholders............. (20)
Accretion of preferred stock to
redemption value (Note 11).... (26) (26)
Accrual of preferred stock
dividend (Note 11)............ (1,389) (1,389)
Net income...................... 3,396 3,396
----------- ---------
BALANCE, DECEMBER 31, 1996........ 1,250 1,125
Interest on notes receivable
from stockholder
(unaudited)................... (10)
Accretion of preferred stock to
redemption value
(Unaudited)................... (14) (14)
Accrual of preferred stock
dividend (Unaudited).......... (821) (821)
Stock option compensation
expense-net................... 4
Net income (Unaudited).......... 2,568 2,568
----------- ---------
BALANCE, JUNE 30, 1997
(Unaudited)..................... 2,983 2,852
Conversion (on a pro forma
basis) of other liabilities to
common stock (unaudited) (Note
2)............................ 757
Conversion (on a pro forma
basis) of preferred stock to
common stock (Unaudited) (Note
2)............................ (242) 16,890
----------- ---------
PRO FORMA BALANCE, JUNE 30, 1997
(Note 2) (Unaudited)............ $ 2,741 $ 20,499
----------- ---------
----------- ---------
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
POWER-ONE INC.

COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY--PREDECESSOR COMPANY

YEAR ENDED DECEMBER 31, 1994 AND NINE MONTHS ENDED SEPTEMBER 30, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
POWER-ELECTRONICS, INC.
--------------------------------------------------
POWER-ONE, INC. COMMON VOTING NONVOTING COMMON STOCK PODER-UNO
STOCK COMMON STOCK COMMON STOCK
---------------------- ------------------------ ------------------------ ------------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- ----------- ----------- ----------- ----------- --------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1,
1994.................. 721,432 $ 144 72,854 $ 1 -- $ -- 7,117,300 $ 3
Repurchase of common
stock............... (6,389) (1) (607)
Shares issued......... 3,292 14 333 41
Net income............
--
--------- ----- ----------- --- --- ----- ---------
BALANCE, DECEMBER 31,
1994.................. 718,335 157 72,580 42 7,117,300 3
Notes receivable from
stockholders........
Net income............
--
--------- ----- ----------- --- --- ----- ---------
BALANCE, SEPTEMBER 30,
1995.................. 718,335 $ 157 72,580 $ 42 -- $ -- 7,117,300 $ 3
--
--
--------- ----- ----------- --- --- ----- ---------
--------- ----- ----------- --- --- ----- ---------

NOTES
RECEIVABLE FROM RETAINED
STOCKHOLDERS EARNINGS TOTAL
--------------- ----------- ---------
<S> <C> <C> <C>
BALANCE, JANUARY 1,
1994.................. $ -- $ 6,938 $ 7,086
Repurchase of common
stock............... (148) (149)
Shares issued......... 55
Net income............ 4,463 4,463

----- ----------- ---------
BALANCE, DECEMBER 31,
1994.................. 11,253 11,455
Notes receivable from
stockholders........ (789) (789)
Net income............ 7,247 7,247

----- ----------- ---------
BALANCE, SEPTEMBER 30,
1995.................. $ (789) $ 18,500 $ 17,913

----- ----------- ---------
----- ----------- ---------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
(This page has been left blank intentionally.)

F-7
<PAGE>
POWER-ONE, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

COMPANY
-----------------------------------------------
PERIOD FROM
PREDECESSOR COMPANY OCTOBER 1,
------------------------ 1995
NINE MONTHS (INCEPTION) SIX MONTHS ENDED
YEAR ENDED ENDED THROUGH YEAR ENDED --------------------
DECEMBER SEPTEMBER DECEMBER 31, DECEMBER JUNE 30, JUNE 30,
31, 1994 30, 1995 1995 31, 1996 1996 1997
----------- ----------- ------------ ----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 4,463 $ 7,247 $ (171) $ 3,396 $ 2,423 $ 2,568
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization............... 798 701 815 4,213 1,890 2,060
Gain on sale of property and
equipment.................. (42)
Deferred income taxes........ (1,316) (432) (111)
Loss on sale of real
estate..................... 81
Changes in operating assets
and liabilities:
Accounts receivable, net... (362) (2,726) (928) (1,501) (1,261) (3,764)
Inventories................ (582) (5,443) (733) 946 1,620 (777)
Refundable income taxes.... 62 (4) 21 25 25
Prepaid expenses and other
current assets........... (158) (75) (140) 148 (709) (330)
Accounts payable........... (627) 3,937 (499) (1,771) (1,513) 377
Accrued expenses........... 416 2,783 (517) (415) (360) 1,357
Other liabilities.......... 524 260 302
----------- ----------- ------------ ----------- --------- ---------
Net cash provided by
(used in) operating
activities............. 4,049 6,420 (2,152) 4,249 1,943 1,682
----------- ----------- ------------ ----------- --------- ---------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Acquisition of property and
equipment.................... (1,978) (1,928) (1,480) (2,903) (2,184) (799)
Proceeds from sale of property
and equipment................ 286
Purchase of Power-One, net of
acquired cash of $4,452...... (42,158)
Proceeds from sale of real
estate....................... 80
Payment to Power-Electronics,
Inc. shareholders............ (5,000)
Payments for purchased
technology................... (391)
Other assets................... (51) (17) (1,202) (163) 104 (141)
----------- ----------- ------------ ----------- --------- ---------
Net cash used in
investing activities... $ (1,663) $ (1,945) $ (49,840) $ (3,457) $ (2,080) $ (940)
----------- ----------- ------------ ----------- --------- ---------
</TABLE>

(Continued)

F-8
<PAGE>
POWER-ONE, INC.

CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS (CONTINUED)

(IN THOUSANDS)

<TABLE>
<CAPTION>
COMPANY
-----------------------------------------------------
PERIOD FROM
PREDECESSOR COMPANY OCTOBER 1,
---------------------------- 1995
NINE MONTHS (INCEPTION) SIX MONTHS ENDED
YEAR ENDED ENDED THROUGH YEAR ENDED ----------------------
DECEMBER 31, SEPTEMBER 30, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1995 1996 1996 1997
------------- ------------- -------------- ------------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of capital lease
obligations........................... $ (30) $ (113)
Proceeds from borrowings on notes
payable to bank....................... $ 11,200 $ 2,300 $ 1,500 $ 200
Repayments of note payable to bank...... (736) 1,193 (3,100)
Bank overdraft.......................... 797 385 (229) (749) 1,351 1,279
Proceeds from borrowings on long-term
debt.................................. 307 30,000 3,250
Repayments of long-term debt............ (564) (414) (4,000) (1,250) (1,843)
Dividends paid.......................... (300) (950)
Repurchase of common stock.............. (149)
Proceeds from sale of common stock...... 55
Proceeds from issuance of members
capital............................... 14,772
Net distributions to members of
Power-One LLC......................... (560) (1,495)
Increase in notes receivable from
stockholders.......................... (789) (10)
------ ------ ------- ------ --------- -----------
Net cash (used in) provided by
financing activities................ (620) (688) 55,743 (2,859) 106 (374)
------ ------ ------- ------ --------- -----------
(DECREASE) INCREASE IN CASH............... 1,766 3,787 3,751 (2,067) (31) 368
CASH, BEGINNING OF PERIOD................. 1,999 3,765 3,751 3,751 1,684
------ ------ ------- ------ --------- -----------
CASH, END OF PERIOD....................... $ 3,765 $ 7,552 $ 3,751 $ 1,684 $ 3,720 $ 2,052
------ ------ ------- ------ --------- -----------
------ ------ ------- ------ --------- -----------
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Subordinated note issued for purchase of
leasehold improvements................ $ 125
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:..........................
Interest.............................. $ 638 $ 501 $ 929 $ 3,841 $ 1,469 $ 1,150
Income taxes.......................... $ 162 $ 119 $ -- $ 765 $ 485 $ 1,665
</TABLE>

See notes to consolidated financial statements.

F-9
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

1. GENERAL INFORMATION

The accompanying financial statements of Power-One, Inc. (the "Company")
reflect the consolidated results of its operations since its inception on
October 1, 1995 and include the accounts of Power-One, Inc. ("Power-One"),
located in Camarillo, California, and its wholly owned subsidiaries,
Power-Electronics, Inc. ("P-E") in Puerto Rico and its Division located in the
Dominican Republic, and Poder Uno de Mexico, S.A. de C.V. ("Poder Uno"), a
company located in Mexico under the MAQUILADORA program.

The assets, liabilities and operations of Poder Uno and P-E's Division in
the Dominican Republic are not significant in relation to the consolidated
financial statements, and the U.S. dollar is considered to be the functional
currency. Such operations represent captive manufacturing facilities of the
Company. The Company's reporting period coincides with the 52- to 53-week period
ending on the Sunday closest to December 31 and its fiscal quarters are the 13
or 14 week periods ending on the Sunday nearest to March 31, June 30, September
30 and December 31. The years ended December 31, 1994, 1995 and 1996 all
represent 52-week years. For simplicity of presentation, the Company has
described year-ends presented as of December 31 and the six-month periods ended
as June 30.

ORGANIZATION--Effective September 27, 1995, the Company acquired
substantially all of the assets and liabilities of Power-One, Inc. and the
outstanding capital stock of P-E and Poder Uno (collectively the "Predecessor
Company"). For financial reporting purposes, the agreement has been treated as
if it was effective on October 2, 1995, the beginning of the Company's fourth
quarter. Transactions associated with the Company's operations during the period
from September 28 through October 1, 1995 are insignificant when considered in
relation to the consolidated financial statements taken as a whole and have been
included in the Predecessor Company financial statements. The accompanying
financial statements reflect the combined results of operations of the
Predecessor Company for the year ended December 31, 1994 and the nine-month
period ended September 30, 1995.

The acquisition price included approximately $46,610,000 in cash and
$8,100,000 in distributions from P-E. The acquisition has been accounted for by
the purchase method of accounting, and accordingly, the acquisition price has
been allocated to the assets acquired and liabilities assumed based on the
estimated fair values on the date of acquisition. The excess purchase price over
the fair value of the net assets acquired of $30,289,000 was allocated to
intangible assets (see Note 2). Consequently, the amounts reported in the
accompanying financial statements for the Company are not comparable to the
amounts shown for the Predecessor Company in the prior periods.

Included in cost of goods sold for the period ended December 31, 1995 is
$1,525,000, which primarily represents the difference between the fair value of
inventory acquired and the recorded carrying value of the inventory at the
acquisition date.

Power-One, Inc., formerly Power-One LLC, converted from a limited liability
company to a C corporation on January 29, 1996. To effect the conversion, the
Company formed a new corporation and merged into the newly formed entity. The
new corporation, Power-One, Inc., simultaneously issued 10,000,000 shares of
common stock, with a par value of $0.001 per share, and 15,153,698 shares of
Series A redeemable preferred stock in exchange for each existing member's
respective percentage ownership interest in Power-One LLC. The exchange has been
recorded at the Company's historical carrying values on the date of conversion
(see Note 11).

F-10
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

1. GENERAL INFORMATION (CONTINUED)
OPERATIONS--The Company operates primarily in one industry segment which
includes the design, development and manufacture of open frame D.C. power
supplies for the commercial electronics industry. The Company sells its products
and grants credit to customers in this industry, primarily in the United States.
Sales to the Company's largest customers amounted to 12% to a single customer in
1994, 11% each to two customers throughout 1995, 15% to a single customer in
1996 and 13%, 12% and 10% to three customers for the six months ended June 30,
1997.

2. SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION--The accompanying financial statements include
the consolidated accounts of the Company and its wholly owned subsidiaries and
the combined operations of the Predecessor Company. The majority of P-E's and
all of Poder Uno's sales are to Power-One, Inc. All intercompany accounts and
transactions have been eliminated in the accompanying financial statements.

INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out method) or market.

PROPERTY AND EQUIPMENT--Property and equipment are recorded at cost.
Provision for depreciation has been made based upon the estimated useful lives
of the assets, which range from three to ten years, using principally the double
declining balance and straight-line methods. Provision for amortization of
leasehold improvements is made based upon the estimated lives of the assets or
terms of the leases, whichever is shorter.

ENGINEERING--Engineering costs include sustaining product engineering,
custom product development and research and development costs which are expensed
in the period incurred.

INTANGIBLE ASSETS--Intangible assets includes cost in excess of net assets
acquired in connection with the acquisition of the Company (see Note 1) which
have been allocated among certain intangible items determined by management to
have value such as the company name, distribution network and product lines.
Provision for amortization has been made based upon the estimated useful lives
of the intangible asset categories, which range from 5 to 25 years, using the
straight-line method. At December 31, 1995 and 1996 and June 30, 1997,
accumulated amortization related to these intangible assets totaled $472,000,
$2,370,000 and $3,315,000, respectively.

Intangible assets include purchased technology related to a technology and
license agreement (the "Agreement") with a company entered into on April 2,
1996. The Agreement calls for total cash payments of $1,500,000 over
approximately two years in return for exclusive rights to specified technical
information. The obligation and asset were recorded at present value using an
implicit interest rate of 8.5%. The asset is being amortized over the estimated
useful life of the products, ten years, using the straight-line method.
Accumulated amortization was $105,000 and $174,000 at December 31, 1996 and June
30, 1997, respectively.

The Company periodically reviews the carrying value of intangible assets,
and if future cash flows are believed insufficient to recover the remaining
carrying value of an intangible asset, the carrying value is written down in the
period the impairment is identified to its future recoverable value.

F-11
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
MEMBERS' CAPITAL--At December 31, 1995, no class of stock had been issued,
and members' capital was composed of percentage ownership interests as agreed
upon at the time of the Company's formation (see Note 1).

INCOME TAXES--Until January 29, 1996, Power-One LLC was a limited liability
company, and accordingly, the taxable income or loss until that date was
allocated to members in accordance with their respective percentage ownership.
Additionally, the Predecessor Company had elected to be taxed as an S
corporation, for which the taxable income of the entity was allocated to the
stockholders and reflected on their respective tax returns.

Upon conversion to a C corporation on January 29, 1996, the Company recorded
a net deferred tax asset of $456,000, computed based on the difference between
the book and tax bases of its assets and liabilities as of that date.

Income taxes for Power-One, Inc. are provided for taxes currently payable or
refundable, and deferred income taxes arising from future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. The effects of income taxes are measured based on enacted tax laws or
rates.

Under the provisions of the Puerto Rico Industrial Incentives Act of 1987,
the Company has been granted a 90% partial tax exemption from the payment of
Puerto Rico taxes on income derived from marketing the products manufactured by
the Company in Puerto Rico. In addition, the grant also provides for a 90%
exemption on property taxes and a 60% exemption on municipal license taxes. The
Company has received similar tax exemptions in Puerto Rico in connection with
the distribution of its products. All of these exemptions are valid through
2010. Additionally, P-E operates in the Dominican Republic in a tax-free
enterprise zone and, accordingly, pays no income taxes in connection with its
operations in that country. The Company has not provided for U.S. federal and
state income tax that would be paid on unremitted earnings of approximately
$2,070,000 and $3,630,000 at December 31, 1996 and June 30, 1997 (unaudited),
respectively, from P-E, as there is no intention to remit the earnings.

The Company's operations in Mexico are subject to various income and
corporate taxes on earnings generated in Mexico under the MAQUILADORA program.
These taxes have not been material to date.

PRO FORMA NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE--Pro forma net
income per common and common equivalent share for the year ended December 31,
1996 and for the six-month period ended June 30, 1997 have been determined by
dividing pro forma net income by the weighted average common and common
equivalent shares outstanding during the period, computed in accordance with the
treasury stock method. As required by rules promulgated by the Securities and
Exchange Commission, options issued at prices below the offering price in the
twelve months prior to the initial public offering and redeemable preferred
stock and other liabilities owed to certain officers expected to be converted to
common stock have been included in the calculation of weighted average common
and common equivalent shares as if outstanding for the periods presented using
the treasury stock method. Income per share for all periods prior to the year
ended December 31, 1996 have not been presented as such information is not
indicative of the Company as an on-going entity.

F-12
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED PRO FORMA INFORMATION--Prior to January 29, 1996, net income of
the Company and the Predecessor Company flowed through to their
stockholders/members. Consequently, income taxes were the responsibility of the
stockholders/members. The unaudited pro forma income tax provisions included in
the statements of operations are determined as if the Company and the
Predecessor Company were taxable entities for all periods presented. For pro
forma presentation purposes, U.S. federal and state income taxes have not been
provided on earnings of P-E as there is no intention to remit these earnings.

As of June 30, 1997, the unaudited pro forma consolidated balance sheet and
statement of redeemable preferred stock and stockholders'/members' equity have
been presented assuming the conversion of the Company's Series A redeemable
preferred stock plus accrued dividends and a portion of the other liabilities
plus accrued interest. Upon election of the preferred stockholders and officers
owed amounts under the Other Liabilities and closing of the public offering
contemplated by this Prospectus, it is anticipated that all but 202,850 shares
of the 15,153,698 preferred shares outstanding plus accrued dividends thereon,
as well as $757,000 in other liabilities owed to officers, will convert into
common stock of the Company at $12.00 per share, the midpoint of the offering
price range set forth on the cover page of this Prospectus. Accordingly, pro
forma stockholders' equity reflects the conversion of the preferred stock and
other liabilities into 1,490,653 shares of the Company's common stock.

UNAUDITED FINANCIAL STATEMENTS--In the opinion of management, the unaudited
financial statements have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of the financial position and the
results of operations as of such dates and for such periods.

REVENUE RECOGNITION--Revenue is recognized upon shipment of product.

USE OF ESTIMATES IN THE PREPARATION OF THE FINANCIAL STATEMENTS--The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported therein. Due to the inherent uncertainty involved in
making estimates, actual results reported in future periods may differ from
those estimates.

DERIVATIVE INSTRUMENTS--The Company enters into derivative instruments to
manage exposure to fluctuations in interest rates. The interest rate
differential and any gains and losses resulting from interest rate swaps or
swaption contracts all of which are used to hedge underlying debt obligations
are reflected as an adjustment to interest expense over the life of the swaps.

FAIR VALUE OF FINANCIAL INSTRUMENTS--The recorded values of accounts
receivable, accounts payable and accrued expenses approximate their fair value
based on their short-term nature. The recorded values of notes payable to bank,
long-term debt and other liabilities approximate fair value, as interest is tied
to or approximates market rates. The fair value of the Company's interest rate
swap and interest swaption agreements are based on a termination value and
approximated $107,000 and $58,000 in favor of the Company at December 31, 1996
and June 30, 1997, respectively.

CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject
the Company to concentrations of credit risk consist primarily of cash, placed
with high credit quality institutions, and trade receivables. The Company sells
products and extends credit to customers, primarily in the United States,
periodically monitors its exposure to credit losses, and maintains allowances
for anticipated losses.

F-13
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
NEW ACCOUNTING STANDARD--In February 1997, the Financial Accounting Standard
Board issued Statement No. 128, "Earnings per Share," which is required to be
adopted for periods ending after December 15, 1997 (1998 for the Company). At
that time, the Company will be required to compute earnings per share under the
new standard and the dilutive effect of stock options will be excluded from
basic earnings per share.

3. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials.............................................. $ 10,799 $ 11,885 $ 12,551
Subassemblies-in-process................................... 5,648 4,257 3,279
Finished goods............................................. 3,339 2,698 3,787
--------- --------- -----------
$ 19,786 $ 18,840 $ 19,617
--------- --------- -----------
--------- --------- -----------
</TABLE>

4. PROPERTY AND EQUIPMENT

Property and equipment consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Land........................................................ $ 583 $ 583
Factory and office equipment................................ $ 6,440 7,911 8,387
Autos....................................................... 124 508 568
Leasehold improvements...................................... 1,171 1,468 1,600
Construction in progress.................................... 799 920 1,009
--------- --------- -----------
8,534 11,390 12,147
Less accumulated depreciation and amortization.............. 343 2,506 3,506
--------- --------- -----------
$ 8,191 $ 8,884 $ 8,641
--------- --------- -----------
--------- --------- -----------
</TABLE>

5. NOTES RECEIVABLE FROM STOCKHOLDERS

The Company advanced cash of $200,000 to two of its stockholders in exchange
for notes receivable, which accrue interest at 10% per annum with all principal
and interest due on September 27, 2005. The notes and related accrued interest
are shown as a reduction of stockholders' equity as of December 31, 1995 and
1996 and June 30, 1997.

F-14
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

6. NOTE PAYABLE TO BANK

Power-One has a credit agreement with a bank that provides the Company with
a revolving line of credit of up to $17,500,000 with interest on amounts
outstanding payable monthly based on one of the following rates, as selected by
the Company: LIBOR plus 2.0% to 2.5% or the bank's base rate plus 1.0% to 1.5%.
The interest rate was 7.875% and 8.1875% at December 31, 1996 and June 30, 1997
(unaudited), respectively. The Company's available credit under the revolving
line was $7,100,000 and $6,900,000 at December 31, 1996 and June 30, 1997,
respectively. Borrowings are collateralized by substantially all of the
Company's assets.

Effective October 30, 1995, the Company entered into an interest swap
agreement with a bank for a notional amount of $20,000,000. Under the agreement,
the Company has agreed to a fixed rate of 6.025% and the bank has agreed to a
floating rate equal to LIBOR. Interest payments are exchanged quarterly
beginning January 30, 1996.

On March 31, 1997, the Company amended the original termination date of its
interest swap agreement from October 30, 2000 to April 30, 1999 and concurrently
entered into a swaption agreement. Under the swaption agreement, the Company may
exercise on April 28, 1999 its option to enter into a one-year interest swap
agreement with a notional amount of $15,000,000. If exercised, the Company would
agree to pay a fixed rate of 10% and the bank would agree to a floating rate
equal to LIBOR (see Notes 2 and 7). In conjunction with these transactions the
Company realized a net gain of $145,000 on the transaction, which has been
deferred and is being amortized over the life of the agreements in interest
expense.

F-15
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

7. LONG-TERM DEBT

Long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Term loan due September 30, 2002, payable to a bank requiring quarterly
principal payments starting at $625,000 on January 1, 1996, increasing to
$1,750,000. Interest on amounts outstanding is payable monthly based on one
of the following rates as selected by the Company, LIBOR plus 2.0% to 2.5% or
the bank's base rate plus 1.0% to 1.5%. The interest rate was 7.875% and
8.03% at December 31, 1996 and June 30, 1997, respectively. The loan is
collateralized by substantially all of the Company's assets and is subject to
the restrictive covenants described in Note 6................................ $ 30,000 $ 29,250 $ 27,750
Present value of technology and license agreement obligation at 8.5% (Note
2)........................................................................... 1,005 662
--------- --------- -----------
30,000 30,255 28,412
Less current portion........................................................... 2,500 3,929 4,162
--------- --------- -----------
Long-term debt, less current portion........................................... $ 27,500 $ 26,326 $ 24,250
--------- --------- -----------
--------- --------- -----------
</TABLE>

Scheduled principal repayment requirements for long-term debt are as follows
(in thousands):

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -----------------------------------------------------------------------------------
<S> <C>
1997............................................................................... $ 3,929
1998............................................................................... 4,451
1999............................................................................... 4,687
2000............................................................................... 5,500
2001............................................................................... 6,438
Thereafter......................................................................... 5,250
---------
$ 30,255
---------
---------
</TABLE>

F-16
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

8. OTHER ACCRUED EXPENSES

Other accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1995 1996 1997
--------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued bonuses.............................................. $ 1,379 $ 317 $ 1,078
Accrued sales commissions.................................... 929 1,132 1,418
Accrued warranty expense..................................... 400 400 400
Income taxes payable......................................... 809 353
Other accrued expenses....................................... 2,067 1,973 2,448
--------- --------- -----------
$ 4,775 $ 4,631 $ 5,697
--------- --------- -----------
--------- --------- -----------
</TABLE>

9. OTHER LIABILITIES

Under the terms of employment and compensation agreements with key members
of management entered into at the time of the Company's acquisition in 1995, the
Company is obligated to pay in aggregate $5,264,000 plus accrued interest on the
balance at 10% per annum. The agreements specify that the Company will pay the
balance due in 20 quarterly installments beginning on the first of the month
following (i) retirement or termination (other than by voluntary action or
discharge for cause during a specified period) or, in the event of death, to the
designated beneficiary; or (ii) upon completion of an initial public offering.
In addition, if employment continues through December 31, 1997, under certain
provisions as specified in the agreements, payments under similar terms may
begin on September 30, 1998. A lump-sum payment will be paid to each employee in
the event of a greater than 50% change in ownership of the Company.

10. COMMITMENTS AND CONTINGENCIES

OPERATING LEASES--Power-One, Inc. leases its production and office
facilities under a lease agreement expiring on September 1, 2004. The lease
provides for increases each five years under a formula based upon changes in the
consumer price index.

The Company also leases manufacturing facilities in Puerto Rico, the
Dominican Republic and Mexico. The leases expire at various dates through 2001
and provide for renewal options of up to five years in Puerto Rico, six years in
the Dominican Republic and one year for certain of its facilities in Mexico.

F-17
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

10. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments for operating leases as of December 31, 1996
are as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
1997................................................................................. $ 1,109
1998................................................................................. 1,015
1999................................................................................. 1,015
2000................................................................................. 914
2001................................................................................. 828
Thereafter........................................................................... 2,208
---------
$ 7,089
---------
---------
</TABLE>

Total rent expense was $1,054,000, $907,000, $342,000, $984,000, $613,000
and $687,000 for the year ended December 31, 1994, nine-months ended September
30, 1995, the period October 1, 1995 through December 31, 1995, the year ended
December 31, 1996 and the unaudited six-month periods ended June 30, 1996 and
1997, respectively.

PURCHASE AND SALES COMMITMENT--On April 2, 1996, the Company entered into an
agreement to purchase and sell certain products from and to a company for a
period extending for ten years. The value of these commitments is based on
approved transactions according to the terms of the agreements at prices based
on existing company pricing policies on the date of the related purchase or
sale.

LEGAL PROCEEDINGS--The Company is involved in routine litigation arising in
the ordinary course of its business. In the opinion of the Company's management,
none of the pending litigation will have a material adverse effect on the
Company's consolidated financial condition or results of operations.

11. REDEEMABLE PREFERRED STOCK

Upon conversion from a limited liability company to a C corporation on
January 29, 1996, the Company issued 10,000,000 shares of common stock with a
par value of $0.001 and 15,153,698 shares of Series A redeemable preferred stock
with a par value of $.001 and a stated value of $1.00 in a proportionate
exchange for each member's interest in Power One LLC, with an aggregate
historical value of $14,972,000. The historical book value of equity has been
allocated $100,000 to common stock with the remaining $14,872,000 allocated to
preferred stock. The difference between the stated par value and the assigned
historical value of the preferred stock is being accreted into the preferred
stock value over ten years.

Preferred shares are redeemable on February 1, 2006, or such earlier date as
determined by the Company's board of directors, with the redemption price being
computed at the original issuance price of $1.00 per share plus any unpaid
dividends, declared or undeclared.

Preferred stockholders are entitled to 10% cumulative dividends, if
declared. At December 31, 1996 and June 30, 1997 (unaudited), undeclared
dividends totaled $1,389,000 and $2,210,000, respectively, which have been
recorded to redeemable preferred stock.

F-18
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

12. COMMON STOCK

STOCK OPTIONS--In February 1996, the Board of Directors approved a stock
option plan for the issuance of 1,000,000 shares of common stock. The option
price is determined by the Board of Directors based on the estimated fair market
value of the Company's common stock on the date of grant. The options vest over
seven years and include accelerated vesting provisions that allow for vesting
over five years if certain performance measures are met. No options were
exercisable as of December 31, 1996 or June 30, 1997. In connection with the
issuance of stock options in 1997, the Company has computed compensation cost
for the difference between the estimated fair market values and the option
exercise prices totaling approximately $190,000, which is being amortized over
the seven year vesting period of the options. For the unaudited six months ended
June 30, 1997, $6,000 in compensation expense was recognized.

Stock option activity of the Company is as follows:

<TABLE>
<CAPTION>
EXERCISE WEIGHTED AVERAGE
NUMBER OF PRICE PER EXERCISE PRICE
OPTIONS OPTION PER SHARE
------------- ------------- -----------------
<S> <C> <C> <C>
Options granted--February, 1996......................... 483,000 $1.00 $ 1.00
Options canceled........................................ (15,500) $1.00 $ 1.00
------------- -------------
Options outstanding--December 31, 1996.................. 467,500 $1.00 $ 1.00
Options granted......................................... 34,500 $1.50-$2.00 $ 1.70
Options canceled........................................ (2,250) $1.50 $ 1.50
------------- -------------
Options outstanding--June 30, 1997...................... 499,750 $1.00-$2.00 $ 1.05
------------- ------------- -----
------------- ------------- -----
</TABLE>

The Company accounts for its plan in accordance with Accounting Principles
Board Opinion No. 25. Had compensation cost been determined on the basis of fair
value pursuant to Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," net income would have been $3,380,000
in 1996 and $2,560,000 for the six months ended June 30, 1997. The fair value of
each option grant is estimated on the date of grant using the Black-Scholes
model, with the following assumptions used: risk-free interest rate ranging from
6.5% to 6.9%, estimated expected volatility of 40.8%, an expected option life of
8.5 years, and no expected dividends. The fair value of stock options granted
were $217,000 in 1996 and $202,000 for the six months ended June 30, 1997.

REPURCHASE OF COMMON STOCK--Common stock held by employees and common stock
issuable to employee stock option holders is subject to certain repurchase
provisions contained in either the officers' employment agreement or the stock
option agreement. Under the provisions of these agreements the Company has the
right to call the shares held by an employee within 60 days of their severance
from the Company, at a formula value based on the Company's earnings. In event
the Company does not exercise its call right, the employee has the right to put
the shares to the Company under a different valuation formula. Payments under
these agreements are generally due over 20 equal quarterly installments plus
interest, and are contingent upon the Company remaining in compliance with its
debt agreements and state laws. Under the agreements, these rights cease in the
event of a public offering or a change in control of the Company. Effective
September 1997, the employment agreements were amended and these repurchase
provisions were deleted. Accordingly, no outstanding common stock is subject to
these provisions.

F-19
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

13. PROFIT SHARING PLAN

Power-One, Inc. has a 401(k) profit sharing plan covering all employees,
subject to certain participation and vesting requirements. The plan provides
that Power-One, Inc. will partially match employee contributions up to specified
percentages. Total contributions were $133,000, $110,000, $33,000, $143,000,
$88,000 and $68,000 for the year ended December 31, 1994, the nine-months ended
September 30, 1995, the period October 1, 1995 through December 31, 1995, the
year ended December 31, 1996 and the six-months ended June 30, 1996 and 1997,
respectively.

14. INCOME TAXES

The components of income tax expense for the period from January 29, 1996,
the date on which the Company converted to a tax paying entity (see Notes 1 and
2), to December 31, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
<S> <C>
Current:
Federal............................................................................ $ 1,221
State.............................................................................. 334
Puerto Rico and Foreign............................................................ 157
---------
Total current.................................................................... 1,712
---------
Deferred:
Federal............................................................................ (675)
State.............................................................................. (185)
---------
Total deferred................................................................... (860)
---------
Provision for income taxes........................................................... 852
Recordation of deferred income tax benefits upon conversion from limited liability
company to C corporation........................................................... (456)
---------
Income taxes......................................................................... $ 396
---------
---------
</TABLE>

F-20
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

14. INCOME TAXES (CONTINUED)
The components of deferred tax assets (liabilities) at December 31, 1996 are
as follows (in thousands):

<TABLE>
<CAPTION>
FEDERAL STATE
--------- ---------
<S> <C> <C>
Current:
Uniform capitalization................................................... $ 250 $ 69
Sales discount reserve................................................... 157 43
Allowance for bad debts.................................................. 144 40
Inventories.............................................................. 103 28
Noncurrent:................................................................
Obligations due at acquisition........................................... 1,790 490
Intangible assets........................................................ (1,693) (463)
Accrued interest......................................................... 224 61
Depreciation and amortization............................................ 58 15
--------- ---------
Net deferred tax assets................................................ $ 1,033 $ 283
--------- ---------
--------- ---------
</TABLE>

A reconciliation of the Company's provision for income taxes for the year
ended December 31, 1996 (the initial year the Company became a tax paying
entity) to the U.S. federal statutory rate is as follows:

<TABLE>
<CAPTION>
AMOUNT PERCENTAGE
--------- -------------
<S> <C> <C>
Provision for income taxes at statutory rate............................ $ 1,289 34%
Puerto Rico income taxed at lower rates................................. (521) (14)
State taxes net of federal benefit...................................... 116 3
Tax benefit of limited liability company from January 1 to January 29,
1996.................................................................. (97) (3)
Other................................................................... 65 2
--
---------
852 22
Recordation of net deferred tax assets upon conversion to C
corporation........................................................... (456) (12)
--
---------
$ 396 10%
--
--
---------
---------
</TABLE>

15. SUBSEQUENT EVENTS--UNAUDITED

In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which will be effective for the Company beginning January 1, 1998. SFAS
No. 130 requires reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Comprehensive
income is defined as the change in equity (net assets) of a business enterprise
during a period from transactions and other events and circumstances from
nonowner sources. It includes all changes in equity during a period except those
resulting from investments by owners and distributions to owners.

F-21
<PAGE>
POWER-ONE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

YEAR ENDED DECEMBER 31, 1994, PERIODS ENDED SEPTEMBER 30, 1995 AND

DECEMBER 31, 1995 AND YEAR ENDED DECEMBER 31, 1996 AND (UNAUDITED)
THE SIX MONTHS ENDED JUNE 30, 1996 AND 1997

15. SUBSEQUENT EVENTS--UNAUDITED (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," which
will be effective for the Company beginning January 1, 1998. SFAS No. 131
requires reporting of certain information about operating segments, products and
services, geographic areas in which the Company operates and major customers.
The statement defines an operating segment as a component of an enterprise (i)
that engages in business activities from which it may earn revenues and incur
expenses, (ii) whose operating results are regularly reviewed by the
enterprise's chief operating decision maker to make decisions about resources to
be allocated to the segment to assess its performance, and (iii) for which
discreet financial information is available.

The impact of accounting standards issued and not yet effective on the
Company's financial position and result of operations has not been determined,
as management is in the process of evaluating their impact.

F-22
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR BY ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER WOULD BE UNLAWFUL. THE DELIVERY OF THIS
PROSPECTUS DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 7
Company Formation and Organization............. 14
Recapitalization............................... 14
Use of Proceeds................................ 15
Dividend Policy................................ 15
Capitalization................................. 16
Dilution....................................... 17
Selected Financial and Operating Data.......... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 20
Business....................................... 27
Management..................................... 38
Certain Transactions........................... 44
Principal Stockholders......................... 45
Description of Capital Stock................... 47
Shares Eligible for Future Sale................ 49
Underwriting................................... 50
Legal Matters.................................. 51
Experts........................................ 51
Additional Information......................... 52
Index to Consolidated and Combined Financial
Statements................................... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE EFFECTIVE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

5,000,000 SHARES

[LOGO]

COMMON STOCK

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

PROSPECTUS
-------------

STEPHENS INC.

ROBERTSON, STEPHENS & COMPANY

MONTGOMERY SECURITIES

, 1997

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee and the NASD fee.

<TABLE>
<CAPTION>
AMOUNT TO BE
PAID
------------
<S> <C>
SEC registration fee............................................................ $ 22,652
NASD fee........................................................................ 7,975
Application fee--National Market System......................................... 50,000
Printing and engraving expenses................................................. 150,000
Legal fees and expenses......................................................... 250,000
Accounting fees and expenses.................................................... 100,000
Blue Sky qualification fees and expenses........................................ 10,000
Transfer Agent and Registrar fees............................................... 10,000
D&O Insurance................................................................... 300,000
Miscellaneous fees and expenses................................................. 99,373
------------
Total......................................................................... $ 1,000,000
------------
------------
</TABLE>

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

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

The Company has entered into agreements (the "Indemnification Agreements")
with each of the directors and officers of the Company pursuant to which the
Company has agreed to indemnify such director or officer from claims,
liabilities, damages, expenses, losses, costs, penalties or amounts paid in
settlement incurred by such director or officer in or arising out of such
person's capacity as a director, officer, employee and/or agent of the Company
or any other corporation of which such person is a director or officer at the
request of the Company to the maximum extent provided by applicable law. In
addition, such director or officer is entitled to an advance of expenses to the
maximum extent authorized or permitted by law.

II-1
<PAGE>
To the extent that the Board of Directors or the stockholders of the Company
wish to limit or repeal the ability of the Company to provide indemnification as
set forth in the Company's Certificate of Incorporation, such repeal or
limitation may not be effective as to directors and officers who are parties to
the Indemnification Agreements, because their rights to full protection would be
contractually assured by the Indemnification Agreements. It is anticipated that
similar contracts may be entered into, from time to time, with future directors
of the Company.

The Form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Company and
its directors and officers for certain liabilities arising under the Securities
Act or otherwise.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

On February 1, 1996, Power-One LLC, a Delaware limited liability company
("Power LLC"), was merged into Power-Merger, Inc., a Delaware corporation
("Power-Merger"), with Power-Merger as the surviving entity (the "Merger").
Immediately after the consummation of the Merger, Power-Merger changed its name
to Power-One, Inc. (the "Company").

As a result of the Merger, the Company issued an aggregate of 10,000,000
shares of Common Stock, par value $.001, and 15,153,698 shares of Series A
Preferred Stock, par value $.001, to the members of Power LLC in exchange for
all of the outstanding membership interests of Power LLC. The Company issued the
shares without complying with the registration and prospectus delivery
requirements of the Securities Act, in reliance upon the exemption provided by
Section 4(2) of the Securities Act.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement

3.1 Form of Restated Certificate of Incorporation of the Company

3.2 Form of Amended and Restated Bylaws of the Company

4.1 Specimen of Common Stock Certificate

5.1 Opinion of O'Melveny & Myers LLP

10.1 Form of Indemnification Agreement between the Company and its directors, executive officers and certain
other officers

10.2* Form of Employment and Compensation Agreements between the Company and Mr. Goldman, Mr. Schnopp, Mr.
Roark, Mr. Hage, and Mr. Godfrey

10.3* Form of Amendment to Employment and Compensation Agreements

10.5* 1996 Stock Incentive Plan

10.6 Amended and Restated 1996 Stock Incentive Plan

10.7 Form of Management Bonus Plan

10.8 Credit Agreement among the Company, NationsBank of Texas, N.A., and certain lenders, dated September
27, 1995

10.9 First Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated February 1, 1996

10.10 Second Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated September 18, 1996
</TABLE>

II-2
<PAGE>

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
10.11 Security Agreement between the Company and NationsBank of Texas, N.A., dated February 1, 1996

10.12 Form of Pledge Agreement

10.13 Product and Component Agreement, including the related License Agreement, between the Company and Calex
Manufacturing Company
dated April 2, 1996

10.14 P-E Tax Exemption Grant dated January 4, 1995

10.15 Third Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated August 18, 1997

10.16 Form of Employee Stock Purchase Plan

10.17 Form of Selection Letter between Company and each executive officer

10.18 Amendment to Employment and Compensation Agreement dated September 11, 1997

11 Statement regarding Computation of Pro Forma Per Share Earnings

21* List of Subsidiaries

23.1 Independent Auditors' Consent and Report on Financial Statement Schedule

23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)

24* Power of Attorney (see page S-1)

27.1* Financial Statements Schedule
</TABLE>

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

* Previously filed.

(b) Financial Statement Schedule

Valuation and Qualifying Accounts--Schedule VIII

All other schedules for which provision is made in the applicable accounting
regulations of the Commission are provided in the Notes to the Financial
Statements included elsewhere in this Registration Statement or are not required
under the applicable instructions or are inapplicable and therefore have been
omitted.

ITEM 17. UNDERTAKINGS

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.

(b) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.

(c) Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions described in Item 14 or otherwise, the Registrant has
been advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act, and
is, therefore,

II-3
<PAGE>
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel,
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(d) The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or Rule
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of Prospectus shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Los
Angeles, State of California on this 12th day of September, 1997.

<TABLE>
<S> <C> <C>
POWER-ONE, INC.

By: /s/ STEVEN J. GOLDMAN
-----------------------------------------
Steven J. Goldman
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------

President, Chief Executive
/s/ STEVEN J. GOLDMAN Officer and Chairman
- ------------------------------ (Principal Executive September 12, 1997
Steven J. Goldman Officer)

Vice President, Chief
* Financial Officer and
- ------------------------------ Secretary September 12, 1997
Eddie K. Schnopp (Principal Financial and
Accounting Officer)

*
- ------------------------------ Director September 12, 1997
Jon E.M. Jacoby

*
- ------------------------------ Director September 12, 1997
Douglas H. Martin

*By: /s/ Steven J. Goldman
-------------------------
Steven J. Goldman
ATTORNEY-IN-FACT

S-1
<PAGE>
POWER ONE, INC.

VALUATION AND QUALIFYING ACCOUNTS--SCHEDULE VIII

<TABLE>
<CAPTION>
COLUMN B COLUMN C--ADDITIONS COLUMN E
----------- ------------------------ -----------
BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
BEGINNING COSTS AND OTHER ------------- END OF
COLUMN A--DESCRIPTION OF PERIOD EXPENSES(1) ACCOUNTS DEDUCTIONS(2) PERIOD
- --------------------------------------------------- ----------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year Ended December 31, 1994(3).................. $ 215,000 $ (7,000) $ 208,000
Nine Months Ended September 30, 1995(3).......... $ 208,000 $ 100,000 $ 308,000
Three Months Ended December 31, 1995............. $ 308,000 $ (105,000) $ 203,000
Year Ended December 31, 1996..................... $ 203,000 $ 435,000 $ 638,000

Accrued sales discounts and returns:
Year Ended December 31, 1994(3).................. $ 245,000 $ 120,000 $ 365,000
Nine Months Ended September 30, 1995(3).......... $ 365,000 $ 365,000
Three Months Ended December 31, 1995............. $ 365,000 $ 73,000 $ 438,000
Year Ended December 31, 1996..................... $ 438,000 $ 147,000 $ 585,000

Accrued warranties:
Year Ended December 31, 1994(3).................. $ 250,000 $ 477,000 $ (327,000) $ 400,000
Nine Months Ended September 30, 1995(3).......... $ 400,000 $ 239,000 $ (239,000) $ 400,000
Three Months Ended December 31, 1995............. $ 400,000 $ 98,000 $ (98,000) $ 400,000
Year Ended December 31, 1996..................... $ 400,000 $ 300,000 $ (300,000) $ 400,000
</TABLE>

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

(1) For the allowance for doubtful accounts, represents charges to bad debt
expense for the year. For the accrued sales discounts and returns,
represents the provision for estimated discounts and returns.

(2) For the allowance for doubtful accounts, represents bad debt charge offs.

(3) Data of the Predecessor Company.

S-2
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement

3.1 Form of Restated Certificate of Incorporation of the Company

3.2 Form of Amended and Restated Bylaws of the Company

4.1 Specimen of Common Stock Certificate

5.1 Opinion of O'Melveny & Myers LLP

10.1 Form of Indemnification Agreement between the Company and its directors, executive officers and certain
other officers

10.2* Form of Employment and Compensation Agreements between the Company and Mr. Goldman, Mr. Schnopp, Mr.
Roark, Mr. Hage, and Mr. Godfrey

10.3* Form of Amendment to Employment and Compensation Agreements

10.5* 1996 Stock Incentive Plan

10.6 Amended and Restated 1996 Stock Incentive Plan

10.7 Form of Management Bonus Plan

10.8 Credit Agreement among the Company, NationsBank of Texas, N.A., and certain lenders, dated September
27, 1995

10.9 First Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated February 1, 1996

10.10 Second Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated September 18, 1996

10.11 Security Agreement between the Company and NationsBank of Texas, N.A., dated February 1, 1996

10.12 Form of Pledge Agreement

10.13 Product and Component Agreement, including the related License Agreement, between the Company and Calex
Manufacturing Company
dated April 2, 1996

10.14 P-E Tax Exemption Grant dated January 4, 1995

10.15 Third Amendment to Credit Agreement among the Company, NationsBank of Texas, N.A. and certain lenders,
dated August 18, 1997

10.16 Form of Employee Stock Purchase Plan

10.17 Form of Selection Letter between Company and each executive officer

10.18 Amendment to Employment and Compensation Agreement dated September 11, 1997

11 Statement regarding Computation of Pro Forma Per Share Earnings

21* List of Subsidiaries

23.1 Independent Auditors' Consent and Report on Financial Statement Schedule

23.2 Consent of O'Melveny & Myers LLP (included in Exhibit 5.1)

24* Power of Attorney (see page S-1)

27.1* Financial Statements Schedule
</TABLE>

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

* Previously filed.

<PAGE>

EXHIBIT 1.1

POWER-ONE, INC.

5,000,000 SHARES (*)
COMMON STOCK

($0.001 PAR VALUE)

UNDERWRITING AGREEMENT

______________, 1997

STEPHENS INC., ROBERTSON, STEPHENS & COMPANY LLC
AND MONTGOMERY SECURITIES
As Representatives of the several
Underwriters named in Schedule I hereto.
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201

Gentlemen:

Power-One, Inc., a Delaware corporation (the "Company"), confirms its
agreement with the several underwriters (the "Underwriters") for whom you are
acting as representatives (the "Representatives") for the Company to issue and
sell 5,000,000 shares of the Company's common stock, par value $0.001 per share
(the "Underwritten Shares") to the Underwriters. The Company's common stock is
more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.

For the sole purpose of covering over-allotments in connection with the
sale of the Underwritten Shares, the Company shall grant to the Underwriters the
option (the "Option") described in Section 2 hereof to purchase all or any part
of an additional 750,000 shares of the Company's common stock (the "Option
Shares"). The Underwritten Shares and the Option Shares purchased pursuant to
this Underwriting Agreement (this "Agreement") are herein called the "Shares"
and the proposed offering of the Shares by the Underwriters is hereinafter
referred to as the "Public Offering."

The Company has filed with the Securities and Exchange Commission (the
"Commission"), pursuant to the Securities Act of 1933, as amended (the "Act"),
and published rules and regulations adopted by the Commission under the Act (the
"Rules"), a registration statement on Form S-1 ("Form S-1") (File No.
333-32889), including a Preliminary Prospectus, relating to the Shares, and such
amendments to such registration statement as may have been filed with the
Commission to the date of this Agreement. The Company will also file with the
Commission one of the following: (A) prior to effectiveness of such registration
statement, a further amendment to such registration statement, including the
form of final prospectus, and/or (B) after effectiveness of such registration
statement, a final prospectus in accordance with Rules 430A and 424(b). The
Company has furnished to the Representatives copies of such registration

________________

(*) Plus up to 750,000 additional shares of common stock to cover
over-allotments.

<PAGE>

statement, each amendment to it filed by the Company with the Commission, and
each Preliminary Prospectus filed by the Company with the Commission. The
registration statement as amended at the time it becomes or became effective
(the "Effective Date"), including financial statements and all exhibits and any
information deemed to be included by Rule 430A, is called the "Registration
Statement." The term "Preliminary Prospectus" means any Preliminary Prospectus
(as referred to in Rule 430 or Rule 430A of the Rules) included at any time as a
part of the registration statement and the term "Prospectus" means the
prospectus relating to the Shares that is first filed pursuant to Rule 424(b)
after the date hereof.

Any reference herein to the Registration Statement, any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include any
documents incorporated by reference therein on or before the Effective Date or
the date of such Preliminary Prospectus or the Prospectus, as the case may be.

As the Representatives, you have advised the Company that (a) you are
authorized to enter into this Agreement on behalf of the several Underwriters
and (b) the Underwriters are willing, acting severally and not jointly, to
purchase the amounts of the Underwritten Shares set forth opposite their
respective names in Schedule I hereto, plus their pro rata portion of the Option
Shares if you elect to exercise the over-allotment Option in whole or in part
for the accounts of the several Underwriters.

In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the Company
and the Underwriters hereby agree as follows:

1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY

(a) The Company represents and warrants to, and agrees with, each
Underwriter as follows:

(i) The Company has been duly organized, is in compliance with its
Certificate of Incorporation, and is validly existing as a corporation in
good standing under the laws of the State of Delaware, with full power and
authority (corporate and other) to own its properties and conduct its
business as described in the Prospectus. Each significant subsidiary (as
defined by the Act) of the Company (each a "Subsidiary" and collectively,
the "Subsidiaries") has been duly incorporated and is validly existing as a
corporation, in good standing under the laws of the jurisdiction of its
organization, with full power and authority (corporate and other) to own or
lease its properties, and conduct its business. The Company and the
Subsidiaries are duly qualified to transact business in all jurisdictions
in which the conduct of its business or the ownership or lease of its
properties requires such qualifications except where the failure to be so
qualified would not reasonably be expected to have a Material Adverse
Effect (as defined below). The Company owns all of the outstanding capital
stock of its Subsidiaries free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest.

(ii) The outstanding shares of common stock of the Company have
been duly and validly authorized and issued and are fully paid and
non-assessable; the Shares are duly and validly authorized, and, if not
now issued, when issued and paid for as contemplated herein, will be
fully paid and non-assessable. As of the Closing Date, there will be no
preemptive or other similar rights to subscribe for or to purchase, or
any restriction upon the voting or transfer of the Shares pursuant to
the Company's Certificate of Incorporation, bylaws, or other governing
documents or any agreement or other instrument to which the Company or
any of its Subsidiaries is a party or by which any of them may be bound.
Neither the filing of the Registration Statement nor the offering

<PAGE>

of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or
relating to the registration of any shares of any class of the Company's
capital stock. The Shares have been approved for listing on The Nasdaq
National Market, subject to official notice of issuance.

(iii) The Shares conform in all material respects with the
statements concerning them in the Prospectus. As of the Closing Date (as
defined below) and any Option Closing Date (as defined below), if
applicable, the Company will have the authorized capital stock set forth
under the caption "Description of Capital Stock" in the Prospectus. No
further corporate approval or authority on behalf of the Company will be
required for the issuance and sale of the Shares to be sold by the Company
as contemplated herein.

(iv) Any Preliminary Prospectus, the Prospectus and the Registration
Statement comply as to form with the requirements of the Act and the Rules,
including Form S-1.

(v) Neither the Commission nor any other agency, body, authority,
court or arbitrator of competent jurisdiction has, by order or otherwise,
prohibited or suspended the use of any Preliminary Prospectus or the
Prospectus relating to the proposed offering of the Shares or, to the
Company's knowledge, instituted proceedings for that purpose. The
Registration Statement, the Prospectus and any Preliminary Prospectus and
any amendments or supplements thereto at the time they became or become
effective or were filed or are filed with the Commission contained or will
contain all statements which are required to be stated therein by, and in
all material respects conformed or will conform to the requirements of, the
Act and the Rules. Neither the Registration Statement nor any Preliminary
Prospectus nor any amendment thereto, and neither the Prospectus nor any
supplement thereto, as of its date and while effective, contained any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading;
PROVIDED, HOWEVER, that the Company does not make any representations or
warranties as to information contained in or omitted from the Registration
Statement or any Preliminary Prospectus or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representatives, expressly for use in the preparation thereof
as hereinafter set forth in Section 15.

(vi) The consolidated financial statements of the Company and the
Subsidiaries, together with related notes and schedules as set forth in the
Registration Statement, present fairly the consolidated financial condition
and the results of operations of the Company and the Subsidiaries, at the
indicated dates and for the indicated periods. Such financial statements
have been prepared in accordance with generally accepted accounting
principles ("GAAP"), consistently applied throughout the periods involved,
and all adjustments necessary for a fair presentation of results for such
periods have been made. The summary financial information and the selected
financial data included in the Prospectus present fairly in accordance with
GAAP (other than the "EBITDA" information) the information shown therein
and have been compiled on a basis consistent with that of the audited and
unaudited financial statements from which they were derived.

(vii) Except as is disclosed in the Prospectus, there is no action
or proceeding pending or, to the knowledge of the Company, threatened
against the Company, any of its Subsidiaries or any of their respective
officers or any of their properties, assets or rights before any court or

<PAGE>

administrative or governmental agency or other body which reasonably would
be expected to (A) result in any material adverse change in the financial
condition, or in the earnings, business, affairs, properties, business
prospects or results of operations of the Company and its Subsidiaries
taken as a whole ("Material Adverse Change" or "Material Adverse Effect,"
as the case may be), whether or not arising in the ordinary course of
business, (B) adversely affect the performance of this Agreement or the
consummation of the transactions herein contemplated, except as disclosed
in the Prospectus and for which the Company maintains a reserve in an
amount which it believes is adequate to cover potential liabilities, or (C)
be required to be disclosed in the Registration Statement.

(viii) The Company and each of its Subsidiaries are not in
violation of any law, ordinance, governmental rule or regulation or court
decree to which they may be subject which violation reasonably would be
expected to have a Material Adverse Effect.

(ix) The Company and its Subsidiaries have good and marketable title
to all of the real properties and valid title to all other assets reflected
in the consolidated financial statements hereinabove described or as
described in the Prospectus as being owned by them, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those securing
indebtedness described in such financial statements or as described in the
Prospectus or which do not materially affect the present or proposed use of
such properties or assets or would not cause a Material Adverse Effect.
The Company and its Subsidiaries occupy their leased properties under
valid, subsisting and binding leases with only such exceptions as in the
aggregate are not material and do not interfere with the conduct of the
business of the Company and its Subsidiaries. There exists no default
under the provisions of any lease, contract or other obligation to which
the Company is a party which may result in a Material Adverse Change.

(x) The Company and its Subsidiaries have filed all federal, state
and other tax returns and reports which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received
by them to the extent that such taxes have become due and there is no tax
deficiency that has been or, to the Company's knowledge, might be asserted
against the Company or any of its Subsidiaries that might have a Material
Adverse Effect. All material tax liabilities are adequately provided for
on the books of the Company and its Subsidiaries.

(xi) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, as they may be amended or
supplemented, (A) there has not been any Material Adverse Change nor, to
the knowledge of the Company, is any such change threatened, (B) there has
not been any transaction entered into by the Company or its Subsidiaries
that is material to the earnings, business, affairs, properties, business
prospects or operations of the Company and its Subsidiaries taken as a
whole, other than transactions in the ordinary course of business and
changes and transactions contemplated by the Registration Statement and the
Prospectus, as they may be amended or supplemented, (C) other than changes
in the amounts outstanding under the Company's and its Subsidiaries'
revolving credit facilities, there has not been any material change in the
capital stock, long term debt or material liabilities of the Company or its
Subsidiaries, and (D) there has not been any dividend or distribution of
any kind declared, paid or made on the capital stock of the Company or any
of its Subsidiaries. Neither the Company nor any Subsidiary has any
contingent obligations or liabilities which are required to be but are not
disclosed in the Registration Statement and the Prospectus.

<PAGE>

(xii) The filing of the Registration Statement and related
Prospectus and the execution and delivery of this Agreement have been duly
authorized by the Board of Directors of the Company; this Agreement
constitutes a valid and legally binding obligation of the Company
enforceable in accordance with its terms except as enforceability may be
limited by bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and other laws affecting creditors' rights generally and by
general principles of equity and federal and state securities laws. The
Company is not in breach or violation of or default under any indenture,
mortgage, deed of trust, lease, contract, note or other agreement or
instrument to which it is a party or by which it or any of its properties
is bound and which breach, violation or default would reasonably be
expected to have a Material Adverse Effect. The consummation of the
transactions herein contemplated and the fulfillment of the terms hereof
will not result in a breach or violation of any of the material terms and
provisions of, or constitute a default under, any indenture, mortgage, deed
of trust, lease, contract, note or other agreement or instrument to which
the Company or any Subsidiary is a party, or of the Company's or any
Subsidiary's Certificate of Incorporation or bylaws or any law, decree,
order, rule, writ, injunction or regulation applicable to the Company or
any Subsidiary of a court or of any regulatory body or administrative
agency or other governmental body having jurisdiction over the Company and
its Subsidiaries except for such breaches, violations or defaults as would
not reasonably be expected to have a Material Adverse Effect.

(xiii) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery
by the Company of this Agreement and performance of its obligations
hereunder (except such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or
Blue Sky laws, and filing the Prospectus under Rule 424(b)) has been
obtained or made and is in full force and effect.

(xiv) The Company and each Subsidiary hold all material licenses,
authorizations, charters, certificates and permits from governmental
authorities which are necessary to the conduct of their businesses and
neither the Company nor any Subsidiary has received notice of any
proceeding relating to the revocation or modification of any of such
licenses, authorizations, charters, certificates or permits. The Company
and its Subsidiaries own or otherwise possess rights to the patents, patent
rights, licenses, inventions, copyrights, trademarks, service marks and
trade names presently employed by them in connection with the businesses
now operated by them as described in the Prospectus, and neither the
Company nor any of its Subsidiaries has infringed or received any notice of
infringements of or conflict with asserted rights of others with respect to
any of the foregoing, except where such infringement or conflict would not
reasonably be expected to result in a Material Adverse Effect.

(xv) Deloitte & Touche LLP, independent auditors, who have certified
certain of the financial statements filed with the Commission and included
as part of the Registration Statement and Prospectus, are independent
public accountants within the meaning of the Act, the Rules and Regulation
S-X of the Commission and Rule 101 of the Code of Professional Ethics of
the American Institute of Certified Public Accountants.

(xvi) There are no agreements, contracts or other documents of a
character required to be described in the Registration Statement or the
Prospectus or required by Form S-1 to be filed as

<PAGE>

exhibits to the Registration Statement or incorporated by reference
in the Registration Statement which are not described, filed or
incorporated as required.

(xvii) No labor dispute is pending or, to the knowledge of the
Company, threatened by the Company's or any Subsidiary's employees which
could result in a Material Adverse Effect. No collective bargaining
agreement exists with any of the Company's employees and, to the Company's
knowledge, no agreement is imminent.

(xviii) Except as contemplated by Section 2 hereof and as disclosed
in the Prospectus and permitted by the Rules, the Company has not (itself
or through any person) taken and will not take, directly or indirectly, any
action designed to or which might reasonably be expected to, cause or
result in a violation of Section 5 of the Act or Regulation M under the Act
or in stabilization or manipulation of the price of the Company's common
stock.

(xix) Without limiting the generality of any of the foregoing
representations and warranties and except to the extent no Material Adverse
Effect would reasonably be expected to occur, (a) none of the operations of
the Company or its Subsidiaries is in violation of any material
environmental law, regulation or any permit; (b) neither the Company nor
any of its Subsidiaries has been notified that it is under investigation or
under review by any governmental agency with respect to compliance
therewith or with respect to the generation, use, treatment, storage or
release of hazardous material; (c) neither the Company nor any of its
Subsidiaries have any material liability in connection with the past
generation, use, treatment, storage, disposal or release of any hazardous
material; (d) there is no hazardous material that may reasonably be
expected to pose any material risk to safety, health, or the environment,
on, under or about any property owned, leased or operated by the Company or
any of its Subsidiaries or, to the knowledge of the Company, any property
adjacent to any such property; and (e) there has heretofore been no release
of any hazardous material on, under or about such property, or, to the
knowledge of the Company, any such adjacent property. None of the present
or, to the knowledge of the Company, past property of the Company or any of
its Subsidiaries is listed or proposed for listing on the National
Priorities List pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or on the
Comprehensive Environmental Response Compensation Liability Information
System List ("CERCLIS") or any similar state list of sites requiring
remedial action. Neither the Company nor any of its Subsidiaries is
subject to any Environmental Property Transfer Act, or to the extent that
any such statute is applicable to any property, the Company and its
Subsidiaries have fully complied with their obligations under such
statute(s), and neither has any outstanding obligations or liabilities
under any Environmental Property Transfer Act.

(xx) The Company and its Subsidiaries maintain insurance of the types
and in the amounts customary for their businesses, including, but not
limited to, insurance covering liability and real and personal property
owned or leased by the Company against theft, damage, destruction, acts of
vandalism and all other risks customarily insured against, all of which
insurance is in full force and effect.

(xxi) Neither the Company nor any Subsidiary has at any time
during the last five years (a) made any unlawful contribution to any
candidate for foreign office, or failed to disclose fully any contribution
in violation of law, or (b) made any payment to any federal or state
governmental

<PAGE>

officer or official, or other person charged with similar public or
quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.

(xxii) Each executive officer and director of the Company has
executed a lock-up agreement, a form of which is attached hereto as Exhibit
"A" (the "Lock-Up Agreement").

(b) Any certificate signed by any officer of the Company and delivered to
you or counsel for the Underwriters shall be deemed a representation and
warranty by the Company to the Underwriters as to the matters covered thereby.

2. PURCHASE, SALE AND DELIVERY OF THE UNDERWRITTEN SHARES. On the basis
of the representations, warranties and covenants herein contained, and subject
to the terms and conditions herein set forth, the Company agrees to sell each
Underwriter, severally and not jointly, and each Underwriter agrees, severally
and not jointly, to purchase, at a price of $_____ per share, the number of the
Underwritten Shares set forth on Schedule I attached hereto, subject to
adjustment in accordance with Section 12 hereof.

Payment for the Underwritten Shares shall be made by wire transfer of
immediately available U.S. Funds to a designated account of the Company, to the
order of the Company, against delivery of certificates for the Shares to the
Representatives for the accounts of the several Underwriters. Delivery of
certificates shall be to the Representatives c/o Stephens Inc. ("Stephens"), 111
Center Street, Little Rock, Arkansas 72201, or at such other address as Stephens
may designate in writing. Payment will be made at the offices of Stephens, or
at such other place as shall be agreed upon by Stephens and the Company, at
approximately 9:00 a.m., central time, on _________________, 1997, such time and
date being herein referred to as the "Closing Date." The certificates for the
Underwritten Shares will be delivered in such denominations and in such
registrations as Stephens reasonably requests in writing and will be made
available for inspection at such locations as Stephens may reasonably request at
least one full business day prior to the Closing Date.

In addition, on the basis of the representations, warranties, agreements
and covenants herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants the Option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The Option may be exercised in whole or in part on
one occasion upon written notice (or oral notice, subsequently confirmed in
writing) given not more than thirty (30) days following the date of this
Agreement, by Stephens, on behalf of the Representatives of the several
Underwriters, to the Company setting forth the number of Option Shares as to
which the several Underwriters are exercising the Option and the names and
denominations in which the Option Shares are to be registered. Closing on the
purchase of the Option Shares (the "Option Closing Date"), if any, shall occur
no later than three (3) business days following the date upon which notice of
exercise of the Option is given to the Company, and shall take place at the
offices of Stephens, or at such other place as shall be agreed upon by Stephens
and the Company. Subject to Section 12, the number of Option Shares to be
purchased by each Underwriter shall be in the same proportion to the total
number of shares of the common stock being purchased by such Underwriter bears
to 5,000,000 shares, adjusted by you in such manner as to avoid fractional
shares. The Option may be exercised only to cover over-allotments in the sale
of the Underwritten Shares by the Underwriters. Stephens, on behalf of the
Representatives of the several Underwriters, may cancel such option at any time
prior to its expiration by giving written notice (or oral notice, subsequently
confirmed in writing) of such cancellation to the Company. To the extent, if
any, that the Option is exercised, payment for the Option Shares shall be made
by wire transfer of immediately available U.S. Funds to a designated account of
the

<PAGE>

Company, to the order of the Company. Certificates for the Option Shares
shall be delivered in the same manner and upon the same terms as the
Underwritten Shares.

3. QUALIFIED INDEPENDENT UNDERWRITER. The Company hereby confirms its
engagement of Robertson, Stephens & Company LLC, and Robertson, Stephens &
Company LLC hereby confirms its agreement with the Company to render services
as, a "qualified independent underwriter" within the meaning of Section 2(o) of
Rule 2720 of the National Association of Securities Dealers, Inc. (the "NASD")
with respect to the offering and sale of the Shares. Robertson, Stephens &
Company LLC, in its capacity as qualified independent underwriter and not
otherwise, is referred to herein as the "QIU."

4. OFFERING BY THE UNDERWRITERS. It is understood that the Public
Offering of the Underwritten Shares is to be made as soon as the Representatives
deem it advisable to do so after the Registration Statement has become
effective. The Underwritten Shares are to be initially offered to the public at
the public offering price set forth in the Prospectus. The Representatives may
from time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Shares are purchased pursuant
to Section 2 hereof, the Underwriters will offer them to the public on the
foregoing terms.

It is further understood that you will act as the Representatives for the
Underwriters in the offering and sale of the Shares, in accordance with an
Agreement Among Underwriters which has been entered into by you and the several
other Underwriters.

5. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
of the several Underwriters that:

(a) The Company will use its best efforts to cause the Registration
Statement to become effective and will not, either before or after
effectiveness, file any amendment thereto or supplement to the Prospectus
(including a prospectus filed pursuant to Rule 424(b) which differs from
the Prospectus on file at the time the Registration Statement becomes
effective) or file any documents under the Exchange Act before the earlier
to occur of (A) the 35th day following the Effective Date or (B) the
closing date of the Underwriters' purchase of the Option Shares if such
document would be deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus or the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Act or Rules.

(b) The Company will advise the Representatives promptly of any
request of the Commission or other securities regulatory agency ("Other
Securities Regulator") for amendment of the Registration Statement or for
supplement to the Prospectus or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness
of the Registration Statement or the use of the Prospectus or of the
institution of any proceedings for that purpose, or comparable action taken
or initiated by any Other Securities Regulator, and the Company will use
its reasonable efforts to prevent the issuance of any such stop order
preventing or suspending the use of the Prospectus and to obtain as soon as
possible the lifting thereof, if issued.

(c) The Company will use its reasonable efforts with the
Representatives in endeavoring to qualify the Shares for sale under the
securities laws of such jurisdictions (including foreign

<PAGE>

jurisdictions) as the Representatives may reasonably designate, and will
make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose; PROVIDED,
HOWEVER, the Company shall not be required to qualify as a foreign
corporation or to file a general consent to service of process in any
jurisdiction where it is not so qualified or required to file such a
consent. The Company will, from time to time, prepare and file such
statements, reports, and other documents, as are or may be required to
continue such qualifications in effect for so long a period as the
Representatives may reasonably request for distribution of the Shares.

(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus or the Prospectus as the Representatives may reasonably request.
The Company will deliver to, or upon the order of, the Representatives, on
the Trade Date and thereafter from time to time during the period necessary
to effect the distribution of the Shares as many copies of the Prospectus
in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to each
of the Representatives at or before the Closing Date, one (1) manually
signed copy of the Registration Statement and all amendments thereto
including all exhibits filed therewith (including any document filed under
the Exchange Act and deemed to be incorporated by reference into the
Registration Statement, the Preliminary Prospectus or the Prospectus) and
will deliver to the Representatives such number of copies of the
Registration Statement, but without exhibits, and of all amendments
thereto, as the Representatives may reasonably request.

(e) During the time necessary to effect the distribution of the
Shares, the Company shall comply with all requirements imposed upon it by
the Act, as now and hereafter amended, and by the Rules, as from time to
time in force, so far as is necessary to permit the continuance of sales of
or dealings in the Shares as contemplated by the provisions hereof and the
Prospectus. If, during the period necessary to effect the distribution of
the Shares, any event shall occur as a result of which, in the judgment of
the Company or in the opinion of counsel for the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with
any law or to file under the Exchange Act any document which would be
deemed to be incorporated by reference in the Prospectus in order to comply
with the Act or the Exchange Act, the Company promptly will notify the
Representatives and, subject to the Representatives' prior review, prepare
and file with the Commission and any appropriate Other Securities Regulator
an appropriate amendment or supplement to the Prospectus (at the expense of
the Company) so that the Prospectus as so amended or supplemented will not,
in light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.

(f) The Company will make generally available to its security holders
in the manner contemplated by Rule 158(b) under the Act, as soon as it is
practicable to do so, but in any event not later than the 90th day after
the end of the fiscal quarter first occurring one year after the Effective
Date, an earnings statement in reasonable detail, covering a period of at
least twelve consecutive months beginning after the Effective Date, which
earnings statement shall satisfy the requirements of Section 11(a) of the
Act and will advise you in writing when such statement has been so made
available.

<PAGE>

(g) For a period of three years from the date of this Agreement, the
Company will furnish to the Representatives (a) concurrently with
furnishing of such reports to its stockholders, statements of income of the
Company for each quarter in the form furnished to the Company's
stockholders and certified by the Company's principal financial or
accounting officer; (b) concurrently with furnishing to its stockholders, a
balance sheet of the Company as at the end of such fiscal year, together
with statements of earnings, stockholders' equity and cash flow of the
Company for such fiscal year, all in reasonable detail and accompanied by a
copy of the certificate or report thereon of independent public
accountants; (c) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders; (d) as soon as they are
available, copies of all reports and financial statements furnished to or
filed with the Commission; (e) every press release which was released or
prepared by the Company; and (f) any additional information of a public
nature concerning the Company or its business which you may reasonably
request. During such period, if the Company shall have active subsidiaries
the foregoing financial statements shall be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and shall be accompanied by similar financial statements for
any significant subsidiary (as defined by the Act) which is not so
consolidated.

(h) Promptly after the Company is advised thereof, it will advise the
Representatives, and confirm in writing, that the Registration Statement
and any amendments shall have become effective.

(i) The Company will use the net proceeds from the sale of the Shares
substantially in the manner set forth in the Prospectus under the caption
"Use of Proceeds."

(j) Other than as permitted by the Act and the Rules, the Company
will not distribute any prospectus or offering materials in connection with
the offering and sale of the Shares and prior to the Closing Date or the
Option Closing Date will not issue any press releases or other
communications directly or indirectly and will hold no press conferences
with respect to the Company, the financial condition, results of
operations, business, properties, assets or liabilities of the Company, or
the offering of the Shares, without the prior written consent of Stephens.

(k) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar for its
common stock and will use its best efforts to maintain the listing of the
Shares on The Nasdaq National Market.

(l) Except as contemplated hereby or by the Prospectus, the Company
will not, for a period of one hundred eighty (180) days after the Effective
Date of the Registration Statement, offer to sell, contract to sell, sell
or otherwise dispose of any shares of the Company's common stock or
securities convertible into shares of the Company's common stock without
the prior written consent of Robertson, Stephens & Company LLC, which
consent will not be unreasonably withheld.

The foregoing covenants and agreements shall apply to any successor of the
Company, including without limitation, any entity into which the Company might
consolidate or merge.

6. COSTS AND EXPENSES. Whether or not the Registration Statement becomes
effective, the Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting

<PAGE>

fees of the Company; the fees and disbursements of counsel for the Company;
the cost of printing and delivering to Underwriters copies of the
Registration Statement, any Preliminary Prospectus, the Prospectus, this
Agreement, the Agreement Among Underwriters, the Selected Dealer Agreement,
Underwriters' Questionnaire and Power of Attorney, and the Blue Sky Survey
and any supplements thereto; the filing fees of the Commission; the filing
fees incident to securing any required review by the NASD of the terms of the
sale of the Shares on behalf of, and any disbursements made by, the
Representatives or Robertson, Stephens & Company LLC in its capacity as a
"qualified independent underwriter;" the cost of printing certificates
representing the Shares; and the cost and charges of any transfer agent or
registrar. Any transfer taxes imposed on the sale of the Shares to the
Underwriters will be paid by the Company. The Company shall not, however, be
required to pay for any of the Underwriters' expenses (other than those
related to qualification under State securities or Blue Sky laws) except
that, if the Public Offering shall not be consummated because the conditions
in Section 8 hereof are not satisfied, or because this Agreement is
terminated by the Representatives pursuant to Section 7 hereof, or by reason
of any failure, refusal or inability on the part of the Company to perform
any undertaking or satisfy any condition of this Agreement or to comply with
any of the terms hereof on their part to be performed, unless such failure to
satisfy said condition or to comply with said terms is due to the default or
omission of any Underwriter, then the Company shall reimburse the several
Underwriters for all costs and expenses, including attorney fees and
out-of-pocket expenses, reasonably incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of
performing their obligations hereunder, but the Company shall not in any
event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares.

7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The obligations of the
several Underwriters to purchase and pay for the Shares as provided herein, are
subject to the accuracy, as of the Closing Date and as of the Option Closing
Date, of the representations and warranties and agreements of the Company
contained herein, to the performance by the Company of its obligations hereunder
and to the following additional conditions:

(a) The Registration Statement shall have become effective not later
than __:00 a.m., central time, on the date of this Agreement, unless a
later time and date is agreed to by the Representatives, and no stop order
or other order suspending the effectiveness thereof or the qualification of
the Shares under the State securities or Blue Sky laws of any jurisdiction
shall have been issued and no proceeding for that purpose shall have been
taken or, to the knowledge of the Company, shall be contemplated or
threatened by the Commission or any Other Securities Regulator. If the
Company has elected to rely upon Rule 430A of the Rules, the price of the
Shares and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Act
within the prescribed time period, and prior to the Closing Date the
Company shall have provided evidence satisfactory to the Representatives of
such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A under the Act. All requests
for additional information on the part of the Commission or any other
government or regulatory authority with jurisdiction (to be included in the
Registration Statement or Prospectus or otherwise) shall be complied with
to the satisfaction of the Commission or such authorities.

(b) The Representatives shall have received on the Closing Date and
on the Option Closing Date the opinion of O'Melveny & Myers LLP, counsel
for the Company, with respect to the

<PAGE>

Company, and an opinion of foreign counsel to the Company with respect
to the Subsidiaries, with respect to matters set forth below in
subparagraphs (i) through (ix) dated the Closing Date and the Option
Closing Date, addressed to the Underwriters in form and substance
satisfactory to Wright, Lindsey & Jennings, counsel to the Underwriters,
to the effect that:

(i) The Company and the Subsidiaries have been duly organized
and are validly existing in good standing under the laws of the
state(s) or similar foreign jurisdictions (with respect to the
Subsidiaries) of their organization with corporate power to own their
properties and conduct their business as described in the Registration
Statement and Prospectus; the Company and the Subsidiaries are duly
qualified to transact business in those jurisdictions listed in such
counsel's opinion (which list shall include, with respect to the
Company, each state in which the Company owns properties as shown in
the Prospectus); and all of the outstanding shares of capital stock of
the Company have been duly authorized and, upon payment for and
delivery of the Shares and the countersigning of the certificates
representing the Shares by a duly signatory, the Shares will be duly
issued, fully paid and non-assessable, and except as set forth in the
Prospectus and the Registration Statement, no options, warrants or
other rights to purchase, agreements or other obligations to issue or
other rights to convert any obligations into any shares of capital
stock of the Company are outstanding.

(ii) The Company has authorized and, to the knowledge of such
counsel, outstanding the capital stock set forth under the caption
"Description of Capital Stock" in the Registration Statement and
Prospectus, except for issuances subsequent to the date of the
Prospectus, if any, pursuant to reservations, commitments, employee
benefit plans, the recapitalization contemplated by the Registration
Statement or other existing agreements; all of the Shares conform to
the description thereof contained in the Prospectus; the certificates
for the Shares are in due and proper form, the Underwritten Shares to
be sold pursuant to this Agreement have been duly authorized and, upon
payment for and delivery of the Shares and the countersigning of the
certificates representing the Shares by a duly signatory, the Shares
will be validly issued, fully paid and non-assessable when issued and
paid for as contemplated by this Agreement; there are no preemptive or
other restrictive rights to subscribe for or to purchase or any
restriction upon the voting or transfer of the Shares pursuant to the
Company's Certificate of Incorporation, bylaws, other governing
documents or, to such counsel's knowledge, any material agreement or
other instrument to which the Company is a party or by which it is
bound; and, to such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Shares as
contemplated by this Agreement gives rise to any rights, other than
those which have been waived or satisfied, for or relating to the
registration of any class of the Company's capital stock.

(iii) The Registration Statement has been declared effective
under the Act and to the knowledge of such counsel no stop order
proceedings with respect thereto have been instituted by the
Commission or threatened and all filings required by Rule 424 and Rule
430A of the Rules have been made.

(iv) The Registration Statement, all Preliminary Prospectuses,
the Prospectus and each amendment or supplement thereto, as of their
respective dates they were filed,

<PAGE>

appeared on their face to comply as to form in all material respects
with the requirements of the Act and the Rules, except that such
counsel need express no opinion as to the information supplied by
the Underwriters or the financial statements, schedules and other
financial or statistical information included therein.

(v) Except as set forth in the Registration Statement and the
Prospectus, to the best of our knowledge, there are no contracts,
agreements or understandings known to such counsel between the Company
and any person granting such person the right to require the Company
to file a registration statement under the Act with respect to any
securities of the Company owned or to be owned by such person or to
require the Company to include such securities in the securities being
registered pursuant to a registration statement filed by the Company
under the Act, except for any rights under employee stock compensation
plans, which registration rights are not exercisable with respect to
the transactions contemplated by this Agreement, and except as set
forth in the Prospectus.

(vi) To the knowledge of such counsel, the Company's execution
and delivery of, and performance of its obligations under, this
Agreement do not (A) violate the Company's and its Subsidiaries'
respective charter or bylaws, (B) breach or otherwise violate any
existing obligation of or restriction on the Company or its
Subsidiaries under any order, judgment or decree of any federal or
Delaware court or government authority binding on the Company or its
Subsidiaries that we have, in the exercise of customary professional
diligence, recognized as applicable to the Company or its Subsidiaries
or to transactions of the type contemplated by this Agreement, except
that we do not express an opinion regarding any federal securities
laws or Blue Sky or state securities laws. The execution and delivery
by the Company of, and performance of its obligations under, the
Agreement, do not violate any Delaware or federal statute or
regulation that we have, in the exercise of customary professional
diligence, recognized as applicable to the Company or its Subsidiaries
or to transactions of the type contemplated by the Agreement, except
that we do not express an opinion regarding any federal securities
laws or Blue Sky or state securities laws.

(vii) This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding obligation of the
Company.

(viii) No approval, consent, order, authority or permit of
Delaware or any U.S. Federal governmental authority is required on the
part of the Company for the execution and delivery of this Agreement
or for the issuance and sale of the Shares by the Company herein
contemplated (other than required by NASD regulation or state
securities and Blue Sky laws, as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the
same.

In addition to the matters set forth above, such counsel shall also include
a statement to the effect that such counsel has participated in the
preparation of the Registration Statement and the Prospectus and, based on
such participation, no facts have come to the attention of such counsel
which appeared on their face to cause such counsel to believe that any part
of the Registration Statement or any amendment thereto (other than the
financial statements and other financial and statistical data contained
therein, as to which such counsel may express no belief), as of its
effective date, contained

<PAGE>

any untrue statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the statements
therein not misleading or that the Prospectus or any amendment or
supplement thereto (other than the financial statements and other
financial data contained therein, as to which such counsel may express
no belief), contains any untrue statement of a material fact or omitted
to state any material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The descriptions in the Registration Statement and
Prospectus of statutes, regulations, legal and governmental proceedings,
matters of law and contracts and other documents are accurate in all
material respects and fairly present the information required to be
shown. Such counsel does not know of any legal or governmental
proceedings required to be described in the Registration Statement or
the Prospectus which are not described as required or of any contracts
or documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the
Registration Statement which are not described and filed as required; it
being understood that such counsel need express no opinion as to the
financial statements or other financial data contained in the
Registration Statement or the Prospectus. Such counsel may state that
its opinion is limited to the applicable law of the United States of
America, the Delaware General Corporation Law and the general corporate
law of jurisdictions under which the Subsidiaries are organized, and
that such counsel renders no opinion with respect to the law of any
other jurisdiction. Such opinion may state further that whenever such
opinion is based on factual matters to such counsel's knowledge or known
to such counsel, such counsel has relied exclusively on certificates of
officers (after discussion of the contents thereof with such officers)
of the Company or certificates of others as to the existence or
nonexistence of factual matters on which such opinion is predicated but
has no reason to believe that any such certificate is untrue or
inaccurate in any material respect.

Such opinion shall contain only those qualifications as Wright,
Lindsey & Jennings, counsel to the Underwriters, may reasonably request or
allow.

(c) The Representatives shall have received from Wright, Lindsey &
Jennings, counsel to the Underwriters, an opinion dated the Closing Date,
substantially to the effects specified in subparagraph (iii) and (iv) of
paragraph (b) of this Section 7, and that the Company is a validly
organized and existing corporation under the laws of the State of Delaware.
In rendering such opinion, Wright, Lindsey & Jennings may rely as to all
matters governed other than by Federal law on the opinions of counsel
referred to in paragraph (b) of this Section 7. In addition to the matters
set forth above, such opinion shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads them to
believe that the Registration Statement or any amendment thereto at the
time the Registration Statement or amendment became effective or the
Preliminary Prospectus or the Prospectus or any amendment or supplement
thereto as of their respective dates contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, not misleading (except
that such counsel need express no view as to financial statements,
schedules and other financial or statistical information included therein).

(d) The Representatives shall have received at or prior to the
Closing Date from Wright, Lindsey & Jennings a memorandum or summary, in
form and substance satisfactory to the Representatives, with respect to the
qualification or exemption therefrom for offering and sale by the
Underwriters of the Shares under the State securities or Blue Sky laws of
such jurisdictions as the Representatives may reasonably have designated.

<PAGE>
(e) The Representatives shall have received on the Closing Date and
on the Option Closing Date, as the case may be, signed letters from
Deloitte & Touche LLP, addressed to the Underwriters dated as of the
Effective Date and again dated as of the Closing Date and as of the Option
Closing Date, as the case may be, with respect to the financial statements
and certain financial and statistical information contained in the
Registration Statement and the Prospectus. All such letters shall be in
form and substance satisfactory to the Representatives and Wright, Lindsey
& Jennings, counsel to the Underwriters.

(f) The Representatives shall have received on the Closing Date and
on the Option Closing Date, as the case may be, a certificate or
certificates of the President & Chief Executive Officer and Vice President
and Chief Financial Officer of the Company to the effect that, on and as of
the Closing Date and on and as of the Option Closing Date, as the case may
be, each of them severally represents as follows:

(i) (A) the representations and warranties of the Company in
this Agreement are true and correct on and as of the Closing Date and
on and as of the Option Closing Date, as the case may be, and (B) the
Company has complied with all of its agreements and covenants and has
satisfied all of the conditions on its part to be performed or
satisfied at or prior to the Closing Date and at or prior to the
Option Closing Date, as the case may be.

(ii) They have carefully examined the Registration Statement and
the Prospectus and, in their opinion, since the Effective Date, (A)
the statements contained in the Registration Statement and the
Prospectus remain true and correct, and (B) such Registration
Statement and Prospectus did not omit to state a material fact
necessary in order to make the statements therein not misleading.

(g) The Company shall have furnished to the Representatives such
additional information and further certificates and documents confirming
the representations and warranties contained herein and related matters as
the Representatives may reasonably have requested.

(h) Since the respective dates as of which information is given in
the Prospectus, there shall not have been any Material Adverse Change.

(i) The Shares shall have been approved for listing on The Nasdaq
National Market, subject to official notice of issuance.

The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and Wright, Lindsey & Jennings,
counsel for the Underwriters.

If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of such termination in writing or by
confirmed telefax at or prior to the Closing Date. In such event, the Company
and the Underwriters shall not be under any obligation to each other (except to
the extent provided in Sections 6, 9 and 10 hereof).

<PAGE>

8. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company to sell and deliver the Shares are subject to the conditions that (a) at
or before __:00 a.m., central time, on the date of this Agreement, or such later
time and date as the Company and the Representatives may from time to time
consent to in writing or by confirmed telefax, the Registration Statement shall
have become effective, and (b) at the Closing Date no stop order suspending the
effectiveness of the Registration Statement shall have been issued or
proceedings therefor initiated or threatened. If either of the conditions
hereinabove provided for in this Section 8 shall not have been fulfilled when
and as required by this Agreement to be fulfilled, this Agreement may be
terminated by the Company by notifying the Representatives of such termination
in writing or by confirmed telefax at or prior to the Closing Date.

9. INDEMNIFICATION.

(a) The Company agrees to indemnify and hold harmless each Underwriter and
each person, if any, who controls any Underwriter within the meaning of the Act,
the Rules and the Exchange Act from and against any and all losses, claims,
damages, liabilities, joint or several, to which such Underwriter or such
controlling person may become subject under the Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) arise out of or are based upon any breach of any
representation, warranty, agreement, or covenant of the Company, or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse each Underwriter and each such controlling person for
legal and other expenses reasonably incurred in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
PROVIDED, HOWEVER, that the Company will not be liable in any such case to the
extent that any such loss, claim, damage or liability arises out of or is based
upon an untrue statement or alleged untrue statement made in, or omission or
alleged omission from, the Registration Statement, any Preliminary Prospectus,
the Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or through the
Representatives specifically for use in the preparation thereof, it being
understood and agreed that the only such information furnished by any
Underwriter consists of the information described as such in Section 15 below;
and PROVIDED FURTHER, that with respect to any untrue statement or alleged
untrue statement in or omission or alleged omission from any Preliminary
Prospectus, the indemnity agreement contained in this Section 9(a) shall not
inure to the benefit of any Underwriter from whom the person asserting any such
losses, claims, damages or liabilities purchased the Shares concerned, to the
extent that a prospectus relating to such Shares was required to be delivered by
such Underwriter under the Act in connection with such purchase and any such
loss, claim, damage or liability of such Underwriter, results from the fact that
there was not sent or given to such person, at or prior to the written
confirmation of the sale of such Shares to such person, a copy of the Prospectus
as then amended or supplemented (excluding any documents incorporated by
reference therein) if the Company had previously furnished copies thereof to
such Underwriter. This indemnity agreement will be in addition to any liability
which the Company may otherwise have.

(b) Each Underwriter severally, but not jointly, will indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement, and each person, if any, who controls the
Company, within the meaning of the Act, the Rules and the Exchange Act from and
against any losses, claims, damages or liabilities to which the Company, or any
such director, officer, or controlling person may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities

<PAGE>

(or actions or proceedings in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made; and will
reimburse any legal or other expenses reasonably incurred by the Company, or
any such director, officer, or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; PROVIDED, HOWEVER, that each Underwriter will be liable in such
case only to the extent that such untrue statement, or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or such amendment or
supplement, in reliance upon and in conformity with information furnished to
the Company by or through the Representatives expressly for use in the
preparation thereof, which information is described in Section 15. This
indemnity agreement will be in addition to any liability which such
Underwriter may otherwise have.

(c) Promptly after receipt by an indemnified party under this Section 9 of
notice of the commencement of any action or proceeding, such indemnified party
will, if a claim in respect thereof is to be made against an indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section 9, except to the extent that the indemnifying party is
substantially prejudiced by the omission of such notification. In case any such
action or proceeding is brought against any party, and it notifies an
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 9 for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding. Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel has
been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party has failed to assume the defense and employ counsel, or (iii)
the named parties to any such action (including any impleaded parties) include
such indemnified party and the indemnifying party, as the case may be, and such
indemnified party shall have been advised in writing by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party, in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that (A) the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such indemnified parties, which firm shall be designated in
writing by the indemnified parties, and that (B) all such fees and expenses
shall be reimbursed as they are incurred. Subject to the foregoing provisions
of this Section 9(c), the indemnifying

<PAGE>

party shall not be liable for the costs and expenses of any settlement of any
action without the consent of the indemnifying party.

(d) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9 is for
any reason held to be unavailable to an indemnified party under subsection (a)
or (b) above in respect to any losses, claims, damages, liabilities or expenses
referred to therein, then each applicable indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the Underwriters
on the other hand from the offering of the Shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the parties in connection
with the statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Underwriters on the other hand shall be deemed to be in the same proportion as
the total proceeds from the offering (net of underwriting discounts and
commissions but before deducting expenses) received by the Company bears to the
underwriting discounts and commissions received by the Underwriters. The
relative fault of a party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by each party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include
any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any such action or claim.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that such Underwriters
have otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute shall be several in proportion to their respective underwriting
obligations and not joint.

(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 9 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

10. INDEMNIFICATION OF QUALIFIED INDEPENDENT UNDERWRITER.

<PAGE>

(a) The Company agrees to indemnify and hold harmless Robertson, Stephens
& Company LLC, in its capacity as QIU, and each person, if any, who controls the
QIU within the meaning of the Act, the Rules and the Exchange Act from and
against any and all losses, claims, damages, liabilities, joint or several, to
which the QIU or such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon any breach of any
representation, warranty, agreement, or covenant of the Company, or any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse the QIU and each such controlling person for legal and
other expenses reasonably incurred in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding.

(b) Promptly after receipt by the QIU under this Section 10 of notice of
the commencement of any action or proceeding, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section 10, notify the indemnifying party of the commencement thereof; but the
omission so to notify the indemnifying party will not relieve it from any
liability which it may have to any indemnified party otherwise than under this
Section 10, except to the extent that the indemnifying party is substantially
prejudiced by the omission of such notification. In case any such action or
proceeding is brought against any party, and it notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 10 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding. Any indemnified party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (i) the employment of such counsel has
been specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party has failed to assume the defense and employ counsel, or (iii)
the named parties to any such action (including any impleaded parties) include
such indemnified party and the indemnifying party, as the case may be, and such
indemnified party shall have been advised in writing by such counsel that there
may be one or more legal defenses available to it which are different from or
additional to those available to the indemnifying party, in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party, it being understood, however, that (A) the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the fees and
expenses of more than one separate firm of attorneys (in addition to any local
counsel) for all such indemnified parties, which firm shall be designated in
writing by the indemnified parties, and that (B) all such fees and expenses
shall be reimbursed as they are incurred. Subject to the foregoing provisions
of this Section 10(b), the indemnifying party shall not be liable for the costs
and expenses of any settlement of any action without the consent of the
indemnifying party.

<PAGE>

(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 10 is
for any reason held to be unavailable to an indemnified party under subsection
(a) or (b) above in respect to any losses, claims, damages, liabilities or
expenses referred to therein, then each applicable indemnifying party, in lieu
of indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages,
liabilities and expenses (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the QIU on the
other hand from the offering of the Shares or (ii) if the allocation provided by
clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the parties in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the QIU on the
other hand shall be deemed to be in the same proportion as the total proceeds
from the offering (net of underwriting discounts and commissions but before
deducting expenses) received by the Company bears to the fees payable to the
QIU. The relative fault of a party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by each party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the losses,
claims, damages, liabilities and expenses referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such party in
connection with investigating or defending any such action or claim.

The Company and the QIU agree that it would not be just and equitable if
contribution pursuant to this Section 10 were determined by pro rata allocation
(even if the QIU were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in the immediately preceding paragraph. Notwithstanding the
provisions of this Section 10, no QIU shall be required to contribute any amount
in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such QIU has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute shall be several in proportion
to their respective underwriting obligations and not joint.

(d) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 10 hereby
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.

11. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements of the Company, and the officers of
the Company herein or in certificates delivered pursuant hereto, and the
indemnity and contribution agreements contained in Sections 9 and 10 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriters or any controlling
person, or by or on behalf of the Company or any of its

<PAGE>

officers, directors or controlling persons, and shall survive delivery of the
Underwritten Shares and, if appropriate, the Option Shares to the
Representatives or termination of this Agreement.

12. DEFAULT BY UNDERWRITERS. If any Underwriter shall fail to
purchase and pay for the Shares which such Underwriter has agreed to purchase
and pay for hereunder (otherwise than by reason of any default on the part of
the Company), you, as the Representatives of the Underwriters, shall use your
best efforts to procure within twenty-four hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed upon and upon the terms set forth herein, the Shares
which the defaulting Underwriter or Underwriters failed to purchase. If
during such twenty-four hours you, as such Representatives, shall not have
procured such other Underwriters, or any others, to purchase the Shares
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of Shares with respect to which such default
shall occur does not exceed 10% of the Shares which the Underwriters are
obligated to purchase hereby, the other Underwriters shall be obligated,
severally, in proportion to the respective number of Shares which they are
obligated to purchase hereunder, to purchase the Shares which such defaulting
Underwriter or Underwriters failed to purchase, or (b) if the aggregate
number of Shares with respect to which such default shall occur exceeds 10%
of the Company's common stock covered hereby, the Company or you, as the
Representatives of the Underwriters will have the right, by written notice
given within the next twenty-four hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriters or the Company except to the extent provided in
Section 9 hereof. In the event of a default by any Underwriter or
Underwriters, as set forth in this Section 12, the time of closing may be
postponed for such period, not to exceed seven days, as you, as the
Representatives, may determine in order that the required changes in the
Registration Statement, the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriters" includes any person
substituted for a defaulting Underwriter. Any action taken under Section 12
shall not relieve any defaulting Underwriter from liability in respect of any
default of such Underwriter under this Agreement.

13. NOTICES. All communications hereunder shall be in writing and, except
as otherwise provided in, will be mailed, delivered or telefaxed and confirmed
as follows: if to the Underwriters, c/o the Representatives as follows: to
Stephens Inc., 111 Center Street, Little Rock, Arkansas 72201, Attention: Sandra
Farmer, with a copy to C. Douglas Buford, Jr., Wright, Lindsey & Jennings, 200
West Capitol Avenue, Suite 2200, Little Rock, Arkansas 72201; if to the Company,
to Power-One, Inc., 740 Calle Plano, Camarillo, California 93012, Attention:
Steven J. Goldman, with a copy to Kendall R. Bishop, O'Melveny & Myers LLP, 1999
Avenue of the Stars, Suite 700, Los Angeles, California 90067-6035.

14. TERMINATION. This Agreement may be terminated by notice to the
Company as follows:

(a) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given
in the Registration Statement and the Prospectus, any Material Adverse
Change which would, in your reasonable judgment, materially make it
impracticable to market the Shares in the manner contemplated by the
Prospectus, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, calamity, crisis or change on
the financial markets of the United States would, in your reasonable
judgment, make the offering or delivery of the Shares impracticable, (iii)
suspension of trading or general trading halts in securities on the New
York Stock Exchange, the American Stock Exchange, The Nasdaq National
Market or the over-the-counter market or limitation on prices (other than
limitations on hours or numbers of days or trading)

<PAGE>

for securities on either such Exchange, The Nasdaq National Market or
the over-the-counter market, (iv) the enactment, publication, decree or
other promulgation of any federal or state statute, regulation, rule or
order of any court or other governmental authority which in your
reasonable opinion materially and adversely affects or will materially
or adversely affect the business or operations of the Company, (v)
declaration of a banking moratorium by either federal or state
authorities, or (vi) the taking of any action by any federal, state or
local government or agency in respect of its monetary or fiscal affairs
which in your reasonable opinion has a material adverse effect on the
securities markets in the United States; or

(b) as provided in Sections 7 and 12 of this Agreement.

15. INFORMATION FURNISHED BY UNDERWRITERS. The information set forth in
the Prospectus: (a) in the last paragraph on the cover page, (b) on page __
regarding stabilization, and (c) (i) in the table under the caption
"Underwriting" on page __, listing the Underwriters and the number of shares
each has agreed to purchase, and (ii) in the second paragraph below said table
on page __, relating to the concession to dealers and the reallowance to certain
other dealers under the caption "Underwriting" in the Prospectus, constitute the
written information furnished by or on behalf of any Underwriters referred to in
paragraph (a) (v) of Section 1 hereof and in paragraphs (a) and (b) of Section 9
hereof.

16. SUCCESSORS. This Agreement has been and is made solely for the
benefit of the Underwriters, the Company and their respective successors,
executors, administrators, heirs, and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any right
or obligation hereunder. The term "successors" shall not include any purchaser
of the Shares merely because of such purchase.

17. MISCELLANEOUS. The Representatives will act for the several
Underwriters in connection with this offering, and any action under this
Agreement taken by the Representatives jointly or by Stephens Inc. will be
binding upon all of the Underwriters.

This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

This Agreement shall be governed by, and construed in accordance with, the
laws of the State of Arkansas, without giving effect to the choice of law or
conflict of law principles thereof.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE>

If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed duplicates hereof, whereupon it will
become a binding agreement among the Company and the several Underwriters in
accordance with its terms.

Very truly yours,
POWER-ONE, INC.

By: _________________
Steven J. Goldman
President and Chief Executive Officer

The foregoing Underwriting Agreement is hereby
confirmed and accepted as of the date first above written.

STEPHENS INC., ROBERTSON, STEPHENS & COMPANY LLC
AND MONTGOMERY SECURITIES

By: ____________________________________
Stephens Inc., Senior Manager

Name: ___________________________

Title: __________________________

By: ____________________________________
Robertson, Stephens & Company, LLC,
Qualified Independent Underwriter

Name: ___________________________

Title: __________________________

As Representatives of the several Underwriters
named in Schedule I hereto

<PAGE>

SCHEDULE I

NAME NO. OF UNDERWRITTEN SHARES
- ---- --------------------------
Stephens Inc.
Robertson, Stephens & Company LLC
Montgomery Securities

TOTAL
---------
5,000,000
---------
---------

<PAGE>

EXHIBIT A

_______________, 1997

Stephens Inc., Robertson, Stephens & Company LLC and
Montgomery Securities, as Representatives of the Several Underwriters
c/o Stephens Inc.
111 Center Street
Little Rock, Arkansas 72201

Re: Agreement Not to Sell Power-One, Inc. Stock
________________________________________________

Ladies and Gentlemen:

This letter is provided, at the request of Power-One, Inc. (the "Company"),
for the benefit of the Company and the Underwriters in connection with the
proposed public offering of 5,000,000 shares of Power-One, Inc. Common Stock
(plus an additional 750,000 shares if the Underwriters choose to exercise their
over-allotment option) pursuant to a Registration Statement on Form S-1 (File
No. 333-32889). As an inducement to the Underwriters to (a) enter into an
Underwriting Agreement with the Company and (b) consummate the transactions
contemplated in such Underwriting Agreement, the undersigned hereby represents
and agrees as follows:

1. Upon the closing of the Company's initial public offering, the
undersigned will beneficially own the number of shares of the Company's Common
Stock set forth below opposite the signature of the undersigned (the "Shares"),
and no others.

2. The undersigned agrees that, for a period of 180 days from the
effective date of the Registration Statement, except for bona fide gifts to
persons who agree with you in writing to be bound by this letter, the
undersigned will not offer, sell or otherwise dispose of any of the Shares,
directly or indirectly, without written consent of Robertson, Stephens & Company
LLC, on behalf of the Representatives of the Underwriters, which consent will
not be unreasonably withheld; except that (a) such Shares may be pledged as
collateral against loans of the undersigned without such written consent, and
(b) if loans secured by Shares are called, the undersigned and any applicable
pledgee will have the right to sell the shares pledged on such loans to the
extent necessary to satisfy such loans.

Shares of Common Stock: Very truly yours,

______________________ ____________________________________

<PAGE>

RESTATED CERTIFICATE OF INCORPORATION

POWER-ONE, INC.
(A DELAWARE CORPORATION)

Power-One, Inc., a Delaware corporation, hereby certifies as follows:

1. The name of the Corporation is Power-One, Inc. (the
"Corporation"). The Corporation was originally incorporated under the name
Power-Merger, Inc., which name was changed to Power-One, Inc. in a Certificate
of Merger filed with the Secretary of the State of Delaware on January 29, 1996.
The original Certificate of Incorporation of the Corporation was filed with the
Secretary of the State of Delaware on January 11, 1996.

2. The Board of Directors of the Corporation adopted resolutions,
effective as of ___________ __, 1997, setting forth the following restatement of
and further amendment to the Certificate of Incorporation of the Corporation,
declaring such restatement and amendments to be advisable and resolving that
such restated and amended Certificate of Incorporation be considered by the
stockholders of the Corporation.

3. Thereafter, the following restatement of and further amendment to
the Certificate of Incorporation of the Corporation was duly adopted by written
consent by the holders of the necessary number of shares of the Corporation as
required by statute and the Certificate of Incorporation of the Corporation in
accordance with the Delaware General Corporation Law and the Corporation's
bylaws.

4. Pursuant to Sections 242 and 245 of the Delaware General
Corporation Law, this Restated Certificate of Incorporation restates and
integrates and further amends the provisions of the Certificate of Incorporation
of this Corporation.

5. The text of the Certificate of Incorporation is hereby restated
and further amended to read in its entirety as follows:

FIRST. The name of the Corporation is POWER-ONE, INC.

SECOND. The name and address of the Corporation's registered agent
in the State of Delaware is The Corporation Trust Company, Corporation Trust
Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801.

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THIRD. The purpose of the Corporation is to engage in any lawful
act or activity for which corporations may be organized under the Delaware
General Corporation Law.

FOURTH. 1. The Corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares of which the Corporation is authorized to issue is Ninety
Million (90,000,000) shares. Sixty Million (60,000,000) shares shall be Common
Stock, each having a par value of $.001. Thirty Million (30,000,000) shares
shall be Preferred Stock, each having a par value of $.001.

2. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article FOURTH, by
resolution or resolutions of the Board of Directors, from time to time to
provide for the issuance of the shares of such Preferred Stock in one or more
series and to establish the number of shares to be included in each such series
and to fix the designation, powers, preferences and rights of the shares of each
such series and the qualifications, limitations or restrictions thereof.

The authority of the Board with respect to each series shall
include, but not be limited to, determination of the following:

(a) The number of shares constituting that series and the
distinctive designation of that series;

(b) The dividend rate, if any, on the shares of that
series, whether dividends shall be cumulative, and, if so, from which date or
dates, and the relative rights of priority, if any, of payment of dividends on
shares of that series;

(c) Whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so, the terms of such
voting rights;

(d) Whether that series shall be subject to conversion or
exchange, and, if so, the terms and conditions of such conversion or exchange,
including provision for adjustment of the conversion or exchange rate in such
events as the Board of Directors shall determine;

(e) Whether or not the shares of that series shall be
redeemable, and, if so, the terms and conditions of such redemption, including
the date or dates upon or after which they shall be redeemable, and the type and
amount of consideration per share payable in case of redemption, which amount
may vary under different conditions and at different redemption dates;

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(f) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;

(g) The rights, if any, of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation, and the relative rights of priority, if any, of payment of shares
of that series; and

(h) Any other relative rights, preferences and limitations,
if any, of that series.

FIFTH. The business and affairs of the Corporation shall be managed
by and under the direction of the Board of Directors, as more fully set forth in
Article SEVENTH.

SIXTH. To the fullest extent permitted by the Delaware General
Corporation as the same exists or may hereafter be amended, a director of the
Corporation shall not be liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director. The liability of a
director of the Corporation to the Corporation or its stockholders for monetary
damages shall be eliminated to the fullest extent permissible under applicable
law in the event it is determined that Delaware law does not apply. The
Corporation is authorized to provide by bylaw, agreement or otherwise for
indemnification of directors, officers, employees and agents for breach of duty
to the Corporation and its stockholders in excess of the indemnification
otherwise permitted by applicable law. Any repeal or modification of this
Article shall not result in any liability for a director with respect to any
action or omission occurring prior to such repeal or modification.

SEVENTH. The business and affairs of the Corporation shall be managed
by or under the direction of a Board of Directors consisting of such number of
directors as is determined from time to time by resolution adopted by
affirmative vote of a majority of the entire Board of Directors; provided,
however, that in no event shall the number of directors be less than three or
greater than nine. The directors shall be divided into three classes,
designated Class I, Class II and Class III. Each class shall consist, as nearly
as may be possible, of one-third of the total number of directors constituting
the entire Board of Directors. Initially, Steven Goldman shall be in Class I,
Doug Martin shall be in Class II and Jon Jacoby shall be in Class III. At the
1998 annual meeting of stockholders, Class I directors shall stand for election
for a three-year term. At the 1999 annual meeting, the Class II directors shall
stand for election for a three-year term and at the annual meeting in 2000 the
Class III directors for a three-year term. At each succeeding annual meeting of
stockholders beginning in 2001, successors to the class of directors whose term
expires at that annual meeting

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<PAGE>

shall be elected for a three-year term. If the number of directors is changed,
any increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible, and
any additional director of any class elected to fill a vacancy resulting from an
increase in such class shall hold office for a term that shall coincide with the
remaining term of that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director shall hold
office until the annual meeting for the year in which his or her term expires
and until his or her successor shall be elected and shall qualify, subject,
however, to prior death, resignation, retirement, disqualification or removal
from office. A majority of the total directors shall constitute a quorum for
the transaction of business. Except as otherwise required by law, any vacancy
on the Board of Directors that results from an increase in the number of
directors shall be filled only by a majority of the Board of Directors then in
office, provided that a quorum is present, and any other vacancy occurring in
the Board of Directors shall be filled by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director. Any
director elected to fill a vacancy not resulting from an increase in the number
of directors shall have the same remaining term as that of his or her
predecessor.

Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of stock issued by the Corporation shall have the right,
voting separately by class or series, to elect directors at an annual or special
meeting of stockholders, the election, term of office, filling of vacancies and
other features of such directorships shall be governed by the terms of this
Restated Certificate of Incorporation applicable thereto, such directors so
elected shall not be divided into classes pursuant to this Article SEVENTH, and
the number of such directors shall not be counted in determining the maximum
number of directors permitted under the foregoing provision of this Article
SEVENTH, in each case unless expressly provided by the resolutions providing for
the creation of such class or series.

EIGHTH. Subject to any rights granted in a Preferred Stock
Designation to any series of Preferred Stock, any action required or permitted
to be taken by the stockholders of this Corporation must be effected at a duly
called annual or special meeting of such holders. Such stockholder action may
not be effected by any consent in writing by such holders, unless previously
approved by a majority of the Board of Directors.

NINTH. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this Restated Certificate of Incorporation,
in the manner now or hereafter prescribed by statute and by this Restated
Certificate of Incorporation, and all rights conferred upon stockholders herein
are granted subject to this reservation. Notwithstanding the

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<PAGE>

forgoing, there shall be required to amend, alter, change or repeal Articles
SEVENTH, EIGHTH and this Article NINTH of the Corporation's Restated Certificate
of Incorporation the affirmative vote of the holders of (i) at least 75% of the
outstanding shares of common stock of the Corporation entitled to vote generally
in the election of directors, considered for this purpose as one class, and
(ii) at least a majority of the outstanding shares of common stock of the
Corporation entitled to vote generally in the election of directors, considered
for this purpose as one class, exclusive of all voting stock of the Corporation
beneficially owned, directly or indirectly, by any corporation, person or entity
which is, as of the record date for the determination of stockholders entitled
to notice of such amendment, alteration, change or repeal and to vote thereon
the beneficial owner, directly or indirectly, of 5% or more of the outstanding
shares of common stock of the Corporation entitled to vote generally in the
election of directors, considered for this purpose as one class. Such
affirmative vote shall be in addition to any class vote to which any class of
stock may be entitled.

No bylaw of the Corporation affecting the number, qualification or
classification of directors, their election or removal, or the filling of any
vacancy in the Board of Directors, or any newly created directorship, and no
bylaw affecting the calling of special meetings of the stockholders of the
Corporation shall be altered, changed, amended or repealed except by the
affirmative vote of the holders of (i) at least 75% of the outstanding shares of
common stock of the Corporation entitled to vote generally in the election of
directors, considered for this purpose as one class, and (ii) at least a
majority of the outstanding shares of common stock of the Corporation entitled
to vote generally in the election of directors, considered for this purpose as
one class, exclusive of all voting stock of the Corporation beneficially owned,
directly or indirectly, by any corporation, person or entity which is, as of the
record date for the determination of stockholders entitled to notice of such
amendment, alteration, change or repeal and to vote thereon the beneficial
owner, directly or indirectly, of 5% or more of the outstanding shares of common
stock of the Corporation entitled to vote generally in the election of
directors, considered for this purpose as one class or by a resolution adopted
by the affirmative vote of not less than 75% of the members of the whole Board
of Directors of the Corporation.

TENTH. In addition to the other powers expressly granted by
statute, subject to the provisions set forth in Article NINTH, the Board of
Directors of the Corporation shall have the power to adopt, repeal, alter or
amend the bylaws of the Corporation.

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<PAGE>

IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been executed this ____ day of _________, 1997.

POWER-ONE, INC.

By:
--------------------------------------------
Name: Eddie K. Schnopp
Title: Secretary

<PAGE>

AMENDED AND RESTATED BYLAWS

POWER-ONE, INC.
A DELAWARE CORPORATION

<PAGE>

TABLE OF CONTENTS

PAGE
----

ARTICLE I Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1 Registered Office. . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Principal Office . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Other Offices. . . . . . . . . . . . . . . . . . . . . . 1

ARTICLE II Meetings of Stockholders . . . . . . . . . . . . . . . . . . . 1
Section 2.1 Time and Place of Meetings . . . . . . . . . . . . . . . 1
Section 2.2 Annual Meetings. . . . . . . . . . . . . . . . . . . . . 1
Section 2.3 Special Meetings . . . . . . . . . . . . . . . . . . . . 1
Section 2.4 Stockholder Lists. . . . . . . . . . . . . . . . . . . . 2
Section 2.5 Notice of Meetings . . . . . . . . . . . . . . . . . . . 2
Section 2.6 Quorum and Adjournment . . . . . . . . . . . . . . . . . 3
Section 2.7 Voting . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.8 Proxies. . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.9 Inspectors of Election . . . . . . . . . . . . . . . . . 4
Section 2.10 Stockholder Proposals. . . . . . . . . . . . . . . . . . 4

ARTICLE III Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Number, Election and Tenure. . . . . . . . . . . . . . . 6
Section 3.3 Meetings . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.4 Annual Meeting . . . . . . . . . . . . . . . . . . . . . 6
Section 3.5 Regular Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 3.6 Special Meetings . . . . . . . . . . . . . . . . . . . . 6
Section 3.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.8 Fees and Compensation. . . . . . . . . . . . . . . . . . 7
Section 3.9 Meetings by Telephonic Communication . . . . . . . . . . 7
Section 3.10 Committees . . . . . . . . . . . . . . . . . . . . . . . 7
Section 3.11 Action Without Meetings. . . . . . . . . . . . . . . . . 8
Section 3.12 Removal. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.13 Nominations. . . . . . . . . . . . . . . . . . . . . . . 8

ARTICLE IV Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 4.1 Appointment and Salaries . . . . . . . . . . . . . . . . 9
Section 4.2 Removal and Resignation. . . . . . . . . . . . . . . . . 9
Section 4.3 Chairman of the Board. . . . . . . . . . . . . . . . . . 9
Section 4.4 Chief Executive Officer. . . . . . . . . . . . . . . . . 9
Section 4.5 President. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 4.6 Vice President . . . . . . . . . . . . . . . . . . . . . 10
Section 4.7 Secretary and Assistant Secretary. . . . . . . . . . . . 10
Section 4.8 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . 10

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PAGE
----

Section 4.9 Assistant Officers . . . . . . . . . . . . . . . . . . . 11

ARTICLE V Seal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VI Form of Stock Certificate . . . . . . . . . . . . . . . . . . 11

ARTICLE VII Representation of Shares of Other Corporations. . . . . . . . 12

ARTICLE VIII Transfers of Stock. . . . . . . . . . . . . . . . . . . . . . 12

ARTICLE IX Lost, Stolen or Destroyed Certificates. . . . . . . . . . . . 12

ARTICLE X Record Date . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE XI Registered Stockholders . . . . . . . . . . . . . . . . . . . 13

ARTICLE XII Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . 13

ARTICLE XIII Amendments. . . . . . . . . . . . . . . . . . . . . . . . . . 14

ARTICLE XIV Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 14.1 Declaration. . . . . . . . . . . . . . . . . . . . . . . 14
Section 14.2 Set Aside Funds. . . . . . . . . . . . . . . . . . . . . 14

ARTICLE XV Indemnification and Insurance . . . . . . . . . . . . . . . . 14
Section 15.1 Right to Indemnification . . . . . . . . . . . . . . . . 14
Section 15.2 Right of Claimant to Bring Suit. . . . . . . . . . . . . 15
Section 15.3 Non-Exclusivity of Rights. . . . . . . . . . . . . . . . 15
Section 15.4 Insurance. . . . . . . . . . . . . . . . . . . . . . . . 16
Section 15.5 Expenses as a Witness. . . . . . . . . . . . . . . . . . 16
Section 15.6 Indemnity Agreements . . . . . . . . . . . . . . . . . . 16

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<PAGE>

AMENDED AND RESTATED BYLAWS
OF
POWER-ONE, INC.
A DELAWARE CORPORATION

ARTICLE 1
OFFICES

SECTION 1.1 REGISTERED OFFICE. The registered office of this
Corporation shall be in the City of Wilmington, County of New Castle, Delaware
and the name of the resident agent in charge thereof is the agent named in the
Restated Certificate of Incorporation until changed by the Board of Directors
(the "Board").

SECTION 1.2 PRINCIPAL OFFICE. The principal office for the
transaction of the business of the Corporation shall be at such place as may be
established by the Board. The Board is granted full power and authority to
change said principal office from one location to another.

SECTION 1.3 OTHER OFFICES. The Corporation may also have an office
or offices at such other places, either within or without the State of Delaware,
as the Board may from time to time designate or the business of the Corporation
may require.

ARTICLE II
MEETINGS OF STOCKHOLDERS

SECTION 2.1 TIME AND PLACE OF MEETINGS. Meetings of stockholders
shall be held at such time and place, within or without the State of Delaware,
as shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.

SECTION 2.2 ANNUAL MEETINGS. Annual meetings of the stockholders of
the Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.

SECTION 2.3 SPECIAL MEETINGS. Except as otherwise specifically
provided in the Corporation's Restated Certificate of Incorporation, special
meetings of the stockholders for any purpose or purposes may be called only by
the Chief Executive Officer and shall be called by the Chief Executive Officer
at the request in writing of a majority of the Board. Such request shall state
the purpose or purposes of the proposed meeting and the business transacted at
any special meeting shall be limited to the purpose or purposes stated in the
notice.

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SECTION 2.4 STOCKHOLDER LISTS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of stockholders entitled to vote
at the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting or at the place of the meeting, and the list shall also be available at
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.

SECTION 2.5 NOTICE OF MEETINGS. Notice of each meeting of
stockholders, whether annual or special, stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes for which
such meeting has been called, shall be given to each stockholder of record
entitled to vote at such meeting not less than ten nor more than sixty days
before the date of the meeting. Except as otherwise expressly required by law,
notice of any adjourned meeting of the stockholders need not be given if the
time and place thereof are announced at the meeting at which the adjournment is
taken.

Notice of any meeting of stockholders shall be given either personally
or by first-class mail, telegraphic, facsimile or other written communication,
charges prepaid, addressed to the stockholder at the address of that stockholder
appearing on the books of the Corporation or given by the stockholder to the
Corporation for the purpose of notice. If no such address appears on the
Corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by first-class mail or telegraphic or other written
communications to the Corporation's principal executive office, or if published
at least once in a newspaper of general circulation in the county where that
office is located. Notice shall be deemed to have been given at the time when
delivered personally or deposited in the mail or sent by telegram or other means
of written communication.

If any notice addressed to a stockholder at the address of that
stockholder appearing on the books of the Corporation or, if given, at the
address given by that stockholder to the Corporation for purpose of notice, is
returned to the Corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the notice
to the stockholder at that address, all future notices or reports shall be
deemed to have been duly given without further mailing if these shall be
available to the stockholder on written demand of the stockholder at the
principal executive office of the Corporation for a period of one year from the
date of the giving of the notice.

An affidavit of the mailing or other means of giving any notice of any
meeting shall be executed by any secretary, assistant secretary, or any transfer
agent

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<PAGE>

of the Corporation giving notice, and shall be filed and maintained in the
minute book of the Corporation.

Whenever any notice is required to be given under the provisions of
applicable statutes, the Restated Certificate of Incorporation or of these
Amended and Restated Bylaws (the "Bylaws"), a waiver thereof in writing, signed
by the person or persons entitled to said notice, whether before or after the
time stated therein, shall be deemed equivalent to such notice. Notice of any
meeting of stockholders shall be deemed waived by any stockholder who shall
attend such meeting in person or by proxy, except a stockholder who shall attend
such meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.

SECTION 2.6 QUORUM AND ADJOURNMENT. The holders of a majority of the
stock issued and outstanding and entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum for holding all meetings of
stockholders, except as otherwise provided by applicable law or by the Restated
Certificate of Incorporation; provided, however, that the stockholders present
at a duly called or held meeting at which a quorum is present may continue to
transact business until adjournment notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum. If it shall appear that such quorum is not present or
represented at any meeting of stockholders, the Chairman of the meeting shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting. The Chairman of the meeting may
determine that a quorum is present based upon any reasonable evidence of the
presence in person or by proxy of stockholders holding a majority of the
outstanding votes, including without limitation, evidence from any record of
stockholders who have signed a register indicating their presence at the
meeting.

SECTION 2.7 VOTING. In all matters, when a quorum is present at any
meeting, the vote of the holders of a majority of the capital stock having
voting power present in person or represented by proxy shall decide any question
brought before such meeting, unless the question is one upon which by express
provision of applicable law or of the Restated Certificate of Incorporation, a
different vote is required in which case such express provision shall govern and
control the decision of such question. Such vote may be viva voce or by written
ballot; provided, however, that the Board may, in its discretion, require a
written ballot for any vote, and further provided that all elections for
directors must be by written ballot upon demand made by a stockholder at any
election and before the voting begins.

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<PAGE>

Unless otherwise provided in the Restated Certificate of
Incorporation, each stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such stockholder.

SECTION 2.8 PROXIES. Each stockholder entitled to vote at a meeting
of stockholders may authorize in writing another person or persons to act for
such holder by proxy, but no proxy shall be voted or acted upon after three
years from its date, unless the person executing the proxy specifies therein the
period of time for which it is to continue in force.

SECTION 2.9 INSPECTORS OF ELECTION. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation or the Chairman
of the meeting shall appoint one or more alternate inspectors to replace any
inspector who fails to act. Each inspector, before undertaking his or her
duties, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting and the
validity of the proxies and ballots, count all votes and ballots, determine and
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors and certify their determination of
the number of shares represented at the meeting and their count of all votes and
ballots. The inspector shall perform his or her duties and shall make all
determinations in accordance with the Delaware General Corporation Law
including, without limitation, Section 231 of the Delaware General Corporation
Law.

The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting. No ballot, proxies or votes, nor revocations thereof or changes
thereto, shall be accepted by the inspectors after the closing of the polls
unless the Court of Chancery upon application by a stockholder shall determine
otherwise.

The appointment of inspectors of election shall be in the discretion
of the Board until such time as the Corporation has a class of voting stock that
is (i) listed on a national securities exchange, (ii) authorized for quotation
on an interdealer quotation system of a registered national securities
association, or (iii) held of record by more than 2,000 stockholders, at which
time appointment of inspectors shall be obligatory.

SECTION 2.10 STOCKHOLDER PROPOSALS. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before an annual meeting,
business must be specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board, otherwise properly brought before the
meeting by or at the direction of the Board, or otherwise properly brought
before the meeting by

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<PAGE>

a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
secretary of the Corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation, not less than 50 days nor more than 75 days prior to the
meeting; provided, however, that in the event that less than 65 days' notice
or prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 15th day following the day on which
such notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the secretary shall set forth
as to each matter the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the stockholder, (iv) any
material interest of the stockholder in such business.

Notwithstanding anything in the Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section, provided, however, that nothing in this
Section shall be deemed to preclude discussion by any stockholder of any
business properly brought before the annual meeting in accordance with said
procedure.

The chairman of an annual meeting shall, if the facts warrant,
determine and declare to the meeting that business was not properly brought
before the meeting in accordance with the provisions of this Section, and if he
or she should so determine, he or she shall so declare to the meeting and any
such business not properly brought before the meeting shall not be transacted.

ARTICLE III
DIRECTORS

SECTION 3.1 POWERS. The Board shall have the power to manage or
direct the management of the property, business and affairs of the Corporation,
and except as expressly limited by law, to exercise all of its corporate powers.
The Board may establish procedures and rules, or may authorize the Chairman of
any meeting of stockholders to establish procedures and rules, for the fair and
orderly conduct of any meeting including, without limitation, registration of
the stockholders attending the meeting, adoption of an agenda, establishing the
order of business at the meeting, recessing and adjourning the meeting for the
purposes of tabulating any votes and receiving the results thereof, the timing
of the opening and closing of the polls, and the physical layout of the
facilities for the meeting.

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<PAGE>

SECTION 3.2 NUMBER, ELECTION AND TENURE. The Board shall consist of
one or more members, the number thereof to be determined from time to time by
resolution of the Board. Until otherwise determined by such resolution, the
Board shall consist of 5 members. Directors need not be stockholders.
Directors shall be elected at the annual meeting of stockholders and each
director shall serve until such person's successor is elected and qualified or
until such person's death, retirement, resignation or removal.

SECTION 3.3 MEETINGS. The Board may hold meetings, both regular and
special, either within or outside the State of Delaware.

SECTION 3.4 ANNUAL MEETING. The Board shall meet as soon as
practicable after each annual election of directors.

SECTION 3.5 REGULAR MEETINGS. Regular meetings of the Board shall be
held without call or notice at such time and place as shall from time to time be
determined by resolution of the Board.

SECTION 3.6 SPECIAL MEETINGS. Special meetings of the Board may be
called at any time, and for any purpose permitted by law, by the Chairman of the
Board (or, if the Board does not appoint a Chairman of the Board, the
President), or by the Secretary on the written request of any two members of the
Board unless the Board consists of only one director in which case the special
meeting shall be called on the written request of the sole director, which
meetings shall be held at the time and place designated by the person or persons
calling the meeting. Notice of the time, place and purpose of any such meeting
shall be given to the directors by the Secretary, or in case of the Secretary's
absence, refusal or inability to act, by any other officer. Any such notice may
be given by mail, by telegraph, by telephone, by personal service, or by any
combination thereof as to different directors. If the notice is by mail, then
it shall be deposited in a United States Post Office at least seventy-two hours
before the time of the meeting; if by telegraph, by deposit of the message with
the telegraph company at least forty-eight hours before the time of the meeting;
if by telephone or by personal service, communicated or delivered at least
forty-eight hours before the time of the meeting.

SECTION 3.7 QUORUM. At all meetings of the Board, a majority of the
whole Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the directors present at
any meeting at which there is a quorum shall be the act of the Board, except as
may be otherwise specifically provided by applicable law, by the Restated
Certificate of Incorporation or by these Bylaws. Any meeting of the Board may
be adjourned to meet again at a stated day and hour. Even though a quorum is
not present, as required in this Section, a majority of the directors present at
any meeting of the Board, either regular or special, may adjourn from time to
time until a quorum be had. Notice of any adjourned meeting need not be given.

6
<PAGE>

SECTION 3.8 FEES AND COMPENSATION. Each director and each member of
a committee of the Board shall receive such fees and reimbursement of expenses
incurred on behalf of the Corporation or in attending meetings as the Board may
from time to time determine. No such payment shall preclude any director from
serving the Corporation in any other capacity and receiving compensation
therefor.

SECTION 3.9 MEETINGS BY TELEPHONIC COMMUNICATION. Members of the
Board or any committee thereof may participate in a regular or special meeting
of such Board or committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in a meeting pursuant to this
Section shall constitute presence in person at such meeting.

SECTION 3.10 COMMITTEES. The Board may, by resolution passed by a
majority of the whole Board, designate committees, each committee to consist of
one or more of the directors of the Corporation. The Board may designate one or
more directors as alternate members of any committee, who may replace any absent
or disqualified member at any meeting of the committee. Upon the absence or
disqualification of a member of a committee, if the Board has not designated one
or more alternates (or if such alternate(s) are then absent or disqualified),
the member or members thereof present at any meeting and not disqualified from
voting, whether or not such member or members constitute a quorum, may
unanimously appoint another member of the Board to act at the meeting in the
place of any such absent or disqualified member or alternate. Any such
committee, to the extent provided in the resolution of the Board, shall have and
may exercise all the powers and authority of the Board in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers that may require it; but no such
committee shall have the power or authority in reference to: (a) amending the
Restated Certificate of Incorporation (except that a committee may, to the
extent authorized in the resolution or resolutions providing for the issuance of
shares of stock adopted by the Board as provided in Section 151(a) of the
Delaware General Corporation Law fix the designations and any of the preferences
or rights of such shares relating to dividends, redemption, dissolution, any
distribution of assets of the Corporation or the conversion into, or the
exchange of such shares for, shares of any other class or classes or any other
series of the same or any other class or classes of stock of the Corporation or
fix the number of shares of any series of stock or authorize the increase or
decrease of the shares of any series); (b) adopting an agreement of merger or
consolidation under Section 251 or 252 of the Delaware General Corporation Law;
(c) recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets; (d) recommending to
the stockholders a dissolution of the Corporation or a revocation of a
dissolution; or (e) amending the Bylaws of the Corporation. Unless the
resolution appointing such committee or the Restated Certificate of
Incorporation expressly so provides, no such committee shall have the power or
authority to declare a dividend or to authorize the issuance of stock or to
adopt a certificate of ownership and merger pursuant to

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<PAGE>

Section 253 of the Delaware General Corporation Law. Each committee shall have
such name as may be determined from time to time by resolution adopted by the
Board. Each committee shall keep minutes of its meetings and report to the
Board when required.

SECTION 3.11 ACTION WITHOUT MEETINGS. Unless otherwise restricted by
applicable law, the Restated Certificate of Incorporation or by these Bylaws,
any action required or permitted to be taken at any meeting of the Board or of
any committee thereof may be taken without a meeting if all members of the Board
or of such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of the proceedings of the Board
or committee.

SECTION 3.12 REMOVAL. Unless otherwise restricted by the Restated
Certificate of Incorporation or by law, any director or the entire Board may be
removed, with or without cause, by the holders of a majority of shares entitled
to vote at an election of directors.

SECTION 3.13 NOMINATIONS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board may be made at a
meeting of stockholders by or at the direction of the Board, by any nominating
committee or person appointed by the Board or by any stockholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the secretary of the Corporation.
To be timely, a stockholder's notice shall be delivered to or mailed and
received at the principal executive offices of the Corporation not less than
50 days nor more than 75 days prior to the meeting; provided, however, that in
the event that less than 65 days' notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so received not later than the close of business on the 15th day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. Such stockholder's notice to the secretary
shall set forth (a) as to each person whom the stockholder proposes to nominate
for election or reelection as a director, (i) the name, age, business address
and residence address of the person, (ii) the principal occupation or employment
of the person, (iii) the class and number of shares of capital stock of the
Corporation which are beneficially owned by the person and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of directors pursuant to Schedule 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
stockholder giving the notice (i) the name and record address of the stockholder
and (ii) the class and number of shares of capital stock of the Corporation
which are beneficially owned by the stockholder. The Corporation may require
any proposed nominee to furnish such other information as may reasonably be
required by the Corporation to determine the eligibility of such proposed
nominee to serve as director of the Corporation. No person shall be eligible
for election

8
<PAGE>

as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.

The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.

ARTICLE IV
OFFICERS

SECTION 4.1 APPOINTMENT AND SALARIES. The officers of the
Corporation shall be appointed by the Board and shall consist of Chairman of the
Board, Chief Executive Officer, President, Secretary, and Treasurer. The Board
may also appoint one or more Vice Presidents and such other officers (including
Assistant Secretaries and Financial Officers) as the Board may deem necessary or
desirable. The officers shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board. The Board shall fix the salaries of all officers appointed
by it. Unless prohibited by applicable law, the Restated Certificate of
Incorporation or these Bylaws, one person may be elected or appointed to serve
in more than one official capacity. Any vacancy occurring in any office of the
Corporation shall be filled by the Board.

SECTION 4.2 REMOVAL AND RESIGNATION. Any officer may be removed,
either with or without cause, by the Board or, in the case of an officer not
appointed by the Board, by the President. Any officer may resign at any time by
giving notice to the Board, the President or Secretary. Any such resignation
shall take effect at the date of receipt of such notice or at any later time
specified therein and, unless otherwise specified in such notice, the acceptance
of the resignation shall not be necessary to make it effective.

SECTION 4.3 CHAIRMAN OF THE BOARD. The Board may, at its election,
appoint a Chairman of the Board. If such an officer be elected, he or she
shall, if present, preside at all meetings of the stockholders and of the Board
and shall have such other powers and duties as may from time to time be assigned
to him or her by the Board.

SECTION 4.4 CHIEF EXECUTIVE OFFICER. The Board may appoint one or
more persons to share the office of Chief Executive Officer of the Corporation.
If there are Co-Chief Executive Officers, they shall share the duties and powers
normally attributable to a Chief Executive Officer of the Corporation and
jointly shall have, subject to the control of the Board, general supervision,
direction and control of the business and officers of the Corporation. Disputes
or differences of opinion between them with respect to management of the
Corporation shall be resolved by the Board, and the Co-Chief

9
<PAGE>

Executive Officers shall, if members of the Board, be entitled to participate in
and vote on such matters brought to the Board for resolution.

SECTION 4.5 PRESIDENT. Subject to such powers, if any, as may be
given by the Board to the Chairman of the Board, if there is such an officer,
the President shall be the chief operating officer of the Corporation with the
powers of general manager. If there be no Chairman of the Board, or in his or
her absence, the President shall preside at all meetings of the stockholders and
of the Board, unless the Board appoints another person, who need not be a
stockholder, officer or director of the Corporation, to preside at a meeting of
stockholders or of the Board.

SECTION 4.6 VICE PRESIDENT. In the absence of the President, or in
the event of the President's inability or refusal to act, the Vice President, if
any, (or if there be more than one Vice President, the Vice Presidents in the
order of their rank or, if of equal rank, then in the order designated by the
Board or the President or, in the absence of any designation, then in the order
of their appointment) shall perform the duties of the President and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the President. The rank of Vice Presidents in descending order shall be
Executive Vice President, Senior Vice President and Vice President. The Vice
President shall perform such other duties and have such other powers as the
Board may from time to time prescribe.

SECTION 4.7 SECRETARY AND ASSISTANT SECRETARY. The Secretary shall
attend all meetings of the Board (unless the Board shall otherwise determine)
and all meetings of the stockholders and record all the proceedings of the
meetings of the Corporation and of the Board in a book to be kept for that
purpose and shall perform like duties for the committees when required. The
Secretary shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board. The Secretary shall have
custody of the corporate seal of the Corporation and shall (as well as any
Assistant Secretary) have authority to affix the same to any instrument
requiring it and to attest it. The Secretary shall perform such other duties
and have such other powers as the Board or the President may from time to time
prescribe.

SECTION 4.8 TREASURER. The Treasurer shall have custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all monies and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board. The
Treasurer may disburse the funds of the Corporation as may be ordered by the
Board or the President, taking proper vouchers for such disbursements, and shall
render to the Board at its regular meetings, or when the Board so requires, an
account of transactions and of the financial condition of the Corporation. The
Treasurer shall perform such other duties and have such other powers as the
Board or the President may from time to time prescribe.

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<PAGE>

If required by the Board, the Treasurer and Assistant Treasurer, if
any, shall give the Corporation a bond (which shall be renewed at such times as
specified by the Board) in such sum and with such surety or sureties as shall be
satisfactory to the Board for the faithful performance of the duties of such
person's office and for the restoration to the Corporation, in case of such
person's death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property of whatever kind in such person's
possession or under such person's control belonging to the Corporation.

SECTION 4.9 ASSISTANT OFFICERS. An assistant officer shall, in the
absence of the officer to whom such person is an assistant or in the event of
such officer's inability or refusal to act (or, if there be more than one such
assistant officer, the assistant officers in the order designated by the Board
or the President or, in the absence of any designation, then in the order of
their appointment), perform the duties and exercise the powers of such officer.
An assistant officer shall perform such other duties and have such other powers
as the Board or the President may from time to time prescribe.

ARTICLE V
SEAL

It shall not be necessary to the validity of any instrument executed
by any authorized officer or officers of the Corporation that the execution of
such instrument be evidenced by the corporate seal, and all documents,
instruments, contracts and writings of all kinds signed on behalf of the
Corporation by any authorized officer or officers shall be as effectual and
binding on the Corporation without the corporate seal, as if the execution of
the same had been evidenced by affixing the corporate seal thereto. The Board
may give general authority to any officer to affix the seal of the Corporation
and to attest the affixing by signature.

ARTICLE VI
FORM OF STOCK CERTIFICATE

Every holder of stock in the Corporation shall be entitled to have a
certificate signed by, or in the name of, the Corporation by the Chairman or
Vice-Chairman of the Board, if any, or by the President or a Vice-President, and
by the Treasurer or a Financial Officer, or the Secretary or an Assistant
Secretary certifying the number of shares owned in the Corporation. Any or all
of the signatures on the certificate may be a facsimile signature. If any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of the issuance.

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<PAGE>

If the Corporation shall be authorized to issue more than one class of
stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualification, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate that the Corporation shall
issue to represent such class or series of stock. Except as otherwise provided
in Section 202 of the Delaware General Corporation Law, in lieu of the foregoing
requirements, there may be set forth on the face or back of the certificate a
statement that the Corporation will furnish without charge to each stockholder
who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.

ARTICLE VII
REPRESENTATION OF SHARES OF OTHER CORPORATIONS

Any and all shares of any other corporation or corporations standing
in the name of the Corporation shall be voted, and all rights incident thereto
shall be represented and exercised on behalf of the Corporation, as follows:
(i) as the Board of the Corporation may determine from time to time, or (ii) in
the absence of such determination, by the Chairman of the Board, or (iii) if the
Chairman of the Board shall not vote or otherwise act with respect to the
shares, by the President. The foregoing authority may be exercised either by
any such officer in person or by any other person authorized so to do by proxy
or power of attorney duly executed by said officer.

ARTICLE VIII
TRANSFERS OF STOCK

Upon surrender of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.

ARTICLE IX
LOST, STOLEN OR DESTROYED CERTIFICATES

The Board may direct a new certificate or certificates be issued in
place of any certificate theretofore issued alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of the fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board may, in its discretion and as a condition precedent
to the issuance, require the owner of such certificate or certificates, or such
person's legal representative, to give the Corporation

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<PAGE>

a bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the lost, stolen or destroyed
certificate.

ARTICLE X
RECORD DATE

The Board may fix in advance a date, which shall not be more than
sixty days nor less than ten days preceding the date of any meeting of
stockholders, nor more than sixty days prior to any other action, as a record
date for the determination of stockholders entitled to notice of or to vote at
any such meeting and any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise the rights in respect of any change, conversion or exchange of stock,
and in such case such stockholders, and only such stockholders as shall be
stockholders of record on the date so fixed shall be entitled to such notice of,
and to vote at, such meeting and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, or to give such consent, as the case may be, notwithstanding any
transfer of any stock on the books of the Corporation after any such record date
fixed as aforesaid. If no record date is fixed by the Board, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the day
on which notice is given, or, if notice is waived, at the close of business on
the day next preceding the day on which the meeting is held.

ARTICLE XI
REGISTERED STOCKHOLDERS

The Corporation shall be entitled to treat the holder of record of any
share or shares of stock of the Corporation as the holder in fact thereof and
shall not be bound to recognize any equitable or other claim to or interest in
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as expressly provided by applicable law.

ARTICLE XII
FISCAL YEAR

The fiscal year of the Corporation shall be fixed by resolution of the
Board.

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ARTICLE XIII
AMENDMENTS

Subject to any contrary or limiting provisions contained in the
Restated Certificate of Incorporation, these Bylaws may be amended or repealed,
or new Bylaws may be adopted (a) by the affirmative vote of the holders of at
least a majority of the Common Stock of the Corporation, or (b) by the
affirmative vote of the majority of the Board at any regular or special meeting.
Any Bylaws adopted or amended by the stockholders may be amended or repealed by
the Board or the stockholders.

ARTICLE XIV
DIVIDENDS

SECTION 14.1 DECLARATION. Dividends on the capital stock of the
Corporation, subject to the provisions of the Restated Certificate of
Incorporation, if any, may be declared by the Board at any regular or special
meeting, pursuant to law, and may be paid in cash, in property or in shares of
capital stock.

SECTION 14.2 SET ASIDE FUNDS. Before payment of any dividend, there
may be set aside out of any funds of the Corporation available for dividends
such sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall determine to be in the best
interest of the Corporation, and the directors may modify or abolish any such
reserve in the manner in which it was created.

ARTICLE XV
INDEMNIFICATION AND INSURANCE

SECTION 15.1 RIGHT TO INDEMNIFICATION. Each person who was or is a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
or inaction in an official capacity or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Corporation to the fullest extent permitted by the laws of Delaware, as the
same exist or may hereafter be amended, against all costs, charges, expenses,
liabilities and losses (including attorneys' fees, judgments, fines, ERISA
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person

14
<PAGE>

in connection therewith, and such indemnification shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that the Corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) initiated by
such person only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred in this Article shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of a proceeding, shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of the Board, provide indemnification
to employees and agents of the Corporation with the same scope and effect as the
foregoing indemnification of directors and officers.

SECTION 15.2 RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 15.1 of this Article is not paid in full by the Corporation within
thirty days after a written claim has been received by the Corporation, the
claimant may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim and, if successful in whole or in part,
the claimant shall be entitled to be paid also the expense of prosecuting such
claim. It shall be a defense to any such action (other than an action brought
to enforce a claim for expenses incurred in defending any proceeding in advance
of its final disposition where the required undertaking, if any is required, has
been tendered to the Corporation) that the claimant has failed to meet a
standard of conduct which makes it permissible under Delaware law for the
Corporation to indemnify the claimant for the amount claimed. Neither the
failure of the Corporation (including its Board, independent legal counsel, or
its stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is permissible in the circumstances
because he or she has met such standard of conduct, nor an actual determination
by the Corporation (including its Board, independent legal counsel, or its
stockholders) that the claimant has not met such standard of conduct, shall be a
defense to the action or create a presumption that the claimant has failed to
meet such standard of conduct.

SECTION 15.3 NON-EXCLUSIVITY OF RIGHTS. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute,
provision of the Restated Certificate of Incorporation, bylaw, agreement, vote
of stockholders or disinterested directors or otherwise.

15
<PAGE>

SECTION 15.4 INSURANCE. The Corporation may maintain insurance, at
its expense, to protect itself and any director, officer, employee or agent of
the Corporation or another corporation, partnership, joint venture, trust or
other enterprise against any such expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under Delaware law.

SECTION 15.5 EXPENSES AS A WITNESS. To the extent that any director,
officer, employee or agent of the Corporation is by reason of such position, or
a position with another entity at the request of the Corporation, a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her or on his or her
behalf in connection therewith.

SECTION 15.6 INDEMNITY AGREEMENTS. The Corporation may enter into
agreements with any director, officer, employee or agent of the Corporation
providing for indemnification to the full extent permitted by Delaware law.

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<PAGE>

CERTIFICATE OF SECRETARY
OF
POWER-ONE, INC.
A DELAWARE CORPORATION

I hereby certify that I am the duly elected and acting Secretary of
Power-One, Inc., a Delaware corporation, and that the foregoing Amended and
Restated Bylaws, comprising 16 pages, constitute the Amended and Restated Bylaws
of said corporation as duly adopted by the Board on _______________, 1997.

-----------------------------
Name: Eddie K. Schnopp
Title: Secretary

<PAGE>

NUMBER [LOGO] SHARES
COMMON STOCK POWER-ONE, INC COMMON STOCK

INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS

CUSIP 739308 10 4

This Certifies that

is the record holder of

FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$.001 PAR VALUE PER SHARE, OF

- ---------------------------------POWER-ONE, INC.--------------------------------

transferable on the books of the Corporation in person or by duly authorized
attorney on surrender of this certificate properly endorsed. This certificate
shall not be valid until countersigned and registered by the Transfer Agent
and Registrar.

WITNESS the facsimile seal of the Corporation and the signatures of its
fully authorized officers.

Dated:

[SEAL]
POWER-ONE INCORPORATED
INCORPORATED
JAN
1996
DELAWARE

VICE PRESIDENT FINANCE PRESIDENT

COUNTERSIGNED AND REGISTERED:
AMERICAN STOCK TRANSFER & TRUST COMPANY
TRANSFER AGENT AND REGISTRAR

AUTHORIZED SIGNATURE

<PAGE>

The Corporation shall furnish without charge to each stockholder who so
requests a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Such requests shall be made
to the Corporation's Secretary at the principal office of the Corporation.

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT - ......Custodian.......
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act..........................
tenants in common (State)
UNIF TRF MIN ACT - ......Custodian (until age.......)
(Cust)
............under Uniform Transfers
(Minor)
to Minors Act......................
(State)

Additional abbreviations may also be used though not in the above list.

FOR VALUE RECEIVED,___________________hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------

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

- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- -------------------------------------------------------------------------Shares
of the common stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- ----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated____________________

X___________________________________________________

X___________________________________________________
THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND
NOTICE: WITH THE NAME(S) AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.

Signature(s) Guaranteed

By____________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

EXHIBIT 5.1
[LETTERHEAD]

September
11th
1 9 9 7

(310) 553-6700
681,331-008
CC-1 324749.V1

Power-One, Inc.
740 Calle Plano
Camarillo, California 93012

Dear Ladies and Gentlemen:

In connection with the registration under the Securities Act of
1933, as amended (the "Act") of up to 5,750,000 shares of Common Stock of
Power-One, Inc. (the "Company"), par value $0.001 per share (the "Shares"),
to be sold by the Company, pursuant to a Registration Statement on Form S-1
(File No. 333-32889) (the "Registration Statement"), filed with the
Securities and Exchange Commission on August 5, 1997, as amended, you have
requested our opinion set forth below.

We have considered such facts and examined such questions of law as
we have considered appropriate for purposes of rendering the opinion
expressed below.

We are opining only as to the General Corporation Law of the State
of Delaware and we express no opinion with respect to the applicability or
the effect of any other laws or as to any matters of municipal law or of any
other local agencies within any state.

Subject to the foregoing and in reliance thereon, in our opinion the
Shares have been duly authorized by all necessary corporate action on the
part of the Company and, upon payment for and delivery of the Shares as
contemplated in the Registration Statement and the countersigning of any
certificates representing the Shares by a duly authorized signatory of the
registrar for the Company's Common Stock, the Shares will be validly issued,
fully paid and non-assessable.

<PAGE>
Page 2 - Power-One, Inc. - September 11, 1997

We consent to your filing this opinion as an exhibit to the
Registration Statement and the reference to our firm under the heading "Legal
Matters."

Very truly yours,

O'MELVENY & MYERS LLP

<PAGE>

INDEMNIFICATION AGREEMENT

BETWEEN

POWER-ONE, INC.

AND

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

<PAGE>

TABLE OF CONTENTS

Page
----

1. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.1 Indemnification in Third Party Actions . . . . . . . . . . . . . 2
2.2 Indemnification in Proceedings By or In the Name of the
Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 Partial Indemnification. . . . . . . . . . . . . . . . . . . . . 2
2.4 Indemnification Hereunder Not Exclusive. . . . . . . . . . . . . 3
2.5 Indemnification of Indemnified Costs of Successful Party . . . . 3
2.6 Indemnified Costs Advanced . . . . . . . . . . . . . . . . . . . 3
2.7 Limitations on Indemnification . . . . . . . . . . . . . . . . . 3

3. PRESUMPTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Presumption Regarding Standard of Conduct . . . . . . . . . . . 4
3.2 Determination of Right to Indemnification . . . . . . . . . . . 4
3.2.1 Burden . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2.2 Standard . . . . . . . . . . . . . . . . . . . . . . . 4

4. OTHER AGREEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Change in Control Event. . . . . . . . . . . . . . . . . . . . . 5
4.2 Maintenance of Liability Insurance . . . . . . . . . . . . . . . 5
4.2.1 Affirmative Covenant of the Company. . . . . . . . . . 5
4.2.2 Indemnitee Named as Insured. . . . . . . . . . . . . . 5
4.3 Agreement to Serve . . . . . . . . . . . . . . . . . . . . . . . 5
4.4 Effect of this Agreement on Employment Agreement . . . . . . . . 6
4.5 Nature of Rights; Separability . . . . . . . . . . . . . . . . . 6
4.6 Savings Clause . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.7 Repayment of Indemnified Costs . . . . . . . . . . . . . . . . . 6
4.8 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. INDEMNIFICATION PROCEDURE . . . . . . . . . . . . . . . . . . . . . . 6
5.1 Notice. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
5.2 Company Participation . . . . . . . . . . . . . . . . . . . . . . 7
5.3 Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.4 Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

6. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Amendments; Waivers . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Integration . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Interpretation; Governing Law . . . . . . . . . . . . . . . . . . 8
6.4 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

<PAGE>

6.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
6.6 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . 8
6.7 Expenses; Legal Fees. . . . . . . . . . . . . . . . . . . . . . . 8
6.8 Representation by Counsel; Interpretation . . . . . . . . . . . . 8
6.9 Specific Performance. . . . . . . . . . . . . . . . . . . . . . . 8
6.10 Time is of the Essence. . . . . . . . . . . . . . . . . . . . . . 8
6.11 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

<PAGE>

POWER-ONE, INC.
INDEMNIFICATION AGREEMENT

This Indemnification Agreement (this "AGREEMENT") is made as of __________,
1997, by and between Power-One, Inc., a Delaware corporation (the "COMPANY"),
and the individual whose name appears below the word "Indemnitee" on the
signature page of this Agreement (the "INDEMNITEE"). In consideration of the
services of the Indemnitee to the Company, and to induce the Indemnitee to
continue to serve as a director and/or officer, the Company and the Indemnitee
agree as follows:

R E C I T A L S

A. The Indemnitee has agreed to serve as a director and/or officer of the
Company and in such capacity will render valuable services to the
Company.

B. The Company has concluded that insurance and statutory indemnity
provisions may provide inadequate protection to individuals requested
to serve as its directors and officers.

C. To induce and encourage the Indemnitee to serve as a director and/or
officer of the Company, the Company's Board of Directors has decided
that this Agreement is not only reasonable and prudent, but necessary,
to promote and ensure the best interests of the Company and its
stockholders.

1. DEFINITIONS

As used in this Agreement:

"AGENT" means a director, officer, employee or agent of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan, or
other enterprise that the Indemnitee served in any of such capacities at the
request of the Company.

"CHANGE IN CONTROL EVENT" has the same meaning as an "Event" as defined in the
Company's 1996 Amended and Restated Stock Incentive Plan.

"EXPENSES" includes, but is not limited to, attorneys' fees, disbursements and
retainers, accounting and witness fees, travel and deposition costs, expenses of
investigations and amounts paid in settlement by or on behalf of the Indemnitee,
and any expenses of establishing a right to indemnification pursuant to this
Agreement, to the extent actually and reasonably incurred by the Indemnitee in
connection with any Proceeding. "EXPENSES" does not include the amount of
judgments, fines, penalties or ERISA excise taxes actually levied against the
Indemnitee.

1
<PAGE>

"INDEMNIFIED COSTS" means all Expenses, judgments, fines, penalties and ERISA
excise taxes actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense, appeal, or settlement of any Proceeding.

A "POTENTIAL CHANGE IN CONTROL EVENT" will be deemed to have occurred if:

(a) the Company enters into an agreement or arrangement that would
constitute a Change in Control Event if consummated;

(b) any person (including the Company) publicly announces an
intention to take or to consider taking actions that would
constitute a Change in Control Event if consummated; or

(c) the Board of Directors adopts a resolution to the effect that,
for purposes of this Agreement, a Potential Change in Control
Event has occurred.

"PROCEEDING" means any threatened, pending or completed action, suit or
proceeding (including appeals thereof), whether brought by or in the name of the
Company or otherwise and whether of a civil, criminal or administrative or
investigative nature, in which the Indemnitee is or will be a party at the time
because the Indemnitee is or was an Agent, whether or not the Indemnitee is
serving in such capacity at the time any liability or Expense is incurred for
which indemnification or reimbursement is to be provided under this Agreement.

2. INDEMNIFICATION

2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS. The Company will indemnify the
Indemnitee if the Indemnitee becomes a party to, is threatened to be made
a party to, is a witness or other participant in, or is otherwise
involved in any Proceeding (other than a Proceeding by or in the name of
the Company to procure a judgment in its favor), because the Indemnitee
is or was an Agent, against all Indemnified Costs, to the fullest extent
permitted by applicable law. Any settlement must be approved in writing
by the Company.

2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY. The
Company will indemnify the Indemnitee if the Indemnitee is a party to, is
threatened to be made a party to, is a witness or other participant in,
or is otherwise involved in any Proceeding by or in the name of the
Company to procure a judgment in its favor because the Indemnitee was or
is an Agent of the Company against all Expenses in connection with the
defense or settlement of the Proceeding, to the fullest extent permitted
by applicable law.

2.3 PARTIAL INDEMNIFICATION. If the Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or
a portion of, but not the total

2
<PAGE>

amount of, the Indemnified Costs, the Company will nevertheless indemnify
the Indemnitee for the portion of the Indemnified Costs to which the
Indemnitee is entitled.

2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE. The indemnification provided by
this Agreement is not exclusive of any other rights to which the
Indemnitee may be entitled under the Company's Certificate of
Incorporation, the Bylaws, any agreement, any vote of stockholders or
disinterested directors, applicable law, or otherwise, both as to action
in the Indemnitee's official capacity and as to action in another
capacity on behalf of the Company.

2.5 INDEMNIFICATION OF INDEMNIFIED COSTS OF SUCCESSFUL PARTY.
Notwithstanding any other provisions of this Agreement, to the extent
that the Indemnitee has been successful in defense of any Proceeding or
in defense of any claim, issue or matter in the Proceeding, on the merits
or otherwise, including, but not limited to, the dismissal of a
Proceeding without prejudice, the Indemnitee will be indemnified against
all Indemnified Costs incurred in connection therewith to the fullest
extent permitted by applicable law.

2.6 INDEMNIFIED COSTS ADVANCED. The Indemnified Costs incurred by the
Indemnitee in any Proceeding will be paid promptly by the Company in
advance of the final disposition of the Proceeding at the written request
of the Indemnitee to the fullest extent permitted by applicable law. The
advances to be made will be paid by the Company to the Indemnitee within
30 days following delivery of the written request by Indemnitee to the
Company, accompanied by substantiated documentation.

2.7 LIMITATIONS ON INDEMNIFICATION. Notwithstanding anything to the contrary
in this Agreement, the Company is not required to make payments to:

(a) indemnify or advance Indemnified Costs with respect to
Proceedings initiated or brought voluntarily by the Indemnitee
and not by way of defense, except with respect to Proceedings
brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law or otherwise as
required under applicable law;

(b) indemnify the Indemnitee for any Indemnified Costs for which
payment is actually made to the Indemnitee under an insurance
policy, except for any excess beyond the amount of payment under
the policy;

(c) indemnify the Indemnitee for any Indemnified Costs sustained in
any Proceeding for an accounting of profits made from the
purchase or sale by the Indemnitee of securities of the Company
pursuant to Section 16(b) of the Securities Exchange Act of 1934,
as amended, the rules and regulations promulgated thereunder and
amendments thereto or similar provisions of any federal, state or
local law;

3
<PAGE>

(d) indemnify the Indemnitee for any Indemnified Costs resulting from
Indemnitee's conduct that is finally adjudged by a court of
competent jurisdiction to have been willful misconduct, knowingly
fraudulent or deliberately dishonest; or

(e) indemnify the Indemnitee if a court of competent jurisdiction
finally determines that such payment is unlawful.

3. PRESUMPTIONS

3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT. The Indemnitee will be
conclusively presumed to have met the relevant standards of conduct as
defined by applicable law for indemnification pursuant to this Agreement
unless a determination that the Indemnitee has not met the relevant
standards is made by (a) the Board of Directors of the Company by a
majority vote of a quorum consisting of directors who are not parties to
the Proceeding, (b) the stockholders of the Company by majority vote, or
(c) in a written opinion by independent legal counsel, selection of whom
has been made by the Company's Board of Directors and approved by the
Indemnitee.

3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION.

3.2.1 BURDEN. If a claim under this Agreement is not paid by the
Company within 30 days of receipt of written notice, the right to
indemnification as provided by this Agreement will be enforceable
by the Indemnitee in any court of competent jurisdiction. The
burden of proving by clear and convincing evidence that
indemnification or advances are not appropriate will be on the
Company. Neither the failure of the directors, stockholders, or
independent legal counsel to have made a determination prior to
the commencement of the action that indemnification or advances
are proper in the circumstances because the Indemnitee has met
the applicable standard of conduct, nor an actual determination
by the directors, stockholders or independent legal counsel that
the Indemnitee has not met the applicable standard of conduct,
will be a defense to the action or create a presumption that the
Indemnitee has not met the applicable standard of conduct.

3.2.2 STANDARD. The Indemnitee's Expenses incurred in connection with
any Proceeding concerning the Indemnitee's right to
indemnification or advances in whole or in part pursuant to this
Agreement will be indemnified by the Company regardless of the
outcome of the Proceeding, unless a court of competent
jurisdiction determines that each of the material assertions made
by the Indemnitee in the Proceeding was not made in good faith or
was frivolous.

4
<PAGE>

4. OTHER AGREEMENTS

4.1 CHANGE IN CONTROL EVENT. If there is a Change in Control Event or a
Potential Change in Control Event of the Company (other than a Change in
Control Event or Potential Change in Control Event that has been approved
by a majority of the Company's Board of Directors who were directors
immediately prior to the Change in Control Event or Potential Change in
Control Event), then with respect to all matters thereafter arising
concerning the rights of the Indemnitee to be indemnified for Indemnified
Costs, the Company will seek legal advice only from independent counsel
selected by the Indemnitee, and reasonably satisfactory to the Company,
and who has not otherwise performed other services for the Company or the
Indemnitee within the last three years ("SPECIAL INDEPENDENT COUNSEL").
The Special Independent Counsel, among other things, will render its
written opinion to the Company and the Indemnitee as to whether and to
what extent the Indemnitee would be permitted to be indemnified under
applicable law. The Company will pay the reasonable fees and expenses of
the Special Independent Counsel.

4.2 MAINTENANCE OF LIABILITY INSURANCE.

4.2.1 AFFIRMATIVE COVENANT OF THE COMPANY. While the Indemnitee
continues to serve as a director or officer of the Company, and
thereafter while the Indemnitee is subject to any possible
Proceeding, the Company will maintain in full force and effect
directors' and officers' liability insurance ("D&O INSURANCE") in
reasonable amounts from reputable insurers. The Company has no
obligation, however, to obtain or maintain D&O Insurance if it
determines in good faith that insurance is not reasonably
available, the premium costs for insurance are disproportionate
to the amount of coverage provided, the coverage provided by
insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar
insurance maintained by a subsidiary of the Company. If the
Company has D&O Insurance at the time it receives a notice that a
Proceeding has commenced, the Company will give prompt notice of
such commencement to the insurers as required by the respective
policies. The Company will thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the
Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.

4.2.2 INDEMNITEE NAMED AS INSURED. In all D&O Insurance policies, the
Indemnitee will be named as an insured in a manner that provides
the Indemnitee the same rights and benefits accorded to the most
favorably insured of the Company's directors and officers.

4.3 AGREEMENT TO SERVE. Indemnitee will serve or continue to serve as an
Agent of the Company for so long as the Indemnitee is duly elected or
appointed or until the Indemnitee voluntarily resigns. Indemnitee will
give notice to the Company at least thirty (30) days prior to voluntarily
resigning.

5
<PAGE>

4.4 EFFECT OF THIS AGREEMENT ON EMPLOYMENT AGREEMENT. Any present or future
employment agreement between the Indemnitee and the Company is not
modified by this Agreement. Nothing contained in this Agreement creates
in the Indemnitee any right of continued employment.

4.5 NATURE OF RIGHTS; SEPARABILITY. The rights afforded to the Indemnitee by
this Agreement are contract rights and may not be diminished, eliminated
or otherwise affected by amendments to the Company's Certificate of
Incorporation, Bylaws or agreements, including D&O Insurance policies.
Each provision of this Agreement, to the extent practicable, is a
separate and distinct agreement and independent of the others, so that if
any provision of this Agreement is held to be invalid or unenforceable
for any reason, the invalidity or unenforceability will not affect the
validity or enforceability of the other provisions. To the extent
required, any provision of this Agreement may be modified by a court of
competent jurisdiction to preserve its validity and to provide the
Indemnitee with the broadest possible indemnification permitted under
applicable law.

4.6 SAVINGS CLAUSE. If this Agreement or any portion of it is invalidated on
any ground by any court of competent jurisdiction, then the Company will
nevertheless indemnify the Indemnitee as to Indemnified Costs with
respect to any Proceeding to the full extent permitted by any applicable
portion of this Agreement that is not invalidated, or by any applicable
law.

4.7 REPAYMENT OF INDEMNIFIED COSTS. The Indemnitee will reimburse the
Company for all Indemnified Costs paid by the Company in defending any
Proceeding against the Indemnitee if and only to the extent that a court
of competent jurisdiction finally decides that the Indemnitee is not
entitled to be indemnified by the Company for such Indemnified Costs
under the provisions of applicable law, the Company's Bylaws, Certificate
of Incorporation, this Agreement, or otherwise. The Indemnitee will
repay such amounts advanced only if, and to the extent that, it is
ultimately determined that Indemnitee is not entitled to be indemnified
for such Indemnified Costs by the Company pursuant to this Agreement.

4.8 REPAYMENT. The Indemnitee will promptly repay to the Company any amounts
paid to the Indemnitee pursuant to other rights of indemnification or
under any insurance policy, to the extent those payments are duplicative
of payments under this Agreement.

5. INDEMNIFICATION PROCEDURE

5.1 NOTICE. Promptly after receipt of notice that a Proceeding has
commenced, the Indemnitee will, if a claim is to be made under this
Agreement, notify the Company of that fact. The failure to notify the
Company will not relieve it from any liability that it may have to the
Indemnitee except to the extent of the Company's material damage
resulting from such failure.

6
<PAGE>

5.2 COMPANY PARTICIPATION. The Company will be entitled to participate in
any Proceeding at its own expense and, except as otherwise provided
below, to the extent that it may wish, the Company may assume the defense
of any Proceeding for which indemnification is sought hereunder, with
counsel reasonably satisfactory to the Indemnitee. After the Company
notifies the Indemnitee of the Company's election to assume the defense
of a Proceeding, during the Company's good faith defense the Company will
not be liable to the Indemnitee under this Agreement for any legal or
other expenses subsequently incurred by the Indemnitee in connection with
the defense of the Proceeding, other than reasonable costs of
investigation or as otherwise provided below. The Indemnitee will have
the right to employ the Indemnitee's counsel in any Proceeding, but the
fees and expenses of the counsel incurred after the Company assumes the
defense of the Proceeding will be at the expense of the Indemnitee,
unless (a) the employment of counsel by the Indemnitee has been
authorized by the Company, (b) the Indemnitee has reasonably concluded
that there is be a conflict of interest between the Company and the
Indemnitee in the conduct of the defense of a Proceeding, or (c) the
Company has not in fact employed counsel to assume the defense of a
Proceeding. In each of the foregoing cases the fees and expenses of the
Indemnitee's counsel will be at the expense of the Company. The Company
will not be entitled to assume the defense of any Proceeding brought by
or on behalf of the Company or as to which the Indemnitee has made the
conclusion that there may be a conflict of interest between the Company
and the Indemnitee.

5.3 SETTLEMENT. The Company will not settle or compromise any Proceeding in
any manner that would impose any penalty or limitation on the Indemnitee
without the Indemnitee's consent. The Indemnitee will not settle or
compromise any Proceeding without the Company's consent. Neither the
Company nor the Indemnitee will unreasonably withhold their consent or
approval under this Agreement.

5.4 SUBROGATION. If the Company pays Indemnified Costs, the Company will be
subrogated to the extent of such payment to all of the rights of recovery
of the Indemnitee against third parties. The Indemnitee will do all
things reasonably necessary to secure such rights, including the
execution of documents necessary to enable the Company effectively to
bring suit to enforce such rights.

6. MISCELLANEOUS PROVISIONS

6.1 AMENDMENTS; WAIVERS. Amendments, waivers, consents and approvals under
this Agreement must be in writing and designated as such. No failure or
delay in exercising any right will be deemed a waiver of such right.

6.2 INTEGRATION. This Agreement is the entire agreement between the parties
pertaining to its subject matter, and supersedes all prior agreements and
understandings of the parties in connection with such subject matter.

7
<PAGE>

6.3 INTERPRETATION; GOVERNING LAW. This Agreement is to be construed as a
whole and in accordance with its fair meaning. This Agreement is to be
interpreted in accordance with the laws of the State of Delaware relating
to indemnification of Agents.

6.4 HEADINGS. Headings of Sections and subsections are for convenience only
and are not a part of this Agreement.

6.5 COUNTERPARTS. This Agreement may be signed in one or more counterparts,
all of which constitute one agreement.

6.6 SUCCESSORS AND ASSIGNS. This Agreement is binding upon and inures to the
benefit of each party and such party's respective heirs, personal
representatives, successors and assigns. Nothing in this Agreement,
express or implied, is intended to confer any rights or remedies upon any
other person.

6.7 EXPENSES; LEGAL FEES. Each party will pay its own expenses in the
negotiation, preparation and performance of this Agreement. The
prevailing party in any action relating to this Agreement will be
entitled to reasonable legal fees, costs and expenses incurred in such
action.

6.8 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party acknowledges that
it has been given an opportunity to be represented by counsel in
connection with this Agreement. Any rule of law, including, but not
limited to, Section 1654 of the California Civil Code, or any legal
decision that would require interpretation of any claimed ambiguities in
this Agreement against the party that drafted it, has no application and
is expressly waived.

6.9 SPECIFIC PERFORMANCE. The Company acknowledges that in view of the
uniqueness of the matters contemplated by this Agreement, the Indemnitee
would not have an adequate remedy at law for money damages if this
Agreement is not being performed in accordance with its terms. The
Company therefore agrees that the Indemnitee will be entitled to specific
enforcement of the terms hereof in addition to any other remedy to which
the Indemnitee may be entitled.

6.10 TIME IS OF THE ESSENCE. Time is of the essence in the performance of
each provision of this Agreement.

6.11 NOTICES. Any notice to be given hereunder must be in writing and
delivered as follows (or to another address designated in writing):

IF TO POWER-ONE, INC.: IF TO THE INDEMNITEE:
740 Calle Plano At the Indemnitee's most recent address on
Camarillo, California 93012 the books and records of the Company or at
Attention: President such other address as Indemnitee indicates
to the Company

8
<PAGE>

The parties have signed this Agreement as of the date on page one.

INDEMNITEE

--------------------------------------------
Print Name:
-------------------------------

POWER-ONE, INC.

By:
---------------------------------------
Title:
------------------------------------

S-1

<PAGE>

EXHIBIT 10.6

POWER-ONE, INC

1996 STOCK INCENTIVE PLAN

(AS AMENDED AND RESTATED AUGUST 31, 1997)

<PAGE>
TABLE OF CONTENTS

PAGE

1. THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Participation. . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Shares Subject to the Plan . . . . . . . . . . . . . . . . . 3
1.5 Grant of Awards. . . . . . . . . . . . . . . . . . . . . . . 4
1.6 Exercise of Awards . . . . . . . . . . . . . . . . . . . . . 4
1.7 Payment Forms. . . . . . . . . . . . . . . . . . . . . . . . 4
1.8 Cashless Exercises . . . . . . . . . . . . . . . . . . . . . 4
1.9 Award Period . . . . . . . . . . . . . . . . . . . . . . . . 5
1.10 No Transferability; Limited Exception to
Transfer Restrictions. . . . . . . . . . . . . . . . . . . . 5

2. OPTIONS.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Option Period. . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Exercise of Options. . . . . . . . . . . . . . . . . . . . . 6
2.5 Limitations on Grant of ISOs . . . . . . . . . . . . . . . . 7
2.6 Limits on 10% Holders. . . . . . . . . . . . . . . . . . . . 7
2.7 Option Repricing/Cancellation
and Regrant/Waiver of Restrictions . . . . . . . . . . . . . 7
2.8 Options and Rights in Substitution for Stock
Options Granted by Other Corporations. . . . . . . . . . . . 8

3. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . 8
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2 Exercise of Stock Appreciation Rights. . . . . . . . . . . . 8
3.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.4 Limited Stock Appreciation Rights. . . . . . . . . . . . . . 9

4. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . 10
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . 10
4.3 Return to the Corporation. . . . . . . . . . . . . . . . . . 11

5. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-
BASED AWARDS, DEFERRED PAYMENTS AND
DIVIDEND EQUIVALENT RIGHTS. . . . . . . . . . . . . . . . . . . . 11
5.1 Grants of Stock Bonuses. . . . . . . . . . . . . . . . . . . 11
5.2 Other Performance-Based Awards . . . . . . . . . . . . . . . 11
5.3 Deferred Payments. . . . . . . . . . . . . . . . . . . . . . 13
5.4 Dividend Equivalent Rights . . . . . . . . . . . . . . . . . 13

6. STOCK UNITS.. . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.2 Other Provisions . . . . . . . . . . . . . . . . . . . . . . 14

7. NON-EMPLOYEE DIRECTOR OPTIONS.. . . . . . . . . . . . . . . . . . 14
7.1 Participation. . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Option Grants. . . . . . . . . . . . . . . . . . . . . . . . 14

<PAGE>

7.3 Option Price . . . . . . . . . . . . . . . . . . . . . . . . 15
7.4 Option Period and Exercisability . . . . . . . . . . . . . . 15
7.5 Termination of Directorship. . . . . . . . . . . . . . . . . 16
7.6 Adjustments; Acceleration; Termination . . . . . . . . . . . 16

8. OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . 17
8.1 Rights of Eligible Persons, Participants and
Beneficiaries . . . . . . . . . . . . . . . . . . . . . . 17
8.2 Adjustments; Acceleration; Possible Early
Termination of Awards . . . . . . . . . . . . . . . . . . . 17
8.3 Termination of Employment. . . . . . . . . . . . . . . . . . 19
8.4 Compliance With Laws . . . . . . . . . . . . . . . . . . . . 21
8.5 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . 21
8.6 Amendment, Termination and Suspension. . . . . . . . . . . . 22
8.7 Privileges of Stock Ownership. . . . . . . . . . . . . . . . 23
8.8 Effective Date of the Plan . . . . . . . . . . . . . . . . . 23
8.9 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . 23
8.10 Governing Law/Construction/Severability. . . . . . . . . . . 23
8.11 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.12 Non-Exclusivity of Plan. . . . . . . . . . . . . . . . . . . 24

9. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . 24

ii
<PAGE>

POWER-ONE, INC.
1996 STOCK INCENTIVE PLAN

(As Amended and Restated August 31, 1997)

1. THE PLAN.

1.1 PURPOSE. The purpose of this Power-One, Inc. 1996 Stock Incentive
Plan (the "Plan") is to promote the success of the Company by providing
equity incentives to attract, motivate and retain key personnel and to
attract, motivate and retain experienced and knowledgeable non-employee
directors. Capitalized terms are defined in Article 9.

1.2 ADMINISTRATION.

1.2.1 COMMITTEE. This Plan shall be administered by and all
awards to Eligible Persons shall be authorized by the Committee, acting by a
majority vote or by written consent of its members. The Committee may
delegate ministerial, non-discretionary functions to third parties, including
officers or employees of the Company.

1.2.2 POWERS OF COMMITTEE. Subject to the express provisions of
this Plan, the Committee shall have the authority:

(a) to determine from among those persons eligible the
particular Eligible Persons who will receive Awards;

(b) to grant Awards to Eligible Persons, determine the price
at which securities will be offered or awarded and the amount of
securities to be offered or awarded to any of such persons, and
determine the other specific terms and conditions of such Awards
consistent with the express limits of this Plan, and establish the
installments (if any) in which such Awards shall become exercisable
or shall vest, or determine that no delayed exercisability or vesting
is required, and establish the events of termination or reversion of
such Awards;

(c) to approve the forms of Award Agreements (which need not be
identical either as to type of award or among Participants);

(d) to construe and interpret this Plan and any agreements
defining the rights and obligations of the Corporation and
Participants under this Plan, further define the terms used in this
Plan, and

1
<PAGE>

prescribe, amend and rescind rules and regulations relating to the
administration of this Plan;

(e) to cancel, modify, or waive the Corporation's rights with
respect to, or modify, discontinue, suspend, or terminate any or all
outstanding Awards held by Eligible Persons, subject to any required
consent under Section 8.6;

(f) to accelerate or extend the exercisability or extend the
term of any or all such outstanding Awards within the maximum term of
Awards under Section 1.9;

(g) to determine the effect, in any, on a Participant's rights
during or following a leave of absence; and

(h) to make all other determinations and take such other
action as contemplated by this Plan or as may be necessary or
advisable for the administration of this Plan and the effectuation of
its purposes.

Notwithstanding the foregoing, the provisions of Article 7 relating
to Non-Employee Director Awards shall be automatic (except as provided
therein) and, to the maximum extent possible, self-effectuating.

1.2.3 BINDING DETERMINATIONS; RELIANCE. Any action taken by, or
inaction of, the Corporation, the Board or the Committee relating to or
pursuant to this Plan shall be within the absolute discretion of that entity
or body and shall be conclusive and binding upon all persons. No member of
the Board or Committee, or officer of the Corporation or any Subsidiary,
shall be liable for any such action or inaction. In making any determination
or not taking any action under this Plan, the Committee or the Board, as the
case may be, may obtain and may rely upon the advice of counsel, accountants
and other experts or professional advisors to the Company and such
determination shall be conclusive.

1.2.4 COMMITTEE MEMBERSHIP. Subject to the requirements of the
definition of Committee contained in Article 9, the Board may, at any time
(a) change the number of members of the Committee, (b) remove from membership
on the Committee all or any of its members, (c) fill any vacancy existing on
the Committee, whether caused by removal, resignation or otherwise, or (d)
change or assume the administration of this Plan.

1.2.5 AWARDS TO COMMITTEE MEMBERS. Any Award issued to a member
of the Committee (other than under

2
<PAGE>

Article 7) shall be subject to approval or ratification by the Board.

1.3 PARTICIPATION. Awards other than under Article 7 may be granted by
the Committee only to those persons that the Committee determines to be
Eligible Persons. An Eligible Person who has been granted an Award may, if
otherwise eligible, be granted additional Awards.

1.4 SHARES SUBJECT TO THE PLAN.

1.4.1 SHARES. Subject to the provisions of Section 8.2, the
capital stock that may be delivered under this Plan shall be shares of the
Corporation's authorized but unissued Common Stock and any shares of its
Common Stock held as treasury shares. The Shares may be delivered for any
lawful consideration.

(a) AGGREGATE LIMIT. The maximum number of Shares that may be
delivered pursuant to Awards granted to Eligible Persons under this
Plan shall not exceed 1,000,000, plus 10% of any increase in
outstanding Shares that occurs after August 31, 1997 (including any
increase as a result of the issuance of Shares under this Plan). The
limit in the foregoing sentence shall not contract if Shares are
reacquired by the Corporation after an increase has been made, but
neither shall the limit increase if such reacquired Shares are
reissued.

(b) ISO LIMIT. The maximum number of Shares that may be
delivered pursuant to ISOs granted to Eligible Persons under this
Plan shall not exceed 1,000,000 Shares.

(c) INDIVIDUAL LIMIT. The maximum number of Shares subject to
those Options, Stock Appreciation Rights and other Awards payable in
Shares or alternatively in Shares or cash that are granted during any
calendar year to any one individual shall be limited to 500,000.

(d) ADJUSTMENT. Each of the foregoing specific Share limits
in this Section 1.4.1 shall be subject to adjustment as contemplated
by Section 1.4.2 and Section 8.2.

1.4.2 CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. If any
Option, Stock Appreciation Right, or other right to acquire Shares under or
receive cash or Shares in respect of an Award lapses or terminates without
having been exercised in full, or any Shares subject to a Restricted Stock
Award or other Award do not vest or are not

3
<PAGE>

delivered, the unpurchased, unvested or undelivered Shares will again be
available for purposes of this Plan. The foregoing sentence does not apply
to any Shares withheld under Section 8.5.

1.5 GRANT OF AWARDS. Subject to the express provisions of this Plan,
the Committee shall determine the Eligible Persons to whom Awards will be
granted, the number of Shares subject to each Award, the price (if any) to be
paid for the Shares or the Award and, in addition to matters addressed in
Section 1.2.2, the specific objectives, goals and performance criteria that
further define the terms of any performance-based award. Each Award shall be
evidenced by an Award Agreement signed by the Corporation and, if required by
the Committee, by the Participant. The Award Agreement shall set forth or
may incorporate by reference the material terms and conditions of the Award
established by the Committee consistent with the specific provisions of this
Plan. Unless a later date is specified by the Committee in the applicable
Award Agreement, the grant of an Award is made on the Award Date.

1.6 EXERCISE OF AWARDS. An exercisable Award will be deemed to be
exercised when the Secretary of the Corporation receives an executed Exercise
Agreement from the Participant, together with payment of any required
Purchase Price in accordance with Section 1.7, 1.8, or 7.3, as the case may
be. Awards of Shares are exercisable only for and payable only in whole
shares. Fractional shares will be disregarded for all purposes under this
Plan.

1.7 PAYMENT FORMS. The Purchase Price of each Award (if any) must be
paid in full at the time of each purchase in one or a combination of the
following methods, to the extent authorized by the Committee or set forth in
the Award Agreement: (a) cash or cashier's check payable to the Corporation,
(b) if the Committee approves, a Note, or (c) by Shares already owned by the
Participant, subject to any conditions (including holding periods) that the
Committee may impose. Any Shares delivered that were initially acquired upon
exercise of an Award must have been owned by the Participant at least six
months as of the date of delivery. Shares used to satisfy the Purchase Price
or (if authorized by the Committee) applicable tax withholding will be valued
at their Fair Market Value on the exercise or purchase date.

1.8 CASHLESS EXERCISES. Award Agreements may also provide that an
Option or similar right may be exercised and payment can be made by
delivering a properly executed exercise notice to the Corporation, together
with irrevocable instructions to a bank or broker to promptly deliver to the
Corporation the amount of sale proceeds

4
<PAGE>

necessary to pay the Purchase Price and, unless otherwise provided by the
Committee, any applicable tax withholding under Section 8.5. The date of
exercise will be deemed to be the date the Corporation receives the proceeds.

1.9 AWARD PERIOD. Any Option, Stock Appreciation Right, or similar
right shall expire and other Awards shall either vest or be forfeited not
more than 10 years after the date of grant; provided, however, that any right
to payment of cash or delivery of stock that has vested pursuant to an Award
may be delayed until a future date if specifically authorized by the
Committee in writing.

1.10 NO TRANSFERABILITY; LIMITED EXCEPTION TO TRANSFER RESTRICTIONS.

1.10.1 LIMIT ON EXERCISE AND TRANSFER. Unless otherwise
expressly provided in (or pursuant to) this Section 1.10, by applicable law
and by the Award Agreement, as the same may be amended, (i) all Awards are
non-transferable and shall not be subject in any manner to sale, transfer,
anticipation, alienation, assignment, pledge, encumbrance or charge; Awards
shall be exercised only by the Participant; and (ii) amounts payable or
shares issuable pursuant to an Award shall be delivered only to (or for the
account of) the Participant.

1.10.2 EXCEPTIONS. The Committee may permit Awards to be
exercised by and paid to certain persons or entities related to the
Participant, including but not limited to members of the Participant's
family, charitable institutions, or trusts or other entities whose
beneficiaries or beneficial owners are members of the Participant's immediate
family and/or charitable institutions, or to such other persons or entities
as may be approved by the Committee, pursuant to such conditions and
procedures as the Committee may establish. Any permitted transfer shall be
subject to the condition that the Committee receive evidence satisfactory to
it that the transfer is being made for estate and/or tax planning purposes on
a gratuitous or donative basis and without consideration (other than nominal
consideration). Notwithstanding the foregoing, ISOs and Restricted Stock
Awards shall be subject to any and all additional transfer restrictions under
the Code.

1.10.3 FURTHER EXCEPTIONS TO LIMITS ON TRANSFER. The exercise
and transfer restrictions in Section 1.10.1 shall not apply to:

(a) transfers to the Corporation,

5
<PAGE>

(b) the designation of a beneficiary to receive benefits in the
event of the Participant's death or, if the Participant has died,
transfers to or exercise by the Participant's beneficiary, or, in the
absence of a validly designated beneficiary, transfers by will or the
laws of descent and distribution,

(d) if the Participant has suffered a disability, permitted
transfers or exercises on behalf of the Participant by his or her legal
representative, or

(e) the authorization by the Committee of "cashless exercise"
procedures with third parties who provide financing for the purpose of
(or who otherwise facilitate) the exercise of Awards consistent with
applicable laws and the express authorization of the Committee.

2. OPTIONS.

2.1 GRANTS. One or more Options may be granted under this Section 2 to
any Eligible Person. Each Option granted shall be designated by the Committee
as either a NQSO or an ISO, and such intent will be indicated in the Award
Agreement. ISOs may be granted only to Eligible Persons who are employed by the
Corporation or a corporation that is a "parent" or "subsidiary" corporation
within the meaning of Sections 424(e) and 424(f) of the Code, respectively.

2.2 OPTION PRICE. The Purchase Price per Share covered by each Option
shall be determined by the Committee at the time of the Award. In the case of
ISOs the Purchase Price per Share must be at least 100% (110% in the case of
persons described in Section 2.6) of the Fair Market Value of the Shares on the
Award Date and in all cases shall not be less than the minimum consideration
required under applicable law.

2.3 OPTION PERIOD. Subject to Section 1.9, each Option will expire on a
date determined by the Committee, but not later than 10 years after the Award
Date, and will be subject to earlier termination as set forth in this Plan or
the Award Agreement.

2.4 EXERCISE OF OPTIONS. An Option may become exercisable, in whole or in
part, on the date or dates specified in the Award Agreement and thereafter will
remain exercisable until the earlier of the expiration or termination of the
Option, or as otherwise set forth in this

6
<PAGE>

Plan or the related Award Agreement. At least 100 Shares must be purchased at
one time unless the number purchased is the total number at the time
available for purchase under the Option.

2.5 LIMITATIONS ON GRANT OF ISOs.

2.5.1 $100,000 LIMIT. To the extent that the aggregate "Fair
Market Value" of stock with respect to which incentive stock options first
become exercisable by a Participant in any calendar year exceeds $100,000,
taking into account both Common Stock subject to ISOs under this Plan and stock
subject to incentive stock options under all other plans of the Company, such
options shall be treated as NQSOs. For this purpose, the "Fair Market Value"
of the stock subject to options shall be determined as of the date the options
were awarded. In reducing the number of options treated as incentive stock
options to meet the $100,000 limit, the most recently granted options shall be
reduced first. To the extent a reduction of simultaneously granted options is
necessary to meet the $100,000 limit, the Committee may, in the manner and to
the extent permitted by law, designate which Shares are to be treated as shares
acquired pursuant to the exercise of an ISO.

2.5.2 OTHER CODE LIMITS. ISOs may only be granted to employees of
the Corporation or a Subsidiary that satisfies the other eligibility
requirements of the Code and shall include such other terms and conditions as
from time to time are required in order that the Option be an "incentive stock
option" as defined in Section 422 of the Code.

2.6 LIMITS ON 10% HOLDERS. No ISO may be granted to any person who, at
the time the Option is granted, owns (or is deemed to own under Section 424(d)
of the Code) Shares possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation, unless the Purchase Price of such
Option is at least 110% of the Fair Market Value of the stock subject to the
Option and such Option by its terms is not exercisable after the expiration of
five years from the date such Option is granted.

2.7 OPTION REPRICING/CANCELLATION AND REGRANT/WAIVER
OF RESTRICTIONS. Subject to Section 1.4 and Section 8.6 and the specific
limitations on Awards contained in this Plan, the Committee from time to time
may authorize, generally or in specific cases only, for the benefit of any
Eligible Person any adjustment in the exercise or purchase price, the vesting
schedule, the number of shares subject to, the restrictions upon or the term of,
an Award granted under this Article 2 by cancellation of an outstanding Award
and a subsequent regranting of an Award, by amendment, by

7
<PAGE>

substitution of an outstanding Award, by waiver or by other legally valid
means. Such amendment or other action may result among other changes in an
exercise or purchase price which is higher or lower than the exercise or
purchase price of the original or prior Award, provide for a greater or
lesser number of shares subject to the Award, or provide for a longer or
shorter vesting or exercise period.

2.8 OPTIONS AND RIGHTS IN SUBSTITUTION FOR STOCK OPTIONS GRANTED BY OTHER
CORPORATIONS. Options and Stock Appreciation Rights may be granted to Eligible
Persons under this Plan in substitution for employee stock options granted by
other entities to persons who are or who will become Eligible Persons in respect
of the Company, in connection with a distribution, merger or reorganization by
or with the granting entity or an affiliated entity, or the acquisition by the
Company, directly or indirectly, of all or a substantial part of the stock or
assets of the other entity.

3. STOCK APPRECIATION RIGHTS.

3.1 GRANTS. In its discretion, the Committee may grant Stock Appreciation
Rights to any Eligible Person either concurrently with the grant of another
Award or in respect of an outstanding Award, in whole or in part, or
independently of any other Award. A Stock Appreciation Right granted
concurrently with the grant of another Award may extend to all or a portion of
the Shares covered by the related Award. A Stock Appreciation Right will
entitle the Participant to holds the related Award, upon exercise of the Stock
Appreciation Right and surrender of the related Award, or portion thereof, to
receive payment of an amount determined pursuant to Section 3.3. Any Stock
Appreciation Right granted in connection with an ISO shall contain such terms as
may be required to comply with the provisions of Section 422 of the Code and the
regulations promulgated thereunder, unless the holder otherwise agrees.

3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.

3.2.1 EXERCISABILITY. Unless the Award Agreement or the Committee
provides otherwise, a Stock Appreciation Right related to another Award shall be
exercisable only at such time or times, and to the extent, that the related
Award is exercisable.

3.2.2 EFFECT ON AVAILABLE SHARES. Unless the Committee otherwise
provides, to the extent that a Stock Appreciation Right is exercised, the number
of Shares theretofore subject to a related Award shall be charged against the
maximum number of Shares that may be issued pursuant to Awards. The number of
Shares subject to the Stock Appreciation Right and the related Award will also
be

8
<PAGE>

reduced by such number of shares. If a Stock Appreciation Right granted
concurrently with an Award extends to fewer than all the Shares covered by
the related Award, and if a portion of the related Award is subsequently
exercised, the number of Shares subject to the unexercised Stock Appreciation
Right will be reduced only to the extent that the remaining number of Shares
covered by such related Award is less than the remaining number of Shares
subject to the Stock Appreciation Right.

3.2.3 INDEPENDENT STOCK APPRECIATION RIGHT. A Stock Appreciation
Right granted independently of any other Award shall be exercisable pursuant to
the terms of the applicable Award Agreement.

3.3 PAYMENT.

3.3.1 AMOUNT. Unless the Committee otherwise provides, upon
exercise of a Stock Appreciation Right and the attendant surrender of an
exercisable portion of any related Award, the Participant shall be entitled to
receive payment of an amount determined by multiplying:

(a) the difference obtained by subtracting the Purchase Price
per share of Common Stock under the related Award (if applicable) or the
initial base price or share value specified in the Award from the Fair
Market Value of a share of Common Stock on the date of exercise of the
Stock Appreciation Right, by

(b) the number of Shares with respect to which the Stock
Appreciation Right shall have been exercised.

3.3.2 FORM OF PAYMENT. The Committee, in its sole discretion,
shall determine the form in which payment shall be made of the amount determined
under paragraph (a) above, either solely in cash, solely in Shares (valued at
Fair Market Value on the date of exercise of the Stock Appreciation Right), or
partly in Shares and partly in cash, on a current or deferred basis as may be
authorized by the Committee, consistent with the terms of this Plan. If the
Committee permits the Participant to elect to receive cash or Shares (or a
combination thereof) on such exercise, or to use Shares to pay any applicable
withholding taxes payable, any such election shall be subject to such conditions
as the Committee may impose.

3.4 LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant to any
Eligible Person Stock Appreciation Rights exercisable only upon or in respect of
a change in control or any other specified event ("Limited SARs") and such
Limited SARs may relate to or operate in tandem or

9
<PAGE>

combination with or substitution for Options, other Stock Appreciation Rights
or other Awards (or any combination thereof), and may be payable in cash or
shares based on the spread between the base price of the Stock Appreciation
Right and a price based upon the Fair Market Value of the Shares during a
specified period or at a specified time within a specified period before,
after or including the date of such event.

4. RESTRICTED STOCK AWARDS.

4.1 GRANTS. The Committee may, in its discretion, grant one or more
Restricted Stock Awards to any Eligible Person. Each Restricted Stock Award
Agreement shall specify the number of Shares to be issued to the Participant,
the date of such issuance, the consideration for such shares (but not less than
the minimum lawful consideration under applicable state law) by the Participant,
the extent (if any) to which and the time (if ever) at which the Participant
shall be entitled to dividends, voting and other rights in respect of the shares
prior to vesting, and the restrictions (which may be based on performance
criteria, passage of time or other factors or any combination thereof) imposed
on such shares and the conditions of release or lapse of such restrictions.
Such restrictions shall not lapse earlier than six months after the Award Date,
except to the extent the Committee may otherwise provide. Stock certificates
evidencing shares of Restricted Stock pending the lapse of the restrictions
("Restricted Shares") shall bear a legend making appropriate reference to the
restrictions imposed hereunder and shall be held by the Corporation or by a
third party designated by the Committee until the restrictions on such shares
shall have lapsed and the shares shall have vested in accordance with the
provisions of the Award and Section 1.9. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee may require to enforce the restrictions.

4.2 RESTRICTIONS AND RIGHTS.

4.2.1 PRE-VESTING RESTRAINTS. Except as provided in Sections 4.1
and 1.10, restricted shares comprising any Restricted Stock Award may not be
sold, assigned, transferred, pledged or otherwise disposed of or encumbered,
either voluntarily or involuntarily, until the restrictions on such shares have
lapsed and the shares have become vested.

4.2.2 DIVIDEND AND VOTING RIGHTS. Unless otherwise provided in
the applicable Award Agreement, a Participant receiving a Restricted Stock Award
shall be entitled to cash dividends and voting rights for all Shares

<PAGE>

issued even though they are not vested, provided that such rights shall
terminate immediately as to any Restricted Shares that cease to be eligible
for vesting.

4.2.3 CASH PAYMENTS. If the Participant shall have paid cash or
other property in respect of the Restricted Stock Award, the Award Agreement
shall specify whether and to what extent such cash or other property shall be
returned (with or without an earnings factor) as to any restricted Shares that
cease to be eligible for vesting.

4.3 RETURN TO THE CORPORATION. Unless the Committee otherwise expressly
provides, restricted shares that remain subject to restrictions at the time of
termination of employment or are subject to other conditions to vesting that
have not been satisfied by the time specified in the applicable Award Agreement
shall not vest and shall be returned to the Corporation as therein provided.

5. STOCK BONUSES, OTHER CASH OR STOCK PERFORMANCE-BASED AWARDS, DEFERRED
PAYMENTS AND DIVIDEND EQUIVALENT RIGHTS.

5.1 GRANTS OF STOCK BONUSES. The Committee may grant a Stock Bonus to any
Eligible Person to reward exceptional or special services, contributions or
achievements in the manner and on such terms and conditions (including any
restrictions on such shares) as determined from time to time by the Committee.
The number of shares so awarded shall be determined by the Committee. The Award
may be granted independently or in lieu of a cash bonus. Notwithstanding
Section 1.9 and anything contained in Section 5.2 to the contrary, Awards
pursuant to this Section 5.1 for past service need not include any minimum
vesting requirement.

5.2 OTHER PERFORMANCE-BASED AWARDS.

5.2.1 GENERAL PROVISIONS. Without limiting the generality of the
foregoing, and in addition to qualifying awards granted under other provisions
of this Plan (i.e., Options or Stock Appreciation Rights granted with an
exercise price not less than Fair Market Value at the applicable date of grant
for Section 162(m) purposes to Eligible Persons who are either salaried
employees or officers ("PRESUMPTIVELY QUALIFYING AWARDS")), other cash or
stock-related performance-based awards, including "performance-based" awards
within the meaning of Section 162(m) ("PERFORMANCE-BASED AWARDS"), whether in
the form of restricted stock, performance stock, phantom stock, stock units,
or Dividend Equivalent Rights, or other rights, whether or not related to
stock values or appreciation, and whether payable in cash, Common Stock, or a
combination thereof, may be granted under this Plan. If the Award

11
<PAGE>

(other than a Presumptively Qualifying Award) is intended as
performance-based compensation under Section 162(m) and is not entitled to
the benefits of Section 1.162-27(f) of the regulations thereunder, the
vesting or payment thereof shall be based on the performance of the Company
on a consolidated, segment, subsidiary, or division basis with reference to
one or more of the following business criteria (the "criterion"): funds from
operations, EBITDA, stock appreciation, total stockholder return, net
earnings (before or after taxes), cash flow, return on equity or on assets or
on net investment, or cost containment or reduction. To the extent so
defined, these terms are used as applied under generally accepted accounting
principles and in the Company's financial reporting. To qualify Awards as
performance-based under Section 162(m), the applicable business criteria and
specific performance goal or goals ("targets") must be established and
approved by the Committee during the first 90 days of the year (or before
one-quarter of the performance measurement period has elapsed, if such period
exceeds one year) and while the performance relating to such targets remains
substantially uncertain within the meaning thereof. The applicable
performance measurement period may not be less than one nor (except as
provided in Section 1.9) more than 10 years. The Committee is not, however,
limited to the grant of this type of performance-based awards.

5.2.2 MAXIMUM AWARD. Grants or awards under this Section 5.2 may
be paid in cash or Shares or any combination thereof. In no event shall grants
of stock-related Awards made in any calendar year to any Eligible Employee under
this Plan relate to more than 500,000 Shares. In no event shall grants to any
Eligible Employee under this Plan of Awards payable only in cash and not related
to stock provide for payment of more than $5,000,000.

5.2.3 COMMITTEE CERTIFICATION. Except as otherwise permitted to
qualify as performance-based compensation under Section 162(m), before any
Performance-Based Award under this Section 5.2 is paid, the Committee must
certify that the performance standard, target(s), and the other material terms
of the Performance-Based Award were in fact satisfied.

5.2.4 TERMS AND CONDITIONS OF AWARDS. The Committee will have
discretion to determine the restrictions or other limitations of the individual
Awards under this Section 5.2, including the authority to reduce Awards, to
determine payout schedules and the extent of vesting or to pay no Awards, in its
sole discretion, IF the Committee preserves such authority at the time of grant
by language to this effect in its authorizing resolutions or otherwise. The
Committee may provide that in the event a Participant

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<PAGE>

terminates employment or service for any one or more reasons during any year,
the Participant shall forfeit all rights to any Award for that year.

5.2.5 ADJUSTMENTS FOR MATERIAL CHANGES. Performance goals or
other features of an Award under this Section 5.2 may provide that they (a)
shall be adjusted to reflect a change in corporate capitalization, a
corporate transaction (such as a reorganization, combination, separation, or
merger) or a complete or partial corporate liquidation, or (b) shall be
calculated either without regard for or to reflect any change in accounting
policies or practices affecting the Company and/or the business criteria or
performance goals or targets, or (c) shall be adjusted for any other
circumstances or event, or (d) any combination of (a) through (c), but only
to the extent in each case that such adjustment or determination in respect
of Performance-Based Awards would be consistent with the requirements of
Section 162(m) to qualify as performance-based compensation.

5.3 DEFERRED PAYMENTS. The Committee may authorize for the benefit of
any Eligible Person the deferral of any payment of cash or shares that may
become due or of cash otherwise payable under this Plan, and provide for the
crediting of benefits thereon based upon such deferment, at the election or
at the request of such Participant, subject to the other terms of this Plan.
Such deferral shall be subject to such further conditions, restrictions or
requirements as the Committee may impose, subject to any then vested rights
of Participants.

5.4 DIVIDEND EQUIVALENT RIGHTS. In its discretion, the Committee may
grant to any Eligible Person Dividend Equivalent Rights concurrently with the
grant of any Option, Restricted Stock, Stock Unit, or other stock-based
Award, on such terms as set forth by the Committee in the Award Agreement.
Dividend Equivalent Rights shall be based on all or part of the amount of
dividends declared on Shares and shall be credited as of the dividend payment
dates, during the period between the date of grant (or such later date as the
Committee may set) and the date the stock-based Award is exercised or expires
(or such earlier date as the Committee may set), as determined by the
Committee. Dividend Equivalent Rights shall be payable in cash or Shares, or
(to the extent permitted by law) may be subject to such conditions, not
inconsistent with Section 162(m) (in the case of Options or Stock
Appreciation Rights, or other Awards intended to satisfy its conditions with
respect to deductibility), as may be determined by the Committee.

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<PAGE>

6. STOCK UNITS.

6.1 GRANTS. Subject to such rules and procedures as the Committee may
establish from time to time, the Committee may, in its discretion, authorize a
Stock Unit Award or the crediting of Stock Units pursuant to the terms of this
Plan and any applicable deferred compensation plan maintained by the
Corporation, permit an Eligible Person to irrevocably elect to defer or receive
in Stock Units all or a portion of any Award hereunder, or may grant Stock Units
in lieu of, in exchange for, in respect of, or in addition to any other Award
under this Plan or any other stock option plan or deferred compensation plan of
the Corporation. The specific terms, conditions and provisions relating to each
Stock Unit grant or election, including the form of payment to be made at or
following the vesting thereof, shall be set forth in or pursuant to the
applicable deferred stock Award Agreement and the applicable deferred
compensation plan of the Company, in form substantially as approved by the
Committee.

6.2 OTHER PROVISIONS. The Committee shall determine, among other terms of
a Stock Unit grant or Award, the form of payment of Stock Units, whether in
cash, Shares, or other consideration (including any other Award) or any
combination thereof, the valuation of the Stock Units or any non-cash payment
for the purpose of the Award, and the applicable vesting and payout provisions
of the Stock Units. The Committee in the applicable Award Agreement or the
relevant deferred compensation plan of the Company may permit the Participant to
elect the form and time of payout of the vested Stock Units on such conditions
or subject to such procedures as the Committee may impose, and may permit Stock
Unit offsets or other provision for payment of any applicable taxes that may be
due on the crediting, vesting or payment in respect of the Stock Units.

7. NON-EMPLOYEE DIRECTOR OPTIONS.

7.1 PARTICIPATION. Awards under this Article 7 shall be made only to
Non-Employee Directors and shall be evidenced by Award Agreements
substantially in the form of Exhibit A hereto.

7.2 OPTION GRANTS.

7.2.1 TIME OF INITIAL AWARD. Persons who are Non-Employee
Directors in office at or immediately after a registration statement relating to
the initial underwritten public offering of the Corporation's Common Stock is
declared effective shall be granted without further action a NQSO to purchase
40,000 shares of Common Stock at an exercise price equal to the price to the
public in such

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<PAGE>

offering (the "Initial Options"). Thereafter, subject to Section 7.2.3, if
any person who is not, immediately prior to his or her appointment or
election, an officer or employee of the Company shall become a Non-Employee
Director of the Corporation, there shall be granted automatically to such
person (without any action by the Board or Committee) a NQSO, the Award Date
of which shall be the date such person takes office, to purchase 40,000
shares of Common Stock, unless the Board otherwise provides in advance of
such appointment or election.

7.2.2 SUBSEQUENT ANNUAL AWARDS AFTER 2000. Subject to Section
7.2.3 and provided that the Non-Employee Director is then continuing in office,
each Non-Employee Director shall be granted automatically (without any action by
the Committee or the Board) a NQSO to purchase 10,000 shares of Common Stock
immediately following each annual stockholders meeting during the term of this
Plan commencing with the later of (i) the year 2001 or (ii) the year in which
the fourth anniversary of the Non-Employee Director's initial election or
appointment to the Board occurs. The Award Date of each such NQSO shall be the
date of the related annual stockholders meeting.

7.2.3 MAXIMUM NUMBER OF OPTIONS/SHARES. Grants pursuant to this
Section 7.2 that would otherwise exceed the maximum number of shares under
Section 1.4.1(a) shall be prorated within such limitation.

7.3 OPTION PRICE. The purchase price per share of the Common Stock
covered by each Option granted pursuant to Section 7.2 hereof shall be 100
percent of the Fair Market Value of the Common Stock on the Award Date. The
exercise price of any Option granted under this Article 7 shall be paid in full
at the time of each purchase in cash or by check or in Shares valued at their
Fair Market Value on the date of exercise of the Option, or partly in such
Shares and partly in cash, PROVIDED THAT any Shares used in payment shall have
been owned by the Participant at least six months prior to the date of exercise
unless the Board otherwise permits. In addition, an Option granted under this
Article 7 may be exercised and payment can be made in accordance with the
cashless exercise provisions contained in Section 1.8.

7.4 OPTION PERIOD AND EXERCISABILITY. Each Option granted under this
Article 7 and all rights or obligations thereunder shall expire ten years after
the Award Date and shall be subject to earlier termination as provided below.
Each Option granted under Section 7.2 shall first become exercisable at the rate
of 25% per annum commencing on the first anniversary of the Award Date, with the
additional

<PAGE>

vesting only on each of the next three anniversaries thereof, subject to
Sections 7.5 and 7.6.

7.5 TERMINATION OF DIRECTORSHIP. If a Non-Employee Director's services as
a member of the Board terminate for any reason other than upon or because of an
Event, any portion of an Option granted pursuant to this Article 7 which is not
then exercisable shall terminate. Subject to Section 7.6, any portion of the
Option which is then exercisable may be exercised for one year after the
termination of service in the case of a termination because of death, Total
Disability, or Retirement, or for three months after the date of termination of
service in all other cases, and shall then terminate, but in no event may the
Option be exercised after the expiration of the stated ten-year term of the
Option. If a Non-Employee Director's services as a member of the Board
terminate upon or because of an Event, an Option granted pursuant to this
Article 7 and then held by such Participant may (as provided in or pursuant to
Section 7.6) immediately become and, subject to Section 7.6, remain exercisable
for three months after the date of such termination or until the expiration of
the stated term of the Option, whichever first occurs, and shall then terminate.

7.6 ADJUSTMENTS; ACCELERATION; TERMINATION. Options granted under this
Article 7 will be subject to adjustments, acceleration, and termination as
provided in Section 8.2, but only to the extent that such adjustment and any
Board or Committee action in respect thereof in the case of an Event is effected
pursuant to the terms of a reorganization agreement approved by the stockholders
of the Corporation or is otherwise consistent with adjustments to Options held
by persons other than executive officers or directors of the Corporation (or, if
there are none, consistent in respect of the underlying Shares, with the effect
on or rights offered to stockholders generally). To the extent that any Option
granted under this Article 7 is not exercised prior to a dissolution of the
Corporation or a merger or other corporate event that the Corporation does not
survive, and no provision is (or consistent with the provisions of this Plan can
be) made for the assumption, conversion, substitution or exchange of the Option,
the Option will terminate upon the occurrence of the event. The Participant,
however, shall be entitled to the benefits of any alternative settlement of the
Option in such circumstances, as contemplated by Section 8.2.

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<PAGE>

8. OTHER PROVISIONS.

8.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.

8.1.1 NO BINDING COMMITMENT. Status as an Eligible Person shall
not be construed as a commitment that any Award will be made under this Plan to
any Eligible Person or to Eligible Persons generally.

8.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan (or
any documents relating to this Plan or to any Award) shall confer upon any
Eligible Person or other Participant any right to continue in the employ or
other service of the Company or constitute any contract or agreement of
employment or other service, nor shall interfere in any way with the right of
the Company to change such person's compensation or other benefits or to
terminate the services or employment of such person, with or without cause, but
nothing in this Plan or any document related hereto shall adversely affect any
independent contractual right of such person without his or her consent thereto.

8.1.3 PLAN NOT FUNDED. Awards payable under this Plan shall be
payable in shares or from the general assets of the Corporation, and (except as
provided in Section 1.4) no special or separate reserve, fund or deposit shall
be made to assure payment of such Awards. No Participant, Beneficiary or other
person shall have any right, title or interest in any fund or in any specific
asset (including Shares, except as expressly otherwise provided) of the Company
by reason of any Award. Neither the provisions of this Plan (or of any related
documents), nor the creation or adoption of this Plan, nor any action taken
pursuant to the provisions of this Plan shall create, or be construed to create,
a trust of any kind or a fiduciary relationship between the Company and any
Participant, Beneficiary or other person. To the extent that a Participant,
Beneficiary or other person acquires a right to receive payment pursuant to any
Award hereunder, such right shall be no greater than the right of any unsecured
general creditor of the Company.

8.2 ADJUSTMENTS; ACCELERATION; POSSIBLE EARLY TERMINATION OF AWARDS.

8.2.1 ADJUSTMENTS. If the outstanding Shares are changed into or
exchanged for cash or a different number or kind of shares or securities of the
Corporation or of another issuer, or if additional Shares or new or different
securities are distributed with respect to the outstanding Shares, through a
reorganization or merger to which the Corporation is a party, or through a
combination,

17
<PAGE>

consolidation, spin off, recapitalization, reclassification, stock split,
stock dividend, reverse stock split, stock consolidation or other capital
change or adjustment, an appropriate adjustment will be made in the number
and kind of Shares or other consideration that is subject to or may be
delivered under this Plan and pursuant to outstanding Awards, the Purchase
Price of outstanding Awards, performance criteria under outstanding Awards
(subject to Section 5.2 and 8.10.3) and the numerical share limits set forth
in Section 1.4, 5.2.2 and Article 7.

In any of such events, the Committee may take such action sufficiently prior to
such event if necessary or deemed appropriate to permit the Participants to
realize the benefits intended to be conveyed with respect to the underlying
shares on substantially the same terms as are available to stockholders
generally.

8.2.2 ACCELERATION OF AWARDS UPON CERTAIN EVENTS. Subject to the
exceptions noted below, (i) each Option and Stock Appreciation Right shall
become immediately exercisable, (ii) each Restricted Stock Award shall
immediately vest free of restrictions, (iii) each Award under Article 5 shall
become payable to the Participant, and (iv) the number of Shares covered by each
Stock Unit Account shall be issued to the Participant:

(a) immediately prior to the occurrence of an Event, unless the
Committee determines prior to such Event that, upon its occurrence, there
shall be no acceleration of benefits under Awards or determines that only
certain or limited benefits under Awards shall be accelerated and the
extent to which they shall be accelerated, and/or establishes a different
time in respect of such Event for such acceleration; or

(b) immediately prior to the termination by the Company of a
Participant's employment or services for any reason other than for Cause
(1) within two years after the occurrence of an Event with respect to
which vesting has not been accelerated pursuant to Section 8.2.2(a), or
(2) within 90 days prior to an Event and in express contemplation of the
Event.

The Committee may override the limitations on acceleration in this Section 8.2.2
by express provision in the Award Agreement and may accord any Eligible Person a
right to refuse any acceleration, whether pursuant to the Award Agreement or
otherwise, in such circumstances as the Committee may approve. Any acceleration
of Awards shall comply with applicable regulatory requirements, including
without limitation Section 422 of the Code. Any discretion with respect to
these events shall be limited to the extent

18
<PAGE>

required by applicable accounting requirements in the case of a transaction
intended to be accounted for as a pooling of interests transaction.

8.2.3 POSSIBLE EARLY TERMINATION OF AWARDS. If any Option or
other right to acquire Common Stock under this Plan (except as provided under
Article 7 with respect to Non-Employee Director Awards) has been fully
accelerated pursuant to Section 8.2.2 but is not exercised prior to (a) a
dissolution of the Corporation, or (b) an event described in Section 8.2.1 that
the Corporation does not survive, or (c) the consummation of an event described
in Section 8.2.1 involving an Event approved by the Board, such Option or right
shall thereupon terminate, subject to any provision that has been expressly made
by the Committee or the Board (through a plan of reorganization approved by the
Board or otherwise) for the survival, substitution, assumption, exchange or
alternative settlement of the Option or right.

8.3 TERMINATION OF EMPLOYMENT.

8.3.1 OPTIONS.

(a) Any Option, to the extent not exercised, will terminate and
become null and void upon a Participant's termination of employment or
services with the Company, except as set forth in this Section 8.3 or
otherwise expressly provided in the Award Agreement. All Options shall
be subject to earlier termination under Section 2.3, and any and all
rights under an Option, to the extent not exercised or vested, will
expire immediately upon a Participant's termination of employment or
services with the Company for Cause. The Committee shall be the sole
judge of Cause.

(b) Unless otherwise expressly provided in the Award Agreement,
a Participant will have the following time periods to exercise Options
to the extent they are exercisable on the date of the Participant's
termination of employment or services with the Company:

(1) If the Participant's employment or services with the
Company terminates by any reason other than death, Total Disability
or Cause, the Participant will have 90 days after the date of such
termination to exercise any Option;

(2) If the Participant's employment or services with the
Company is terminated for Cause, the Option shall lapse immediately
upon such termination.

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<PAGE>

(3) If the Participant's employment or services with the
Company terminates by reason of Total Disability, or if the
Participant suffers a Total Disability within 90 days after a
termination of service described in Section 8.3.1(b)(1), the
Participant or the Participant's Personal Representative, as the
case may be, will have 180 days after the date of Total Disability
(or, if earlier, date of termination), to exercise any Option;

(4) If the Participant dies while employed by or while
performing services to the Company, or within 90 days after a
termination of service described in Section 8.3,1(b)(1) or
8.3.1(b)(3) above, the Participant's Beneficiary may exercise, at
any time within 180 days after the date of the Participant's death
(or, if earlier date of termination) any Option.

8.3.2 STOCK APPRECIATION RIGHTS. Each Stock Appreciation Right
granted concurrently with an Award will have the same termination provisions
and exercisability periods as the related Award. The termination provisions
and exercisability periods of any Stock Appreciation Right granted
independent of an Award will be established by the Committee.

8.3.3 RESTRICTED STOCK AWARDS AND AWARDS UNDER ARTICLE 5. If a
Participant's employment or services terminates for any reason, (a) Shares
subject to the Participant's Restricted Stock Award will be terminated in
accordance with the related Award Agreement to the extent such Shares have
not become vested on the date of such termination; and (b) any Award granted
to the Participant under Article 5 will be terminated in accordance with the
related Award Agreement to the extent such Award has not become vested or
payable on the date of such termination.

8.3.4 STOCK UNITS. Each Deferred Stock Alternative Exercise
Agreement or other Award Agreement in respect of Stock Units shall include
the applicable benefit distribution and termination provisions for the grant
or Award and shall specify the form of payment and may incorporate (to the
extent applicable) any terms of this Plan, another Award and/or any other
deferred compensation plan under which it is governed.

8.3.5 ADJUSTMENTS TO EXERCISABLE PORTION. Notwithstanding the
foregoing, if a Participant's employment or services with the Company
terminates for any reason other than for Cause, the Committee may increase
the portion of a

<PAGE>

Participant's Award exercisable to the Participant, or Participant's
Beneficiary or Personal Representative, as the case may be, and extend the
applicable periods of exercise, upon such terms as the Committee determines.

8.3.6 EFFECT OF CESSATION OF SUBSIDIARY STATUS. If an entity
ceases to be a Subsidiary, such action will be deemed for purposes of this
Plan to be a termination of services or employment of each Eligible Person of
that entity who does not continue as an Eligible Person of the Corporation or
another Subsidiary.

8.4 COMPLIANCE WITH LAWS. This Plan, the granting and vesting of Awards
under this Plan and the offer, issuance and delivery of Shares and/or the
payment of money or other benefits under this Plan or under Awards granted
hereunder are subject to compliance with all applicable federal and state
laws, rules and regulations (including but not limited to state and federal
securities law and federal margin requirements) and to such approvals by any
listing, regulatory or governmental authority as may, in the judgment of the
Committee, be necessary or advisable in connection therewith. Any securities
delivered under this Plan shall be subject to such restrictions, and the
person acquiring such securities shall, if requested by the Corporation,
provide such assurances and representations to the Corporation as the
Corporation may deem necessary or desirable to assure compliance with all
applicable legal requirements.

8.5 TAX WITHHOLDING.

8.5.1 CASH OR SHARES. Upon any exercise, vesting, or payment of
any Award or upon the disposition of Shares acquired pursuant to the exercise
of an ISO prior to satisfaction of the holding period requirements of Section
422 of the Code, the Corporation shall have the right at its option to (i)
require the Participant (or Personal Representative or Beneficiary, as the
case may be) to pay or provide for payment in cash or by cashier's check
payable to the Corporation of the amount of any taxes which the Company may
be required to withhold with respect to such Award event or payment or (ii)
deduct from any amount payable in cash the amount of any taxes which the
Company may be required to withhold with respect to such cash payment. In
any case where a tax is required to be withheld in connection with the
delivery of Shares under this Plan, the Committee may, in its sole discretion
and at the time of the Award or thereafter, either require the Participant or
grant to the Participant the right to elect, pursuant to such rules and
subject to such conditions as the Committee may establish, to have the
Corporation reduce the number of shares to be delivered by (or otherwise
reacquire) the appropriate number

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<PAGE>

of shares valued at their then Fair Market Value, to satisfy such withholding
obligation.

8.5.2 TAX LOANS. The Corporation may, in its discretion and to
the extent permitted by law, authorize a loan to an Eligible Person in the
amount of any taxes which the Company may be required to withhold with
respect to Shares received (or disposed of, as the case may be) pursuant to a
transaction described in Section 8.5.1. Such a loan shall be for a term, at
a rate of interest and pursuant to such other terms and conditions as the
Corporation, under applicable law, may establish and such loan need not
comply with the provisions of a "Loan" defined in Section 9.1.

8.6 AMENDMENT, TERMINATION AND SUSPENSION.

8.6.1 AMENDMENT, TERMINATION AND SUSPENSION. The Board may, at
any time, terminate or, from time to time, amend, modify or suspend this
Plan, in whole or in part. No Awards may be granted during any suspension of
this Plan or after termination of this Plan, but the Committee shall retain
jurisdiction as to Awards then outstanding in accordance with the terms of
this Plan.

8.6.2 STOCKHOLDER APPROVAL. Any amendment that would (i)
materially increase the benefits accruing to Participants under this Plan,
(ii) materially increase the aggregate number of securities that may be
issued under this Plan, or (iii) materially modify the requirements as to
eligibility for participation in this Plan, shall be subject to stockholder
approval to the extent then required by Section 422 of the Code or applicable
law, or deemed necessary or advisable by the Board.

8.6.3 AMENDMENTS TO AWARDS. Without limiting any other express
authority of the Committee under but subject to the express limits of this
Plan, the Committee by agreement or resolution may waive conditions of or
limitations on Awards to Eligible Persons that the Committee in the prior
exercise of its discretion has imposed, without the consent of a Participant,
and may make other changes to the terms and conditions of Awards that do not
affect in any manner materially adverse to the Participant, his or her rights
and benefits under an Award.

8.6.4 LIMITATIONS ON AMENDMENTS TO PLAN AND AWARDS. No
amendment, suspension or termination of this Plan or change of or affecting
any outstanding Award shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights or
benefits of the Participant or obligations of the Corporation under any Award
granted under this Plan prior to

22
<PAGE>

the effective date of such change. Changes contemplated by Section 8.2 shall
not be deemed to constitute changes or amendments for purposes of this
Section 8.6.

8.7 PRIVILEGES OF STOCK OWNERSHIP. A Participant will not be entitled
to the privilege of stock ownership as to any Shares not actually issued to
the Participant. No adjustment will be made for dividends or other rights as
a stockholder for which a record date is prior to the date of issue.

8.8 EFFECTIVE DATE OF THE PLAN. This Plan was originally effective as
of February 23, 1996 and was amended and restated as of August 31, 1997. The
Plan was originally approved by the stockholders of the Corporation on
February 23, 1996.

8.9 TERM OF THE PLAN. Except as permitted by Section 1.9, no Award
shall be granted under this Plan after February 22, 2006 (the "termination
date"). Unless otherwise expressly provided in this Plan or in an applicable
Award Agreement, any Award granted prior to the termination date may extend
beyond such date, and all authority of the Committee with respect to Awards
hereunder, including the authority to amend an Award or defer payment of a
vested Award, shall continue during any suspension of this Plan and in
respect of Awards outstanding on the termination date.

8.10 GOVERNING LAW/CONSTRUCTION/SEVERABILITY.

8.10.1 CHOICE OF LAW. This Plan, the Awards, all documents
evidencing Awards and all other related documents shall be governed by, and
construed in accordance with the laws of the state of incorporation of the
Corporation.

8.10.2 SEVERABILITY. If any provision shall be held by a court
of competent jurisdiction to be invalid and unenforceable, the remaining
provisions of this Plan shall continue in effect.

8.10.3 PLAN CONSTRUCTION.

(a) It is the intent of the Corporation that transactions in and
affecting Awards in the case of an Eligible Person or Participant who is
or may be subject to Section 16 of the Exchange Act (a "SECTION 16
PERSON") satisfy any then applicable requirements of Rule 16b-3 so that
such persons (unless they otherwise agree) will be entitled to the
benefits of Rule 16b-3 or other exemptive rules under Section 16 of the
Exchange Act in respect of those transactions and will

23
<PAGE>

not be subjected to avoidable liability thereunder. If any provision
of this Plan or of any Award would otherwise frustrate or conflict
with the intent expressed above, that provision to the extent
practicable shall be interpreted so as to avoid such conflict. If the
conflict remains irreconcilable, the Committee may disregard the
provision if it concludes that to do so furthers the interest of the
Corporation and is consistent with the purposes of this Plan as to
such persons in the circumstances.

(b) It is the further intent of the Company that Options or
Stock Appreciation Rights with an exercise or base price not less than
Fair Market Value on the date of grant and performance awards under
Section 5.2 of this Plan that are granted to or held by a Section 16
Person shall qualify as performance-based compensation under
Section 162(m), and this Plan shall be interpreted consistent with such
intent.

8.11 CAPTIONS. Captions and headings are given to the sections and
subsections of this Plan solely as a convenience to facilitate reference.

8.12 NON-EXCLUSIVITY OF PLAN. Nothing in this Plan shall limit or be
deemed to limit the authority of the Board or the Committee to grant awards
or authorize any other compensation, with or without reference to the Common
Stock, under any other plan or authority.

9. DEFINITIONS.

9.1 DEFINITIONS.

"AWARD" means an award of any Option (which may be designated as
a NQSO or an ISO and which may include as an incident thereto Stock Units),
Stock Appreciation Right, Stock Unit, Restricted Stock, Stock Bonus, Deferred
Stock Alternative, Performance-Based Award, Dividend Equivalent Rights, or
deferred payment right, or any combination thereof, whether alternative or
cumulative, authorized by and granted under this Plan.

"AWARD AGREEMENT" means a written agreement, approved by the
Committee, setting forth the terms of an Award.

"AWARD DATE" means the date upon which the Committee takes the
action granting an Award or such later date as the Committee designates as
the Award Date at the time of the Award or, in the case of Awards under
Article 7, the applicable date set forth therein.

24
<PAGE>

"BENEFICIARY" means the person, persons, trust, or trusts
designated by a Participant or, in the absence of a designation, entitled by
will or the laws of descent and distribution to receive the benefits
specified in the Award Agreement and under this Plan in the event of a
Participant's death, and shall mean the Participant's executor or
administrator if no other Beneficiary is designated and able to act under the
circumstances.

"BOARD" means the Board of Directors of the Corporation.

"CAUSE" means a determination by the Committee that the
Participant: (a) has committed a material breach of the Participant's duties
and responsibilities (other than as a result of incapacity due to a Total
Disability); or (b) has been convicted of a felony, or entered a plea of
guilty or nolo contendre with respect to such a crime; or (c) has violated
any fiduciary duty or duty of loyalty owed to the Company; or (d) has been
generally incompetent or grossly negligent in the discharge of the
Participant's duties and responsibilities; or (e) has engaged or is engaging
in immoderate use of alcoholic beverages or narcotics or other substance
abuse; or (f) has violated in any material respect any of the Company's
established employment policies in effect from time to time.

"CODE" means the Internal Revenue Code of 1986, as amended from
time to time.

"COMMISSION" means the Securities and Exchange Commission.

"COMMITTEE" means the Compensation Committee appointed by the
Board and consisting of two or more Board members or such greater number as
may be required under applicable law. In the absence of such appointment,
the Board shall be the Committee. Each of the members of the Committee, in
respect of any decision at a time when the Eligible Person affected by the
decision may be (or, in the Committee's judgment is likely to become) subject
to Section 162(m), shall be an "outside director" within the meaning of
Section 162(m) if the subject Award is intended as a performance-based award
for purposes of that section. In acting on any transaction with or for the
benefit of a Section 16 Person, each acting member of the Committee shall be
a "non-employee director" within the meaning of Rule 16b-3(b)(3) promulgated
under the Exchange Act, unless the Committee's action is approved or ratified
by the Board in advance of the effective time of the action.

"COMMON STOCK" means the Common Stock of the Corporation.

25
<PAGE>

"COMPANY" means, collectively, the Corporation and its
Subsidiaries or the Corporation or any Subsidiary, as the context requires.

"CORPORATION" means Power-One, Inc., a Delaware corporation, and its
successors.

"DEFERRED STOCK ALTERNATIVE" mean a deferred payment alternative
payable in Shares or cash or other consideration, as determined by the
Committee, based on the number of Stock Units credited to a Participant's
Stock Unit Account.

"DIVIDEND EQUIVALENT RIGHT" means a right authorized under
Section 5.4 of this Plan.

"ELIGIBLE PERSON" means (subject to applicable limits under the
Code in the case of ISOs) (a) an officer, director, or key employee of the
Company, or (b) any Non-Employee Director or any individual consultant or
advisor who renders or has rendered BONA FIDE services (other than services
in connection with the offering or sale of securities of the Company in a
capital raising transaction) to the Company, and who is selected to
participate in this Plan by the Committee. A non-employee agent providing
BONA FIDE services to the Company (other than as an eligible advisor or
consultant) may also be selected by the Committee as an Eligible Person if
such agent's participation in this Plan would not adversely affect (x) the
Corporation's eligibility to use Form S-8 to register under the Securities
Act the offer and sale of shares issuable under this Plan by the Corporation
or (y) the Corporation's compliance with any other applicable laws.

"EVENT" means any of the following:

(a) the dissolution or liquidation of the Corporation;

(b) approval by the stockholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or
into one or more entities that are not Subsidiaries, as a result of
which 50% or more of the outstanding voting securities of either the
surviving or resulting entity or its parent, as the case may be,
immediately after the reorganization are not and will not be, owned,
directly or indirectly, by stockholders of the Corporation immediately
before such reorganization (assuming for purposes of such
determination that there is no change in the record ownership of the
Corporation's securities from the record date for such approval until
such reorganization

<PAGE>

and that such record owners hold no securities of the other parties to
such reorganization);

(c) approval by the stockholders of the Corporation of the sale
of substantially all of the Corporation's business and/or assets as an
entirety to a person or entity that is not a Subsidiary;

(d) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act but excluding (1) any person described in
and satisfying the conditions of Rule 13d-1(b)(1) thereunder, and (2)
any person or entity (including any successor) that is a beneficial
owner (as defined in Rule 13d-3 under the Exchange Act) of more than
20% of the Corporation as of August 31, 1997), becomes the beneficial
owner, directly or indirectly, of securities of the Corporation
representing more than 50% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation; or

(e) during any period not longer than two consecutive years,
individuals who at the beginning of such period constituted the Board
and (without duplication in the case of successors) persons whose
election or nomination for election by the Corporation's stockholders
was approved by a vote of at least three-fourths of the Board members
then still in office cease to constitute as least a majority of the
Board.

"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended
from time to time.

"EXERCISE AGREEMENT" means a written agreement, approved by the
Committee, setting forth the terms for the exercise of an Award.

"FAIR MARKET VALUE" on any date shall mean:

(a) if the Shares are publicly traded: (1) if the Shares are
listed or admitted to trade on a national securities exchange, the
closing price of the Shares on the Composite Tape, as published in the
Western Edition of The Wall Street Journal, of the principal national
securities exchange on which the Shares are so listed or admitted to
trade, on such date, or, if there is no trading of the Shares on such
date, then the closing price of the Shares as quoted on such Composite
Tape on the next preceding date on which there was trading in such
Shares; (2) if the Shares are not listed or admitted to trade on a
national securi-

27
<PAGE>

ties exchange, the last price for the Shares on such date, as furnished
by the National Association of Securities Dealers, Inc. ("NASD") through
the NASDAQ National Market Reporting System or a similar organization if
the NASD is no longer reporting such information; (3) if the Shares are
not listed or admitted to trade on a national securities exchange and
are not reported on the National Market Reporting System, the mean
between the bid and asked price for the Shares on such date, as
furnished by the NASD or a similar organization; or

(b) if the Shares are NOT publicly traded or the NASD or a
similar organization does not furnish the mean between the bid and
asked prices for the Shares on such date, the fair market value of a
Share as determined by the Committee in good faith. Any determination
as to fair market value made pursuant to this Plan shall be determined
without regard to any restriction other than a restriction which, by
its terms, will never lapse, and shall be conclusive and binding on all
persons.

"ISO" means an Option which is intended, as evidenced by its
designation, as an incentive stock option within the meaning of Section 422 of
the Code, the award of which contains such provisions and is made under such
circumstances and to such persons as may be necessary to comply with that
section.

"NQSO" means an Option that is designated as a nonqualified stock
option and shall include any Option intended to be an ISO that fails to meet the
applicable legal requirements thereof. Any Option granted hereunder that is not
designated as an incentive stock option shall be deemed to be designated a
nonqualified stock option under this Plan and not an incentive stock option
under the Code.

"NON-EMPLOYEE DIRECTOR" means a member of the Board of Directors of
the Corporation who is not an officer or employee of the Company.

"NON-EMPLOYEE DIRECTOR PARTICIPANT" means a Non-Employee Director who
holds an outstanding Award under the provisions of Article 7.

"NOTE" means a promissory note approved by the Committee evidencing a
loan from the Corporation to the Eligible Person of an amount equal to the
Purchase Price of an Award. Any Note shall be subject to the following terms:

(a) The principal of the Note shall not exceed the amount
required to be paid to the

28
<PAGE>

Corporation upon the exercise or receipt of such Award, and the note
shall be delivered directly to the Corporation in consideration of such
exercise or receipt.

(b) The term of the Note, including extensions, shall not exceed
ten (10) years.

(d) The Note shall bear interest at a rate determined by the
Committee, but not less than the interest rate necessary to avoid the
imputation of interest under the Code.

(e) The unpaid balance of the Note shall become due and
payable on the tenth day after the termination of employment or
service of a Participant; provided, however, that if a sale of such
shares would cause such Participant to incur liability under Section
16(b) of the Exchange Act, the unpaid balance shall become due and
payable on the 10th business day after the first day on which a sale
of such shares could have been made without incurring such liability
assuming for these purposes that there are no other transactions (or
deemed transactions in securities of this Corporation) by the
Participant subsequent to such termination.

(f) If required by the Committee or by applicable law, the Note
shall be secured by a pledge of any Shares or Awards financed thereby
(and other collateral if required by the Committee).

(g) The terms, repayment provisions, and collateral release
provisions of the note and the pledge securing the note shall conform
with applicable rules and regulations of the Commission and the Federal
Reserve Board, as then in effect.

"OPTION" means an option to purchase Shares granted under this Plan.
The Committee shall designate any Option granted to any Eligible Person as a
NQSO or an ISO.

"PARTICIPANT" means an Eligible Person who has been granted an Award
under this Plan and a Non-Employee Director Participant who has been granted an
Award under Article 7 of this Plan.

"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
disability or incompetence of a Participant, shall have acquired on behalf of
the Participant, by legal proceeding or otherwise, the power to

29
<PAGE>

exercise the rights or receive the benefits under this Plan and who shall
have become the legal representative of the Participant.

"PURCHASE PRICE" means the exercise or purchase price, if any, payable
by the Participant to the Corporation upon exercise of an Award in accordance
with the applicable Award Agreement, Exercise Agreement, and the terms of this
Plan; provided, however, that such exercise price shall not be less than the
minimum lawful consideration required under applicable state law.

"RESTRICTED STOCK" means Shares awarded to a Participant under this
Plan, subject to payment of such consideration, if any, and such conditions on
vesting (which may include, among others, the passage of time, specified
performance objectives or other factors) and such transfer and other
restrictions as are established in or pursuant to this Plan and the related
Award Agreement, for so long as such Shares remain unvested under the terms of
the applicable Award Agreement.

"RESTRICTED STOCK AWARD" means an Award of Restricted Stock made
pursuant to Article 4.

"RETIREMENT" means retirement from employment by, or providing
services to, the Corporation or any Subsidiary which occurs, in the case of
employees, at or after the Company's normal retirement age and in accordance
with the retirement policies of the Company then in effect or, in the case of a
Non-Employee Director, a retirement or resignation as a director after age 65
or after at least 15 years of service as a director.

"RULE 16b-3" means Rule 16b-3 as promulgated by the Commission
pursuant to the Exchange Act, as amended from time to time.

"SECTION 16 PERSON" means a person subject to Section 16(a) of the
Exchange Act.

"SECTION 162(m)" means Section 162(m) of the Code.

"SECURITIES ACT" means the Securities Act of 1933, as amended form
time to time.

"SHARES" means shares of the Corporation's Common Stock.

"STOCK APPRECIATION RIGHT" means a right authorized under this Plan to
receive a number of Shares or an amount of cash, or a combination of Shares and
cash, the aggregate amount of or value of which is determined by

30
<PAGE>

reference to a change in the Fair Market Value of the Common Stock.

"STOCK BONUS" means an Award of Shares granted under this Plan for no
consideration other than past services and without restriction other than such
transfer or other restrictions as the Committee may deem advisable to assure
compliance with law.

"STOCK UNIT" means a non-voting unit of measurement which is deemed
for bookkeeping purposes to be equivalent to one outstanding share of the
Corporation's Common Stock (subject to adjustment) solely for purposes of this
Plan.

"STOCK UNIT ACCOUNT" means the bookkeeping account maintained by the
Corporation on behalf of each Participant who is credited with Stock Units in
accordance with Article 6, which account may be payable in cash, Shares and/or
other consideration, as the Committee may determine.

"SUBSIDIARY" means any corporation or other entity a majority or more
of whose outstanding voting stock or voting power is beneficially owned
directly or indirectly by the Corporation.

"TOTAL DISABILITY" means a "permanent and total disability" within the
meaning of Section 22(e)(3) of the Code and such other disabilities,
infirmities, afflictions, or conditions as the Committee by rule may include.

<PAGE>

EXHIBIT A

POWER-ONE, INC.

ELIGIBLE DIRECTOR

NONQUALIFIED STOCK OPTION AGREEMENT

THIS AGREEMENT dated as of the _____ day of _____________, ____,
between Power-One, Inc., a Delaware corporation (the "Corporation"), and
________________ (the "Director").

W I T N E S S E T H

WHEREAS, the Corporation has adopted and the stockholders of the
Corporation have approved the Power-One, Inc. 1996 Stock Incentive Plan, as
amended (the "Plan").

WHEREAS, pursuant to Article 7 of the Plan, the Corporation has
granted an option (the "Option") to the Director upon the terms and
conditions evidenced hereby, as required by the Plan, which Option is not
an incentive stock option within the meaning of Section 422 of the Code.

NOW, THEREFORE, in consideration of the services rendered and to be
rendered by the Director, the Corporation and the Director agree to the terms
and conditions set forth herein as required by the terms of the Plan.

1. OPTION GRANT. This Agreement evidences the grant to the
Director, as of ___________, ____ (the "Option Date"), of an Option to
purchase an aggregate of _____ shares of Common Stock, par value _____ per
share, under Section 7.2 of the Plan, subject to the terms and conditions
and to adjustment as set forth herein or in the Plan.

2. EXERCISE PRICE. The Option entitles the Director to purchase
(subject to the terms of Sections 3 through 5 below and to the extent
exercisable) all or any part of the Option shares at a price per share of
$_______, which amount represents the Fair Market Value of the shares on the
Option Date.

3. OPTION EXERCISABILITY AND TERM. The Option shall first become
and remain exercisable as to 25% of the Option shares on the first
anniversary of the Option Date, and as to an additional 25% of the Option
shares on each of the next three anniversaries of that date, in each case
subject to adjustment, acceleration, and termination under

A-1
<PAGE>

Section 7.6 of the Plan. The Option shall terminate ____________, ____,
unless earlier terminated in accordance with the terms of the Plan.

4. SERVICE AND EFFECT OF TERMINATION OF SERVICE. The Director
agrees to serve as a director in accordance with the provisions of the
Corporation's Certificate of Incorporation, bylaws and applicable law. If
the Director's services as a member of the Board shall terminate, this Option
shall terminate at the times and to the extent set forth in Section 7.5 of
the Plan.

5. GENERAL TERMS. The Option and this Agreement are subject to,
and the Corporation and the Director agree to be bound by, the provisions of
the Plan that apply to the Option. Such provisions are incorporated herein
by this reference. The Director acknowledges receiving a copy of the Plan
and reading its applicable provisions. Capitalized terms not otherwise
defined herein shall have the meaning assigned to such terms in the Plan.

IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.

POWER-ONE, INC.
(a Delaware corporation)

By ___________________________

Title ________________________

Optionee Director

______________________________
(Signature)

______________________________
(Print Name)

______________________________
(Address)

______________________________
(City, State, Zip Code)

A-2
<PAGE>

CONSENT OF SPOUSE

In consideration of the execution of the foregoing Stock Option
Agreement by Power-One, Inc., I, ____________________________, the spouse of
the Director therein named, do hereby agree to be bound by all of the terms
and provisions thereof and of the Plan.

DATED: ______________, 19__.

___________________________
(Signature of Spouse)

A-3

<PAGE>

To:
Date:
Sub:

1. MANAGEMENT BONUS PROGRAM
This bonus plan will become effective based upon EBITDA growth as
illustrated in the chart below.
<TABLE>
<CAPTION>

NAME
SALARY
PLAN A-F
GENERAL BONUS YES OR NO

Estimated EBITDA % Growth Bonus (in %) Bonus
Sales Level $12,800k-'96 EBITDA adj at 100% Goals Amount
----------- ------------ ---------- ------------- ------
<S> <C> <C> <C> <C> <C>
$80,000,000 $14,080,000 110.0%
Stephens Plan $80,500,000 $14,592,000 114.0%
$81,012,000 $14,848,000 116.0%
$81,524,000 $15,104,000 118.0%
$82,036,000 $15,360,000 120.0%
$82,548,000 $15,616,000 122.0%
$83,060,000 $15,872,000 124.0%
Internal Plan $84,000,000 $16,128,000 126.0%
$85,280,000 $16,640,000 130.0%
$86,080,000 $16,960,000 132.5%
$86,880,000 $17,280,000 135.0%
$87,680,000 $17,600,000 137.5%
$88,480,000 $17,920,000 140.0%

MAXIMUM BONUS AMOUNT INDICATED ABOVE.
1995 EBITDA
$12,800,000

</TABLE>

2. ALL EMPLOYEE BONUS PROGRAM
You may also be eligible to participate in the All Employee Bonus
Pool. Please see "General Bonus" above. A "Yes" indicates your
eligibility to participate in the Management Bonus Pool and the All
Employee Bonus Pool.

3. PAYMENT CONDITIONS
Employees must be on payroll as of December 31, 1997 in order to be
awarded any bonuses earned (both the Management and All Employee Bonus
Plans). However, should an employee be terminated for gross
misconduct between January 1, 1998 and the time of the bonus
distribution, Power-One reserves the right not to pay any portion of
either bonus pool to the ex employee.

Employees who are hired during 1997 (and employed through the end of
1997) will receive a pro-rated portion of the available bonus, based
upon their hire date.

4. HOW WILL YOUR BONUS BE CALCULATED?
You are eligible to receive up to the amount indicated in the chart
above, based upon your individual job performance and achievement of
goals (as indicated in your 1997 review and any goals assigned to you
during 1998).

5. PAYMENT SCHEDULE
Bonuses will be paid toward the end of the first Quarter 1998, or as
soon as the 1997 year-end audit is completed and the year end profit
figures are available.

6. CHANGES TO THIS AGREEMENT
The Board of Directors reserves the right to adjust these profit
levels in the event of significant changes in the company's
debt/financing or capital structure.

Any modification or amendment to this agreement will be in writing and
contain the signatures of both the employee and an Officer of
Power-One. No other document can supersede the Management Incentive
Bonus which has been written and agreed to. No verbal contracts will
be made or honored.

------------------ -----------------
Employee Signature Officer Signature

<PAGE>

MANAGER AND EXEC BONUS PLAN

Estimated EBITDA % Growth Scale from Potential Plan A Potential Plan B Potential Plan C
Sales Level $12,800K-'96 EBITDA adj 100% at 100% Goals at 100% Goals at 100% Goals
----------- ------------ ---------- ---------- ------------- ------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>

$80,000,000 $14,080,000 110.0% 0% $0 0.0% 0.0%
STEPHENS PLAN $80,500,000 $14,592,000 114.0% 50% $5,000 2.5% 10.0%
$81,012,000 $14,848,000 116.0% 60% $6,000 3.0% 12.0%
$81,524,000 $15,104,000 118.0% 70% $7,000 3.5% 14.0%
$82,036,000 $15,360,000 120.0% 80% $8,000 4.0% 16.0%
$82,548,000 $15,616,000 122.0% 90% $9,000 4.5% 18.0%
$83,060,000 $15,872,000 124.0% 95% $9,500 4.8% 19.0%
INTERNAL PLAN $84,000,000 $16,128,000 126.0% 100% $10,000 5.0% 20.0%
$85,280,000 $16,640,000 130.0% 105% $10,500 5.3% 21.0%
$86,080,000 $16,960,000 132.5% 110% $11,000 5.5% 22.0%
$86,880,000 $17,280,000 135.0% 115% $11,500 5.8% 23.0%
$87,680,000 $17,600,000 137.5% 120% $12,000 6.0% 24.0%
$88,480,000 $17,920,000 140.0% 125% $12,500 6.3% 25.0%

$10,000 5.0% 20.0%

1995 EBITA
$12,800,000

Potential Plan D Potential Plan E Potential Plan F Potential Plan G
at 100% Goals at 100% Goals at 100% Goals at 100% Goals totals
---------------- ---------------- ---------------- ---------------- ------
<S> <C> <C> <C> <C> <C>

0.0% 0.0% 0.0% 0.0% $0
STEPHENS PLAN 12.5% 20.0% 25.0% 0.0% $0
15.0% 24.0% 30.0% 0.0% $0
17.5% 28.0% 35.0% 0.0% $0
20.0% 32.0% 40.0% 0.0% $0
22.5% 36.0% 45.0% 0.0% $0
23.8% 38.0% 47.5% 0.0% $0
INTERNAL PLAN 25.0% 40.0% 50.0% 0.0% $0
26.3% 42.0% 52.5% 0.0% $0
27.5% 44.0% 55.0% 0.0% $0
28.8% 46.0% 57.5% 0.0% $0
30.0% 48.0% 60.0% 0.0% $0
31.3% 50.0% 62.5% 0.0% $0

25.0% 40.0% 50.0% $0

</TABLE>

<PAGE>

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

$45,000,000

CREDIT AGREEMENT

AMONG

POWER-ONE LLC

CERTAIN LENDERS

AND

NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER

September 27, 1995

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

<PAGE>

TABLE OF CONTENTS

Page
----

ARTICLE 1

DEFINITIONS

Section 1.1 DEFINED TERMS . . . . . . . . . . . . . . . . . . . 1
Section 1.2 AMENDMENTS AND RENEWALS . . . . . . . . . . . . . . 19
Section 1.3 CONSTRUCTION. . . . . . . . . . . . . . . . . . . . 19

ARTICLE 2

ADVANCES

Section 2.1 THE ADVANCES. . . . . . . . . . . . . . . . . . . . 20
Section 2.2 MANNER OF BORROWING AND DISBURSEMENT. . . . . . . . 20
Section 2.3 INTEREST. . . . . . . . . . . . . . . . . . . . . . 22
Section 2.4 FEES. . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.5 PREPAYMENTS . . . . . . . . . . . . . . . . . . . . 24
Section 2.6 REDUCTION OF COMMITMENTS. . . . . . . . . . . . . . 26
Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER . 27
Section 2.8 PAYMENT OF PRINCIPAL OF ADVANCES. . . . . . . . . . 28
Section 2.9 REIMBURSEMENT . . . . . . . . . . . . . . . . . . . 28
Section 2.10 MANNER OF PAYMENT . . . . . . . . . . . . . . . . . 28
Section 2.11 LIBOR LENDING OFFICES . . . . . . . . . . . . . . . 29
Section 2.12 SHARING OF PAYMENTS . . . . . . . . . . . . . . . . 29
Section 2.13 CALCULATION OF LIBOR RATE . . . . . . . . . . . . . 30
Section 2.14 TAXES . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.15 LETTERS OF CREDIT . . . . . . . . . . . . . . . . . 33

ARTICLE 3

CONDITIONS PRECEDENT

Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL REVOLVING
CREDIT ADVANCE, THE TERM LOAN ADVANCE, AND THE
INITIAL LETTERS OF CREDIT. . . . . . . . . . . . . . . . 39
Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS
OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . 42
Section 3.3 CONDITIONS PRECEDENT TO CONVERSIONS AND
CONTINUATIONS. . . . . . . . . . . . . . . . . . . . . . 43

-1-
<PAGE>

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Section 4.1 REPRESENTATIONS AND WARRANTIES. . . . . . . . . . . 43
Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC . . 51

ARTICLE 5

GENERAL COVENANTS

Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS . . . 51
Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW. . . . . . 51
Section 5.3 MAINTENANCE OF PROPERTIES . . . . . . . . . . . . . 51
Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. . . . . . 52
Section 5.5 INSURANCE . . . . . . . . . . . . . . . . . . . . . 52
Section 5.6 PAYMENT OF TAXES AND CLAIMS . . . . . . . . . . . . 52
Section 5.7 VISITS AND INSPECTIONS. . . . . . . . . . . . . . . 52
Section 5.8 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . 53
SECTION 5.9 INDEMNITY . . . . . . . . . . . . . . . . . . . . . 53
Section 5.10 ENVIRONMENTAL LAW COMPLIANCE. . . . . . . . . . . . 54
Section 5.11 INTEREST RATE HEDGING . . . . . . . . . . . . . . . 55
Section 5.12 FURTHER ASSURANCES. . . . . . . . . . . . . . . . . 55

ARTICLE 6

INFORMATION COVENANTS

Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. . . 56
Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION;
CERTIFICATE OF NO DEFAULT. . . . . . . . . . . . . . . . 56
Section 6.3 COMPLIANCE CERTIFICATE. . . . . . . . . . . . . . . 57
Section 6.4 COPIES OF OTHER REPORTS AND NOTICES . . . . . . . . 57
Section 6.5 NOTICE OF LITIGATION, DEFAULT AND OTHER MATTERS . . 58
Section 6.6 ERISA REPORTING REQUIREMENTS. . . . . . . . . . . . 58

ARTICLE 7

NEGATIVE COVENANTS

Section 7.1 INDEBTEDNESS. . . . . . . . . . . . . . . . . . . . 60
Section 7.2 LIENS . . . . . . . . . . . . . . . . . . . . . . . 60

-2-
<PAGE>

Section 7.3 INVESTMENTS . . . . . . . . . . . . . . . . . . . . 60
Section 7.4 LIQUIDATION, MERGER, NEW SUBSIDIARIES . . . . . . . 61
Section 7.5 SALES OF ASSETS . . . . . . . . . . . . . . . . . . 61
Section 7.6 ACQUISITIONS. . . . . . . . . . . . . . . . . . . . 61
Section 7.7 CAPITAL EXPENDITURES. . . . . . . . . . . . . . . . 62
Section 7.8 RESTRICTED PAYMENTS . . . . . . . . . . . . . . . . 62
Section 7.9 AFFILIATE TRANSACTIONS. . . . . . . . . . . . . . . 62
Section 7.10 COMPLIANCE WITH ERISA . . . . . . . . . . . . . . . 63
Section 7.11 MAXIMUM LEVERAGE RATIO. . . . . . . . . . . . . . . 63
Section 7.12 MINIMUM FIXED CHARGE COVERAGE RATIO . . . . . . . . 63
Section 7.13 MINIMUM NET WORTH . . . . . . . . . . . . . . . . . 64
Section 7.14 SALE AND LEASEBACK. . . . . . . . . . . . . . . . . 64
Section 7.15 SALE OR DISCOUNT OF RECEIVABLES . . . . . . . . . . 64
Section 7.16 CAPITAL STOCK . . . . . . . . . . . . . . . . . . . 64
Section 7.17 BUSINESS. . . . . . . . . . . . . . . . . . . . . . 65
Section 7.18 FISCAL YEAR . . . . . . . . . . . . . . . . . . . . 65
Section 7.19 BUSINESS. . . . . . . . . . . . . . . . . . . . . . 65
Section 7.20 AMENDMENT OF ORGANIZATIONAL DOCUMENTS . . . . . . . 65

ARTICLE 8

DEFAULT

Section 8.1 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . 65
Section 8.2 REMEDIES. . . . . . . . . . . . . . . . . . . . . . 69

ARTICLE 9

CHANGES IN CIRCUMSTANCES

Section 9.1 LIBOR BASIS DETERMINATION INADEQUATE. . . . . . . . 69
Section 9.2 ILLEGALITY. . . . . . . . . . . . . . . . . . . . . 70
Section 9.3 INCREASED COSTS . . . . . . . . . . . . . . . . . . 70
Section 9.4 EFFECT ON BASE RATE ADVANCES. . . . . . . . . . . . 71
Section 9.5 CAPITAL ADEQUACY. . . . . . . . . . . . . . . . . . 72
Section 9.6 REPLACEMENT LENDER. . . . . . . . . . . . . . . . . 72

ARTICLE 10

AGREEMENT AMONG LENDERS

Section 10.1 AGREEMENT AMONG LENDERS . . . . . . . . . . . . . . 73

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Section 10.2 LENDER CREDIT DECISION. . . . . . . . . . . . . . . 75
Section 10.3 BENEFITS OF ARTICLE . . . . . . . . . . . . . . . . 75

ARTICLE 11

MISCELLANEOUS

Section 11.1 NOTICES . . . . . . . . . . . . . . . . . . . . . . 76
Section 11.2 EXPENSES. . . . . . . . . . . . . . . . . . . . . . 76
Section 11.3 WAIVERS . . . . . . . . . . . . . . . . . . . . . . 77
Section 11.4 CALCULATION BY THE LENDERS CONCLUSIVE AND BINDING . 77
Section 11.5 SET-OFF . . . . . . . . . . . . . . . . . . . . . . 78
Section 11.6 ASSIGNMENT. . . . . . . . . . . . . . . . . . . . . 78
Section 11.7 COUNTERPARTS. . . . . . . . . . . . . . . . . . . . 80
Section 11.8 SEVERABILITY. . . . . . . . . . . . . . . . . . . . 80
Section 11.9 INTEREST AND CHARGES. . . . . . . . . . . . . . . . 80
Section 11.10 HEADINGS. . . . . . . . . . . . . . . . . . . . . . 81
Section 11.11 AMENDMENT AND WAIVER. . . . . . . . . . . . . . . . 81
Section 11.12 EXCEPTION TO COVENANTS. . . . . . . . . . . . . . . 81
Section 11.13 NO LIABILITY OF ISSUING BANK. . . . . . . . . . . . 81
Section 11.14 CONFIDENTIALITY . . . . . . . . . . . . . . . . . . 82
SECTION 11.15 GOVERNING LAW. . . . . . . . . . . . . . . . . 82
SECTION 11.16 WAIVER OF JURY TRIAL . . . . . . . . . . . . . 83
SECTION 11.17 ENTIRE AGREEMENT . . . . . . . . . . . . . . . 83

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SCHEDULES AND EXHIBITS

Schedule 1: LIBOR Lending Offices
Schedule 2: Existing Liens
Schedule 3: Existing Litigation and Material Liabilities
Schedule 4: Subsidiaries
Schedule 5: Existing Investments
Schedule 6: Existing Indebtedness
Schedule 7: Qualification and Good Standing

Exhibit A: Revolving Credit Note
Exhibit B: Term Loan Note
Exhibit C: General Security Agreement
Exhibit D: Intellectual Property Security Agreement
Exhibit E: Pledge Agreement
Exhibit F: Compliance Certificate
Exhibit G: Assignment Agreement

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CREDIT AGREEMENT

THIS CREDIT AGREEMENT is dated as of September 27, 1995, among Power-One
LLC, a limited liability company organized and existing under the laws of the
State of Delaware ("Borrower"), the Lenders from time to time party hereto, and
NATIONSBANK OF TEXAS, N.A., a national banking association, as administrative
agent for the Lenders.

BACKGROUND

The Borrower has requested that the Lenders make a credit facility
available to the Borrower in the maximum principal amount of $45,000,000. The
Lenders have agreed to do so, subject to the terms and conditions set forth
below.

In consideration of the mutual covenants and agreements contained herein,
and other good and valuable consideration hereby acknowledged, the parties
hereto agree as follows:

ARTICLE 1

DEFINITIONS

Section 1.1 DEFINED TERMS. For purposes of this Agreement:

"ACQUISITION" shall mean any transaction pursuant to which the Borrower or
any of its Subsidiaries, (i) whether by means of a capital contribution or
purchase or other acquisition of stock or other securities or other equity
participation or interest, (A) acquires more than 50% of the equity interest in
any Person pursuant to a solicitation by the Borrower or such Subsidiary of
tenders of equity securities of such Person, or through one or more negotiated
block, market, private or other transactions not involving an unfriendly tender
offer, or a combination of any of the foregoing, or (B) makes any corporation a
Subsidiary of the Borrower or such Subsidiary, or causes any corporation, other
than a Subsidiary of the Borrower or such Subsidiary, to be merged into the
Borrower or such Subsidiary (or agrees to be merged into any other corporation
other than a wholly-owned Subsidiary (excluding directors' qualifying shares) of
the Borrower or such Subsidiary), or (ii) purchases all or substantially all of
the business or assets of any Person or of any operating division of any Person.

"ADMINISTRATIVE LENDER" means NationsBank of Texas, N.A., a national
banking association, as administrative agent for Lenders, or such successor
administrative agent appointed pursuant to SECTION 10.1(b) hereof.

"ADVANCE" means any amount advanced by the Lenders to the Borrower pursuant
to ARTICLE 2 hereof on the occasion of any borrowing.

<PAGE>

"AFFILIATE" means, as applied to any Person, any other Person that,
directly or indirectly, through one or more Persons, Controls or is Controlled
By or Under Common Control with, that Person.

"AGREEMENT" means this Credit Agreement, as amended, modified, supplemented
or restated from time to time.

"AGREEMENT DATE" means the date of this Agreement.

"AMORTIZATION DATE" means December 31, 1995.

"APPLICABLE ENVIRONMENTAL LAWS" means applicable laws pertaining to health
or the environment, including without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986 (as amended from time
to time, "CERCLA"), the Resource Conservation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act
amendments of 1980, and the Hazardous and Solid Waste Amendments of 1984 (as
amended from time to time, "RCRA").

"APPLICABLE LAW" means (a) in respect of any Person, all provisions of
constitutions, statutes, rules, regulations and orders of governmental bodies or
regulatory agencies applicable to such Person and its properties, including,
without limiting the foregoing, all orders and decrees of all courts and
arbitrators in proceedings or actions to which the Person in question is a
party, and (b) in respect of contracts relating to interest or finance charges
that are made or performed in the State of Texas, "Applicable Law" shall mean
the laws of the United States of America, including without limitation 12 USC
Sections 85 and 86, as amended from time to time, and any other statute of the
United States of America now or at any time hereafter prescribing the maximum
rates of interest on loans and extensions of credit, and the laws of the State
of Texas, including, without limitation, Article 5069-1.04, Title 79, Revised
Civil Statutes of Texas, 1925, as amended ("Art. 1.04"), and any other statute
of the State of Texas now or at any time hereafter prescribing maximum rates of
interest on loans and extensions of credit; provided that the parties hereto
agree that the provisions of Chapter 15, Title 79, Revised Civil Statutes of
Texas, 1925, as amended, shall not apply to Advances, the Reimbursement
Obligations, this Agreement, the Notes or any other Loan Documents.

"APPLICABLE MARGIN" means the following per annum percentages, applicable
in the following situations:

Base Rate LIBOR
Applicability Basis Basis
------------- ----- -----

(a) INITIAL PRICING PERIOD 1.50 2.50

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SUBSEQUENT PRICING PERIOD
(b) The Leverage Ratio is greater than 3.0 to 1 1.50 2.50
(c) The Leverage Ratio is less than or equal to
3.0 to 1 but greater than 2.50 to 1 1.25 2.25
(d) The Leverage Ratio is less than or equal to
2.50 to 1 1.00 2.00

The Applicable Margin payable by the Borrower on the Advances outstanding
hereunder shall be subject to reduction or increase, as applicable and as set
forth in the table above, on a quarterly basis according to the performance of
the Borrower as tested by using the Leverage Ratio calculated as of the end of
each fiscal quarter during the Subsequent Pricing Period; PROVIDED, that each
adjustment in the LIBOR Rate shall be effective with respect to LIBOR Advances
(i) made following receipt by the Administrative Lender of the financial
statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as
applicable, for each such fiscal quarter, and the corresponding Compliance
Certificate required pursuant to SECTION 6.3 hereof, on the date of making of
such LIBOR Advance and (ii) outstanding on the date of receipt of such financial
statements and Compliance Certificate referred to in clause (i) immediately
preceding, on the date which is 2 Business Days following the date of receipt of
such financial statements and Compliance Certificate. If such financial
statements and Compliance Certificate are not received by the Administrative
Lender by the date required, the Applicable Margin shall be determined as if the
Leverage Ratio is greater than 3.0 to 1 until such time as such financial
statements and Compliance Certificate are received.

"ART. 1.04" has the meaning specified in the definition of "APPLICABLE
LAW."

"ASSIGNEES" means any assignee of a Lender pursuant to an Assignment
Agreement and shall have the meaning ascribed thereto in SECTION 11.6 hereof.

"ASSIGNMENT AGREEMENT" has the meaning specified in SECTION 11.6 hereof.

"AUTHORIZED SIGNATORY" means such senior personnel of the Borrower as may
be duly authorized and designated in writing by the Borrower to execute
documents, agreements and instruments on behalf of the Borrower, and to request
Advances and Letters of Credit hereunder.

"BASE RATE ADVANCE" means any Advance bearing interest at the Base Rate
Basis.

"BASE RATE BASIS" means, for any day, a per annum interest rate equal to
the higher of (a) the sum of (i) 0.50% plus (ii) the Federal Funds Rate on such
day plus (iii) the Applicable Margin or (b) the sum of (i) the Prime Rate on
such day plus (ii) the Applicable Margin. The Base Rate Basis shall be adjusted
automatically without notice to Borrower as of the opening of business on the
effective date of each change in the Prime Rate to account for such change.

"BORROWER" means Power-One LLC, a limited liability company organized and
existing under

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the laws of the State of Delaware.

"BUSINESS DAY" means a day on which banks are open for the transaction of
business in Dallas, Texas, Los Angeles, California and, with respect to any
LIBOR Advance, in London, England.

"CAPITAL EXPENDITURES" means, for any period, expenditures made by the
Borrower and its Subsidiaries to acquire or construct fixed assets, plant and
equipment (including renewals, improvements and replacements during such period
and the aggregate amount of items leased or acquired under Capital Leases at the
cost of the item) computed in accordance with GAAP, consistently applied.

"CAPITAL STOCK" means, as to any Person, the equity interests in such
Person, including, without limitation, the shares of each class of capital stock
in any Person that is a corporation, each class of partnership interest
(including, without limitation, general, limited and preference units) in any
Person that is a partnership, and each member interest in any Person that is a
limited liability company.

"CAPITALIZED LEASE OBLIGATIONS" means that portion of any obligation of the
Borrower or any Subsidiary of the Borrower as lessee under a lease which at the
time would be required to be capitalized on a balance sheet of the Borrower or
such Subsidiary prepared in accordance with GAAP.

"CASH AND CASH EQUIVALENTS" means with respect to the Borrower and each
Subsidiary of the Borrower (i) cash (which after the occurrence of an Event of
Default shall exclude any cash proceeds of accounts), (ii) securities issued or
directly and fully guaranteed or insured by the United States Government or any
agency or instrumentality thereof having maturities of not more than six months
from the date of acquisition, (iii) certificates of deposit and eurodollar time
deposits with maturities of six months or less from the date of acquisition,
bankers' acceptances with maturities not exceeding six months and overnight bank
deposits, in each case with any Lender or with any domestic commercial bank
having capital and surplus in excess of $500,000,000, (iv) repurchase
obligations with a term of not more than seven days for underlying securities of
the types described in clauses (ii) and (iii) entered into with any financial
institution meeting the qualifications specified in clause (iii) above,
(v) commercial paper issued by any Lender or the parent corporation of any
Lender, and commercial paper rated A-1 or the equivalent thereof by Standard &
Poor's Ratings Group, a Division of McGraw-Hill, Inc., a New York corporation,
or P-1 or the equivalent thereof by Moody's Investors Service, Inc., and in each
case maturing within six months after the date of acquisition, and (vi) a
readily redeemable "money market mutual fund" advised by a bank described in
clause (iii) hereof, or an investment advisor registered under Section 203 of
the Investment Advisors Act of 1940, that has and maintains an investment policy
limiting its investments primarily to instruments of the types described in
clauses (i) through (v) hereof and having on the date of such Investment total
assets of at least One Hundred Million Dollars ($100,000,000.00).

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"CASH COLLATERALIZED LETTERS OF CREDIT" means Letters of Credit with
respect to which cash in the amount of such Letters of Credit has been deposited
in the L/C Cash Collateral Account as provided in SECTION 2.15(g)(i) hereof.

"COBRA" has the meaning specified in SECTION 4.1(l) hereof.

"CODE" means the Internal Revenue Code of 1986, as amended.

"COLLATERAL" means any collateral hereafter granted by any Person to the
Administrative Lender for the benefit of the Lenders to secure the Obligations.

"COLLATERAL DOCUMENT" means any document under which Collateral is granted
and any document related thereto.

"COMMITMENT LETTER" means that certain commitment letter dated September 6,
1995 from NationsBank to the Borrower.

"COMMITMENTS" means, collectively, the Revolving Credit Commitment and the
Term Loan Commitment, as reduced from time to time pursuant to SECTION 2.6
hereof.

"COMPLIANCE CERTIFICATE" means a certificate, signed by an Authorized
Signatory, in substantially the form of EXHIBIT F, appropriately completed.

"CONTROL" or "CONTROLLED BY" or "UNDER COMMON CONTROL" means possession,
directly or indirectly, of power to direct or cause the direction of management
or policies (whether through ownership of voting securities, by contract or
otherwise); provided, however, that in any event any Person which beneficially
owns, directly or indirectly, 10% or more (in number of votes) of the securities
having ordinary voting power for the election of directors of a corporation
shall be conclusively presumed to control such corporation.

"CONTROLLED GROUP" means as of the applicable date, as to any Person not an
individual, all members of a controlled group of corporations and all trades or
businesses (whether or not incorporated) which are under common control with
such Person and which, together with such Person, are treated as a single
employer under Section 414(b), (c), (m) or (o) of the Code; provided, however,
that the Subsidiaries of the Borrower shall be deemed to be members of the
Borrower's Controlled Group.

"CURRENT ASSETS" means, for the Borrower and its Subsidiaries determined in
accordance with GAAP or a consolidated basis, all current assets, excluding Cash
and Cash Equivalents.

"CURRENT LIABILITIES" means, for the Borrower and its Subsidiaries
determined in accordance with GAAP on a consolidated basis, all current
liabilities, excluding the current portion of long-term

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Indebtedness.

"DEBTOR RELIEF LAWS" means any applicable liquidation, conservatorship,
bankruptcy, moratorium, rearrangement, insolvency, reorganization or similar
debtor relief Laws affecting the rights of creditors generally from time to time
in effect.

"DEED OF TRUST" means any Deed of Trust or Mortgage, as applicable,
relating to the real property and leasehold interests in real property of the
Borrower and each Domestic Subsidiary of the Borrower, in a form acceptable to
the Administrative Lender, as amended, modified, renewed, supplemented or
restated from time to time.

"DEFAULT" means an Event of Default and/or any of the events specified in
SECTION 8.1, regardless of whether there shall have occurred any passage of time
or giving of notice that would be necessary in order to constitute such event an
Event of Default.

"DEFAULT RATE" means a simple per annum interest rate equal to (a) with
respect to Base Rate Advances the lesser of (i) the Highest Lawful Rate or
(ii) the Prime Rate plus two percent or (b) with respect to LIBOR Advances, the
lesser of (i) the Highest Lawful Rate or (ii) the LIBOR Basis plus two percent.

"DEFERRED COMPENSATION" means the "Deferred Compensation" as defined in,
and payable pursuant to each executive of the Borrower pursuant to the terms of,
the Employment and Compensation Agreements, each dated September ___, 1995
between the Borrower and each such executive.

"DETERMINING LENDERS" means, on any date of determination, any combination
of the Lenders having at least 60% of the aggregate amount of the Advances then
outstanding; provided, however, that if there are no Advances outstanding
hereunder, "Determining Lenders" shall mean any combination of Lenders whose
Specified Percentages aggregate at least 60%.

"DIVIDEND" means, as to any Person, (a) any declaration or payment of any
dividend (other than a stock dividend) on, or the making of any distribution on
account of, any shares of Capital Stock of, or other similar interest in, such
Person and (b) any purchase, redemption, or other acquisition or retirement for
value of any shares of Capital Stock of, or similar interest in, such Person.

"DOMESTIC SUBSIDIARY" means any Subsidiary other than a Foreign Subsidiary.

"EBIT" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) Pretax
Net Income (excluding therefrom, to the extent included in determining Pretax
Net Income, any items of extraordinary gain, including net gains on the sale of
assets other than asset sales in the ordinary course of business, and adding

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thereto, to the extent included in determining Pretax Net Income, any items of
extraordinary loss, including net losses on the sale of assets other than asset
sales in the ordinary course of business), plus (b) interest expense.

"EBITA" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) amortization.

"EBITDA" means, for any period, determined in accordance with GAAP on a
consolidated basis for the Borrower and its Subsidiaries, the sum of (a) EBIT
plus (b) depreciation and amortization.

"EQUITY" means shares of capital stock or partnership, profits, capital or
member interest, or options, warrants or any other right to subscribe for or
otherwise acquire capital stock or a partnership, profits, capital or member
interest, of the Borrower or any Subsidiary of the Borrower.

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and any regulation promulgated thereunder.

"ERISA EVENT" means, with respect to the Borrower and its Subsidiaries,
(a) a Reportable Event (other than a Reportable Event not subject to the
provision for 30-day notice to the PBGC under regulations issued under Section
4043 of ERISA), (b) the withdrawal of any such Person or any member of its
Controlled Group from a Plan subject to Title IV of ERISA during a plan year in
which it was a "substantial employer" as defined in Section 4001(a)(2) of ERISA,
(c) the filing of a notice of intent to terminate under Section 4041(c) of
ERISA, (d) the institution of proceedings to terminate a Plan by the PBGC,
(e) the failure to make required contributions which could result in the
imposition of a lien under Section 412 of the Code or Section 302 of ERISA, or
(f) any other event or condition which might reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Plan or the imposition of any
liability under Title IV of ERISA other than PBGC premiums due but not
delinquent under Section 4007 of ERISA; PROVIDED, HOWEVER, that ERISA Event
shall not include the termination by Service Supply of its employee stock option
plan.

"EVENT OF DEFAULT" means any of the events specified in SECTION 8.1,
provided that any requirement for notice or lapse of time has been satisfied.

"EXCESS CASH FLOW" means, with respect to the Borrower and its Subsidiaries
on a consolidated basis, the remainder of (i) EBITDA, minus (ii) Restricted
Payments, minus (iii) interest expense (including interest expense pursuant to
Capitalized Lease Obligations), minus (iv) Capital Expenditures (excluding any
Capital Expenditures made as a result of a Member Contribution), minus
(v) expenditures in respect of Acquisitions (excluding any portion of
Acquisition expenditures made as a result of a Member Contribution), minus
(vi) Working Capital Adjustment, minus (vii) payments of principal of
Indebtedness, minus (viii) income Taxes, in each case for the four

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fiscal quarters immediately preceding the date of calculation.

"FEDERAL FUNDS RATE" means, for any day, the rate per annum (rounded
upwards if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members of the
Federal Reserve System arranged by Federal funds brokers on such day, as
published by the Federal Reserve Bank of Dallas on the Business Day next
succeeding such day, provided that (a) if such day is not a Business Day, the
Federal Funds Rate for such day shall be such rate on such transactions on the
next preceding Business Day as so published on the next succeeding Business Day,
and (b) if no such rate is so published on such next succeeding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to the
Administrative Lender on such day on such transactions as reasonably determined
by Administrative Lender.

"FEE LETTER" has the meaning specified in SECTION 2.4(b) hereof.

"FISCAL YEAR" means each period of 52 or 53 weeks ending on the Sunday
closest to December 31 of each year.

"FIXED CHARGES" means, for any date of calculation, calculated for Borrower
and its Subsidiaries on a consolidated basis, the sum of, without duplication,
(a) scheduled principal payments in respect of Indebtedness, plus (b) interest
expense (including interest expense pursuant to Capitalized Lease Obligations),
plus (c) lease expense under Operating Leases.

"FIXED CHARGE COVERAGE RATIO" means the ratio of Pretax Cash Flow to Fixed
Charges, calculated on a cumulative basis for each of the first three complete
fiscal quarters occurring after the Agreement Date commencing with the fiscal
quarter ending December 31, 1995, and, thereafter, for the four consecutive
fiscal quarters immediately preceding the date of calculation.

"FOREIGN SUBSIDIARY" means any Subsidiary of the Borrower which is not
organized under the laws of any state of the United States of America or the
District of Columbia.

"GAAP" means generally accepted accounting principles applied on a
consistent basis, set forth in the Opinions of the Accounting Principles Board
of the American Institute of Certified Public Accountants, or their successors
which are applicable in the circumstances as of the date in question. The
requirement that such principles be applied on a consistent basis shall mean
that the accounting principles applied in a current period are comparable in all
material respects to those applied in a preceding period.

"GENERAL SECURITY AGREEMENT" means the security agreement relating to all
personal property assets of the Borrower, substantially in the form of EXHIBIT C
hereto, as amended, modified, renewed, supplemented or restated from time to
time.

"GUARANTY" or "GUARANTEED", as applied to an obligation of another Person,
means (a) a

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guaranty, direct or indirect, in any manner, of any part or all of such
obligation, and (b) an agreement, direct or indirect, contingent or otherwise,
the practical effect of which is to assure in any way the payment or performance
(or payment of damages in the event of nonperformance) of any part or all of
such obligation, including, without limiting the foregoing, any reimbursement
obligations with respect to amounts which may be drawn by beneficiaries of
outstanding letters of credit; provided, however, Guaranty does not mean (i) the
endorsement of instruments for collection or deposit in the ordinary course of
business and (ii) customary indemnities given in connection with asset sales in
the ordinary course of business.

"HIGHEST LAWFUL RATE" means at the particular time in question the maximum
rate of interest which, under Applicable Law, the Lenders are then permitted to
charge on the Obligations. If the maximum rate of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations shall
change after the date hereof, the Highest Lawful Rate shall be automatically
increased or decreased, as the case may be, from time to time as of the
effective time of each change in the Highest Lawful Rate without notice to the
Borrower. For purposes of determining the Highest Lawful Rate under the
Applicable Law of the State of Texas, the applicable rate ceiling shall be
(a) the indicated rate ceiling described in and computed in accordance with the
provisions of Section (a)(1) of Art. 1.04, or (b) if the parties subsequently
contract as allowed by Applicable Law, the quarterly ceiling or the annualized
ceiling computed pursuant to Section (d) of Art. 1.04; provided, however, that
at any time the indicated rate ceiling, the quarterly ceiling or the annualized
ceiling shall be less than 18% per annum or more than 24% per annum, the
provisions of Sections (b)(1) and (2) of said Art. 1.04 shall control for
purposes of such determination, as applicable.

"INDEBTEDNESS" means, with respect to any Person, (a) all items, except
accounts payable arising in the normal course of business, which in accordance
with GAAP would be included in determining total liabilities as shown on the
liability side of a balance sheet of such Person, (b) all obligations secured by
any Lien on any property or asset owned by such Person (other than accounts
payable arising in the ordinary course of business), whether or not the
obligation secured thereby shall have been assumed, (c) to the extent not
otherwise included, all Capitalized Lease Obligations of such Person, all
obligations in respect of letters of credit, bankers' acceptances and similar
instruments, and all obligations under Interest Hedge Agreements, (d) any
"withdrawal liability" of the Borrower or any Subsidiary of the Borrower, as
such term is defined under Part I of Subtitle E of Title IV of ERISA and (e) any
Guaranty of such Person of any obligation of another Person constituting
obligations of a type set forth above.

"INDEMNIFIED MATTERS" has the meaning specified in SECTION 5.9(a) hereof.

"INDEMNITEES" has the meaning specified in SECTION 5.9(a) hereof.

"INITIAL PRICING PERIOD" means that period from the Agreement Date to and
including the Rate Adjustment Date.

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"INTELLECTUAL PROPERTY SECURITY AGREEMENT" means the security agreement
relating to all intellectual property of the Borrower substantially in the form
of EXHIBIT D hereto, as amended, modified, renewed, supplemented or restated
from time to time.

"INTEREST HEDGE AGREEMENTS" means any and all agreements, devices or
arrangements designed to protect at least one of the parties thereto from the
fluctuations of interest rates, exchange rates or forward rates applicable to
such party's assets, liabilities or exchange transactions, including, but not
limited to, dollar-denominated or cross-currency interest rate exchange
agreements, forward currency exchange agreements, interest rate cap, swap or
collar protection agreements, and forward rate currency or interest rate
options, as the same may be amended or modified and in effect from time to time,
and any and all cancellations, buy backs, reversals, terminations or assignments
of any of the foregoing.

"INTEREST PERIOD" means the period beginning on the day any LIBOR Advance
is made and ending one, two, three, six or, subject to availability and
agreement by each Lender, twelve months thereafter (as the Borrower shall
select).

"INVESTMENT" means any acquisition of all or substantially all assets of
any Person, or any direct or indirect purchase or other acquisition of, or
beneficial interest in, capital stock or other securities of any other Person,
or any direct or indirect loan, advance (other than advances to employees for
moving and travel expenses, drawing accounts and similar expenditures in the
ordinary course of business) or capital contribution to, or investment in any
other Person, including without limitation the purchase of accounts receivable
of any other Person that are not current assets or do not arise in the ordinary
course of business.

"ISSUING BANK" means NationsBank of Texas, N.A., a national banking
association, in its capacity as issuer of the Letters of Credit.

"LAW" means any statute, law, ordinance, regulation, rule, order, writ,
injunction, or decree of any Tribunal.

"LENDER" means each financial institution shown on the signature pages
hereof so long as such financial institution maintains a portion of the
Commitments or is owed any part of the Obligations (including the Administrative
Lender in its individual capacity), and each Assignee that hereafter becomes a
party hereto pursuant to SECTION 11.6 hereof, subject to the limitations set
forth therein.

"L/C RELATED DOCUMENTS" has the meaning specified in SECTION 2.15(e)
hereof.

"LETTER OF CREDIT" has the meaning specified in SECTION 2.15(a) hereof.

"LETTER OF CREDIT AGREEMENT" has the meaning specified in SECTION 2.15(b)
hereof.

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"LETTER OF CREDIT FACILITY" has the meaning specified in SECTION 2.15(a)
hereof.

"LEVERAGE RATIO" means, for any date of calculation, the ratio of Total
Debt as of the date of determination to EBITDA calculated for the four
consecutive fiscal quarters immediately preceding the date of calculation. For
purpose of calculation of the Leverage Ratio only, with respect to assets not
owned at all times during the four fiscal quarters immediately preceding the
date of calculation of EBITDA, there shall be (i) included in EBITDA the EBITDA
of any assets acquired during any such four fiscal quarters for the twelve
months preceding the date of calculation and (ii) excluded from EBITDA the
EBITDA of any assets disposed of during any of such fiscal quarters for the
twelve months preceding the date of calculation.

"LIBOR ADVANCE" means an Advance which the Borrower requests to be made as
a LIBOR Advance or which is reborrowed as a LIBOR Advance, in accordance with
the provisions of SECTION 2.2 hereof.

"LIBOR BASIS" means a simple per annum interest rate equal to the lesser of
(a) the Highest Lawful Rate, or (b) the sum of the LIBOR Rate plus the
Applicable Margin. The LIBOR Basis shall, with respect to LIBOR Advances
subject to reserve or deposit requirements, be subject to premiums for such
reserve or deposit requirements assessed by each Lender, which are payable
directly to each Lender. Once determined, the LIBOR Basis shall remain
unchanged during the applicable Interest Period.

"LIBOR LENDING OFFICE" means, with respect to a Lender, the office
designated as its LIBOR Lending Office on SCHEDULE 1 attached hereto, and such
other office of the Lender or any of its Affiliates hereafter designated by
notice to the Borrower and the Administrative Lender.

"LIBOR RATE" means, for any Interest Period, the interest rate per annum
(rounded upward to the nearest one-sixteenth (1/16th) of one percent) determined
by the Reference Lender at 11:00 a.m. (Dallas, Texas time) (or as soon
thereafter as practicable) on the date that is two Business Days before the
first day of such Interest Period to be the rate quoted by the Reference Lender
for the offering to first class banks in the London Interbank Market for loans
in an amount approximately equal to the principal amount of, and for a length of
time approximately equal to the Interest Period for, the LIBOR Advance sought by
the Borrower.

"LIEN" means, with respect to any property, any mortgage, lien, pledge,
collateral assignment, hypothecation, charge, security interest, title retention
agreement, levy, execution, seizure, attachment, garnishment or other similar
encumbrance of any kind in respect of such property, whether or not choate,
vested or perfected.

"LITIGATION" means any proceeding, claim, lawsuit, arbitration, and/or
investigation by or before any Tribunal, including, without limitation,
proceedings, claims, lawsuits, and/or investigations under or pursuant to any
environmental, occupational, safety and health, antitrust,

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unfair competition, securities, Tax or other Law, or under or pursuant to any
contract, agreement or other instrument.

"LOAN DOCUMENTS" means this Agreement, the Notes, the Security Agreements,
the Deeds of Trust, any other Collateral Document, the Fee Letter, any Interest
Hedge Agreements entered into with any Lender, and any other document or
agreement executed or delivered from time to time by the Borrower, any
Subsidiary of the Borrower or any other Person in connection herewith or as
security for the Obligations.

"MATERIAL ADVERSE EFFECT" means any act or circumstance or event that
(a) causes a Default, (b) otherwise could reasonably be expected to be material
and adverse to the business, financial condition, results of operations, or
business prospects of the Borrower and its Subsidiaries taken as a whole, or
(c) in any manner whatsoever does or could reasonably be expected to materially
and adversely affect the validity or enforceability of any Loan Documents.

"MATERIAL SUBSIDIARY" means each Subsidiary of the Borrower or of a
Subsidiary of the Borrower (a) the gross revenues of which for the then most
recently completed four fiscal quarters constituted (or, with respect to any
such Subsidiary acquired during such fiscal quarters, would have constituted had
the gross revenues of such Subsidiary been included for such period) 5% or more
of the consolidated gross revenues of the Borrower and its Subsidiaries for such
period or (b) the assets of which as of the end of any fiscal quarter
constituted 5% or more of the consolidated assets of the Borrower and its
Subsidiaries as of the end of such fiscal quarter.

"MAXIMUM AMOUNT" means the maximum amount of interest which, under
Applicable Law, the Lenders are permitted to charge on the Obligations.

"MEMBER CONTRIBUTION" means any contribution of cash to the Borrower or any
Subsidiary of the Borrower made by any member of the Borrower or any of its
Affiliates which is used by the Borrower for Capital Expenditures or
Acquisitions or pursuant to SECTION 8.1(c) or 8.1(o) hereof.

"MEMBER DISTRIBUTIONS" means, as to any member of the Borrower or an
Affiliate of such member, the making by the Borrower of any distribution, loan
or advance to, or investment in, such Borrower or an Affiliate of such member
other than (a) advances, drawing accounts and similar expenditures and salaries
and bonuses paid in the ordinary course of business, (b) sales of goods in the
ordinary course of business, and (c) Dividends.

"MULTIEMPLOYER PLAN" means, as to any Person, at any time, a "multiemployer
plan" within the meaning of Section 4001(a)(3) of ERISA and to which such Person
or any member of its Controlled Group is making, or is obligated to make
contributions or has made, or been obligated to make, contributions.

"NATIONSBANK" means NationsBank of Texas, N.A., a national banking
association, in its

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capacity as a Lender.

"NECESSARY AUTHORIZATION" means any right, franchise, license, permit,
consent, approval or authorization from, or any filing or registration with, any
Tribunal or any Person necessary or appropriate to enable the Borrower or any
Subsidiary of the Borrower to maintain and operate its business and properties.

"NEGATIVE PLEDGE" means any agreement, contract or other arrangement
whereby the Borrower is prohibited from, or would otherwise be in default as a
result of, creating, assuming, incurring or suffering to exist, directly or
indirectly, any Lien on any of its assets.

"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer or
other disposition of any asset by any Person, the amount of cash received by
such Person in connection with such transaction (including cash proceeds of any
property received in consideration of any such sale, lease, transfer or other
disposition) after deducting therefrom the aggregate, without duplication, of
the following amounts to the extent properly attributable to such transaction or
to the asset that is the subject thereof: (i) reasonable brokerage commissions,
legal fees, finder's fees, financial advisory fees, accounting fees,
underwriting fees, investment banking fees and other similar commissions and
fees, in each case, to the extent paid or payable by such Person; (ii) filing,
recording or registration fees or charges or similar fees or charges paid by
such Person; and (iii) without duplication, taxes paid or payable by such Person
or any shareholder, partner or member of such Person to governmental taxing
authorities as a result of such sale or other disposition.

"NET WORTH" means, for the Borrower and its Subsidiaries, on a consolidated
basis, determined in accordance with GAAP, total assets minus total liabilities.

"NOTES" means, collectively, the Revolving Credit Note and the Term Loan
Note.

"NOTICE OF ISSUANCE" has the meaning specified in SECTION 2.15(b) hereof.

"OBLIGATIONS" means (a) all obligations of any nature (whether matured or
unmatured, fixed or contingent, including the Reimbursement Obligations) of the
Borrower, any Subsidiary of the Borrower or any other Obligor to any Lender
under the Loan Documents as they may be amended from time to time, and (b) all
obligations of the Borrower, any Subsidiary of the Borrower or any other Obligor
for losses, damages, expenses or any other liabilities of any kind that any
Lender may suffer by reason of a breach by the Borrower, any Subsidiary of the
Borrower or any other Obligor of any obligation, covenant or undertaking with
respect to any Loan Document payable by the Borrower, any Subsidiary of the
Borrower or any other Obligor under any Loan Document.

"OBLIGOR" means the Borrower or any other Person liable for performance of
any of the Obligations or the property of which secures any of the Obligations.

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"OPERATING AGREEMENT" means that certain Amended and Restated Operating
Agreement for the Borrower, dated as of September ___, 1995, among the parties
thereto, as amended to the extent permitted pursuant to SECTION 7.20.

"OPERATING LEASE" means any operating lease, as defined in the Financial
Accounting Standard Board Statement of Financial Accounting Standards No. 13,
dated November, 1976 or otherwise in accordance with GAAP.

"PARTICIPANT" has the meaning specified in SECTION 11.6(c) hereof.

"PARTICIPATION" has the meaning specified in SECTION 11.6(c) hereof.

"PAYMENT DATE" means the last day of the Interest Period for any LIBOR
Advance.

"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.

"PEI" means Power-Electronics, Inc., a corporation organized under the laws
of the Commonwealth of Puerto Rico.

"PERMITTED LIENS" means, as applied to any Person:

(a) Any Lien in favor of the Lenders to secure the Obligations hereunder;

(b) (i) Liens on real estate for ad valorem taxes not yet delinquent,
(ii) Liens created by lease agreements to secure the payment of rental amounts
and other sums not yet due thereunder (other than with respect to the Borrower's
leased facilities at 740 Calle Plano, Camarillo, California and Avenida Rio Mayo
y Calle Salvatierra, Col. La Mesa, San Luis Rio Colorado, Sonora, Mexico),
(iii) Liens on leasehold interests created by the lessor in favor of any
mortgagee of the leased premises, and (iv) Liens for taxes, assessments,
governmental charges, levies or claims that are not yet delinquent or that are
being diligently contested in good faith by appropriate proceedings in
accordance with SECTION 5.6 hereof and for which adequate reserves shall have
been set aside on such Person's books, but only so long as no foreclosure,
restraint, sale or similar proceedings have been commenced with respect thereto;

(c) Liens of carriers, warehousemen, mechanics, laborers and materialmen
and other similar Liens incurred in the ordinary course of business for sums not
yet due or being contested in good faith, if such reserve or appropriate
provision, if any, as shall be required by GAAP shall have been made therefor;

(d) Liens incurred in the ordinary course of business in connection with
worker's compensation, unemployment insurance or similar legislation;

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(e) Easements, right-of-way, restrictions and other similar encumbrances
on the use of real property which do not interfere in any material respect with
the ordinary conduct of the business of such Person;

(f) Liens created to secure the purchase price of assets acquired by such
Person or created to secure Indebtedness permitted by SECTION 7.1(c) hereof,
which is incurred solely for the purpose of financing the acquisition of such
assets and incurred at the time of acquisition, so long as each such Lien shall
at all times be confined solely to the asset or assets so acquired (and proceeds
thereof), and refinancings thereof so long as any such Lien remains solely on
the asset or assets acquired and the amount of Indebtedness related thereto is
not increased;

(g) Liens in respect of judgments or awards for which appeals or
proceedings for review are being prosecuted and in respect of which a stay of
execution upon any such appeal or proceeding for review shall have been secured,
provided that (i) such Person shall have established adequate reserves for such
judgments or awards, (ii) such judgments or awards shall be fully insured
(subject to customary deductibles) and the insurer shall not have denied
coverage, or (iii) such judgments or awards shall have been bonded to the
satisfaction of the Determining Lenders;

(h) Any Liens which are described on SCHEDULE 2 hereto, and Liens
resulting from the refinancing of the related Indebtedness, provided that the
Indebtedness secured thereby shall not be increased and the Liens shall not
cover additional assets of the Borrower;

(i) Leases or subleases granted to others not interfering in any material
respect with the ordinary conduct of the business of the Borrower or any of its
Subsidiaries;

(j) Liens arising from filing Uniform Commercial Code financing statements
for precautionary purposes relating solely to true leases of personal property
permitted by this Agreement under which the Borrower or any of its Subsidiaries
is a lessee;

(k) Any zoning or similar law or right reserved to or vested in any
Tribunal to control or regulate the use of any real property;

(l) Any other title exception with respect to real property assets
disclosed by any preliminary title report, title commitment report or other
search of title provided to the Administrative Lender in accordance with this
Agreement unless disapproved by the Administrative Lender prior to the Agreement
Date; and

(m) Any Lien in favor of any Lender to secure any obligations owed to such
Lender in respect of any Interest Hedge Agreement.

"PERSON" means an individual, corporation, partnership, trust or
unincorporated organization, or a government or any agency or political
subdivision thereof.

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<PAGE>

"PLAN" means an employee benefit plan as defined in Section 3(3) of ERISA
(including a Multiemployer Plan) pursuant to which any employees of the
Borrower, its Subsidiaries or any member of their Controlled Group participate.

"PLEDGE AGREEMENT" means the pledge agreement, substantially in the form of
EXHIBIT E hereto, as amended, modified, renewed, supplemented or restated from
time to time, executed by each Person owning member interests in the Borrower.

"POWER-ONE" means Power-One, Inc., a California corporation.

"POWER-ONE ACQUISITION" means the acquisition by Borrower of all (i) assets
of Power-One, and (ii) issued and outstanding capital stock of PEI and PUM.

"POWER-ONE ACQUISITION DOCUMENTS" means the Purchase Agreement, dated as of
September 1, 1995, among the Borrower, Power-One and the individual sellers
named therein, and all other contracts, agreements or documents executed or
delivered in connection with the Power-One Acquisition, as amended.

"PRETAX CASH FLOW" means, for any date of calculation, calculated for the
Borrower and its Subsidiaries on a consolidated basis, an amount equal to the
sum of (a) EBITA, plus (b) lease expense under Operating Leases.

"PRETAX NET INCOME" means net profit (or loss) before Tax Distributions of
the Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP.

"PRIME RATE" means, at any time, the prime interest rate announced or
published by the Reference Lender from time to time as its reference rate for
the determination of interest rates for loans of varying maturities in United
States dollars to United States residents of varying degrees of creditworthiness
and being quoted at such time by the Reference Lender as its "prime rate;" it
being understood that such rate may not be the lowest rate of interest charged
by the Reference Lender.

"PUM" shall mean Poder Uno de Mexico, S.A. de C.V., a corporation organized
under the laws of the United Mexican States.

"QUARTERLY DATE" means the last day of each March, June, September and
December, beginning December 31, 1995.

"RATE ADJUSTMENT DATE" means the date that the Lenders receive the
financial statements for the fiscal quarter ending September 30, 1996 required
to be delivered pursuant to SECTION 6.1.

"REFERENCE LENDER" means NationsBank; provided that if NationsBank's
Commitments shall terminate and it shall have no Advances and Letters of Credit
outstanding hereunder, NationsBank

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shall cease to be the Reference Lender, and Administrative Lender (after
consultation with Borrower) shall, with notice to Borrower and Lenders,
designate another Lender as the Reference Lender.

"REIMBURSEMENT OBLIGATIONS" means, in respect of any Letter of Credit as at
any date of determination, the sum of (a) the maximum aggregate amount which is
then available to be drawn under such Letter of Credit plus (b) the aggregate
amount of all drawings under such Letter of Credit not theretofore reimbursed by
the Borrower.

"RELEASE DATE" means the date on which the Notes have been paid, all other
Obligations due and owing have been paid and performed in full, and the
Commitments have been terminated.

"REPORTABLE EVENT" has the meaning set forth in Section 4043(b) of ERISA.

"RESTRICTED PAYMENTS" means, collectively, (i) Dividends, (ii) Deferred
Compensation, (iii) Member Distributions, (iv) Stephens Fees, and (v) any
(A) payment or prepayment of principal, premium or penalty on any Subordinated
Debt of the Borrower or any Subsidiary of the Borrower or any defeasance,
redemption, purchase, repurchase or other acquisition or retirement for value,
in whole or in part, of any Subordinated Debt (including, without limitation,
the setting aside of assets or the deposit of funds therefor) and (B) prepayment
of interest on any Subordinated Debt.

"REVOLVING COMMITMENT FEE" has the meaning specified in SECTION 2.4(a)
hereof.

"REVOLVING CREDIT ADVANCE" means an Advance made pursuant to SECTION 2.1(a)
hereof.

"REVOLVING CREDIT COMMITMENT" means $15,000,000.00.

"REVOLVING COMMITMENT MATURITY DATE" means September 30, 2002, or the
earlier date of termination in whole of the Revolving Credit Commitment or Term
Loan Commitment pursuant to SECTION 2.6 or 8.2 hereof.

"REVOLVING CREDIT NOTE" means the Promissory Note of Borrower evidencing
Revolving Credit Advances hereunder, substantially in the form of EXHIBIT A
hereto, together with any extension, renewal, or amendment thereof, or
substitution therefor.

"RIGHTS" means rights, remedies, powers and privileges.

"SECURITY AGREEMENTS" mean the General Security Agreement and the
Intellectual Property Security Agreement.

"SOLVENT" means, with respect to any Person, that the fair value of the
assets of such Person (both at fair valuation and at present fair saleable
value) is, on the date of determination, greater than

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the total amount of liabilities (including contingent and unliquidated
liabilities) of such Person as of such date and that, as of such date, such
Person is able to pay all liabilities of such Person as such liabilities mature
and such Person does not have unreasonably small capital with which to carry on
its business. In computing the amount of contingent or unliquidated liabilities
at any time, such liabilities will be computed at the amount which, in light of
all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability
discounted to present value at rates believed to be reasonable by such Person.

"SPECIAL COUNSEL" means the law firm of Donohoe, Jameson & Carroll, P.C.,
or such other legal counsel as the Administrative Lender may select.

"SPECIFIED PERCENTAGE" means, as to any Lender, the percentage indicated
beside its name on the signature pages hereof, or if applicable, specified in
its most recent Assignment Agreement.

"STEPHENS FEES" means any investment banking fees paid to Stephens, Inc. by
the Borrower with respect to investment banking services rendered to the
Borrower by Stephens, Inc.

"SUBSEQUENT PRICING PERIOD" means the period from the date which is the
first day following the end of the Initial Pricing Period to the later to occur
of the Term Loan Maturity Date or the Revolving Commitment Maturity Date.

"SUBSIDIARY" of any Person means any corporation, partnership, joint
venture, trust or estate or other Person of which (or in which) more than 50%
of:

(a) the outstanding capital stock having voting power to elect a
majority of the Board of Directors of such corporation (irrespective of
whether at the time capital stock of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency),

(b) the interest in the capital or profits of such partnership or
joint venture,

(d) the equity interest of such other Person,

is at the time directly or indirectly owned by such Person, by such Person
and one or more of its Subsidiaries or by one or more of such Person's
Subsidiaries.

"SUBORDINATED DEBT" means Indebtedness of the Borrower or any Subsidiary of
the Borrower having maturities and terms, and which is subordinated to payment
of the Obligations in a manner, approved in writing by the Administrative Lender
and the Determining Lenders, with only such changes or amendments as are
approved by the Administrative Lender and the Determining Lenders.

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"TAX DISTRIBUTIONS" means distributions to members of the Borrower in
amounts equal to the Taxes of such members solely attributable to such members
ownership in the Borrower, calculated using the highest marginal combined
effective tax rate on ordinary income applicable to individual residents in the
State of California.

"TAXES" has the meaning specified in SECTION 2.14 hereof.

"TERM LOAN ADVANCE" means an Advance made pursuant to SECTION 2.1(b)
hereof.

"TERM LOAN COMMITMENT" means $30,000,000.00, as reduced from time to time
pursuant to SECTION 2.6 hereof.

"TERM LOAN MATURITY DATE" means September 30, 2002, or the earlier date of
termination in whole of the Term Loan Commitment pursuant to SECTION 2.6 or 8.2
hereof.

TERM LOAN NOTE" means the Promissory Note of Borrower evidencing Term Loan
Advances hereunder, substantially in the form of EXHIBIT B hereto, together with
any extension, renewal, or amendment thereof, or substitution therefor.

"TOTAL DEBT" means, as of any date of determination, determined for the
Borrower and its Subsidiaries on a consolidated basis, (i) indebtedness for
borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other
similar instruments, (iii) obligations to pay the deferred purchase price of
property or services other than trade payables incurred in the ordinary course
of business (excluding any Deferred Compensation), and (iv) Capitalized Lease
Obligations.

"TRIBUNAL" means any state, commonwealth, federal, foreign, territorial, or
other court or government body, subdivision, agency, department, commission,
board, bureau, or instrumentality of a governmental or other regulatory body or
authority.

"UCC" means the Uniform Commercial Code of Texas, as amended from time to
time, and the Uniform Commercial Code applicable in such other states as any
Collateral may be located.

"UNUSED PORTION" means an amount equal to the result of (i) the Revolving
Credit Commitment minus (ii) the sum of (A) the outstanding Revolving Credit
Advances plus (B) outstanding Reimbursement Obligations in respect of the
Letters of Credit less the amount of Cash Collateralized Letters of Credit.

"WORKING CAPITAL" means an amount equal to Current Assets minus Current
Liabilities.

"WORKING CAPITAL ADJUSTMENT" means, for any period, an amount equal to
Working Capital at the end of such period minus Working Capital at the beginning
of such period.

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Section 1.2 AMENDMENTS AND RENEWALS. Each definition of an agreement in
this ARTICLE 1 shall include such agreement as amended to date, and as amended
or renewed from time to time in accordance with its terms, but only (other than
with respect to Power-One Acquisition Documents) with the prior written consent
of the Determining Lenders or all the Lenders as required pursuant to
SECTION 11.11 hereof.

Section 1.3 CONSTRUCTION. The terms defined in this Article 1 (except
as otherwise expressly provided in this Agreement) for all purposes shall have
the meanings set forth in SECTION 1.1 hereof, and the singular shall include the
plural, and vice versa, unless otherwise specifically required by the context.
All accounting terms used in this Agreement which are not otherwise defined
herein shall be construed in accordance with GAAP on a consolidated basis for
the Borrower and its Subsidiaries, unless otherwise expressly stated herein.

ARTICLE 2

ADVANCES

Section 2.1 THE ADVANCES.

(a) Each Lender severally agrees, upon the terms and subject to the
conditions of this Agreement, to make Revolving Credit Advances to the Borrower
from time to time in an aggregate amount not to exceed its Specified Percentage
of the Revolving Credit Commitment less its Specified Percentage of the
remainder of (i) the aggregate amount of all Reimbursement Obligations then
outstanding (assuming compliance with all conditions to drawing) minus (ii) the
outstanding amount of Cash Collateralized Letters of Credit for the purposes set
forth in SECTION 5.9 hereof. Subject to SECTION 2.9 hereof, Revolving Credit
Advances may be repaid and then reborrowed. Notwithstanding any provision in
any Loan Document to the contrary, in no event shall the principal amount of all
outstanding Revolving Credit Advances exceed the Revolving Credit Commitment
minus the remainder of (i) the outstanding Reimbursement Obligations minus
(ii) the outstanding amount of Cash Collateralized Letters of Credit.

(b) Each Lender severally agrees, upon the terms and subject to the
conditions of this Agreement, to make a Term Loan Advance to the Borrower on the
Agreement Date in an amount not to exceed its Specified Percentage of the Term
Loan Commitment for the purposes set forth in SECTION 5.9 hereof.
Notwithstanding any provision in any Loan Document to the contrary, in no event
shall the principal amount of all outstanding Term Loan Advances exceed the Term
Loan Commitment. Term Loan Advances may not be repaid and then reborrowed.

(c) Any Advance shall, at the option of the Borrower as provided in
SECTION 2.2 hereof (and, in the case of LIBOR Advances, subject to the
provisions of ARTICLE 9 hereof), be made as a Base Rate Advance or a LIBOR
Advance; provided that there shall not be outstanding to any Lender,

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at any one time, more than five LIBOR Advances.

Section 2.2 MANNER OF BORROWING AND DISBURSEMENT.

(a) In the case of Base Rate Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender prior to 11:00 a.m., Dallas,
Texas time, on the date of any proposed Base Rate Advance irrevocable written
notice, or irrevocable telephonic notice followed immediately by written notice
(provided, however, that the Borrower's failure to confirm any telephonic notice
in writing shall not invalidate any notice so given), of its intention to borrow
a Base Rate Advance hereunder. Such notice of borrowing shall specify the
requested funding date, which shall be a Business Day, and the amount of the
proposed aggregate Base Rate Advances to be made by Lenders.

(b) In the case of LIBOR Advances, the Borrower, through an Authorized
Signatory, shall give the Administrative Lender at least three Business Days'
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), of its intention to borrow a LIBOR Advance hereunder. Notice shall be
given to the Administrative Lender prior to 11:00 a.m., Dallas, Texas time, in
order for such Business Day to count toward the minimum number of Business Days
required. LIBOR Advances shall in all cases be subject to ARTICLE 9 hereof.
For LIBOR Advances, the notice of borrowing shall specify the requested funding
date, which shall be a Business Day, the amount of the proposed aggregate LIBOR
Advances to be made by Lenders and the Interest Period selected by the Borrower,
provided that no such Interest Period shall extend past the Revolving Commitment
Maturity Date or the Term Loan Maturity Date, as appropriate, or prohibit or
impair the Borrower's ability to comply with SECTION 2.8 hereof.

(c) Subject to SECTIONS 2.1 and 2.9 hereof, the Borrower shall have the
option (i) to convert at any time all or any part of the outstanding Base Rate
Advances to LIBOR Advances and all or any part of the outstanding LIBOR Advances
to Base Rate Advances or (ii) upon expiration of any Interest Period applicable
to a LIBOR Advance, to continue all or any portion of such LIBOR Advance equal
to $1,000,000 and integral multiples of $100,000 in excess of that amount as a
LIBOR Advance and the succeeding Interest Period(s) of such continued LIBOR
Advance shall commence on the last day of the Interest Period of the LIBOR
Advance to be continued; provided, however, (a) LIBOR Advances may only be
converted into Base Rate Advances on the expiration date of the Interest Period
applicable thereto and (b) notwithstanding anything in this Agreement to the
contrary, no outstanding Advance may be continued as, or converted into, a LIBOR
Advance when any Default or Event of Default has occurred and is continuing. At
least three Business Days prior to a proposed conversion/continuation date, the
Borrower, through an Authorized Signatory, shall give the Administrative Lender
irrevocable written notice, or irrevocable telephonic notice followed
immediately by written notice (provided, however, that the Borrower's failure to
confirm any telephonic notice in writing shall not invalidate any notice so
given), stating (i) the proposed

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conversion/continuation date (which shall be a Business Day), (ii) the amount of
the Advance to be converted/continued, (iii) in the case of a conversion to, or
a continuation of, a LIBOR Advance, the requested Interest Period, and (iv) in
the case of a conversion of a Base Rate Advance to a LIBOR Advance or
continuation of a LIBOR Advance, stating that no Default or Event of Default has
occurred and is continuing. If the Borrower shall fail to give any notice in
accordance with this SECTION 2.2(c), the Borrower shall be deemed irrevocably to
have requested that such LIBOR Advance be converted to a Base Rate Advance in
the same principal amount. Notice shall be given to the Administrative Lender
prior to 11:00 a.m., Dallas, Texas time, in order for such Business Day to count
toward the minimum number of Business Days required.

(d) The aggregate amount of Base Rate Advances to be made by the Lenders
on any day shall be in a principal amount which is at least $500,000 and which
is an integral multiple of $100,000; provided, however, that such amount may
equal the unused amount of the applicable Commitment. The aggregate amount of
LIBOR Advances having the same Interest Period and to be made by the Lenders on
any day shall be in a principal amount which is at least $1,000,000 and which is
an integral multiple of $100,000.

(e) The Administrative Lender shall promptly notify the Lenders of each
notice received from the Borrower pursuant to this Section. Each Lender shall,
not later than noon, Dallas, Texas time, on the date of any Advance, deliver to
the Administrative Lender, at its address set forth herein, such Lender's
Specified Percentage of such Advance in immediately available funds in
accordance with the Administrative Lender's instructions. Prior to 2:00 p.m.,
Dallas, Texas time, on the date of any Advance hereunder, the Administrative
Lender shall, subject to satisfaction of the conditions set forth in ARTICLE 3,
disburse the amounts made available to the Administrative Lender by the Lenders
by (i) transferring such amounts by wire transfer pursuant to the Borrower's
instructions, or (ii) in the absence of such instructions, crediting such
amounts to the account of the Borrower maintained with the Administrative
Lender. All Advances shall be made by each Lender according to its Specified
Percentage.

Section 2.3 INTEREST.

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(a) ON BASE RATE ADVANCES.

(i) The Borrower shall pay interest on the outstanding unpaid
principal amount of the Base Rate Advances outstanding from time to time,
until such Base Rate Advances are due (whether at maturity, by reason of
acceleration, by scheduled reduction, or otherwise) or repaid at a simple
interest rate per annum equal to the Base Rate Basis for the Base Rate
Advances as in effect from time to time, provided that interest on the Base
Rate Advances shall not exceed the Maximum Amount. If at any time the Base
Rate Basis would exceed the Highest Lawful Rate, interest payable on the
Base Rate Advances shall be limited to the Highest Lawful Rate, but the
Base Rate Basis shall not thereafter be reduced below the Highest Lawful
Rate until the total amount of interest accrued on the Base Rate Advances
equals the amount of interest that would have accrued if the Base Rate
Basis had been in effect at all times.

(ii) Interest on the Base Rate Advances shall be computed on the basis
of a year of 365 or 366 days, as appropriate, for the actual number of days
elapsed, and shall be payable in arrears on each Quarterly Date and on the
Revolving Commitment Maturity Date or the Term Loan Maturity Date, as
appropriate.

(b) ON LIBOR ADVANCES.

(i) The Borrower shall pay interest on the unpaid principal amount of
each LIBOR Advance, from the date such Advance is made until it is due
(whether at maturity, by reason of acceleration, by scheduled reduction, or
otherwise) or repaid, at a rate per annum equal to the LIBOR Basis for such
LIBOR Advance. The Administrative Lender, whose determination shall be
controlling in the absence of manifest error, shall determine the LIBOR
Basis on the second Business Day prior to the applicable funding date and
shall notify the Borrower and the Lenders of such LIBOR Basis.

(ii) Subject to SECTION 11.9 hereof, interest on each LIBOR Advance
shall be computed on the basis of a 360-day year for the actual number of
days elapsed, and shall be payable in arrears on the applicable Payment
Date and on the Revolving Commitment Maturity Date and the Term Loan
Maturity Date, as appropriate; provided, however, that if the Interest
Period for such LIBOR Advance exceeds three months, interest shall also be
due and payable in arrears on each three-month anniversary of the
commencement of such Interest Period during such Interest Period.

(c) INTEREST AFTER AN EVENT OF DEFAULT. (i) After an Event of Default
(other than an Event of Default specified in SECTION 8.1(f) or (g) hereof) and
during any continuance thereof, at the option of Determining Lenders and
provided that the Administrative Lender has given notice of the decision to
charge interest at the Default Rate, and (ii) after an Event of Default
specified in SECTION 8.1(f) or (g) hereof and during any continuance thereof,
automatically and without any action or notice by

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the Administrative Lender or any Lender, the Obligations shall bear interest at
a rate per annum equal to the Default Rate. Such interest shall be payable on
the earlier of demand or the Revolving Commitment Maturity Date or the Term Loan
Maturity Date, as appropriate, and shall accrue until the earlier of (i) waiver
or cure (to the satisfaction of the Determining Lenders) of the applicable Event
of Default, (ii) agreement by the Lenders to rescind the charging of interest at
the Default Rate, or (iii) payment in full of the Obligations. The Lenders
shall not be required to accelerate the maturity of the Advances, to exercise
any other rights or remedies under the Loan Documents, or in case of an Event of
Default specified in clause (ii)hereof, to give notice to the Borrower of the
decision to charge interest at the Default Rate.

Section 2.4 FEES.

(a) REVOLVING COMMITMENT FEE. Subject to SECTION 11.9 hereof, the
Borrower agrees to pay to the Administrative Lender, for the ratable account of
the Lenders, a commitment fee on the daily average Unused Portion at the
following per annum percentages, applicable in the following situations:

Applicability Percentage
------------- ----------

(a) INITIAL PRICING PERIOD 0.50

(b) SUBSEQUENT PRICING PERIOD

(i) If the Leverage Ratio is greater than
2.5 to 1 0.50

(ii) If the Leverage Ratio is less than or
equal to 2.5 to 1 0.375

Such fee shall be (i) payable in arrears on each Quarterly Date and on the
Revolving Credit Maturity Date, (ii) fully earned when due and, subject to
SECTION 11.9 hereof, nonrefundable when paid and (iii) subject to SECTION 11.9
hereof, computed on the basis of a year of 365 or 366 days, as appropriate, for
the actual number of days elapsed. The commitment fee shall be subject to
reduction or increase, as applicable and as set forth in the table above, on a
quarterly basis according to the performance of the Borrower as tested by using
the Leverage Ratio calculated as of the end of each fiscal quarter during the
Subsequent Pricing Period. Any such increase or decrease in the commitment fee
shall be effective two Business Days after the date of receipt of the financial
statements required to be delivered pursuant to SECTION 6.1 or 6.2 hereof, as
applicable, for each such fiscal quarter, and the Compliance Certificate
required pursuant to SECTION 6.3 hereof. If such financial statements and
Compliance Certificate are not received by the date required hereunder, the
commitment fee shall be determined as if the Leverage Ratio is greater than 2.5
to 1 until such time as such financial statements and Compliance Certificate are
received.

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(b) OTHER FEES. Subject to SECTION 11.9 hereof, the Borrower agrees to
pay to the Administrative Lender, for the account of the Administrative Lender,
the fees on the dates and in the amounts specified in the (i) letter agreement
(the "FEE LETTER"), dated as of September 6, 1995, between the Borrower and the
Administrative Lender and (ii) the Commitment Letter.

Section 2.5 PREPAYMENTS.

(a) VOLUNTARY LIBOR ADVANCE PREPAYMENTS. Upon three Business Days' prior
telephonic notice (to be promptly followed by written notice) by an Authorized
Signatory to the Administrative Lender, LIBOR Advances may be voluntarily
prepaid but only so long as the Borrower concurrently reimburses the Lenders in
accordance with SECTION 2.9 hereof. Any notice of prepayment shall be
irrevocable.

(b) MANDATORY PREPAYMENT. On or before the date of any reduction of
(i) the Revolving Credit Commitment, the Borrower shall prepay applicable
outstanding Revolving Credit Advances and cash collateralize outstanding Letters
of Credit in an amount necessary to reduce the sum of outstanding Revolving
Credit Advances and Reimbursement Obligations less Cash Collateralized Letters
of Credit to an amount less than or equal to the Revolving Credit Commitment as
so reduced, and (ii) the Term Loan Commitment, the Borrower shall prepay
applicable outstanding Term Loan Advances to an amount less than or equal to the
Term Loan Commitment as so reduced. To the extent required by the preceding
sentence, the Borrower shall first prepay all Base Rate Advances and shall
thereafter prepay LIBOR Advances. To the extent that any prepayment requires
that a LIBOR Advance be repaid on a date other than the last day of its Interest
Period, the Borrower shall reimburse each Lender in accordance with SECTION 2.9
hereof. To the extent that outstanding (i) Revolving Credit Advances exceed the
Revolving Credit Commitment after any reduction thereof, the Borrower shall
repay any such excess amount and all accrued interest attributable to such
excess Revolving Credit Advances on the date of such reduction and (ii) Term
Loan Advances exceed the Term Loan Commitment after any reduction thereof, the
Borrower shall repay any such excess amount and all accrued interest
attributable to such excess Term Loan Advances on the date of such reduction.

(c) PREPAYMENTS FROM SALES OF ASSETS. Concurrently with the receipt of
Net Cash Proceeds from the sale or disposition by the Borrower or any Subsidiary
of the Borrower of any assets (other than the sale or disposition of
(i) inventory in the ordinary course of business, (ii) obsolete or worn-out
equipment in the ordinary course of business and (iii) assets, the Net Cash
Proceeds of which are reinvested as provided in SECTION 7.5(c) hereof), the
Borrower shall prepay Term Loan Advances in a principal amount equal to the
amount of such Net Cash Proceeds. Any such prepayments shall be applied pro
rata to the scheduled reductions of the Term Loan Commitment required pursuant
to SECTION 2.6(c) hereof.

(d) PREPAYMENTS FROM EXCESS CASH FLOW. Commencing on May 31, 1997, and on
each May 31 thereafter, the Borrower shall prepay Term Loan Advances in an
aggregate principal amount

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equal to 75% of Excess Cash Flow, if any, for the fiscal year ending on each
December 31 immediately preceding each such May 31. Any such prepayments shall
be applied to the reductions of the Term Loan Commitment required pursuant to
SECTION 2.6(c) in inverse order.

(e) PREPAYMENT FROM SALES OF EQUITY. Concurrently with receipt of Net
Cash Proceeds from the sale or disposition by the Borrower or any Subsidiary of
the Borrower to any Person of any Equity, the Borrower shall prepay Term Loan
Advances in an aggregate principal amount equal to 50% of the aggregate Net Cash
Proceeds received by the Borrower and its Subsidiaries from such sale or
disposition of Equity (excluding Net Cash Proceeds received in respect of a
Member Contribution or as described in SECTION 8.1(c) or (o) hereof). Any such
prepayments shall be applied to the reductions of the Term Loan Commitment
required pursuant to SECTION 2.6(c) in inverse order.

(f) PAYMENTS, GENERALLY. Any prepayment of any Advance shall be
accompanied by interest accrued on the principal amount being prepaid. Any
voluntary partial payment of a Base Rate Advance shall be in a principal amount
which is at least $1,000,000 and which is an integral multiple of $100,000. Any
voluntary partial payment of a LIBOR Advance shall be in a principal amount
which is at least $1,000,000 and which is an integral multiple of $100,000, and
to the extent that any prepayment of a LIBOR Advance is made on a date other
than the last day of its Interest Period, the Borrower shall reimburse each
Lender in accordance with SECTION 2.9 hereof.

Section 2.6 REDUCTION OF COMMITMENTS.

(a) VOLUNTARY REDUCTION. The Borrower shall have the right, upon not less
than 5 Business Days' notice by an Authorized Signatory to the Administrative
Lender (if telephonic, to be confirmed by telex or in writing on or before the
date of reduction or termination), which shall promptly notify the Lenders, to
terminate or reduce either the Revolving Credit Commitment or the Term Loan
Commitment, in whole or in part. Each partial termination shall be in an
aggregate amount which is at least $1,000,000 and which is an integral multiple
of $100,000, and no voluntary reduction in a Commitment shall cause any LIBOR
Advance to be repaid prior to the last day of its Interest Period unless the
Borrower shall reimburse each Lender in accordance with SECTION 2.9 hereof. Any
voluntary reduction of the Term Loan Commitment shall be applied pro rata to the
scheduled reductions of the Term Loan Commitment pursuant to SECTION 2.6(c)
hereof.

(b) MANDATORY REDUCTION. The Term Loan Commitment shall be automatically
reduced by the amount of any Term Loan Advance that is repaid. In addition, the
Term Loan Commitment shall be automatically reduced by any amount prepaid or
required to be prepaid pursuant to SECTIONS 2.5(c), 2.5(d) or 2.5(e) hereof.

(c) AMORTIZATION. The Term Loan Commitment shall be permanently reduced
on each date set forth below, beginning the Amortization Date, in such amounts
as set forth next to each such date below:

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Amount of Reduction of the
Dates Term Loan Commitment As of Each Date
---- ------------------------------------

December 31, 1995 $ 625,000

March 31, 1996 $ 625,000

June 30, 1996 $ 625,000

September 30, 1996 $ 625,000

December 31, 1996 $ 750,000

March 31, 1997 $ 750,000

June 30, 1997 $ 750,000

September 30, 1997 $ 750,000

December 31, 1997 $ 875,000

March 31, 1998 $ 875,000

June 30, 1998 $ 875,000

September 30, 1998 $ 875,000

December 31, 1998 $1,000,000

March 31, 1999 $1,000,000

June 30, 1999 $1,000,000

September 30, 1999 $1,000,000

December 31, 1999 $1,187,500

March 31, 2000 $1,187,500

June 30, 2000 $1,187,500

September 30, 2000 $1,187,500

December 31, 2000 $1,437,500

March 31, 2001 $1,437,500

June 30, 2001 $1,437,500

September 30, 2001 $1,437,500

December 31, 2001 $1,625,000

March 31, 2002 $1,625,000

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June 30, 2002 $1,625,000

September 30, 2002 $1,625,000, or, if different, the
remaining amount of the Term Loan
Commitment

(d) GENERAL REQUIREMENTS. Upon any reduction of a Commitment pursuant to
this Section, the Borrower shall immediately make a repayment of applicable
Advances in accordance with SECTION 2.5(b) hereof. The Borrower shall reimburse
each Lender in connection with any such payment in accordance with SECTION 2.9
hereof to the extent applicable. The Borrower shall not have any right to
rescind any termination or reduction. Once reduced, the Commitments may not be
increased or reinstated.

Section 2.7 NON-RECEIPT OF FUNDS BY THE ADMINISTRATIVE LENDER. Unless
the Administrative Lender shall have been notified by a Lender prior to the date
of any proposed Advance (which notice shall be effective upon receipt) that such
Lender does not intend to make the proceeds of such Advance available to the
Administrative Lender, the Administrative Lender may assume that such Lender has
made such proceeds available to the Administrative Lender on such date, and the
Administrative Lender may in reliance upon such assumption (but shall not be
required to) make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Lender
by such Lender, the Administrative Lender shall be entitled to recover such
amount on demand from such Lender (or, if such Lender fails to pay such amount
forthwith upon such demand, from the Borrower) together with interest thereon in
respect of each day during the period commencing on the date such amount was
available to the Borrower and ending on (but excluding) the date the
Administrative Lender receives such amount from the Lender, with interest
thereon at a per annum rate equal to the lesser of (i) the Highest Lawful Rate
or (ii) the Federal Funds Rate. No Lender shall be liable for any other
Lender's failure to fund an Advance hereunder.

Section 2.8 PAYMENT OF PRINCIPAL OF ADVANCES. To the extent not
otherwise required to be paid earlier as provided herein, the principal amount
of the Revolving Credit Advances, all accrued interest and fees thereon, and all
other Obligations related thereto, shall be due and payable in full on the
Revolving Commitment Maturity Date. To the extent not otherwise required to be
paid earlier as provided herein, the principal amount of the Term Loan Advances,
all accrued interest and fees thereon, and all other Obligations related
thereto, shall be due and payable in full on the Term Loan Maturity Date.

Section 2.9 REIMBURSEMENT. Whenever any Lender shall sustain or incur
(other than through a default by that Lender) any losses or reasonable
out-of-pocket expenses in connection with (a) failure by the Borrower to borrow
any LIBOR Advance after having given notice of its intention to borrow in
accordance with SECTION 2.2 hereof (whether by reason of the Borrower's election
not to proceed or the non-fulfillment of any of the conditions set forth in
Article 3 hereof), (b) any

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prepayment for any reason of any LIBOR Advance in whole or in part (including a
prepayment pursuant to SECTION 9.3(b) hereof) on other than the last day of an
Interest Period applicable to such LIBOR Advance or (c) any prepayment of any of
its LIBOR Advances that is not made on any date specified in a notice of
prepayment given by the Borrower, the Borrower agrees to pay to any such Lender,
within 30 days after demand by such Lender, an amount sufficient to compensate
such Lender for all such losses and out-of-pocket expenses, subject to
SECTION 11.9 hereof. Such losses shall include, without limiting the generality
of the foregoing, reasonable expenses incurred by such Lender in connection with
the re-employment of funds prepaid, repaid, converted or not borrowed, converted
or paid, as the case may be. A certificate as to any amounts payable to any
Lender under this SECTION 2.9 submitted to the Borrower by such Lender shall
certify that such amounts were actually incurred by such Lender and shall show
in reasonable detail an accounting of the amount payable and the calculations
used to determine in good faith such amount and shall be conclusive absent
manifest or demonstrable error. Nothing in this SECTION 2.9 shall provide the
Borrower or any Subsidiary of the Borrower the right to inspect the records,
files or books of any Lender.

Section 2.10 MANNER OF PAYMENT.

(a) Each payment (including prepayments) by the Borrower of the principal
of or interest on the Advances, fees, and any other amount owed under this
Agreement or any other Loan Document shall be made not later than 12:00 noon
(Dallas, Texas time) on the date specified for payment under this Agreement to
the Administrative Lender at the Administrative Lender's office, in lawful money
of the United States of America constituting immediately available funds.

(b) If any payment under this Agreement or any other Loan Document shall
be specified to be made upon a day which is not a Business Day, it shall be made
on the next succeeding day which is a Business Day, unless, with respect to a
payment due in respect of a LIBOR Advance, such Business Day falls in another
calendar month, in which case payment shall be made on the preceding Business
Day. Any extension of time shall in such case be included in computing interest
and fees, if any, in connection with such payment.

(c) The Borrower agrees to pay principal, interest, fees and all other
amounts due under the Loan Documents without deduction for set-off or
counterclaim or any deduction whatsoever.

(d) If some but less than all amounts due from the Borrower are received
by the Administrative Lender, the Administrative Lender shall apply such amounts
in the following order of priority: (i) to the payment of the Administrative
Lender's expenses incurred on behalf of the Lenders then due and payable, if
any; (ii) to the payment of all other fees then due and payable; (iii) to the
payment of interest then due and payable on the Advances; (iv) to the payment of
all other amounts not otherwise referred to in this clause (d) then due and
payable under the Loan Documents; and (v) to the payment of principal then due
and payable on the Advances.

Section 2.11 LIBOR LENDING OFFICES. Each Lender's initial LIBOR Lending
Office is set

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forth opposite its name in SCHEDULE 1 attached hereto. Each Lender shall have
the right at any time and from time to time to designate a different office of
itself or of any Affiliate of such Lender as such Lender's LIBOR Lending Office,
and to transfer any outstanding LIBOR Advance to such LIBOR Lending Office. No
such designation or transfer shall result in any liability on the part of the
Borrower for increased costs or expenses resulting solely from such designation
or transfer (except any such transfer which is made by a Lender pursuant to
SECTION 9.2 or 9.3 hereof, or otherwise for the purpose of complying with
Applicable Law). Increased costs for expenses resulting from a change in law
occurring subsequent to any such designation or transfer shall be deemed not to
result solely from such designation or transfer.

Section 2.12 SHARING OF PAYMENTS. Any Lender obtaining a payment
(whether voluntary or involuntary, due to the exercise of any right of set-off,
or otherwise) on account of its Advances (other than pursuant to SECTIONS 2.14,
2.15(d), 9.3 or 9.5) in excess of its Specified Percentage of all payments made
by the Borrower with respect to Advances shall purchase from each other Lender
such participation in the Advances made by such other Lender as shall be
necessary to cause such purchasing Lender to share the excess payment pro rata
according to Specified Percentages with each other Lender; provided, however,
that if all or any portion of such excess payment is thereafter recovered from
such purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section, to the fullest extent permitted by law, may exercise
all its rights of payment (including the right of set-off) with respect to such
participation as fully as if such Lender were the direct creditor of the
Borrower in the amount of such participation.

Section 2.13 CALCULATION OF LIBOR RATE. The provisions of this Agreement
relating to calculation of the LIBOR Rate are included only for the purpose of
determining the rate of interest or other amounts to be paid hereunder that are
based upon such rate, it being understood that each Lender shall be entitled to
fund and maintain its funding of all or any part of a LIBOR Advance as it sees
fit.

Section 2.14 TAXES.

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(a) Any and all payments by the Borrower hereunder shall be made, in
accordance with SECTION 2.10, free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges and
withholdings, and all liabilities with respect thereto, EXCLUDING, in the case
of each Lender and the Administrative Lender, taxes imposed on, based upon or
measured by its overall net income, net worth or capital, and franchise taxes,
doing business taxes or minimum taxes imposed on it, (i) by the jurisdiction
under the laws of which such Lender or the Administrative Lender (as the case
may be) is organized and in which it has its applicable lending office or any
political subdivision thereof; (ii) by any other jurisdiction, or any political
subdivision thereof, other than those imposed by reason of (A) an asserted
relation of such jurisdiction to the transactions contemplated by this
Agreement, (B) the activities of the Borrower in such jurisdiction, or (C) the
activities in connection with the transactions contemplated by this Agreement of
a Lender or the Administrative Lender; (iii) by reason of failure by the Lender
or the Administrative Lender to comply with the requirements of paragraph (e) of
this SECTION 2.14; and (iv) in the case of any Lender, any Taxes in the nature
of transfer, stamp, recording or documentary taxes resulting from a transfer
(other than as a result of foreclosure) by such Lender of all or any portion of
its interest in this Agreement, the Notes or any other Loan Documents (all such
non-excluded taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "TAXES"). If the Borrower shall be
required by law to deduct any Taxes from or in respect of any sum payable
hereunder to any Lender or the Administrative Lender, (x) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this
SECTION 2.14) such Lender or the Administrative Lender (as the case may be)
receives an amount equal to the sum it would have received had no such
deductions been made, (y) the Borrower shall make such deductions and (z) the
Borrower shall pay the full amount deducted to the relevant taxation authority
or other authority in accordance with applicable law.

(b) In addition, the Borrower agrees to pay any and all stamp and
documentary taxes and any and all other excise and property taxes, charges and
similar levies (other than Taxes described in clause (iv) of the first sentence
of SECTION 2.14(a)) that arise from any payment made hereunder or from the
execution, delivery or registration of, or otherwise with respect to, this
Agreement or any other Loan Document (hereinafter referred to as "OTHER TAXES").

(c) The Borrower will indemnify each Lender and the Administrative Lender
for the full amount of Taxes and Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
SECTION 2.14) paid by such Lender or the Administrative Lender (as the case may
be) and all liabilities (including penalties, additions to tax, interest and
reasonable expenses) arising therefrom or with respect thereto whether or not
such Taxes or Other Taxes were correctly or legally asserted, other than
penalties, additions to tax, interest and expenses arising as a result of gross
negligence or wilful misconduct on the part of such Lender or the Administrative
Lender, PROVIDED, HOWEVER, that the Borrower shall have no obligation to
indemnify such Lender or the Administrative Lender unless and until such Lender
or the Administrative Lender shall have delivered to the Borrower a certificate
certifying that such Taxes

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or Other Taxes (and/or penalties, additions to tax, interest and reasonable
expenses) were actually incurred by such Lender or the Administrative Lender and
showing in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount, which certificate
shall be conclusive absent manifest or demonstrable error. Nothing in this
SECTION 2.14 shall provide the Borrower or any Subsidiary of the Borrower the
right to inspect the records, files or books of any Lender or the Administrative
Lender. This indemnification shall be made within 30 days from the date such
Lender or the Administrative Lender (as the case may be) makes written demand
therefor.

(d) Within 30 days after the date of any payment of Taxes, the Borrower
will furnish to the Administrative Lender the original or a certified copy of a
receipt evidencing payment thereof. For purposes of this SECTION 2.14 the terms
"UNITED STATES" and "UNITED STATES PERSON" shall have the meanings set forth in
Section 7701 of the Code.

(e) Each Lender which is not a United States Person hereby agrees that:

(i) it shall, no later than the Agreement Date (or, in the case of a
Lender which becomes a party hereto pursuant to SECTION 11.6 after the
Agreement Date, the date upon which such Lender becomes a party hereto)
deliver to the Borrower through the Administrative Lender, with a copy to
the Administrative Lender:

(A) if any lending office is located in the United States of America,
two (2) accurate and complete signed originals of Internal
Revenue Service Form 4224 or any successor thereto ("FORM 4224"),

(B) if any lending office is located outside the United States of
America, two (2) accurate and complete signed originals of
Internal Revenue Service Form 1001 or any successor thereto
("FORM 1001").

in each case indicating that such Lender is on the date of delivery thereof
entitled to receive payments of principal, interest and fees for the
account of such lending office or lending offices under this Agreement free
from withholding of United States Federal income tax;

(ii) if at any time such Lender changes its lending office or lending
offices or selects an additional lending office it shall, at the same time
or reasonably promptly thereafter but only to the extent the forms
previously delivered by it hereunder are no longer effective, deliver to
the Borrower through the Administrative Lender, with a copy to the
Administrative Lender, in replacement for the forms previously delivered by
it hereunder:

(A) if such changed or additional lending office is located in the
United States of America, two (2) accurate and complete signed
originals of Form 4224; or

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(B) otherwise, two (2) accurate and complete signed originals of Form
1001, in each case indicating that such Lender is on the date of
delivery thereof entitled to receive payments of principal,
interest and fees for the account of such changed or additional
lending office under this Agreement free from withholding of
United States Federal income tax;

(iii) it shall, before or promptly after the occurrence of any
event (including the passing of time but excluding any event mentioned in
clause (ii) above) requiring a change in the most recent Form 4224 or Form
1001 previously delivered by such Lender and if the delivery of the same be
lawful, deliver to the Borrower through the Administrative Lender with a
copy to the Administrative Lender, two (2) accurate and complete original
signed copies of Form 4224 or Form 1001 in replacement for the forms
previously delivered by such Lender;

(iv) it shall, promptly upon the request of the Borrower to that
effect, deliver to the Borrower such other forms or similar documentation
as may be required from time to time by any applicable law, treaty, rule or
regulation in order to establish such Lender's tax status for withholding
purposes; and

(v) it shall notify the Borrower within 30 days after any event
(including an amendment to, or a change in any applicable law or regulation
or in the written interpretation thereof by any regulatory authority or any
judicial authority, or by ruling applicable to such Lender of any
governmental authority charged with the interpretation or administration of
any law) shall occur that results in such Lender no longer being capable of
receiving payments without any deduction or withholding of United States
federal income tax.

(f) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this SECTION 2.14 shall survive the payment in full of principal and interest
hereunder.

(g) Each Lender (and the Administrative Lender with respect to payments to
the Administrative Lender for its own account) agrees that (i) it will take all
reasonable actions by all usual means to maintain all exemptions, if any,
available to it from United States withholding taxes (whether available by
treaty, existing administrative waiver or by virtue of the location of any
Lender's lending office), (ii) it will use reasonable best efforts (consistent
with its internal policy and legal and regulatory restrictions) to change the
jurisdiction of its lending office, if the making of such a change would avoid
the need for, or reduce the amount of, any such additional amounts which may
thereafter accrue and would not, in the reasonable judgment of such Lender, be
materially disadvantageous to such Lender, and (iii) otherwise cooperate with
the Borrower to minimize amounts payable by the Borrower under this
SECTION 2.14; PROVIDED, HOWEVER, the Lenders and the Administrative Lender shall
not be obligated by reason of this SECTION 2.14(g) to contest the payment of any
Taxes or Other Taxes or to disclose any information regarding its tax affairs or
tax

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computations or reorder its tax or other affairs or tax or other planning.
Subject to the foregoing, to the extent the Borrower pays sums pursuant to this
SECTION 2.14 and the Lender or the Administrative Lender receives a refund of
any or all of such sums, such refund shall be applied to reduce any amounts then
due and owing under this Agreement or, to the extent that no amounts are due and
owing under this Agreement at the time such refunds are received, the party
receiving such refund shall promptly pay over all such refunded sums to the
Borrower, provided that no Default or Event of Default is in existence at such
time.

(h) If the Borrower becomes obligated to pay additional amounts described
in this SECTION 2.14 to any Lender, the Borrower may designate a financial
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitment and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expense to, such Lender, for a
purchase price equal to the outstanding amounts owed to such Lender (including
such additional amounts owing to such Lender pursuant to this SECTION 2.14).
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in SECTION 11.6 hereof.

Section 2.15 LETTERS OF CREDIT.

(a) THE LETTER OF CREDIT FACILITY. The Borrower may request the Issuing
Bank, on the terms and conditions hereinafter set forth, to issue, and the
Issuing Bank shall, if so requested, issue, letters of credit (the "LETTERS OF
CREDIT") for the account of the Borrower from time to time on any Business Day
from the date of the initial Advance until the Revolving Commitment Maturity
Date in an aggregate maximum amount (assuming compliance with all conditions to
drawing) not to exceed, at any time outstanding (less Cash Collateralized
Letters of Credit), the lesser of (i) $5,000,000 (the "LETTER OF CREDIT
FACILITY"), and (ii) the result of (1) the Revolving Credit Commitment MINUS
(2) the aggregate principal amount of Revolving Credit Advances then
outstanding. No Letter of Credit shall have an expiration date (including all
rights of renewal) later than the earlier of (i) the Revolving Commitment
Maturity Date or (ii) one year after the date of issuance thereof. Immediately
upon the issuance of each Letter of Credit, the Issuing Bank shall be deemed to
have sold and transferred to each Lender, and each Lender shall be deemed to
have purchased and received from the Issuing Bank, in each case irrevocably and
without any further action by any party, an undivided interest and participation
in such Letter of Credit, each drawing thereunder and the obligations of the
Borrower under this Agreement in respect thereof in an amount equal to the
product of (x) such Lender's Specified Percentage times (y) the maximum amount
available to be drawn under such Letter of Credit (assuming compliance with all
conditions to drawing). Within the limits of the Letter of Credit Facility, and
subject to the limits referred to above, the Borrower may request the issuance
of Letters of Credit under this SECTION 2.15(a), repay any Revolving Credit
Advances resulting from drawings thereunder pursuant to SECTION 2.15(c) and
request the issuance of additional Letters of Credit under this SECTION 2.15(a).

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(b) REQUEST FOR ISSUANCE. Each Letter of Credit shall be issued upon
notice, given not later than 11:00 a.m. (Dallas time) on the third Business Day
prior to the date of the proposed issuance of such Letter of Credit, by the
Borrower to the Issuing Bank. Each Letter of Credit shall be issued upon notice
given in accordance with the terms of any separate agreement between the
Borrower and the Issuing Bank in form and substance reasonably satisfactory to
the Borrower and the Issuing Bank providing for the issuance of Letters of
Credit pursuant to this Agreement and containing terms and conditions not
inconsistent with this Agreement (a "LETTER OF CREDIT AGREEMENT"), PROVIDED that
if any such terms and conditions are inconsistent with this Agreement, this
Agreement shall control. Each such notice of issuance of a Letter of Credit by
the Borrower (a "NOTICE OF ISSUANCE") shall be by telex, telecopier or cable,
specifying therein, in the case of a Letter of Credit, the requested (A) date of
such issuance (which shall be a Business Day), (B) maximum amount of such Letter
of Credit, (C) expiration date of such Letter of Credit, (D) name and address of
the beneficiary of such Letter of Credit, and (E) form of such Letter of Credit
and specifying such other information as shall be required pursuant to the
relevant Letter of Credit Agreement. If the requested terms of such Letter of
Credit are acceptable to the Issuing Bank in its reasonable discretion, the
Issuing Bank will, upon fulfillment of the applicable conditions set forth in
ARTICLE 3 hereof, make such Letter of Credit available to the Borrower at its
office referred to in SECTION 11.1 or as otherwise agreed with the Borrower in
connection with such issuance.

(c) DRAWING AND REIMBURSEMENT. The payment by the Issuing Bank of a draft
drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of an Revolving Credit Advance, which
shall bear interest at the Base Rate Basis, in the amount of such draft (but
without any requirement for compliance with the conditions set forth in
ARTICLE 3 hereof). In the event that a drawing under any Letter of Credit is
not reimbursed by the Borrower by 11:00 a.m. (Dallas time) on the first Business
Day after such drawing, the Issuing Bank shall promptly notify Administrative
Lender and each other Lender. Each such Lender shall, on the first Business Day
following such notification, make a Revolving Credit Advance, which shall bear
interest at the Base Rate Basis, and shall be used to repay the applicable
portion of the Issuing Bank's Advance with respect to such Letter of Credit, in
an amount equal to the amount of its participation in such drawing for
application to reimburse the Issuing Bank (but without any requirement for
compliance with the applicable conditions set forth in ARTICLE 3 hereof) and
shall make available to the Administrative Lender for the account of the Issuing
Bank, by deposit at the Administrative Lender's office, in same day funds, the
amount of such Advance. In the event that any Lender fails to make available to
the Administrative Lender for the account of the Issuing Bank the amount of such
Advance, the Issuing Bank shall be entitled to recover such amount on demand
from such Lender together with interest thereon at a rate per annum equal to the
lesser of (i) the Highest Lawful Rate or (ii) the Federal Funds Rate.

(d) INCREASED COSTS. If (a) the applicability of any law, rule,
regulation or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Practices
entitled "International Convergence of Capital Measurement and Capital
Standards" or (b) any change in any Law or in the interpretation thereof by any
court or

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<PAGE>

administrative or governmental authority charged with the administration thereof
shall either (i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against letters of credit or guarantees issued by, or
assets held by, or deposits in or for the account of, the Issuing Bank or any
Lender or any corporation controlling the Issuing Bank or any Lender or
(ii) impose on the Issuing Bank or any Lender or any corporation controlling the
Issuing Bank or any Lender any other condition regarding this Agreement or any
Letter of Credit, and the result of any event referred to in the preceding
clause (i) or (ii) shall be to increase the cost to the Issuing Bank or any
corporation controlling the Issuing Bank of issuing or maintaining any Letter of
Credit or to any Lender or any corporation controlling such Lender of purchasing
any participation therein or making any Advance pursuant to SECTION 2.15(c),
then, within 30 days after demand by the Issuing Bank or such Lender, the
Borrower shall, subject to SECTION 11.9 hereof, pay to the Issuing Bank or such
Lender, from time to time as specified by the Issuing Bank or such Lender,
additional amounts that shall be sufficient to compensate the Issuing Bank or
such Lender or any corporation controlling such Lender for such increased cost.
A certificate as to the amount of such increased cost, submitted to the Borrower
by the Issuing Bank or such Lender, shall certify that such increased costs were
actually incurred by the Issuing Bank or such Lender and shall show in
reasonable detail an accounting of the amount payable and the calculation used
to determine in good faith such amount and shall be conclusive absent manifest
or demonstrable error. In determining such amount, the Issuing Bank or such
Lender may use any reasonable averaging or attribution method. Nothing in this
SECTION 2.15(d) shall provide the Borrower or any Subsidiary of the Borrower the
right to inspect the records, files or books of the Issuing Bank or any Lender.
If the Borrower becomes obligated to pay additional amounts described in this
SECTION 2.15(d) to any Lender, the Borrower may designate a financial
institution reasonably acceptable to the Administrative Lender to replace such
Lender by purchasing for cash and receiving an assignment of such Lender's pro
rata share of the Commitment and the Rights of such Lender under the Loan
Documents without recourse to or warranty by, or expenses to, such Lender, for a
purchase price equal to the outstanding amounts owing to such Lender (including
such additional amounts owing to such Lender pursuant to this SECTION 2.15(d).
Upon execution of an Assignment Agreement, such other financial institution
shall be deemed to be a "Lender" for all purposes of this Agreement as set forth
in SECTION 11.6 hereof. The obligations of the Borrower under this
SECTION 2.15(d) shall survive termination of this Agreement. The Issuing Bank
or any Lender claiming any additional compensation under this SECTION 2.15(d)
shall use reasonable efforts (consistent with legal and regulatory restrictions)
to reduce or eliminate any such additional compensation which may thereafter
accrue and which efforts would not, in the reasonable judgment of the Issuing
Bank or such Lender, be otherwise disadvantageous.

(e) OBLIGATIONS ABSOLUTE. The obligations of the Borrower under this
Agreement with respect to any Letter of Credit, any Letter of Credit Agreement
and any other agreement or instrument relating to any Letter of Credit or any
Revolving Credit Advance pursuant to SECTION 2.15(c) shall be unconditional and
irrevocable, and shall be paid strictly in accordance with the terms of this
Agreement, such Letter of Credit Agreement and such other agreement or
instrument under all circumstances, including, without limitation, the following
circumstances:

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<PAGE>

(i) any lack of validity or enforceability of this Agreement, any
other Loan Document, any Letter of Credit Agreement, any Letter of Credit
or any other agreement or instrument relating thereto (collectively, the
"L/C RELATED DOCUMENTS");

(ii) (A) any change in the time, manner or place of payment of, or in
any other term of, all or any of the Obligations of the Borrower in respect
of the Letters of Credit or any Revolving Credit Advance pursuant to
SECTION 2.15(c) or (b) any other amendment or waiver of or any consent to
departure from all or any of the L/C Related Documents;

(iii) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any Persons for whom any such beneficiary or any
such transferee may be acting), the Issuing Bank, any Lender or any other
Person, whether in connection with this Agreement, the transactions
contemplated hereby or by the L/C Related Documents or any unrelated
transaction;

(iv) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;

(v) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not comply with the terms
of the Letter of Credit, except for any payment made upon the Issuing
Bank's gross negligence or wilful misconduct;

(vi) any exchange, release or non-perfection of any Collateral, or
any release or amendment or waiver of or consent to departure from any
guarantee, for all or any of the Obligations of the Borrower in respect of
the Letters of Credit or any Revolving Credit Advance pursuant to
SECTION 2.15(c); or

(vii) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor, other than the Issuing's Bank
gross negligence or wilful misconduct.

(f) COMPENSATION FOR LETTERS OF CREDIT.

(i) CREDIT FEE. Subject to SECTION 11.9 hereof, the Borrower shall
pay to the Administrative Lender for the account of each Lender a fee
(which shall be payable quarterly in arrears on each Quarterly Date and on
the Revolving Commitment Maturity Date) on the average daily amount
available for drawing under all outstanding Letters of Credit at the
following per annum percentages, applicable in the following situations:

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Applicability Percentage
------------- ----------

(a) INITIAL PRICING PERIOD 2.50

SUBSEQUENT PRICING PERIOD

(b) (1) If the Leverage Ratio is greater than 3.0 to 1 2.50

(2) If the Leverage Ratio is less than or equal to 2.25
3.0 to 1 but greater than 2.50 to 1
(3) If the Leverage Ratio is less than or equal to 2.00
2.50 to 1

The fee payable in respect of the Letters of Credit shall be subject to
reduction or increase, as applicable and as set forth in the table above,
on a quarterly basis according to the performance of the Borrower as tested
by using the Leverage Ratio calculated as of the end of each fiscal quarter
during the Subsequent Pricing Period. Any such increase or reduction in
such fee shall be effective within 2 Business Days of the date of receipt
by the Administrative Lender of the financial statements required pursuant
to SECTION 6.1 or 6.2 hereof, as applicable, for each such fiscal quarter
and the Compliance Certificate required pursuant to SECTION 6.3 hereof. If
such financial statements and Compliance Certificate are not received by
the date required, the fee payable in respect of the Letters of Credit
shall be determined as if the Leverage Ratio is greater than 3.0 to 1 until
such time as such financial statements and Compliance Certificate are
received. Subject to SECTION 11.9 hereof, such fee shall be computed on
the basis of a 360-day year for the actual number of days elapsed.

(ii) ISSUANCE FEE. Subject to SECTION 11.9 hereof, the Borrower
shall pay to the Administrative Lender for the account of the Issuing Bank
an issuance fee (which shall be payable on the date of issuance of each
Letter of Credit) in an amount equal to the greater of (a) $250 or (b) the
product of (x) 0.25% times (y) the face amount of the Letter of Credit
being issued.

(iii) ADMINISTRATIVE FEE. Subject to SECTION 11.9 hereof, the
Borrower shall pay, with respect to each amendment, renewal or transfer of
each Letter of Credit and each drawing made thereunder, reasonable
documentary and processing charges in accordance with the Issuing Bank's
standard schedule for such charges in effect at the time of such amendment,
renewal, transfer or drawing, as the case may be.

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<PAGE>

(g) L/C CASH COLLATERAL ACCOUNT.

(i) Upon the occurrence of an Event of Default and demand by the
Administrative Lender pursuant to SECTION 8.2(c), the Borrower will
promptly pay to the Administrative Lender in immediately available funds an
amount equal to the maximum amount then available to be drawn under the
Letters of Credit then outstanding. Any amounts so received by the
Administrative Lender shall be deposited by the Administrative Lender in a
deposit account maintained by the Issuing Bank (the "L/C CASH COLLATERAL
ACCOUNT"). In addition, as provided in SECTION 2.5(B) hereof, the Borrower
will also deposit in the L/C Cash Collateral Account immediately available
funds to cash collateralize Letters of Credit.

(ii) As security for the payment of all Reimbursement Obligations and
for any other Obligations, the Borrower hereby grants, conveys, assigns,
pledges, sets over and transfers to the Administrative Lender (for the
benefit of the Issuing Bank and Lenders), and creates in the Administrative
Lender's favor (for the benefit of the Issuing Bank and Lenders) a Lien in,
all money, instruments and securities at any time held in or acquired in
connection with the L/C Cash Collateral Account, together with all proceeds
thereof. The L/C Cash Collateral Account shall be under the sole dominion
and control of the Administrative Lender and the Borrower shall have no
right to withdraw or to cause the Administrative Lender to withdraw any
funds deposited in the L/C Cash Collateral Account. At any time and from
time to time, upon the Administrative Lender's request, the Borrower
promptly shall execute and deliver any and all such further instruments and
documents, including UCC financing statements, as may be necessary,
appropriate or desirable in the Administrative Lender's judgment to obtain
the full benefits (including perfection and priority) of the security
interest created or intended to be created by this paragraph (ii) and of
the rights and powers herein granted. The Borrower shall not create or
suffer to exist any Lien on any amounts or investments held in the L/C Cash
Collateral Account other than the Lien granted under this paragraph (ii)
and Liens arising by operation of Law and not by contract which secure
amounts not yet due and payable.

(iii) The Administrative Lender shall (A) apply any funds in the L/C
Cash Collateral Account on account of Reimbursement Obligations when the
same become due and payable, (B) if at any time prior to the occurrence of
a Default or Event of Default, the amount in the L/C Cash Collateral
Account exceeds the amount of the Cash Collateralized Letters of Credit,
pay such excess to the Borrower, and (C) after the Revolving Commitment
Maturity Date or if at any time the amount in the L/C Cash Collateral
Account exceeds the amount of the Reimbursement Obligations, apply any
proceeds remaining in the L/C Cash Collateral Account FIRST to pay any
unpaid Obligations then outstanding hereunder and THEN to refund any
remaining amount to the Borrower.

(iv) The Borrower, no more than once in any calendar month, may
direct the

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Administrative Lender to invest the funds held in the L/C Cash Collateral
Account (so long as the aggregate amount of such funds exceeds any relevant
minimum investment requirement) in (A) Cash Equivalents or direct
obligations of the United States or any agency thereof, or obligations
guaranteed by the United States or any agency thereof and (B) one or more
other types of investments permitted by the Determining Lenders, in each
case with such maturities as the Borrower, with the consent of the
Determining Lenders, may specify, pending application of such funds on
account of Reimbursement Obligations or on account of other Obligations, as
the case may be. In the absence of any such direction from the Borrower,
the Administrative Lender shall invest the funds held in the L/C Cash
Collateral Account (so long as the aggregate amount of such funds exceeds
any relevant minimum investment requirement) in one or more types of
investments with the consent of the Determining Lenders with such
maturities as the Borrower, with the consent of the Determining Lenders,
may specify, pending application of such funds on account of Reimbursement
Obligations or on account of other Obligations, as the case may be. All
such investments shall be made in the Administrative Lender's name for the
account of the Lenders, subject to the ownership interest therein of the
Borrower. The Borrower recognizes that any losses or taxes with respect to
such investments shall be borne solely by the Borrower, and the Borrower
agrees to hold the Administrative Lender and the Lenders harmless from any
and all such losses and taxes. Administrative Lender may liquidate any
investment held in the L/C Cash Collateral Account in order to apply the
proceeds of such investment on account of the Reimbursement Obligations as
provided in SECTION 2.15(G)(III) hereof (or on account of any other
Obligation then due and payable, as the case may be) without regard to
whether such investment has matured and without liability for any penalty
or other fee incurred (with respect to which the Borrower hereby agrees to
reimburse the Administrative Lender) as a result of such application.

(v) After the establishment of the L/C Cash Collateral Account
pursuant to SECTION 2.15(g)(i) hereof, the Borrower shall pay to the
Administrative Lender the fees customarily charged by the Issuing Bank with
respect to the maintenance of accounts similar to the L/C Cash Collateral
Account.

ARTICLE 3

CONDITIONS PRECEDENT

Section 3.1 CONDITIONS PRECEDENT TO CLOSING, THE INITIAL REVOLVING
CREDIT ADVANCE, THE TERM LOAN ADVANCE, AND THE INITIAL LETTERS OF CREDIT. The
obligation of each Lender to make any Advance and the obligation of the Issuing
Bank to issue Letters of Credit is subject to (i) receipt by the Administrative
Lender of the following items which are to be delivered, in form and substance
satisfactory to each Lender, with a copy (except for the Notes) for each Lender,
and (ii) satisfaction of the following conditions which are to be satisfied:

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(a) A loan certificate of the Borrower certifying as to the accuracy of
its representations and warranties in the Loan Documents, certifying that no
Default has occurred, and including a certificate of incumbency with respect to
each Authorized Signatory, and including (i) a copy of the Certificate of
Formation of the Borrower, certified to be true, complete and correct by the
secretary of state of its state of organization, (ii) a copy of the Operating
Agreement, as in effect on the Agreement Date, and (iii) a copy of a certificate
of good standing and a certificate of existence for its state of organization
and each state in which it is qualified to do business;

(b) a duly executed Revolving Credit Note and Term Loan Note payable to
the order of each Lender and in an amount for each Lender equal to its Specified
Percentage of each Commitment, respectively;

(d) opinions of counsel to the Borrower and each Subsidiary addressed to
the Lenders and in form and substance satisfactory to the Lenders, dated the
Agreement Date, and covering the matters set forth in SECTIONS 4.1(a), (b), (c),
(h), (m), (n) and (p) and such other matters incident to the transactions
contemplated hereby as the Administrative Lender or Special Counsel may
reasonably request;

(e) reimbursement for the Administrative Lender for Special Counsel's
reasonable and customary fees (on an hourly basis) and expenses rendered through
the date hereof;

(f) evidence that all proceedings of the Borrower and its Subsidiaries
taken in connection with the transactions contemplated by this Agreement and the
other Loan Documents shall be reasonably satisfactory in form and substance to
the Lenders and Special Counsel; and the Lenders shall have received copies of
all documents or other evidence which the Administrative Lender, Special Counsel
or any Lender may reasonably request in connection with such transactions;

(g) any fees or expenses required to be paid pursuant to the Fee Letter
and the Commitment Letter;

(h) duly executed and completed Security Agreements, dated as of the
Agreement Date granting a Lien, subject only to Permitted Liens, in all
Collateral covered thereby, together with related financing statements, stock
powers, stock certificates evidencing ownership of (i) 100% of the issued and
outstanding capital stock of each Domestic Subsidiary and (ii) 66% of the issued
and outstanding capital stock of each Foreign Subsidiary, and insurance
certificates listing Administrative Lender as loss payee and additional insured
and otherwise in a form required by the Collateral Documents.

(i) simultaneously with the making of the initial Advance, executed UCC-3
Termination Statements to be filed in appropriate jurisdictions to terminate all
Liens against assets of the

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Borrower and its Subsidiaries other than Permitted Liens;

(j) all Power-One Acquisition Documents, which shall be on terms and
conditions acceptable to the Administrative Lender;

(k) consummation of the Power-One Acquisition shall have occurred and be
on terms and conditions acceptable to the Lenders, including but not limited to
the conditions that (i) the aggregate cost (excluding fees, expenses and
principal amount of Indebtedness to be refinanced) of the Power-One Acquisition
shall not exceed $39,755,031, plus any penalties with respect thereto, but in no
event to exceed $41,000,000, and (ii) the fees and expenses of the Borrower
incurred in respect of the Power-One Acquisition shall not exceed $2,000,000 and
(iii) liabilities assumed by the Borrower in respect of debt for borrowed money
and accounts payable of Power-One held by former shareholders of PEI shall not
exceed $13,350,000 in aggregate amount;

(l) duly executed Deeds of Trust, landlord's waivers, subordination and
attornment agreements required by the Administrative Lender and in form and
substance satisfactory to the Administrative Lender, dated as of the Agreement
Date;

(m) duly executed and completed Pledge Agreements, granting a first and
prior Lien in 100% of the issued and outstanding member interests in the
Borrower;

(n) evidence satisfactory to the Administrative Lender that at least
$15,000,000 in cash equity has been contributed to the Borrower by the members
of the Borrower;

(o) evidence satisfactory to the Administrative Lender that after
completion of the Power-One Acquisition and funding of the initial Advances and
issuance of any initial Letters of Credit, the Unused Portion shall be at least
$5,000,000;

(p) a pro forma balance sheet of the Borrower and its Subsidiaries taking
into account the Power-One Acquisition;

(q) there shall have occurred no material adverse change in the business,
assets or financial condition of Power-One, PEI and PUM, taken as a whole, since
the date of the financial statements referred to in SECTION 4.1(j)(i) hereof;

(r) a solvency opinion delivered by a financial advisor acceptable to the
Lenders, in form and substance satisfactory to the Lenders;

(s) keyman life insurance on the life of Steven J. Goldman in an amount
not less than $5,000,000; and

(t) in form and substance reasonably satisfactory to the Lenders and
Special Counsel,

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such other documents, instruments and certificates as the Administrative Lender
or any Lender may reasonably require in connection with the transactions
contemplated hereby, including without limitation, a Compliance Certificate,
appropriately completed, and evidence of the status, organization or authority
of the Borrower or any Subsidiary of the Borrower, and the enforceability of the
Obligations.

Section 3.2 CONDITIONS PRECEDENT TO ALL ADVANCES AND LETTERS OF CREDIT.
The obligation of each Lender to make each Advance hereunder and the obligation
of the Issuing Bank to issue each Letter of Credit is subject to fulfillment of
the following conditions immediately prior to or contemporaneously with each
such Advance or issuance:

(a) With respect to each Advance and each issuance of a Letter of Credit,
all of the representations and warranties of the Borrower under this Agreement,
which, pursuant to SECTION 4.2 hereof, are made at and as of the time of each
such Advance or issuance, shall be true and correct at such time in all material
respects, both before and after giving effect to the application of the proceeds
of the Advance, except as otherwise expressly provided in said SECTION 4.2
hereof.

(b) The incumbency of the Authorized Signatories shall be as stated in the
certificate of incumbency delivered in the Borrower's loan certificate pursuant
to SECTION 3.1(a) or as subsequently modified and reflected in a certificate of
incumbency delivered to the Administrative Lender. The Lenders may, without
waiving this condition, consider it fulfilled and a representation by the
Borrower made to such effect if no written notice to the contrary, dated on or
before the date of such Advance, is received by the Administrative Lender from
the Borrower prior to the making of such Advance;

(c) There shall not exist a Default or Event of Default hereunder, and,
with respect to each Advance and Letter of Credit, the Administrative Lender
shall have received written or telephonic certification thereof by an Authorized
Signatory (which certification, if telephonic, shall be followed promptly by
written certification);

(d) The aggregate Advances and Letters of Credit, after giving effect to
such proposed Advance or Letter of Credit, shall not exceed the maximum
principal amount then permitted to be outstanding hereunder;

(e) No order, judgment, injunction or decree of any Tribunal shall purport
to enjoin or restrain any Lender or the Issuing Bank from making any Advance or
issuing any Letter of Credit;

(f) There shall not be pending, or to the knowledge of the Borrower,
threatened any Litigation against or affecting the Borrower or any Subsidiary of
the Borrower or any property of the Borrower or any Subsidiary of the Borrower
that has not been disclosed in writing by the Borrower pursuant to
SECTION 4.1(h), 6.4(d) or 6.5(a) prior to the making of the last preceding
Advance or the issuance of the last preceding Letter of Credit (or in the case
of the initial Advances

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and Letters of Credit, prior to the Agreement Date) and there shall have
occurred no development not so disclosed in any such Litigation that, in either
event, would reasonably be expected to have a Material Adverse Effect; and

(g) There shall have occurred no material adverse change in the business,
financial condition, results of operations or business prospects of Power-One,
PEI and PUM, taken as a whole, since June 30, 1995.

Section 3.3 CONDITIONS PRECEDENT TO CONVERSIONS AND CONTINUATIONS. The
obligation of the Lenders to convert any existing Base Rate Advance into a LIBOR
Advance or to continue any existing LIBOR Advance is subject to the condition
precedent that on the date of such conversion or continuation no Default or
Event of Default shall have occurred and be continuing or would result from the
making of such conversion or continuation. The acceptance of the benefits of
each such conversion and continuation shall constitute a representation and
warranty by the Borrower to each of the Lenders that no Default or Event of
Default shall have occurred and be continuing or would result from the making of
such conversion or continuation.

ARTICLE 4

REPRESENTATIONS AND WARRANTIES

Section 4.1 REPRESENTATIONS AND WARRANTIES. The Borrower hereby
represents and warrants to each Lender as follows:

(a) ORGANIZATION; POWER; QUALIFICATION. The respective jurisdiction of
organization or incorporation and percentage ownership by the Borrower of the
Subsidiaries listed on SCHEDULE 4 are true and correct as of the Agreement Date.
SCHEDULE 4 is a complete and accurate listing as of the Agreement Date, showing
with respect to the Borrower and each Subsidiary of the Borrower (a) its mailing
address, which is its principal place of business, (b) the classes of its
Capital Stock and the number of amount of its Capital Stock authorized and
outstanding, (c) each record and beneficial owner of its outstanding Capital
Stock, and (d) all outstanding options, rights, rights of conversion,
redemption, purchase or repurchase, rights of first refusal and similar rights
relating to the Capital Stock. All of the outstanding Capital Stock of the
Borrower and each Subsidiary of the Borrower is validly issued, fully paid and
non-assessable. Each of the Borrower and its Subsidiaries is a limited
liability company or corporation duly organized, validly existing and in good
standing under the laws of its state, county or province of organization. Each
of the Borrower and its Subsidiaries has the legal power and authority to own
its properties and to carry on its business as now being and hereafter proposed
to be conducted. Each of the Borrower and its Subsidiaries is authorized to do
business, duly qualified and in good standing as set forth in SCHEDULE 7 and no
qualification or authorization is necessary in any other jurisdictions in which
the character of its properties or the nature of its business requires such
qualification or authorization except where the

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failure to be so qualified or authorized would not have a Material Adverse
Effect.

(b) AUTHORIZATION. The Borrower has legal power and has taken all
necessary legal action to authorize it to borrow and request Letters of Credit
hereunder. Each of the Borrower and its Subsidiaries has legal power and has
taken all necessary legal action to execute, deliver and perform the Loan
Documents to which it is party in accordance with the terms thereof, and to
consummate the transactions contemplated thereby. Each Loan Document has been
duly executed and delivered by the Borrower or the Subsidiary of the Borrower
executing it. Each of the Loan Documents to which the Borrower or any of its
Subsidiaries is a party is a legal, valid and binding obligation of the Borrower
or such Subsidiary, as applicable, enforceable in accordance with its terms,
subject, to enforcement of remedies, to the following qualifications:
(i) equitable principles generally, and (ii) Debtor Relief Laws (insofar as any
such law relates to the bankruptcy, insolvency or similar event of the Borrower
or any Subsidiary of the Borrower).

(c) COMPLIANCE WITH OTHER LOAN DOCUMENTS AND CONTEMPLATED TRANSACTIONS.
The execution, delivery and performance by the Borrower and its Subsidiaries of
the Loan Documents to which they are respectively a party, and the consummation
of the transactions contemplated thereby, do not and will not (i) require any
consent or approval necessary on or prior to the Agreement Date not already
obtained, except to the extent that the failure to obtain any such consent or
approval could not reasonably be expected to have a Material Adverse Effect,
(ii) violate any Applicable Law, except to the extent that any such violation
could not reasonably be expected to have a Material Adverse Effect,
(iii) conflict with, result in a breach of, or constitute a default under the
certificate of formation, certificate of incorporation, Operating Agreement or
by-laws, as appropriate, of the Borrower or any Subsidiary of the Borrower,
(iv) conflict with, result in a breach of, or constitute a default under any
Necessary Authorization, indenture, agreement or other instrument, to which the
Borrower or any Subsidiary of the Borrower is a party or by which they or their
respective properties may be bound, the result of which could reasonably be
expected to have a Material Adverse Effect, or (v) result in or require the
creation or imposition of any Lien upon or with respect to any property now
owned or hereafter acquired by the Borrower or any Subsidiary of the Borrower,
except Permitted Liens.

(d) BUSINESS. The Borrower and its Subsidiaries are engaged primarily in
the business of designing, manufacturing and marketing direct current power
supplies and activities directly related thereto.

(e) LICENSES, ETC. All Necessary Authorizations have been duly obtained,
and are in full force and effect without any known conflict with the rights of
others and free from any unduly burdensome restrictions, unless the failure to
obtain or have in effect such Necessary Authorizations would not result in a
Material Adverse Effect. The Borrower and its Subsidiaries are and will
continue to be in compliance in all material respects with all provisions
thereof. No circumstance exists which could reasonably be expected to impair
the utility of the Necessary Authorization or the right to renew such Necessary
Authorization the effect of which would have a Material Adverse

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Effect. No Necessary Authorization is the subject of any pending or, to the
best of the Borrower's knowledge, threatened challenge, suspension, cancellation
or revocation, the effect of which could reasonably be expected to have a
Material Adverse Effect.

(f) COMPLIANCE WITH LAW. The Borrower and its Subsidiaries are in
compliance in all respects with all Applicable Laws, except where the failure to
so comply could not reasonably be expected to have a Material Adverse Effect.

(g) TITLE TO PROPERTIES. The Borrower and its Subsidiaries have good and
indefeasible title to, or a valid leasehold interest in, all of their material
assets. None of their assets are subject to any Liens, except Permitted Liens.
No financing statement or other Lien filing (except relating to Permitted Liens)
is on file in any state or jurisdiction that names the Borrower or any of its
Subsidiaries as debtor or covers (or purports to cover) any assets of the
Borrower or any of its Subsidiaries. The Borrower and its Subsidiaries have not
signed any such financing statement or filing, nor any security agreement
authorizing any Person to file any such financing statement or filing (except
relating to Permitted Liens). The Borrower does not have title to assets
located outside the United States in an aggregate amount in excess of $50,000
which are not subject to a Lien in favor of the Administrative Lender.

(h) LITIGATION. Except as reflected on SCHEDULE 3 hereto, as of the
Agreement Date there is no Litigation pending against, or, to the Borrower's
current actual knowledge, threatened against the Borrower, or in any other
manner relating directly and adversely to the Borrower or any of its
Subsidiaries, or any of their respective properties, in any court or before any
arbitrator of any kind or before or by any governmental body in which the amount
claimed (in excess of applicable insurance) exceeds $100,000.

(i) TAXES. All federal, state and other tax returns of the Borrower and
its Subsidiaries required by law to be filed have been duly filed or extensions
have been timely filed, and all federal, state and other Taxes upon the
Borrower, its Subsidiaries or any of their properties, income, profits and
assets, which are due and payable, have been paid, unless the same are being
diligently contested in accordance with SECTION 5.6 hereof. The charges,
accruals and reserves on the books of the Borrower and its Subsidiaries in
respect of their Taxes or their obligations in respect of the Tax Distributions
are, in the judgment of the Borrower, adequate.

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<PAGE>

(j) FINANCIAL STATEMENTS; MATERIAL LIABILITIES.

(i) Borrower has heretofore delivered to Lenders (a) the audited
combined balance sheets of Power-One, PEI and PUM as at December 31, 1994,
and the related statements of earnings and changes in investment and
statement of cash flows for the twelve-month period then ended, and
(b) unaudited combined balance sheets of Power-One, PEI and PUM as at
June 30, 1995, and the related statements of earnings and changes in
investment and statement of cash flows for the six-month period then ended.
Such financial statements were prepared in conformity with GAAP (except for
the absence of footnotes) and fairly present, in all material respects, the
financial position of Power-One, PEI and PUM as at the date thereof and the
combined results of operations and cash flows for the period covered
thereby.

(ii) The projected financial statements of the Borrower, PEI and PUM
delivered to the Lenders prior to or on the Agreement Date were prepared in
good faith and management of the Borrower believes them to be based on
reasonable assumptions and to fairly present in all material respects the
projected financial condition of the Borrower, PEI and PUM and the
projected results of operations as of the dates and for the periods shown
for the Borrower, PEI and PUM, it being recognized by the Lenders that such
projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections
may differ from the projected results.

(iii) The financial statements of the Borrower and its Subsidiaries
delivered to the Lenders pursuant to SECTION 6.1 and 6.2 hereof fairly
present in all material respects their respective financial condition and
their respective results of operations as of the dates and for the periods
shown, all in accordance with GAAP, subject to normal year-end adjustments.
The latest of such financial statements reflects all material liabilities,
direct and contingent, of the Borrower and each Subsidiary of the Borrower
that are required to be disclosed in accordance with GAAP. As of the date
of the latest of such financial statements, there were no Guaranties,
liabilities for Taxes, forward or long-term commitments or unrealized or
anticipated losses from any unfavorable commitments that are substantial in
amount that are required to be reflected but that are not reflected on such
financial statements.

(k) NO ADVERSE CHANGE. Since the date of the last financial statements
delivered to the Lenders pursuant to SECTION 6.1 or 6.2 hereof, no event or
circumstance has occurred or arisen which is reasonably likely to have a
Material Adverse Effect.

(l) ERISA. None of the Borrower or its Controlled Group maintains or
contributes to any Plan subject to Title IV of ERISA other than those disclosed
to the Administrative Lender in writing. Each such Plan (other than any
Multiemployer Plan) is in compliance in all material respects with the
applicable provisions of ERISA, the Code, and any other applicable Law, except
to the extent that failure to so comply would not reasonably be expected to have
a Material Adverse

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Effect. With respect to each Plan (other than any Multiemployer Plan) of the
Borrower and each member of its Controlled Group, all reports required under
ERISA or any other Applicable Law to be filed with any governmental authority,
the failure of which to file could reasonably result in liability of the
Borrower or any member of its Controlled Group in excess of $100,000, have been
duly filed. All such reports are true and correct in all material respects as
of the date given. No Plan of the Borrower or any member of its Controlled
Group has been terminated under Section 4041(c) of ERISA nor has any accumulated
funding deficiency (as defined in Section 412(a) of the Code) been incurred
(without regard to any waiver granted under Section 412 of the Code), nor has
any funding waiver from the Internal Revenue Service been received or requested
the result of which could reasonably be expected to have Material Adverse
Effect. None of the Borrower or any member of its Controlled Group has failed
to make any contribution or pay any amount due or owing as required under the
terms of any such Plan, or by Section 412 of the Code or Section 302 of ERISA by
the due date under Section 412 of the Code and Section 302 of ERISA, the result
of which could reasonably be expected to have a Material Adverse Effect. There
has been no ERISA Event or any event requiring disclosure under Section
4041(c)(3)(C) or 4063(a) of ERISA with respect to any Plan or its related trust
of the Borrower or any member of its Controlled Group since the effective date
of ERISA. The present value of the benefit liabilities, as defined in Title IV
of ERISA, of each Plan subject to Title IV of ERISA (other than a Multiemployer
Plan) of the Borrower and each member of its Controlled Group does not exceed by
more than $100,000 the present value of the assets of each such Plan as of the
most recent valuation date using each such Plan's actuarial assumptions at such
date. There are no pending, or to the best of the Borrower's knowledge
threatened, claims, lawsuits or actions (other than routine claims for benefits
in the ordinary course) asserted or instituted against, and neither the Borrower
nor any member of its Controlled Group has knowledge of any threatened
litigation or claims against, the assets of any Plan or its related trust or
against any fiduciary of a Plan with respect to the operation of such Plan, the
result of which could reasonably be expected to have a Material Adverse Effect.
None of the Borrower or, to the best of the Borrower's knowledge, any member of
its Controlled Group has engaged in any prohibited transactions, within the
meaning of Section 406 of ERISA or Section 4975 of the Code, in connection with
any Plan the result of which could reasonably be expected to have Material
Adverse Effect. None of the Borrower or any member of its Controlled Group has
withdrawn from any Multiemployer Plan, nor has incurred or reasonably expects to
incur (A) any liability under Title IV of ERISA (other than premiums due under
Section 4007 of ERISA to the PBGC), (B) any withdrawal liability (and no event
has occurred which with the giving of notice under Section 4219 of ERISA would
result in such liability) under Section 4201 of ERISA as a result of a complete
or partial withdrawal (within the meaning of Section 4203 or 4205 of ERISA) from
a Multiemployer Plan, or (C) any liability under Section 4062 of ERISA to the
PBGC or to a trustee appointed under Section 4042 of ERISA. None of the
Borrower, any member of its Controlled Group, or any organization to which the
Borrower or any member of its Controlled Group is a successor or parent
corporation within the meaning of ERISA Section 4069(b), has engaged in a
transaction within the meaning of ERISA Section 4069, the result of which could
reasonably be expected to have a Material Adverse Effect. None of the Borrower
or any member of its Controlled Group maintains or has established any Plan,
which is a welfare benefit plan within the meaning of Section 3(1) of

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ERISA and which provides for continuing benefits or coverage for any participant
or any beneficiary of any participant after such participant's termination of
employment, except as may be required by the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA"), the result of which could
reasonably be expected to have a Material Adverse Effect. Each of Borrower and
its Controlled Group which maintains a Plan which is a welfare benefit plan
within the meaning of Section 3(1) of ERISA has complied in all material
respects with any applicable notice and continuation requirements of COBRA and
the regulations thereunder. None of the Borrower or any member of its
Controlled Group maintains, has established, or has ever participated in a
multiemployer welfare benefit arrangement within the meaning of Section 3(40)(A)
of ERISA.

(m) COMPLIANCE WITH REGULATIONS G, T, U AND X. The Borrower is not
engaged principally or as one of its important activities in the business of
extending credit for the purpose of purchasing or carrying any margin stock
within the meaning of Regulations G, T, U and X of the Board of Governors of the
Federal Reserve System, and no part of the proceeds of the Advances or Letters
of Credit will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock. No more
than 25% of the assets of the Borrower and its Subsidiaries are margin stock.
None of the Borrower and its Subsidiaries nor any agent acting on their behalf,
have taken or will knowingly take any action which would cause this Agreement or
any other Loan Documents to violate any regulation of the Board of Governors of
the Federal Reserve System or to violate the Securities Exchange Act of 1934, in
each case as in effect now or as the same may hereafter be in effect.

(n) GOVERNMENTAL REGULATION. The Borrower and its Subsidiaries are not
required to obtain any Necessary Authorization on or prior to the Agreement Date
that has not already been obtained from, or effect any material filing or
registration that has not already been effected with, any Tribunal in connection
with the execution and delivery of this Agreement or any other Loan Document, or
the performance thereof, in accordance with their respective terms, including
any borrowings hereunder.

(o) ABSENCE OF DEFAULT. The Borrower and its Subsidiaries are in
compliance in all material respects with all of the provisions of their
certificate of formation, certificate of incorporation, Operating Agreement or
by-laws, as appropriate, and no event has occurred or failed to occur, which has
not been remedied or waived, the occurrence or non-occurrence of which
constitutes, or which with the passage of time or giving of notice or both would
constitute, (i) an Event of Default or (ii) a default by the Borrower or any of
its Subsidiaries under any material indenture, agreement or other instrument, or
any judgment, decree or order to which the Borrower or any of its Subsidiaries
or by which they or any of their respective properties is bound, except to the
extent that such default could not reasonably be expected to have a Material
Adverse Effect.

(p) GOVERNMENTAL REGULATION. Neither the Borrower nor any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal Power Act, the Interstate Commerce Act or the
Investment Company Act of 1940, or any other Law, domestic or

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foreign, limiting its ability to incur Indebtedness for money borrowed or to
create Liens on any of its properties or assets to secure such Indebtedness.
Neither the entering into or performance by the Borrower of this Agreement nor
the issuance of the Notes violates any provision of such act or requires any
consent, approval, or authorization of, or registration with, the Securities and
Exchange Commission or any other governmental or public body of authority
pursuant to any provisions of such act.

(q) ENVIRONMENTAL MATTERS. Neither the Borrower nor any Subsidiary has
any current actual knowledge that any substance deemed hazardous by any
Applicable Environmental Law, has been installed (i) on any real property fee
title to which is now owned by the Borrower or any of its Subsidiaries or
(ii) by Borrower or any of its Subsidiaries on any real property leased by the
Borrower or any of its Subsidiaries, in either case in a manner which does not
comply with Applicable Environmental Laws, except to the extent that the failure
to so comply could not reasonably be expected to have a Material Adverse Effect.
The Borrower and its Subsidiaries are not in violation of or subject to any
existing, pending or, to the best of the Borrower's knowledge, threatened
investigation or inquiry by any Tribunal or to any material remedial obligations
under any Applicable Environmental Laws, the effect of which could reasonably be
expected to have a Material Adverse Effect. The Borrower and its Subsidiaries
have not obtained and are not required to obtain any permits, licenses or
similar authorizations other than certificates of occupancy and building permits
and other authorizations that have been obtained to construct, occupy, operate
or use any buildings, improvements, fixtures, and equipment forming a part of
any real property owned or leased by the Borrower or any Subsidiary of the
Borrower by reason of any Applicable Environmental Laws, except to the extent
that the failure to so obtain could not reasonably be expected to have a
Material Adverse Effect. The Borrower and its Subsidiaries undertook, at the
time of acquisition of fee title to any real property, reasonable inquiry into
the previous ownership and uses of such real property consistent with good
commercial or customary practice. The Borrower and its Subsidiaries have taken
reasonable steps to determine, and the Borrower and its Subsidiaries have no
current actual knowledge, that any hazardous substances or solid wastes have
been disposed of or otherwise released (i) on or to the real property fee title
to which is owned by the Borrower or any of its Subsidiaries or (ii) by Borrower
or any of its Subsidiaries on or to any real property leased by Borrower or any
of its Subsidiaries, all within the meaning of the Applicable Environmental
Laws, the effect of which could reasonably be expected to have a Material
Adverse Effect.

(r) CERTAIN FEES. No broker's, finder's or other fee or commission will
be payable by the Borrower (other than to the Lenders hereunder) with respect to
the making of the Commitments or the Advances hereunder. The Borrower agrees to
indemnify and hold harmless the Administrative Lender and each Lender from and
against any claims, demand, liability, proceedings, costs or expenses asserted
with respect to or arising in connection with any such fees or commissions.

(s) NECESSARY AUTHORIZATIONS. No event has occurred which permits (or
with the passage of time would permit) the revocation or termination of any
Necessary Authorization, or which could

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reasonably be expected to result in the imposition of any restriction thereon of
such a nature that could reasonably be expected to be classified as a Material
Adverse Effect.

(t) PATENTS, ETC. The Borrower and its Subsidiaries have collectively
obtained or applied for all patents, trademarks, service marks, trade names,
copyrights, licenses and other rights, free from burdensome restrictions, that
are necessary for the operation of their business as presently conducted and as
proposed to be conducted, except to the extent that the failure to so obtain or
apply could not reasonably be expected to have a Material Adverse Effect.
Nothing has come to the current actual knowledge of the Borrower or any of its
Subsidiaries to the effect that (i) any process, method, part or other material
presently contemplated to be employed by the Borrower or any Subsidiary of the
Borrower may infringe any patent, trademark, service mark, trade name,
copyright, license or other right owned by any other Person, or (ii) there is
pending or overtly threatened any claim or litigation against or affecting the
Borrower or any Subsidiary of the Borrower contesting its right to sell or use
any such process, method, part or other material, which could reasonably be
expected to be classified as a Material Adverse Effect.

(u) DISCLOSURE. Neither this Agreement nor any other document,
certificate or statement which has been furnished to any Lender by or on behalf
of the Borrower or any Subsidiary of the Borrower in connection herewith
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statement contained herein and therein not
misleading at the time it was furnished, unless such statements were corrected
in writing and delivered to the Lenders prior to the Agreement Date. The
representation and warranty made in the immediately preceding sentence shall be
qualified to the best of the Borrower's knowledge to the extent the information
referred to therein was prepared or furnished to the Borrower by Power-One, PEI
or PUM or another Person on their behalf. As of the Agreement Date, there is no
fact known to the Borrower and not known to the public generally that could
reasonably be expected to have a Material Adverse Effect, which has not been set
forth in this Agreement or in the documents, certificates and statements
furnished to the Lenders by or on behalf of the Borrower prior to the date
hereof in connection with the transaction contemplated hereby.

(v) SOLVENCY. The Borrower is, and Borrower and its Subsidiaries on a
consolidated basis are, Solvent.

(w) LABOR RELATIONS. Neither the Borrower nor any Subsidiary is a party
to a collective bargaining agreement or similar agreement, and the Borrower and
each Subsidiary is in compliance in all material respects with all Laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours and other laws related to the employment of its
employees, and there are no arrears in the payment of wages, withholding or
social security taxes, unemployment insurance premiums or other similar
obligations of the Borrower or any Subsidiary or for which the Borrower or any
Subsidiary may be responsible other than in the ordinary course of business.
There is no strike, work stoppage or labor dispute with any union or group of
employees pending or overtly threatened involving Borrower or any Subsidiary
that would have a

<PAGE>

Material Adverse Effect.

(x) CONSOLIDATED BUSINESS ENTITY. The Borrower and its Subsidiaries are
operated as a part of one consolidated business entity and are directly
dependent upon each other for and in connection with their respective business
activities.

Section 4.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties made under this Agreement and the other Loan
Documents shall be deemed to be made at and as of the Agreement Date and at and
as of the date of each Advance and the date of issuance of each Letter of
Credit, and each shall be true and correct in all material respects when made,
except to the extent (a) previously fulfilled in accordance with the terms
hereof, (b) previously waived in writing by the Determining Lenders with respect
to any particular factual circumstance or permitted by the terms of this
Agreement or (c) such representations and warranties specifically relate to an
earlier date, in which case such representations and warranties shall have been
true and correct in all material respects on and as of such date. All such
representations and warranties shall survive, and not be waived by, the
execution hereof by any Lender, any investigation or inquiry by any Lender, or
by the making of any Advance or the issuance of any Letter of Credit under this
Agreement.

ARTICLE 5

GENERAL COVENANTS

So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):

Section 5.1 PRESERVATION OF EXISTENCE AND SIMILAR MATTERS. The Borrower
shall, and shall cause each Subsidiary of the Borrower to:

(a) except as otherwise permitted pursuant to SECTION 7.4 hereof, preserve
and maintain, or timely obtain and thereafter preserve and maintain, its
existence, rights, franchises, licenses, authorizations, consents, privileges
and all other Necessary Authorizations from any Tribunal, the loss of which
could reasonably be expected to have a Material Adverse Effect; and

(b) except as otherwise permitted pursuant to SECTION 7.4 hereof, qualify
and remain qualified and authorized to do business in each jurisdiction in which
the character of its properties or the nature of its business requires such
qualification or authorization, unless the failure to do so could not reasonably
be expected to have a Material Adverse Effect.

Section 5.2 BUSINESS; COMPLIANCE WITH APPLICABLE LAW. The Borrower and
its Subsidiaries shall (a) engage primarily in the businesses set forth in
SECTION 4.1(d) hereof, and

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(b) comply in all respects with the requirements of all applicable Law, except
where the failure to so comply could not reasonably be expected to have a
Material Adverse Effect.

Section 5.3 MAINTENANCE OF PROPERTIES. The Borrower shall, and shall
cause each Subsidiary of the Borrower to, maintain or cause to be maintained all
its properties (whether owned or held under lease) in reasonably good repair,
working order and condition, taken as a whole, and from time to time make or
cause to be made all appropriate (in the reasonable judgment of the Borrower)
repairs, renewals, replacements, additions, betterments and improvements
thereto, except where the failure to so maintain, repair, renew, replace or
improve could not reasonably be expected to have a Material Adverse Effect.

Section 5.4 ACCOUNTING METHODS AND FINANCIAL RECORDS. The Borrower
shall, and shall cause each Subsidiary of the Borrower to, maintain a system of
accounting established and administered in accordance with GAAP, keep adequate
records and books of account in which complete entries will be made and all
transactions reflected in accordance with GAAP, and keep accurate and complete
records of its respective assets. The Borrower and each of its Subsidiaries
shall maintain a fiscal year ending on the last day of December.

Section 5.5 INSURANCE. The Borrower shall, and shall cause each
Subsidiary of the Borrower to, maintain insurance from responsible companies in
such amounts and against such risks as shall be customary and usual in the
industry for companies of similar size and capability, but in no event less than
the amount and types insured as of the Agreement Date to the extent available at
reasonable cost. Each insurance policy shall (i) provide for at least 30 days'
prior notice to the Administrative Lender of any proposed termination or
cancellation of such policy, whether on account of default or otherwise and
(ii) otherwise contain the requirements for insurance set forth in the Security
Agreements.

Section 5.6 PAYMENT OF TAXES AND CLAIMS. The Borrower shall, and shall
cause each Subsidiary of the Borrower to, pay and discharge all material Taxes
upon it or its income or properties prior to the date on which penalties attach
thereto, and all lawful material claims for labor, materials and supplies which,
if unpaid, might become a Lien upon any of its properties; except that no such
Tax or claim need be paid which is being diligently contested in good faith by
appropriate proceedings and for which adequate reserves shall have been set
aside on the appropriate books, but only so long as no Lien (other than a
Permitted Lien) shall attach with respect thereto and no foreclosure, distraint,
sale or similar proceedings shall have been commenced. The Borrower shall, and
shall cause each Subsidiary of the Borrower to, timely file all information
returns (or extensions of such filing deadlines) required by federal, state or
local tax authorities.

Section 5.7 VISITS AND INSPECTIONS. The Borrower shall, and shall cause
each Subsidiary of the Borrower to, promptly permit representatives of the
Administrative Lender or any Lender from time to time after notice by the
Administrative Lender or any Lender no later than the previous Business Day to
(a) visit and inspect the properties of the Borrower and its Subsidiaries as
often as

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the Administrative Lender or any Lender shall reasonably deem advisable,
(b) audit, inspect and make extracts from and copies of the Borrower's and each
such Subsidiary's books and records, and (c) discuss with the Borrower's and
each such Subsidiary's directors, officers, employees and auditors its business,
assets, liabilities, financial positions, results of operations and business
prospects. The Borrower shall pay the reasonable expenses related to
inspections and audits performed by the Administrative Lender. Prior to the
occurrence of an Event of Default, all such visits and inspections shall be
conducted during normal business hours. Following the occurrence and during the
continuance of an Event of Default, such visits and inspections shall be
conducted at any time requested by the Administrative Lender or any Lender
without any requirement for advance notice.

Section 5.8 USE OF PROCEEDS. The Borrower shall use the proceeds of
Advances for the Power-One Acquisition, the refinancing of certain Indebtedness
of Power-One, PEI and PUM, for working capital and for other general corporate
purposes.

SECTION 5.9 INDEMNITY.

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(a) THE BORROWER AGREES TO DEFEND, PROTECT, INDEMNIFY AND HOLD HARMLESS
THE ADMINISTRATIVE LENDER, EACH LENDER, EACH OF THEIR RESPECTIVE AFFILIATES, AND
EACH OF THEIR RESPECTIVE (INCLUDING SUCH AFFILIATES') OFFICERS, DIRECTORS,
EMPLOYEES, AGENTS, ATTORNEYS, SHAREHOLDERS AND CONSULTANTS (INCLUDING, WITHOUT
LIMITATION, THOSE RETAINED IN CONNECTION WITH THE SATISFACTION OR ATTEMPTED
SATISFACTION OF ANY OF THE CONDITIONS SET FORTH HEREIN) OF EACH OF THE FOREGOING
(COLLECTIVELY, "INDEMNITEES") FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, CLAIMS,
REASONABLE COSTS, REASONABLE EXPENSES AND REASONABLE DISBURSEMENTS OF ANY KIND
OR NATURE WHATSOEVER (INCLUDING, WITHOUT LIMITATION, THE REASONABLE FEES AND
DISBURSEMENTS OF COUNSEL FOR SUCH INDEMNITEES IN CONNECTION WITH ANY
INVESTIGATIVE, ADMINISTRATIVE OR JUDICIAL PROCEEDING, WHETHER OR NOT SUCH
INDEMNITEES SHALL BE DESIGNATED A PARTY THERETO), IMPOSED ON, INCURRED BY, OR
ASSERTED AGAINST SUCH INDEMNITEES (WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL AND
WHETHER BASED ON ANY FEDERAL, STATE, OR LOCAL LAWS AND REGULATIONS, UNDER COMMON
LAW OR AT EQUITABLE CAUSE, OR ON CONTRACT, TORT OR OTHERWISE, ARISING FROM OR
CONNECTED WITH THE PAST, PRESENT OR FUTURE OPERATIONS OF THE BORROWER OR ITS
PREDECESSORS IN INTEREST, OR THE PAST, PRESENT OR FUTURE ENVIRONMENTAL CONDITION
OF PROPERTY OF THE BORROWER), IN ANY MANNER RELATING TO OR ARISING OUT OF THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS, OR ANY ACT, EVENT OR TRANSACTION OR ALLEGED
ACT, EVENT OR TRANSACTION RELATING OR ATTENDANT THERETO, THE MANAGEMENT OF THE
ADVANCES, INCLUDING IN CONNECTION WITH, OR AS A RESULT, IN WHOLE OR IN PART, OF
ANY ORDINARY OR MERE NEGLIGENCE OF ADMINISTRATIVE LENDER OR ANY LENDER (OTHER
THAN THOSE MATTERS RAISED EXCLUSIVELY BY A PARTICIPANT AGAINST THE
ADMINISTRATIVE LENDER OR ANY LENDER AND NOT THE BORROWER), OR THE USE OR
INTENDED USE OF THE PROCEEDS OF THE ADVANCES HEREUNDER, OR IN CONNECTION WITH
ANY INVESTIGATION OF ANY POTENTIAL MATTER COVERED HEREBY, BUT EXCLUDING (I) ANY
CLAIM OR LIABILITY THAT ARISES AS THE RESULT OF THE GROSS NEGLIGENCE OR WILFUL
MISCONDUCT OF ANY INDEMNITEE, AS FINALLY JUDICIALLY DETERMINED BY A COURT OF
COMPETENT JURISDICTION, AND (II) MATTERS RAISED BY ONE LENDER AGAINST ANOTHER
LENDER OR BY ANY SHAREHOLDERS OF A LENDER AGAINST A LENDER OR ITS MANAGEMENT
(COLLECTIVELY, "INDEMNIFIED MATTERS"). TO THE EXTENT THAT ANY INDEMNIFIED
MATTER INVOLVES ONE OR MORE INDEMNITEES, SUCH INDEMNITEES SHALL USE THE SAME
LEGAL COUNSEL UNLESS ANY INDEMNITEE IN ITS REASONABLE DISCRETION DETERMINES THAT
CONFLICTS

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EXIST OR MAY ARISE IN CONNECTION WITH SUCH REPRESENTATION.

(b) IN ADDITION, THE BORROWER SHALL PERIODICALLY, UPON REQUEST, REIMBURSE
EACH INDEMNITEE FOR ITS REASONABLE LEGAL AND OTHER ACTUAL REASONABLE EXPENSES
(INCLUDING THE REASONABLE COST OF ANY INVESTIGATION AND PREPARATION) INCURRED IN
CONNECTION WITH ANY INDEMNIFIED MATTER. THE REIMBURSEMENT, INDEMNITY AND
CONTRIBUTION OBLIGATIONS UNDER THIS SECTION SHALL BE IN ADDITION TO ANY
LIABILITY WHICH THE BORROWER MAY OTHERWISE HAVE, SHALL EXTEND UPON THE SAME
TERMS AND CONDITIONS TO EACH INDEMNITEE, AND SHALL BE BINDING UPON AND INURE TO
THE BENEFIT OF ANY SUCCESSORS, ASSIGNS, HEIRS AND PERSONAL REPRESENTATIVES OF
THE BORROWER, THE ADMINISTRATIVE LENDER, THE LENDERS AND ALL OTHER INDEMNITEES.
THIS SECTION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT AND PAYMENT OF THE
OBLIGATIONS.

Section 5.10 ENVIRONMENTAL LAW COMPLIANCE. The use which the Borrower or
any Subsidiary of the Borrower intends to make of any real property which is
owned or leased by it will not result in the disposal or other release of any
hazardous substance or solid waste on or to such real property which is in
violation of Applicable Environmental Laws, the effect of which could reasonably
be expected to have a Material Adverse Effect. As used herein, the terms
"hazardous substance" and "release" as used in this Section shall have the
meanings specified in CERCLA (as defined in the definition of Applicable
Environmental Laws), and the terms "solid waste" and "disposal" shall have the
meanings specified in RCRA (as defined in the definition of Applicable
Environmental Laws); provided, however, that if CERCLA or RCRA is amended so as
to broaden or lessen the meaning of any term defined thereby, such broader or
lesser meaning shall apply subsequent to the effective date of such amendment;
and provided further, to the extent that any other law applicable to the
Borrower, any Subsidiary or any of their properties establishes a meaning for
"hazardous substance," "release," "solid waste," or "disposal" which is broader
or lesser than that specified in either CERCLA or RCRA, such broader or lesser
meaning shall apply. The Borrower agrees to indemnify and hold the
Administrative Lender and each Lender harmless from and against, and to
reimburse them with respect to, any and all claims, demands, causes of action,
loss, damage, liabilities, reasonable costs and reasonable expenses (including
reasonable attorneys' fees and courts costs) of any kind or character, known or
unknown, fixed or contingent, asserted against or incurred by any of them at any
time and from time to time by reason of or arising out of (a) the failure of the
Borrower or any Subsidiary to perform any of their obligations hereunder
regarding asbestos or Applicable Environmental Laws, (b) any violation on or
before the Release Date of any Applicable Environmental Law in effect on or
before the Release Date, and (c) any act, omission, event or circumstance
existing or occurring on or prior to the Release Date (including without
limitation the presence on such real property or release from such real property
of hazardous substances or solid wastes disposed of or otherwise released on or
prior to the Release Date), resulting from or in connection with the ownership
of the real property, regardless of whether the act, omission, event

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or circumstance constituted a violation of any Applicable Environmental Law at
the time of its existence or occurrence; provided that, the Borrower shall not
be under any obligation to indemnify the Administrative Lender or any Lender to
the extent that any such liability arises as the result of the negligence or
wilful misconduct of such Person, as finally judicially determined by a court of
competent jurisdiction. The provisions of this paragraph shall survive the
Release Date and shall continue thereafter in full force and effect.

Section 5.11 INTEREST RATE HEDGING. No later than 30 days after the
Agreement Date, the Borrower will hedge its interest rate exposure pursuant to
and in accordance with an Interest Hedge Agreement acceptable to the
Administrative Lender, provided that such agreement shall (a) be in a notional
principal amount of not less than $15,000,000, and (b) have an average term of
not less than 5 years.

Section 5.12 FURTHER ASSURANCES. At any time or from time to time upon
request by the Administrative Lender, the Borrower or any Subsidiary of the
Borrower shall execute and deliver such further documents and do such other acts
and things as the Administrative Lender may reasonably request in order to
effect fully the purposes of this Agreement and the other Loan Documents and to
provide for payment of the Obligations in accordance with the terms of this
Agreement and the other Loan Documents. Without limiting the generality of the
foregoing, the Borrower agrees to (a) update and deliver to the Administrative
Lender SCHEDULES 3 AND 4 hereto at the time of delivery of the financial
statements set forth in SECTIONS 6.1 and 6.2 hereof if the information provided
therein is not complete and correct, (b) update and deliver to the
Administrative Lender SCHEDULE 1 to the Security Agreement promptly upon
discovery if the information provided therein is not complete and correct,
(c) upon the occurrence of an Event of Default if the Administrative Lender
shall determine to exercise its rights to sell any or all of the Collateral
pursuant to the terms of the Security Agreement or the Pledge Agreement, and if
in the reasonable opinion of the Administrative Lender it is necessary to have
the Collateral (or that portion thereof to be sold) registered under the
provisions of the Securities Act of 1933, as amended ("Securities Act"),
(i) execute and deliver, all at the Borrower's expense, all such instruments and
documents, and (ii) do or cause to be done all such other acts and things as may
be necessary or, in the opinion of the Administrative Lender, advisable to
register such Collateral under the provisions of the Securities Act and to cause
the registration statement relating thereto to become effective and to remain
effective for a period of one year from the date of the first public offering of
such Collateral, or that portion thereof to be sold, and to make all amendments
thereto and/or to the related prospectus which, in the opinion of the
Administrative Lender, are necessary or advisable, all in conformity with the
requirements of Applicable Law and (d) comply with the provisions of the
securities or "blue sky" laws of any jurisdiction which the Administrative
Lender shall designate and shall make available to its security holders, as soon
as practicable, an earnings statement which will satisfy the provisions of
Section 11(a) of the Securities Act.

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ARTICLE 6

INFORMATION COVENANTS

So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled), the Borrower shall furnish or cause to be furnished to
each Lender:

Section 6.1 QUARTERLY FINANCIAL STATEMENTS AND INFORMATION. Within 45
days after the end of each fiscal quarter, the consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at the end of such fiscal
quarter and the related consolidated and consolidating statements of income for
such fiscal quarter and for the elapsed portion of the year ended with the last
day of such fiscal quarter, and consolidated and consolidating statements of
cash flow for the elapsed portion of the year ended with the last day of such
fiscal quarter, all of which shall be certified by the president or chief
financial officer or other officer of the Borrower acceptable to the
Administrative Lender, to be, in his or her opinion acting solely in his or her
capacity as an officer of the Borrower, present fairly in all material respects,
in accordance with GAAP (except for the absence of footnotes), the financial
position and results of operations of the Borrower and its Subsidiaries as at
the end of and for such fiscal quarter, and for the elapsed portion of the year
ended with the last day of such fiscal quarter, subject only to normal year-end
adjustments.

Section 6.2 ANNUAL FINANCIAL STATEMENTS AND INFORMATION; CERTIFICATE OF
NO DEFAULT.
(a) Within 90 days after the end of each fiscal year, a copy of (i) the
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries, as of the end of the current and prior fiscal years and (ii) the
consolidated and consolidating statements of earnings and consolidated
statements of changes in shareholders' equity, and statements of cash flow as of
and through the end of such fiscal year, all of which are prepared in accordance
with GAAP, and certified by independent certified public accountants reasonably
acceptable to the Lenders (provided, however, any big six public accounting firm
shall be acceptable to the Lenders), whose opinion shall be in scope and
substance in accordance with generally accepted auditing standards and shall be
unqualified as to scope of audit and going concern.

(b) Simultaneously with the delivery of the statements required by this
SECTION 6.2, a letter from the Borrower's public accountants certifying that no
Default was detected during the examination of the Borrower and its
Subsidiaries.

(c) As soon as available, but in any event within 90 days following the
end of each fiscal year, a copy of the annual consolidated operating budget of
the Borrower and its Subsidiaries for the succeeding fiscal year.

Section 6.3 COMPLIANCE CERTIFICATE. At the time financial statements
are furnished pursuant to SECTIONS 6.1 and 6.2 hereof, the Compliance
Certificate, completed as provided therein.

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Section 6.4 COPIES OF OTHER REPORTS AND NOTICES.

(a) Promptly upon their becoming available, a copy of (i) all material
reports or letters submitted to the Borrower or any Subsidiary of the Borrower
by accountants in connection with any annual, interim or special audit,
including without limitation any report prepared in connection with the annual
audit referred to in SECTION 6.2 hereof, and, if requested by the Administrative
Lender, any other comment letter submitted to management in connection with any
such audit, (ii) each financial statement, report, notice or proxy statement
sent by the Borrower to stockholders generally, (iii) each regular, periodic or
other report and any registration statement (other than statements on Form S-8)
or prospectus (or material written communication in respect of any thereof)
filed by the Borrower or any Subsidiary of the Borrower with any securities
exchange, with the Securities and Exchange Commission or any successor agency,
and (iv) all press releases concerning material financial aspects of the
Borrower or any Subsidiary of the Borrower;

(b) Promptly upon becoming aware that (i) the holder(s) of any note(s) or
other evidence of indebtedness or other security of the Borrower or any
Subsidiary of the Borrower in excess of $100,000 in the aggregate has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, (ii) any occurrence or non-occurrence of
any event which constitutes or which with the passage of time or giving of
notice or both could constitute a material breach by the Borrower or any
Subsidiary of the Borrower under any material agreement or instrument other than
this Agreement to which the Borrower or any Subsidiary of the Borrower is a
party or by which any of their properties may be bound, or (iii) any event,
circumstance or condition which could reasonably be expected to be classified as
a Material Adverse Effect, a written notice specifying the details thereof (or
the nature of any claimed default or event of default) and what action is being
taken or is proposed to be taken with respect thereto;

(c) Promptly upon becoming aware that any party to any Capitalized Lease
Obligations or Operating Lease, in each case, in excess of $100,000, has given
notice or taken any action with respect to a breach, failure to perform, claimed
default or event of default thereunder, a written notice specifying the details
thereof (or the nature of any claimed default or event of default) and what
action is being taken or is proposed to be taken with respect thereto;

(d) Promptly upon receipt thereof, information with respect to and copies
of any notices received from any Tribunal relating to any order, ruling, law,
information or policy that relates to a breach of or noncompliance with any Law,
or could reasonably be expected to result in the payment of money by the
Borrower or any Subsidiary of the Borrower in an amount of $100,000 or more in
the aggregate, or otherwise have a Material Adverse Effect, or result in the
loss or suspension of any Necessary Authorization where such loss could
reasonably be expected to have a Material Adverse Effect; and

(e) From time to time and promptly upon each request, such data,
certificates, reports, statements, documents or further information regarding
the assets, business, liabilities, financial

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position, projections, results of operations or business prospects of the
Borrower and its Subsidiaries, as the Administrative Lender or any Lender may
reasonably request.

Section 6.5 NOTICE OF LITIGATION, DEFAULT AND OTHER MATTERS. Prompt
notice of the following events after the Borrower has knowledge or notice
thereof:

(a) The commencement of all Litigation and investigations by or before any
Tribunal, and all actions and proceedings in any court or before any arbitrator
involving claims for damages (including punitive damages) in excess of $100,000
(after deducting the amount with respect to the Borrower or any Subsidiary of
the Borrower is insured), against or in any other way relating directly to the
Borrower, any Subsidiary of the Borrower, or any of their respective properties
or businesses; and

(b) Promptly upon the happening of any condition or event of which the
Borrower has current actual knowledge which constitutes a Default, a written
notice specifying the nature and period of existence thereof and what action is
being taken or is proposed to be taken with respect thereto.

Section 6.6 ERISA REPORTING REQUIREMENTS.

(a) Promptly and in any event (i) within 30 days after the Borrower or any
member of its Controlled Group has current actual knowledge that any ERISA Event
described in clause (a) of the definition of ERISA Event or any event described
in Section 4063(a) of ERISA with respect to any Plan of the Borrower or any
member of its Controlled Group has occurred, and (ii) within 10 days after the
Borrower or any member of its Controlled Group has current actual knowledge that
any other ERISA Event with respect to any Plan of the Borrower or any member of
its Controlled Group has occurred or a request for a minimum funding waiver
under Section 412 of the Code with respect to any Plan of the Borrower or any
member of its Controlled Group, a written notice describing such event and
describing what action is being taken or is proposed to be taken with respect
thereto, together with a copy of any notice of event that is given to the PBGC;

(b) Promptly and in any event within three Business Days after receipt
thereof by the Borrower or any member of its Controlled Group from the PBGC,
copies of each notice received by the Borrower or any member of its Controlled
Group of the PBGC's intention to terminate any Plan or to have a trustee
appointed to administer any Plan;

(c) Promptly and in any event within 30 days after the filing thereof by
the Borrower or any member of its Controlled Group with the United States
Department of Labor or the Internal Revenue Service, copies of each annual
report (including Schedule B thereto, if applicable) with respect to each Plan
subject to Title IV of ERISA of which Borrower or any member of its Controlled
Group is the "plan sponsor";

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(d) Promptly, and in any event within 10 Business Days after receipt
thereof, a copy of any correspondence the Borrower or any member of its
Controlled Group receives from the Plan Sponsor (as defined by Section
4001(a)(10) of ERISA) of any Plan concerning potential withdrawal liability
pursuant to Section 4219 or 4202 of ERISA, and a statement from the chief
financial officer of the Borrower or such member of its Controlled Group setting
forth details as to the events giving rise to such potential withdrawal
liability and the action which the Borrower or such member of its Controlled
Group is taking or proposes to take with respect thereto;

(e) Notification within 30 days of any material increases in the benefits
of any existing Plan which is not a Multiemployer Plan, or the establishment of
any new Plans, or the commencement of contributions to any Plan to which the
Borrower or any member of its Controlled Group was not previously contributing
which would in either case result in a material liability to the Borrower;

(f) Notification within three Business Days after the Borrower or any
member of its Controlled Group knows that the Borrower or any such member of its
Controlled Group has filed or intends to file a notice of intent to terminate
any Plan under a distress termination within the meaning of Section 4041(c) of
ERISA and a copy of such notice; and

(g) Within three Business Days after receipt of written notice of
commencement thereof, notice of all actions, suits and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any member of
its Controlled Group with respect to any Plan, except those which, in the
aggregate, if adversely determined could not have a Material Adverse Effect.

ARTICLE 7

NEGATIVE COVENANTS

So long as any of the Obligations are outstanding and unpaid or any
Commitment is outstanding (whether or not the conditions to borrowing have been
or can be fulfilled):

Section 7.1 INDEBTEDNESS. The Borrower shall not, and shall not permit
any Subsidiary of the Borrower to, create, assume, incur or otherwise become or
remain obligated in respect of, or permit to be outstanding, or suffer to exist
any Indebtedness, except:

(a) Indebtedness under the Loan Documents;

(b) Accounts payable and accrued liabilities incurred in the ordinary
course of business; PROVIDED, HOWEVER, all obligations of the Borrower to any of
its Subsidiaries in respect of accounts payable and accrued liabilities shall be
subordinate to the payment of the Obligations on terms,

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conditions and documentation satisfactory to the Determining Lenders;

(c) Indebtedness, including in respect of Capitalized Lease Obligations,
incurred to purchase, or to finance the purchase of, assets which constitute
property, plant and equipment in an aggregate principal amount not in excess of
$500,000 outstanding at any time;

(d) Interest hedging obligations under Interest Hedge Agreements entered
into with any Lender;

(e) Indebtedness existing on the Agreement Date which is described on
SCHEDULE 6 hereto, including renewals (but no increases) thereof; and

(f) Indebtedness in respect of endorsement of negotiable instruments in
the ordinary course of business.

Section 7.2 LIENS. The Borrower shall not, and shall not permit any
Subsidiary of Borrower to, create, assume, incur, permit or suffer to exist,
directly or indirectly, any Lien on any of its assets, whether now owned or
hereafter acquired, except Permitted Liens. The Borrower shall not, and shall
not permit any Subsidiary to, agree with any other Person that it shall not
create, assume, incur, permit or suffer to exist or to be created, assumed,
incurred or permitted to exist, directly or indirectly, any Lien on any of its
assets.

Section 7.3 INVESTMENTS. The Borrower shall not, and shall not permit
any Subsidiary of Borrower to, make any Investment, except that the Borrower and
any Subsidiary of the Borrower may purchase or otherwise acquire and own:

(a) Cash and Cash Equivalents;

(b) Accounts receivable that arise in the ordinary course of business and
are payable on standard terms;

(d) Investments which are Acquisitions permitted pursuant to SECTION 7.6
hereof;

(e) Investments in the form of Interest Hedge Agreements permitted by
SECTION 7.1(d) hereof;

(f) Investments (excluding accounts receivable from Foreign Subsidiaries
created in the ordinary course of business) in, and expenditures in respect of
Acquisitions of, Foreign Subsidiaries by the Borrower in an aggregate amount not
to exceed [(CALCULATED IMMEDIATELY PRIOR TO THE DATE

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OF EACH SUCH INVESTMENT OR ACQUISITION)] 30% of Net Worth at any time
outstanding; and

(g) Other Investments not to exceed $50,000 in aggregate amount
outstanding at any time.

Section 7.4 LIQUIDATION, MERGER, NEW SUBSIDIARIES. The Borrower shall
not, and shall not permit any Subsidiary of Borrower to, at any time:

(a) liquidate or dissolve itself (or suffer any liquidation or
dissolution) or otherwise wind up, except that a Subsidiary of the Borrower may
liquidate or dissolve into the Borrower or a Subsidiary of the Borrower;

(b) enter into any merger or consolidation unless (i) with respect to a
merger or consolidation involving the Borrower, the Borrower shall be the
surviving corporation, or if the merger or consolidation involves a Subsidiary
of the Borrower and not the Borrower, such Subsidiary shall be the surviving
corporation, (ii) such transaction shall not be utilized to circumvent
compliance with any term or provision herein and (iii) no Default or Event of
Default shall then be in existence or occur as a result of such transaction; or

Section 7.5 SALES OF ASSETS. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, sell, lease, transfer or otherwise
dispose of, any of its assets except (a) inventory in the ordinary course of
business, (b) obsolete or worn-out assets, (c) asset sales in which the Net Cash
Proceeds from the disposition thereof are reinvested, within 90 days before or
after such disposition, in productive tangible assets of a similar nature of the
Borrower and its Subsidiaries, (d) asset sales the Net Cash Proceeds of which
are applied in accordance with SECTION 2.5(d) hereof and (e) any asset or series
of related assets of a value (determined at the greater of book or fair market
value) not in excess of $50,000.

Section 7.6 ACQUISITIONS. The Borrower shall not, and shall permit any
Subsidiary of Borrower to, make any Acquisitions; provided, however, if
(a) immediately prior to and after giving effect to the proposed Acquisition
there shall not exist a Default or Event of Default and (b) immediately after
giving effect to the proposed transaction the Unused Portion shall be no less
than $3,000,000, the Borrower or any Subsidiary of the Borrower may make
Acquisitions so long as (i) Lenders shall have received written notice at least
30 Business Days prior to the date of such Acquisition, (ii) the Administrative
Lender shall have received at least 20 Business Days prior to the date of such
Acquisition a Compliance Certificate setting forth the covenant calculations
both immediately prior to and after giving effect to the proposed Acquisition,
(iii) the assets, property or business acquired shall be in the business
described in SECTION 4.1(d) hereof and the Administrative Lender shall have a
first priority Lien (subject to Permitted Liens) in such assets, (iv) if such
Acquisition results in a Domestic Subsidiary, (A) such Subsidiary shall execute
a Guaranty of the

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Obligations and grant a first priority Lien (subject to Permitted Liens) in all
its assets to secure the Obligations pursuant to documents acceptable to the
Administrative Lender, (B) 100% of such Subsidiary's Capital Stock shall be
pledged to secure the Obligations and (C) the Lenders receive such board
resolutions, officer's certificates and opinions of counsel as the
Administrative Lender shall reasonably request in connection with the actions
described in clauses (A) and (B) above, and (v) if such Acquisition results in a
Foreign Subsidiary, (A) 66% of such Subsidiary's Capital Stock shall be pledged
to secure the Obligations and (B) the Lenders receive such board resolutions,
officer's certificates and opinions of counsel as the Administrative Lender
shall reasonably request in connection with clause (A) immediately preceding.
Notwithstanding anything in this SECTION 7.6 or any other provision of this
Agreement to the contrary, the aggregate amount of expenditures in respect of
Acquisitions of, and Investments in, Foreign Subsidiaries by the Borrower shall
not exceed [(CALCULATED IMMEDIATELY PRIOR TO THE DATE OF EACH SUCH INVESTMENT OR
ACQUISITION)] 30% of Net Worth at any time outstanding.

Section 7.7 CAPITAL EXPENDITURES. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures (excluding any Capital Expenditures made as a result of a Member
Contribution) during any fiscal year in an aggregate amount in excess of
$3,750,000 (the "Maximum Amount"); PROVIDED, HOWEVER, that the Maximum Amount
for each fiscal year shall be increased by an amount equal to the excess, if
any, of the Maximum Amount for the previous fiscal year (before making any
adjustments in accordance with this proviso) over the actual aggregate Capital
Expenditures (excluding any Capital Expenditures made as a result of a Member
Contribution) for such previous fiscal year.

Section 7.8 RESTRICTED PAYMENTS. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, directly or indirectly declare, pay or
make any Restricted Payments except (i) any Subsidiary may declare and pay
Dividends to the Borrower, (ii) the Borrower shall be permitted to pay (A) Tax
Distributions to its members, (B) Deferred Compensation and (C) Stephens Fees;
provided, further, however, the Borrower shall not pay or make any Restricted
Payments (other than Tax Distributions) permitted by this SECTION 7.8 unless
there shall exist no Default or Event of Default prior to or after giving effect
to any such proposed Restricted Payment.

Section 7.9 AFFILIATE TRANSACTIONS. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, at any time engage in any
transaction with an Affiliate on terms materially less advantageous to the
Borrower or such Subsidiary than would be the case if such transaction had been
effected with a non-Affiliate (other than compensation and advances to employees
in the ordinary course of business). The Borrower shall not, and shall not
permit any Subsidiary of Borrower to, in any event incur or suffer to exist any
Indebtedness or Guaranty in favor of any Affiliate, unless such Affiliate shall
subordinate the payment and performance thereof to the Obligations on terms,
conditions and documentation satisfactory to the Determining Lenders.

Section 7.10 COMPLIANCE WITH ERISA. The Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly, or permit any member of
its Controlled Group to directly or

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indirectly, (a) terminate any Plan so as to result in any material (in the
opinion of the Determining Lenders) liability to the Borrower or any member of
its Controlled Group taken as a whole, (b) permit to exist any ERISA Event, or
any other event or condition could reasonably be expected to have a Material
Adverse Effect, (c) make a complete or partial withdrawal (within the meaning of
Section 4201 of ERISA) from any Multiemployer Plan so as to result in any
material (in the opinion of the Determining Lenders) liability to the Borrower
or any member of its Controlled Group taken as a whole, (d) enter into any new
Plan or modify any existing Plan so as to increase its obligations thereunder
which could reasonably be expected to have a Material Adverse Effect, or
(e) permit the present value of all benefit liabilities, as defined in Title IV
of ERISA, under each Plan (other than a Multiemployer Plan) of the Borrower or
any member of its Controlled Group (using the actuarial assumptions utilized by
each such Plan) to exceed the fair market value of Plan assets allocable to such
benefits by more than $100,000, all determined as of the most recent valuation
date for each such Plan.

Section 7.11 MAXIMUM LEVERAGE RATIO. At the end of each fiscal quarter
occurring during the periods indicated below, the Borrower shall not permit the
Leverage Ratio to be greater than the ratio set forth below opposite the period
in which such fiscal quarter occurs:

Period Ratio
------ -----

From Agreement Date to but not including Fiscal Year end 1997 3.5 to 1

From and including Fiscal Year end 1997 to but not including 3.0 to 1
Fiscal Year end 1998

From and including Fiscal Year end 1998 to but not including 2.5 to 1
Fiscal Year end 1999

From and including Fiscal Year end 1999 and thereafter 2.0 to 1

Section 7.12 MINIMUM FIXED CHARGE COVERAGE RATIO. At the end of each
fiscal quarter occurring during the periods indicated below, the Borrower shall
not permit the Fixed Charge Coverage Ratio to be less than the ratio set forth
below opposite the period in which such fiscal quarter occurs:

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Period Ratio
------ -----

From Agreement Date to but not including Fiscal Year end 1.50 to 1
1998

From and including Fiscal Year end 1998 to but not 1.60 to 1
including Fiscal Year end 1999

From and including Fiscal Year end 1999 to but not 1.70 to 1
including Fiscal Year end 2000

From and including Fiscal Year end 2000 and thereafter 1.80 to 1

Section 7.13 MINIMUM NET WORTH. At the end of each fiscal quarter
occurring during the periods indicated below, the Borrower shall not permit the
Net Worth to be less than the amount opposite the period in which such fiscal
quarter occurs:

Period Amount
------ ------

From Agreement Date to but not including Fiscal Year end $15,000,000
1996

From and including Fiscal Year end 1996 to but not $18,500,000
including Fiscal Year end 1997

From and including Fiscal Year end 1997 to but not $22,000,000
including Fiscal Year end 1998

From and including Fiscal Year end 1998 to but not $26,000,000
including Fiscal Year 1999

From and including Fiscal Year end 1999 to but not $32,000,000
including Fiscal Year end 2000

From and including Fiscal Year end 2000 and thereafter $39,000,000

Section 7.14 SALE AND LEASEBACK. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, enter into any arrangement whereby it
sells or transfers any of its assets, and thereafter rents or leases such
assets.

Section 7.15 SALE OR DISCOUNT OF RECEIVABLES. The Borrower shall not,
and shall not permit any Subsidiary of the Borrower to, directly or indirectly,
sell, with or without recourse, for discount or otherwise, any notes or accounts
receivable.

Section 7.16 CAPITAL STOCK. The Borrower shall not, and shall not permit
any Subsidiary of the Borrower to, issue, sell or otherwise dispose of any
Member Interests or Capital Stock in the Borrower or any Subsidiary of the
Borrower or any options or any rights to acquire such Member

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Interests and Capital Stock, except (i) to the extent that the Net Cash Proceeds
thereof are applied as provided in SECTION 2.5(e) hereof or as described in
SECTION 8.1(c) or (q) hereof and (ii) any Subsidiary of the Borrower may issue
Capital Stock to the Borrower.

Section 7.17 BUSINESS. Neither the Borrower nor any Subsidiary of the
Borrower shall conduct any business other than the business described in
SECTION 4.1(d) hereof.

Section 7.18 FISCAL YEAR. Neither the Borrower nor any Subsidiary of the
Borrower shall change its fiscal year.

Section 7.19 BUSINESS. Notwithstanding anything herein to the contrary,
neither PUM nor PEI or any other Foreign Subsidiary shall (i) transact any
business other than the manufacturing and assembling of direct current power
supplies for the benefit of the Borrower or (ii) sell any goods to any Person
other than the Borrower or a Domestic Subsidiary of the Borrower; provided,
however, notwithstanding anything in this SECTION 7.19 to the contrary, Foreign
Subsidiaries may sell goods to Persons other than the Borrower or a Domestic
Subsidiary of the Borrower so long as the aggregate amount of such sales during
any fiscal year does not exceed 5% of the consolidated gross revenues of the
Borrower and its Subsidiaries for the immediately preceding fiscal year.

Section 7.20 AMENDMENT OF ORGANIZATIONAL DOCUMENTS. The Borrower shall
not, and shall not permit any Subsidiary of the Borrower to, materially amend
its certificate of formation, articles of incorporation or partnership
agreement, as applicable, or its Operating Agreement or bylaws. In no event
shall the Borrower amend its Operating Agreement to require that any additional
capital contributions be made by the members of the Borrower.

ARTICLE 8

DEFAULT

Section 8.1 EVENTS OF DEFAULT. Each of the following shall constitute
an Event of Default, whatever the reason for such event, and whether voluntary,
involuntary, or effected by operation of law or pursuant to any judgment or
order of any court or any order, rule or regulation of any governmental or non-
governmental body:

(a) Any representation or warranty made under any Loan Document shall
prove to have been incorrect or misleading in any material respect when made;

(b) The Borrower shall fail to pay any (i) principal under any Note when
due or (ii) interest under any Note or any fees payable hereunder or any other
costs, fees, expenses or other amounts payable hereunder or under any other Loan
Document within 3 days after the date due;

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(c) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any agreement or covenant contained in SECTION 5.1
or ARTICLE 7 hereof and, if such default is capable of being cured by the
payment of cash, such default is not cured within three Business Days after
discovery thereof by the Borrower by the making of a Member Contribution;

(d) The Borrower or any Subsidiary of the Borrower shall default in the
performance or observance of any other agreement or covenant contained in this
Agreement not specifically referred to elsewhere in this SECTION 8.1, and such
default shall not be cured within a period of 30 days after the earlier of
notice from the Administrative Lender thereof or actual notice thereof by the
Borrower or such Subsidiary;

(e) There shall occur any default or breach in the performance or
observance of any agreement or covenant in any of the Loan Documents (other than
this Agreement) and such default shall not be cured within a period of 30 days
after the earlier of notice from the Administrative Lender thereof or actual
notice thereof by the Borrower or a Subsidiary of the Borrower;

(f) There shall be entered a decree or order by a court having
jurisdiction in the premises constituting an order for relief in respect of the
Borrower or any Material Subsidiary under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other applicable Federal, state or
foreign bankruptcy law or other similar law, or appointing a receiver,
liquidator, assignee, trustee, custodian, sequestrator or similar official of
the Borrower or any Material Subsidiary, or of any substantial part of their
respective properties, or ordering the winding-up or liquidation of the affairs
of the Borrower or any Material Subsidiary, and any such decree or order shall
continue unstayed and in effect for a period of 45 consecutive days;

(g) The Borrower or any Material Subsidiary shall file a petition, answer
or consent seeking relief under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable Federal, state or
foreign bankruptcy law or other similar law, or the Borrower or any Material
Subsidiary shall consent to the institution of proceedings thereunder or to the
filing of any such petition or to the appointment or taking of possession of a
receiver, liquidator, assignee, trustee, custodian, sequestrator or other
similar official of the Borrower or any Material Subsidiary or of substantially
all of its properties, or the Borrower or any Material Subsidiary shall take any
action in furtherance of any such action;

(h) A final judgment or judgments shall be entered by any court against
the Borrower or any Subsidiary of the Borrower for the payment of money which
exceeds $100,000 in the aggregate, or a warrant of attachment or execution or
similar process shall be issued or levied against property of the Borrower or
any Subsidiary of the Borrower which, together with all other such property of
the Borrower and its Subsidiaries subject to other such process, exceeds in
value $100,000 in the aggregate, and if such judgment or award is not insured
or, within 30 days after the entry, issue or levy thereof, such judgment,
warrant or process shall not have been paid or discharged or stayed pending
appeal, or if, after the expiration of any such stay, such judgment, warrant or
process shall

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not have been paid or discharged;

(i) With respect to any Plan of the Borrower or any member of its
Controlled Group: (i) the Borrower, any such member, or any other party-in-
interest or disqualified person shall engage in transactions which in the
aggregate would reasonably result in a direct or indirect liability to the
Borrower or any member of its Controlled Group under Section 409 or 502 of ERISA
or Section 4975 of the Code; (ii) the Borrower or any member of its Controlled
Group shall incur any accumulated funding deficiency, as defined in Section 412
of the Code, or request a funding waiver from the Internal Revenue Service for
contributions; (iii) the Borrower or any member of its Controlled Group shall
incur any withdrawal liability as a result of a complete or partial withdrawal
within the meaning of Section 4203 or 4205 of ERISA, or any other liability with
respect to a Plan, unless the amount of such liability has been funded within
the Plan or pursuant to one or more insurance contracts; (iv) the Borrower or
any member of its Controlled Group shall fail to make a required contribution by
the due date under Section 412 of the Code or Section 302 of ERISA which would
result in the imposition of a lien under Section 412 of the Code or Section 302
of ERISA; (v) the Borrower, any member of its Controlled Group or any Plan
sponsor shall notify the PBGC of an intent to terminate, or the PBGC shall
institute proceedings to terminate, or the PBGC shall institute proceedings to
terminate, any Plan subject to Title IV of ERISA; (vi) a Reportable Event shall
occur with respect to a Plan subject to Title IV of ERISA, and within 15 days
after the reporting of such Reportable Event to the Administrative Lender, the
Administrative Lender shall have notified the Borrower in writing that the
Determining Lenders have made a determination that, on the basis of such
Reportable Event, there are reasonable grounds for the termination of such Plan
by the PBGC or for the appointment by the appropriate United States District
Court of a trustee to administer such Plan and as a result thereof an Event of
Default shall have occurred hereunder; (vii) a trustee shall be appointed by a
court of competent jurisdiction to administer any Plan or the assets thereof;
(viii) the benefits of any Plan shall be increased, or the Borrower or any
member of its Controlled Group shall begin to maintain, or begin to contribute
to, any Plan, without the prior written consent of the Determining Lenders; or
(ix) any ERISA Event with respect to a Plan subject to Title IV of ERISA shall
have occurred, and 30 days thereafter (A) such ERISA Event, other than such
event described in clause (f) of the definition of ERISA Event herein, (if
correctable) shall not have been corrected and (B) the then present value of
such Plan's benefit liabilities, as defined in Title IV of ERISA, shall exceed
the then current value of assets accumulated in such Plan; PROVIDED, HOWEVER,
that the events listed in subsections (i) - (ix) above shall constitute Events
of Default only if the maximum aggregate liability which the Borrower or any
member of its Controlled Group has a reasonable likelihood of incurring under
the applicable provisions of ERISA resulting from an event or events exceeds
$100,000;

(j) All or any material portion of the Collateral or the Loan Documents
shall be the subject of any proceeding instituted by any Person other than a
Lender (except in connection with any Lender's exercise of any remedies under
the Loan Documents);

(k) The Borrower or any Subsidiary of the Borrower shall default in the
payment of any

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Indebtedness or any lease obligations in an aggregate amount of $500,000 or more
beyond any grace period provided with respect thereto, or shall default in the
performance of any agreement or instrument under which such Indebtedness is
created or evidenced beyond any applicable grace period, if the effect of such
default is to permit or cause the holder of such Indebtedness (or a trustee on
behalf of any such holder) to cause such Indebtedness to become due prior to its
date of maturity;

(l) Any lease where the Borrower or any Subsidiary of the Borrower is the
lessee shall terminate or cease to be effective, and termination or cessation
thereof, together with all other leases, if any, which have been terminated or
cease to be effective, could reasonably be expected to have a Material Adverse
Effect; provided, however, that termination or cessation of a lease shall not
constitute an Event of Default if another lease reasonably satisfactory to the
Determining Lenders is contemporaneously substituted therefor;

(m) Any material provision of any Loan Document shall for any reason cease
to be valid and binding on or enforceable against any party to it (other than
the Administrative Lender or any Lender) in all material respects, or any such
party (other than the Administrative Lender or any Lender) shall so assert in
writing;

(n) Any Collateral Document shall for any reason (other than pursuant to
the terms thereof or as a result of the Administrative Lender's gross negligence
or wilful misconduct) cease to create a valid and perfected first priority Lien
(except for Permitted Liens and Liens which cannot be perfected by the filing of
a UCC financing statement or possession of the Collateral) in any Collateral
located in the United States;

(o) The Borrower shall fail to own (i) 99% of the Capital Stock of PUM or
(ii) 100% of the Capital Stock of PEI;

(p) Stephens Group, Inc. and its Affiliates shall fail to (i) own at least
51% of the aggregate members interest of the Borrower with voting power or
(ii) otherwise manage and control the Borrower;

(q) Any member interest owner of the Borrower who realizes a reduction in
state or federal income Taxes for any year as a result of losses incurred by the
Borrower shall, within 30 days after the filing of such member's Tax returns for
such year, fail to make an equity contribution to the Borrower in an amount
equal to the lesser of (i) the amount of such reduction in federal and state
income Taxes or (ii) the aggregate Tax Distributions paid to such owner since
the Agreement Date; or

(r) Except as a result of the Administrative Lender's gross negligence or
wilful misconduct, the Administrative Lender shall fail to have a valid and
perfected first priority Lien in 100% of the member interests of the Borrower.

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Section 8.2 REMEDIES. If an Event of Default shall have occurred and
shall be continuing:

(a) With the exception of an Event of Default specified in SECTION 8.1(f)
or (g) hereof, the Administrative Lender shall, upon the direction of the
Determining Lenders, terminate the Commitments and/or declare the principal of
and interest on the Advances and all Obligations and other amounts owed under
the Loan Documents to be forthwith due and payable without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything in the Loan Documents to the contrary notwithstanding.

(b) Upon the occurrence of an Event of Default specified in SECTION 8.1(f)
or (g) hereof, such principal, interest and other amounts shall thereupon and
concurrently therewith become due and payable and the Commitments shall
forthwith terminate, all without any action by the Administrative Lender, any
Lender or any holders of the Notes and without presentment, demand, protest or
other notice of any kind, all of which are expressly waived, anything in the
Loan Documents to the contrary notwithstanding.

(c) If any Letter of Credit shall be then outstanding, the Administrative
Lender may demand upon the Borrower to, and forthwith upon such demand, the
Borrower shall, pay to the Administrative Lender in same day funds at the office
of the Administrative Lender for deposit in the L/C Cash Collateral Account, an
amount equal to the maximum amount available to be drawn under the Letters of
Credit then outstanding.

(d) The Administrative Lender and the Lenders may exercise all of the
Rights granted to them under the Loan Documents or under Applicable Law.

(e) The Rights of the Administrative Lender and the Lenders hereunder
shall be cumulative, and not exclusive.

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ARTICLE 9

CHANGES IN CIRCUMSTANCES

Section 9.1 LIBOR BASIS DETERMINATION INADEQUATE. If with respect to
any proposed LIBOR Advance for any Interest Period, (i) any Lender determines
that deposits in dollars (in the applicable amount) are not being offered to
that Lender in the relevant market for such Interest Period or (ii) the
Determining Lenders determine that the LIBOR Rate for such proposed LIBOR
Advance does not adequately cover the cost to such Lender of making and
maintaining such proposed LIBOR Advance for such Interest Period, such Lender or
Determining Lenders, as the case may be, shall forthwith give notice thereof to
the Borrower, whereupon until such Lender or Determining Lenders, as the case
may be, notify the Borrower that the circumstances giving rise to such situation
no longer exist, the obligation of such Lender to make LIBOR Advances shall be
suspended; PROVIDED, HOWEVER, such Lender or the Determining Lenders, as the
case may be, shall promptly notify the Borrower if the circumstances giving rise
to such situation no longer exist.

Section 9.2 ILLEGALITY. If any change in applicable law, rule or
regulation, or adoption thereof, or any change in any interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged with the interpretation or administration thereof, or compliance
by any Lender (or its LIBOR Lending Office) with any request or directive
(whether or not having the force of law) of any such authority, central bank or
comparable agency, shall make it unlawful or impossible for such Lender (or its
LIBOR Lending Office) to make, maintain or fund its LIBOR Advances, such Lender
shall so notify the Borrower and the Administrative Lender. Before giving any
notice to the Borrower pursuant to this Section, the notifying Lender shall
designate a different LIBOR Lending Office or other lending office if such
designation will avoid the need for giving such notice and will not, in the sole
judgment of the Lender, be materially disadvantageous to the Lender. Upon
receipt of such notice, notwithstanding anything contained in ARTICLE 2 hereof,
the Borrower shall repay in full the then outstanding principal amount of each
LIBOR Advance owing to the notifying Lender, together with accrued interest
thereon and any reimbursement required under SECTION 2.9 hereof, on either
(a) the last day of the Interest Period applicable to such Advance, if the
Lender may lawfully continue to maintain and fund such Advance to such day, or
(b) immediately, if the Lender may not lawfully continue to fund and maintain
such Advance to such day or if the Borrower so elects. Concurrently with
repaying each affected LIBOR Advance owing to such Lender if the Borrower does
not terminate this Agreement, notwithstanding anything contained in ARTICLE 2
hereof, the Borrower shall, without any requirement to satisfy the conditions
precedent set forth in SECTION 3.1, 3.2 or 3.3, borrow a Base Rate Advance from
such Lender, and such Lender shall make such Base Rate Advance, in an amount
such that the outstanding principal amount of the Advances owing to such Lender
shall equal the outstanding principal amount of the Advances owing immediately
prior to such repayment.

Section 9.3 INCREASED COSTS.

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(a) If (a) the applicability of any law, rule, regulation or guideline
adopted pursuant to or arising out of the July 1988 report of the Basle
Committee on Banking Regulations and Supervisory Practices entitled
"International Convergence of Capital Measurement and Capital Standards" or
(b) any change in or adoption of any law, rule or regulation, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof or compliance by any Lender (or its LIBOR Lending Office)
with any request or directive (whether or not having the force of law) of any
such authority, central bank or compatible agency:

(i) shall subject a Lender (or its LIBOR Lending Office) to any Tax
(net of any tax benefit engendered thereby) with respect to its LIBOR
Advances or its obligation to make such Advances, or shall change the basis
of taxation of payments to a Lender (or to its LIBOR Lending Office) of the
principal of or interest on its LIBOR Advances or in respect of any other
amounts due under this Agreement, as the case may be, or its obligation to
make such Advances (except for changes in the rate of tax on the overall
net income, net worth or capital of the Lender and franchise taxes, doing
business taxes or minimum taxes imposed upon such Lender); or

(ii) shall impose, modify or deem applicable any reserve (including,
without limitation, any imposed by the Board of Governors of the Federal
Reserve System), special deposit or similar requirement against assets of,
deposits with or for the account of, or credit extended by, a Lender's
LIBOR Lending Office or shall impose on the Lender (or its LIBOR Lending
Office) or on the London interbank market any other condition affecting its
LIBOR Advances or its obligation to make such Advances (but excluding any
reserves or deposits that are included in the calculation of LIBOR Basis);

and the result of any of the foregoing is to increase the cost to a Lender (or
its LIBOR Lending Office) of making or maintaining any LIBOR Advances, or to
reduce the amount of any sum received or receivable by a Lender (or its LIBOR
Lending Office) with respect thereto, by an amount deemed by a Lender to be
material, then, within 30 days after demand by a Lender, the Borrower agrees to
pay to such Lender such additional amount as will compensate such Lender for
such increased costs or reduced amounts, subject to SECTION 11.9 hereof. The
affected Lender will as soon as practicable notify the Borrower of any event of
which it has knowledge, occurring after the date hereof, which will entitle such
Lender to compensation pursuant to this Section and will designate a different
LIBOR Lending Office or other lending office if such designation will avoid the
need for, or reduce the amount of, such compensation and will not, in the
reasonable judgment of the affected Lender made in good faith, be
disadvantageous to such Lender.

(b) A certificate of any Lender claiming compensation under this Section
and setting forth the additional amounts to be paid to it hereunder shall
certify that such amounts or costs were actually incurred by such Lender and
shall show in reasonable detail an accounting of the amount payable and the
calculations used to determine in good faith such amount and shall be conclusive

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absent manifest or demonstrable error. In determining such amount, a Lender may
use any reasonable averaging and attribution methods. Nothing in this
SECTION 9.3 shall provide the Borrower or any Subsidiary of the Borrower the
right to inspect the records, files or books of any Lender. If a Lender demands
compensation under this Section, the Borrower may at any time, upon at least
five Business Days' prior notice to the Lender, after reimbursement to the
Lender by the Borrower in accordance with this Section of all costs incurred,
prepay in full the then outstanding LIBOR Advances of the Lender, together with
accrued interest thereon to the date of prepayment, along with any reimbursement
required under SECTION 2.9 hereof. Concurrently with prepaying such LIBOR
Advances, the Borrower shall borrow a Base Rate Advance from the Lender, and the
Lender shall make such Base Rate Advance, in an amount such that the outstanding
principal amount of the Advances owing to such Lender shall equal the
outstanding principal amount of the Advances owing immediately prior to such
prepayment.

Section 9.4 EFFECT ON BASE RATE ADVANCES. If notice has been given
pursuant to SECTION 9.1, 9.2 or 9.3 hereof suspending the obligation of a Lender
to make LIBOR Advances, or requiring LIBOR Advances of a Lender to be repaid or
prepaid, then, unless and until the Lender notifies the Borrower that the
circumstances giving rise to such repayment no longer apply, all Advances which
would otherwise be made by such Lender as LIBOR Advances shall be made instead
as Base Rate Advances.

Section 9.5 CAPITAL ADEQUACY. If (a) the applicability of any law,
rule, regulation or guideline adopted pursuant to or arising out of the July
1988 report of the Basle Committee on Banking Regulations and Supervisory
Practices entitled "International Convergence of Capital Measurement and Capital
Standards", (b) the introduction of or any change in or in the interpretation of
any law, rule or regulation or (c) compliance by a Lender with any law, rule or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) adopted or
promulgated after the Agreement Date affects or would affect the amount of
capital required or expected to be maintained by a Lender or any corporation
controlling such Lender, and such Lender determines that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
or Advances hereunder and other commitments or advances of such Lender of this
type, then, within 30 days after demand by such Lender, subject to SECTION 11.9,
the Borrower shall immediately pay to such Lender, from time to time as
specified by such Lender, additional amounts sufficient to compensate such
Lender with respect to such circumstances, to the extent that such Lender
reasonably determines in good faith such increase in capital to be allocable to
the existence of such Lender's Commitments hereunder. A certificate as to any
additional amounts payable to any Lender under this SECTION 9.5 submitted to the
Borrower by such Lender shall certify that such amounts were actually incurred
by such Lender or corporation controlling such Lender and shall show in
reasonable detail an accounting of the amount payable and the calculations used
to determine in good faith such amount and shall be conclusive absent manifest
or demonstrable error. In determining such amount, such Lender or a corporation
controlling such Lender may use any reasonable averaging and attribution
methods. Notwithstanding the foregoing, nothing in this SECTION 9.5 shall
provide the Borrower or any Subsidiary of the Borrower the right

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to inspect the records, files or books of any Lender or any corporation
controlling such Lender.

Section 9.6 REPLACEMENT LENDER. If the Borrower becomes obligated to
pay additional amounts to any Lender described in SECTION 9.3 or 9.5, the
Borrower may designate a financial institution reasonably acceptable to the
Administrative Lender to replace such Lender by purchasing for cash and
receiving an assignment of such Lender's pro rata share of such Lender's
Commitment and the Rights of such Lender under the Loan Documents without
recourse to or warranty by, or expense to, such Lender, for a purchase price
equal to the outstanding amounts owing to such Lender (including such additional
amounts owing to such Lender pursuant to SECTION 9.3 or 9.5). Upon execution of
an Assignment Agreement, such other financial institution shall be deemed to be
a "Lender" for all purposes of this Agreement as set forth in SECTION 11.6
hereof.

ARTICLE 10

AGREEMENT AMONG LENDERS

Section 10.1 AGREEMENT AMONG LENDERS. The Lenders agree among themselves
that:

(a) ADMINISTRATIVE LENDER. Each Lender hereby appoints the Administrative
Lender as its nominee in its name and on its behalf, to receive all documents
and items to be furnished hereunder; to act as nominee for and on behalf of all
Lenders under the Loan Documents; to, except as otherwise expressly set forth
herein, take such action as may be requested by the Determining Lenders,
provided that, (i) unless and until the Administrative Lender shall have
received such requests, the Administrative Lender may take such administrative
action, or refrain from taking such administrative action, as it may deem
advisable and in the best interests of the Lenders, and (ii) the Administrative
Lender shall not be required to take any action that exposes the Administrative
Lender to personal liability or that is contrary to any Loan Document or
Applicable Law; to arrange the means whereby the proceeds of the Advances of the
Lenders are to be made available to the Borrower; to distribute promptly to each
Lender information, requests and documents received from the Borrower, and each
payment (in like funds received) with respect to any of such Lender's Advances,
fee or other amount; and to deliver to the Borrower requests, demands, approvals
and consents received from the Lenders. Administrative Lender agrees to
promptly distribute to each Lender, at such Lender's address set forth below
information, requests, documents and payments received from the Borrower.

(b) REPLACEMENT OF ADMINISTRATIVE LENDER. Should the Administrative
Lender or any successor Administrative Lender ever cease to be a Lender
hereunder, or should the Administrative Lender or any successor Administrative
Lender ever resign as Administrative Lender, or should the Administrative Lender
or any successor Administrative Lender ever be removed with cause or without
cause by the action of all Lenders (other than the Administrative Lender), then
the Lender appointed by the other Lenders (with the consent of the Borrower,
which consent shall not be

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unreasonably withheld) shall forthwith become the Administrative Lender, and the
Borrower and the Lenders shall execute such documents as any Lender may
reasonably request to reflect such change at no cost to the Borrower. Any
resignation or removal of the Administrative Lender or any successor
Administrative Lender shall become effective upon the appointment by the Lenders
of a successor Administrative Lender; provided, however, if no successor
Administrative Lender shall have been so appointed and shall have accepted such
appointment within 30 days after the retiring Administrative Lender's giving of
notice of resignation or the Lenders' removal of the retiring Administrative
Lender, then the retiring Administrative Lender may, on behalf of the Lenders,
appoint a successor Administrative Lender, which shall be a commercial bank
organized under the Laws of the United States of America or of any State thereof
and having a combined capital and surplus of at least $250,000,000. Upon the
acceptance of any appointment as the Administrative Lender hereunder by a
successor Administrative Lender, such successor Administrative Lender shall
thereupon succeed to and become vested with all the rights and duties of the
retiring Administrative Lender, and the retiring Administrative Lender shall be
discharged from its duties and obligations under the Loan Documents, provided
that if the retiring or removed Administrative Lender is unable to appoint a
successor Administrative Lender, the Administrative Lender shall, after the
expiration of a 60 day period from the date of notice, be relieved of all
obligations as Administrative Lender hereunder. Notwithstanding any
Administrative Lender's resignation or removal hereunder, the provisions of this
Article shall continue to inure to its benefit as to any actions taken or
omitted to be taken by it while it was the Administrative Lender under this
Agreement.

(c) EXPENSES. Each Lender shall pay its pro rata share, based on its
Specified Percentage, of any expenses paid by the Administrative Lender directly
and solely in connection with any of the Loan Documents if Administrative Lender
does not receive reimbursement therefor from other sources within 60 days after
the date incurred. Any amount so paid by the Lenders to the Administrative
Lender shall be returned by the Administrative Lender pro rata to each paying
Lender to the extent later paid by the Borrower or any other Person on the
Borrower's behalf to the Administrative Lender.

(d) DELEGATION OF DUTIES. The Administrative Lender may execute any of
its duties hereunder by or through officers, directors, employees, attorneys or
agents, and shall be entitled to (and shall be protected in relying upon) advice
of counsel concerning all matters pertaining to its duties hereunder.

(e) RELIANCE BY ADMINISTRATIVE LENDER. The Administrative Lender and its
officers, directors, employees, attorneys and agents shall be entitled to rely
and shall be fully protected in relying on any writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telex or teletype
message, statement, order, or other document or conversation reasonably believed
by it or them in good faith to be genuine and correct and to have been signed or
made by the proper Person and, with respect to legal matters, upon opinions of
counsel selected the Administrative Lender. The Administrative Lender may, in
its reasonable judgment, deem and treat the payee of any Note as the owner
thereof for all purposes hereof.

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(f) LIMITATION OF ADMINISTRATIVE LENDER'S LIABILITY. Neither the
Administrative Lender nor any of its officers, directors, employees, attorneys
or agents shall be liable for any action taken or omitted to be taken by it or
them hereunder in good faith and believed by it or them to be within the
discretion or power conferred to it or them by the Loan Documents or be
responsible for the consequences of any error of judgment, except for its or
their own gross negligence or wilful misconduct. Except as aforesaid, the
Administrative Lender shall be under no duty to enforce any rights with respect
to any of the Advances, or any security therefor. The Administrative Lender
shall not be compelled to do any act hereunder or to take any action towards the
execution or enforcement of the powers hereby created or to prosecute or defend
any suit in respect hereof, unless indemnified to its satisfaction against loss,
cost, liability and expense. The Administrative Lender shall not be responsible
in any manner to any Lender for the effectiveness, enforceability, genuineness,
validity or due execution of any of the Loan Documents, or for any
representation, warranty, document, certificate, report or statement made herein
or furnished in connection with any Loan Documents, or be under any obligation
to any Lender to ascertain or to inquire as to the performance or observation of
any of the terms, covenants or conditions of any Loan Documents on the part of
the Borrower. TO THE EXTENT NOT REIMBURSED BY THE BORROWER, EACH LENDER HEREBY
SEVERALLY INDEMNIFIES AND HOLDS HARMLESS THE ADMINISTRATIVE LENDER, PRO RATA
ACCORDING TO ITS SPECIFIED PERCENTAGE, FROM AND AGAINST ANY AND ALL LIABILITIES,
OBLIGATIONS, LOSSES, DAMAGES, PENALTIES, ACTIONS, JUDGMENTS, SUITS, COSTS,
EXPENSES AND/OR DISBURSEMENTS OF ANY KIND OR NATURE WHATSOEVER WHICH MAY BE
IMPOSED ON, ASSERTED AGAINST, OR INCURRED BY THE ADMINISTRATIVE LENDER IN ANY
WAY WITH RESPECT TO ANY LOAN DOCUMENTS OR ANY ACTION TAKEN OR OMITTED BY THE
ADMINISTRATIVE LENDER UNDER THE LOAN DOCUMENTS (INCLUDING ANY NEGLIGENT ACTION
OF THE ADMINISTRATIVE LENDER), EXCEPT TO THE EXTENT THE SAME ARE FINALLY
DETERMINED BY A COURT OF COMPETENT JURISDICTION TO RESULT FROM GROSS NEGLIGENCE
OR WILFUL MISCONDUCT BY THE ADMINISTRATIVE LENDER. THE INDEMNITY PROVIDED IN
THIS SECTION 10.1(f) SHALL SURVIVE TERMINATION OF THIS AGREEMENT.

(g) LIABILITY AMONG LENDERS. No Lender shall incur any liability (other
than the sharing of expenses and other matters specifically set forth herein and
in the other Loan Documents) to any other Lender, except for acts or omissions
in bad faith.

(h) RIGHTS AS LENDER. With respect to its commitment hereunder, the
Advances made by it and the Notes issued to it, the Administrative Lender shall
have the same rights as a Lender and may exercise the same as though it were not
the Administrative Lender, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include the Administrative Lender in its individual
capacity. The Administrative Lender or any Lender may accept deposits from, act
as trustee under indentures of, and generally engage in any kind of business
with, the Borrower and any of its Affiliates, and any Person who may do business
with or own securities of the Borrower or any of its Affiliates, all as if the
Administrative Lender were not the Administrative Lender hereunder

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and without any duty to account therefor to the Lenders.

Section 10.2 LENDER CREDIT DECISION. Each Lender acknowledges that it
has, independently and without reliance upon the Administrative Lender or any
other Lender and based upon the financial statements referred to in
SECTIONS 4.1(j), 6.1, and 6.2 hereof, and such other documents and information
as it has deemed appropriate, made its own credit analysis and decision to enter
into this Agreement. Each Lender also acknowledges that it will, independently
and without reliance upon the Administrative Lender or any other Lender and
based upon such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Agreement and the other Loan Documents.

Section 10.3 BENEFITS OF ARTICLE. None of the provisions of this Article
shall inure to the benefit of any Person other than Lenders and, with respect to
SECTION 10.1(b), the Borrower; consequently, no such other Person shall be
entitled to rely upon, or to raise as a defense, in any manner whatsoever, the
failure of the Administrative Lender or any Lender to comply with such
provisions.

ARTICLE 11

MISCELLANEOUS

Section 11.1 NOTICES.

(a) All notices and other communications under this Agreement shall be in
writing (except in those cases where giving notice by telephone is expressly
permitted) and shall be deemed to have been given on the date personally
delivered or sent by telecopy (answerback received), or three days after deposit
in the mail, designated as certified mail, return receipt requested, postage-
prepaid, or one day after being entrusted to a reputable commercial overnight
delivery service, or one day after being delivered to the telegraph office or
sent out by telex addressed to the party to which such notice is directed at its
address determined as provided in this Section. All notices and other
communications under this Agreement shall be given to the parties hereto at the
following addresses:

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(i) If to the Borrower, at:

Power-One LLC

-----------------------------
-----------------------------
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Attn:
------------------------

(ii) If to the Administrative Lender, at:

NationsBank of Texas, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: William C. Collins, Senior Vice President

(iii) If to a Lender, at its address shown below its name on the
signature pages hereof, or if applicable, set forth in its
Assignment Agreement.

(b) Any party hereto may change the address to which notices shall be
directed by giving 10 days' written notice of such change to the other parties.

Section 11.2 EXPENSES. The Borrower shall promptly pay:

(a) all reasonable out-of-pocket expenses of the Administrative Lender in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Loan Documents, the transactions contemplated hereunder
and thereunder, and the making of Advances hereunder, including without
limitation the reasonable fees and disbursements of Special Counsel;

(b) all reasonable out-of-pocket expenses and reasonable attorneys' fees
of the Administrative Lender in connection with the administration of the
transactions contemplated in this Agreement and the other Loan Documents and the
preparation, negotiation, execution and delivery of any waiver, amendment or
consent by the Administrative Lender relating to this Agreement or the other
Loan Documents; and

(c) all costs, out-of-pocket expenses and reasonable attorneys' fees of
the Administrative Lender and each Lender incurred for enforcement, collection,
restructuring, refinancing and "work-out", or otherwise incurred in obtaining
performance under the Loan Documents, which in each case shall include without
limitation fees and expenses of consultants, counsel for the Administrative
Lender and any Lender, and administrative fees for the Administrative Lender.

Section 11.3 WAIVERS. The rights and remedies of the Lenders under this
Agreement and

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the other Loan Documents shall be cumulative and not exclusive of any rights or
remedies which they would otherwise have. No failure or delay by the
Administrative Lender or any Lender in exercising any right shall operate as a
waiver of such right. The Lenders expressly reserve the right to require strict
compliance with the terms of this Agreement in connection with any funding of a
request for an Advance. In the event that any Lender decides to fund an Advance
at a time when the Borrower is not in strict compliance with the terms of this
Agreement, such decision by such Lender shall not be deemed to constitute an
undertaking by the Lender to fund any further requests for Advances or preclude
the Lenders from exercising any rights available under the Loan Documents or at
law or equity. Any waiver or indulgence granted by the Lenders shall not
constitute a modification of this Agreement, except to the extent expressly
provided in such waiver or indulgence, or constitute a course of dealing by the
Lenders at variance with the terms of the Agreement such as to require further
notice by the Lenders of the Lenders' intent to require strict adherence to the
terms of the Agreement in the future. Any such actions shall not in any way
affect the ability of the Administrative Lender or the Lenders, in their
discretion, to exercise any rights available to them under this Agreement or
under any other agreement, whether or not the Administrative Lender or any of
the Lenders are a party thereto, relating to the Borrower.

Section 11.4 CALCULATION BY THE LENDERS CONCLUSIVE AND BINDING. Any
mathematical calculation required or expressly permitted to be made by the
Administrative Lender or any Lender under this Agreement shall be made in its
reasonable judgment and in good faith, and shall when made, absent manifest
error, be controlling.

Section 11.5 SET-OFF. In addition to any rights now or hereafter granted
under Applicable Law and not by way of limitation of any such rights, upon the
occurrence of an Event of Default, each Lender and any subsequent holder of any
Note, and any assignee of any Note is hereby authorized by the Borrower at any
time or from time to time, without notice to the Borrower or any other Person,
any such notice being hereby expressly waived, to set-off, appropriate and apply
any deposits (general or special (except trust and escrow accounts), time or
demand, including without limitation Indebtedness evidenced by certificates of
deposit, in each case whether matured or unmatured) and any other Indebtedness
at any time held or owing by such Lender or holder to or for the credit or the
account of the Borrower, against and on account of the Obligations and other
liabilities of the Borrower to such Lender or holder, irrespective of whether or
not (a) the Lender or holder shall have made any demand hereunder, or (b) the
Lender or holder shall have declared the principal of and interest on the
Advances and other amounts due hereunder to be due and payable as permitted by
SECTION 8.2. Any sums obtained by any Lender or by any assignee or subsequent
holder of any Note shall be subject to pro rata treatment of all Obligations and
other liabilities hereunder.

Section 11.6 ASSIGNMENT.

(a) The Borrower may not assign or transfer any of its rights or
obligations hereunder or under the other Loan Documents without the prior
written consent of the Lenders.

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(b) No Lender shall be entitled to assign its interest in this Agreement,
its Notes or its Advances, except as hereinafter set forth.

(c) Without the consent of the Borrower, any Lender may at any time sell
participations in all or any part of its Advances and Reimbursement Obligations
(collectively, "PARTICIPATIONS") to any banks or other financial institutions
("PARTICIPANTS") provided that such Participation shall not confer on any Person
(other than the parties hereto) any right to vote on, approve or sign amendments
or waivers, or any other independent benefit or any legal or equitable right,
remedy or other claim under this Agreement or any other Loan Documents, other
than the right to vote on, approve, or sign amendments or waivers or consents
with respect to items that would result in (i) any increase in the commitment of
any Participant; or (ii)(A) the extension of the date of maturity of, or (B) the
extension of the due date for any payment of principal, interest or fees
respecting, or (C) the reduction of the amount of any installment of principal
or interest on or the change or reduction of any mandatory reduction required
hereunder, or (D) a reduction of the rate of interest on, the Advances, the
Letters of Credit, or the Reimbursement Obligations; or (iii) the release of
security for the Obligations, including without limitation any guarantee; or
(iv) the reduction of any fees payable hereunder. Notwithstanding the
foregoing, the Borrower agrees that the Participants shall be entitled to the
benefits of ARTICLE 9 hereof as though they were Lenders and the Lenders may
provide copies of all financial information received from the Borrower to such
Participants.

(d) Each Lender may assign to one or more financial institutions organized
under the laws of the United States, or any state thereof, or under the laws of
any other country that is a member of the Organization for Economic Cooperation
and Development, or a political subdivision of any such country, which is
engaged in making, purchasing or otherwise investing in commercial loans in the
ordinary course of its business (each, an "ASSIGNEE") its rights and obligations
under this Agreement and the other Loan Documents; PROVIDED, HOWEVER, that
(i) each such assignment shall be subject to the prior written consent of the
Administrative Lender and Borrower, which consent shall not be unreasonably
withheld (PROVIDED, HOWEVER, notwithstanding anything herein to the contrary, no
consent of the Borrower is required for any assignment during any time that an
Event of Default has occurred and is continuing), (ii) no such assignment shall
be in an amount of Commitments less than $5,000,000, (iii) the applicable
Lender, Administrative Lender and applicable Assignee shall execute and deliver
to the Administrative Lender an Assignment and Acceptance Agreement (an
"ASSIGNMENT AGREEMENT") in substantially the form of EXHIBIT E hereto, together
with the Notes subject to such assignment and (iv) the Assignee executing the
Assignment, shall deliver to the Administrative Lender a processing fee of
$2,500. Upon such execution, delivery and acceptance from and after the
effective date specified in each Assignment, which effective date shall be at
least three Business Days after the execution thereof, (A) the Assignee
thereunder shall be party hereto and, to the extent that rights and obligations
hereunder have been assigned to it pursuant to such Assignment, have the rights
and obligations of a Lender hereunder and (B) the applicable Lender shall, to
the extent that rights and obligations hereunder have been assigned by it
pursuant to such Assignment, relinquish such rights and be released from such
obligations under this Agreement.

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(e) Notwithstanding anything in clause (d) above to the contrary, any
Lender may assign and pledge all or any portion of its Advances and Notes to any
Federal Reserve Bank as collateral security pursuant to Regulation A of F.R.S.
Board and any Operating Circular issued by such Federal Reserve Bank; provided,
however, that no such assignment under this clause (e) shall release the
assignor Lender from its obligations hereunder.

(f) Upon its receipt of an Assignment Agreement executed by a Lender and
an Assignee, and any Note or Notes subject to such assignment, the Borrower
shall, within five Business Days after its receipt of such Assignment Agreement,
at no expense to the Borrower, execute and deliver to the Administrative Lender
in exchange for the surrendered Notes new Notes to the order of such Assignee in
an amount equal to the portion of the Advances and Commitments assigned to it
pursuant to such Assignment Agreement and new Notes to the order of the assignor
Lender in an amount equal to the portion of the Advances and Commitments
retained by it hereunder. Such new Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Notes, shall
be dated the effective date of such Assignment Agreement and shall otherwise be
in substantially the form of EXHIBIT A or B hereto, as applicable.

(g) Any Lender may, in connection with any assignment or participation or
proposed assignment or participation pursuant to this SECTION 11.6, disclose to
the assignee or Participant or proposed assignee or participant, any information
relating to the Borrower furnished to such Lender by or on behalf of the
Borrower, provided such Person agrees to handle such information in accordance
with the standards set forth in SECTION 11.14 hereof.

(h) Except as specifically set forth in this SECTION 11.6, nothing in this
Agreement or any other Loan Documents, expressed or implied, is intended to or
shall confer on any Person other than the respective parties hereto and thereto
and their successors and assignees permitted hereunder and thereunder any
benefit or any legal or equitable right, remedy or other claim under this
Agreement or any other Loan Documents.

(i) Notwithstanding anything in this SECTION 11.6 to the contrary, no
Assignee or Participant shall be entitled to receive any greater payment under
SECTION 2.15 or SECTION 9.3 than such assigning or participating Lender would
have been entitled to receive with respect to the interest assigned or
participated to such Assignee or Participant.

Section 11.7 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, but all such
separate counterparts shall together constitute but one and the same instrument.

Section 11.8 SEVERABILITY. Any provision of this Agreement which is for
any reason prohibited or found or held invalid or unenforceable by any court or
governmental agency shall be ineffective to the extent of such prohibition or
invalidity or unenforceability without invalidating the remaining provisions
hereof in such jurisdiction or affecting the validity or enforceability of such

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provision in any other jurisdiction.

Section 11.9 INTEREST AND CHARGES. It is not the intention of any
parties to this Agreement to make an agreement in violation of the laws of any
applicable jurisdiction relating to usury. Regardless of any provision in any
Loan Documents, no Lender shall ever be entitled to receive, collect or apply,
as interest on the Obligations, any amount in excess of the Maximum Amount. If
any Lender or participant ever receives, collects or applies, as interest, any
such excess, such amount which would be excessive interest shall be deemed a
partial repayment of principal and treated hereunder as such; and if principal
is paid in full, any remaining excess shall be paid to the Borrower. In
determining whether or not the interest paid or payable, under any specific
contingency, exceeds the Maximum Amount, the Borrower and the Lenders shall, to
the maximum extent permitted under Applicable Law, (a) characterize any
nonprincipal payment as an expense, fee or premium rather than as interest,
(b) exclude voluntary prepayments and the effect thereof, and (c) amortize,
prorate, allocate and spread in equal parts, the total amount of interest
throughout the entire contemplated term of the Obligations so that the interest
rate is uniform throughout the entire term of the Obligations; provided,
however, that if the Obligations are paid and performed in full prior to the end
of the full contemplated term thereof, and if the interest received for the
actual period of existence thereof exceeds the Maximum Amount, the Lenders shall
refund to the Borrower the amount of such excess or credit the amount of such
excess against the total principal amount of the Obligations owing, and, in such
event, the Lenders shall not be subject to any penalties provided by any laws
for contracting for, charging or receiving interest in excess of the Maximum
Amount. This Section shall control every other provision of all agreements
pertaining to the transactions contemplated by or contained in the Loan
Documents.

Section 11.10 HEADINGS. Headings used in this Agreement are for
convenience only and shall not be used in connection with the interpretation of
any provision hereof.

Section 11.11 AMENDMENT AND WAIVER. The provisions of this Agreement may
not be amended, modified or waived except by the written agreement of the
Borrower and the Determining Lenders; provided, however, that no such amendment,
modification or waiver shall be made (a) without the consent of all Lenders, if
it would (i) increase the Specified Percentage or commitment of any Lender, or
(ii) extend or postpone the date of maturity of, extend the due date for any
payment of principal or interest on, reduce the amount of any installment of
principal or interest on, or reduce the rate of interest on, any Advance, the
Reimbursement Obligations or other amount owing under any Loan Documents, or
(iii) release any security for or guaranty of the Obligations (except pursuant
to this Agreement), or (iv) reduce the fees payable hereunder, or (v) revise
this SECTION 11.11, or (vi) waive the date for payment of any principal,
interest or fees hereunder, or (vii) amend the definition of Determining
Lenders; (b) without the consent of the Administrative Lender, if it would alter
the rights, duties or obligations of the Administrative Lender; or (c) without
the consent of the Issuing Bank, if it would alter the rights, duties or
obligations of the Issuing Bank. Neither this Agreement nor any term hereof may
be amended orally, nor may any provision hereof be waived orally but only by an
instrument in writing signed

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by the Administrative Lender and, in the case of an amendment, by the Borrower.

Section 11.12 EXCEPTION TO COVENANTS. Neither the Borrower nor any
Subsidiary of the Borrower shall be deemed to be permitted to take any action or
fail to take any action which is permitted as an exception to any of the
covenants contained herein or which is within the permissible limits of any of
the covenants contained herein if such action or omission would result in the
breach of any other covenant contained herein.

Section 11.13 NO LIABILITY OF ISSUING BANK. The Borrower assumes all
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any Lender nor any of their respective officers or directors shall be
liable or responsible for: (a) the use that may be made of any Letter of Credit
or any acts or omissions of any beneficiary or transferee in connection
therewith; (b) the validity, sufficiency or genuineness of documents, or of any
endorsement thereon, even if such documents should prove to be in any or all
respects invalid, insufficient, fraudulent or forged; (c) payment by the Issuing
Bank against presentation of documents that do not comply with the terms of a
Letter of Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit, except for any payment made upon the
Issuing Bank's gross negligence or wilful misconduct; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, EXCEPT that the Borrower shall have a claim against the Issuing Bank,
and the Issuing Bank shall be liable to the Borrower, to the extent of any
direct, but not consequential, damages suffered by the Borrower that a court of
competent jurisdiction determines were caused by (i) the Issuing Bank's wilful
misconduct or gross negligence or (ii) the Issuing Bank's wilful failure to make
lawful payment under a Letter of Credit after the presentation to it of a draft
and certificates strictly complying with the terms and conditions of the Letter
of Credit. In furtherance and not in limitation of the foregoing, the Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.

Section 11.14 CONFIDENTIALITY. Each Lender and the Administrative Lender
agrees (on behalf of itself and each of its Affiliates, directors, officers,
employees and representatives) to use reasonable precautions to keep
confidential, in accordance with customary procedures for handling confidential
information of this nature and in accordance with safe and sound banking
practices, any non-public information supplied to it by the Borrower pursuant to
this Agreement which is identified by the Borrower as being confidential at the
time the same is delivered to the Lenders or the Administrative Lender, provided
that nothing herein shall limit the disclosure of any such information (a) to
the extent required by statute, rule, regulation or judicial process, (b) to
counsel for any Lender or the Administrative Lender, (c) to bank examiners,
auditors or accountants of any Lender, (d) to the Administrative Lender or any
other Lender, (e) in connection with any Litigation to which any one or more of
Lenders is a party, provided, further, that, unless specifically prohibited by
Applicable Law or court order, each Lender shall, prior to disclosure thereof,
notify Borrower of any request for disclosure of any such non-public information
(i) by any Tribunal or representative

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thereof (other than any such request in connection with an examination of such
Lender's financial condition by such governmental agency) or (ii) pursuant to
legal process, or (f) to any Assignee or Participant (or prospective Assignee or
Participant) so long as such Assignee or Participant (or prospective Assignee or
Participant) agrees to handle such information in accordance with the provisions
of this SECTION 11.14.

SECTION 11.15 GOVERNING LAW. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
TEXAS; PROVIDED, HOWEVER, THAT PURSUANT TO ARTICLE 5069-15.10(b), TITLE 79,
REVISED CIVIL STATUTES OF TEXAS, 1925, AS AMENDED, IT IS AGREED THAT THE
PROVISIONS OF CHAPTER 15, TITLE 79, REVISED CIVIL STATUTES OF TEXAS, 1925, AS
AMENDED, SHALL NOT APPLY TO THE ADVANCES, THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. THE LOAN DOCUMENTS ARE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS,
AND BORROWER AND EACH SURETY, GUARANTOR, ENDORSER AND ANY OTHER PARTY EVER
LIABLE FOR PAYMENT OF ANY MONEY PAYABLE WITH RESPECT TO THE LOAN DOCUMENTS,
JOINTLY AND SEVERALLY WAIVE THE RIGHT TO BE SUED ELSEWHERE. THE BORROWER, THE
ADMINISTRATIVE LENDER AND EACH LENDER EACH AGREES THAT THE STATE AND FEDERAL
COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE EXCLUSIVE JURISDICTION OVER
PROCEEDINGS IN CONNECTION WITH THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS AND
HEREBY SUBMITS WITH RESPECT TO ITSELF AND ITS PROPERTY TO THE EXCLUSIVE
JURISDICTION OF ANY SUCH COURT FOR THE PURPOSE OF ANY SUIT, ACTION, PROCEEDING
OR JUDGMENT RELATING TO OR ARISING OUT OF THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT. THE PARTIES HERETO IRREVOCABLY WAIVE ANY OBJECTION, INCLUDING,
WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS THAT ANY OF THE PARTIES MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY SUCH ACTION OR PROCEEDING IN DALLAS, TEXAS.

SECTION 11.16 WAIVER OF JURY TRIAL. EACH OF THE BORROWER, THE
ADMINISTRATIVE LENDER AND THE LENDERS HEREBY KNOWINGLY VOLUNTARILY, IRREVOCABLY
AND INTENTIONALLY WAIVE, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO
ANY OF THE LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS
PROVISION IS A MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THIS AGREEMENT
AND MAKING ANY ADVANCES HEREUNDER.

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SECTION 11.17 ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES
REGARDING THE SUBJECT MATTER HEREIN AND THEREIN AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES
HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

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<PAGE>

IN WITNESS WHEREOF, this Credit Agreement is executed as of the date first
set forth above.

BORROWER: POWER-ONE LLC

By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------

ADMINISTRATIVE LENDER: NATIONSBANK OF TEXAS, N.A.,
as Administrative Lender

By:
-------------------------------------
William C. Collins
Senior Vice President

LENDERS: NATIONSBANK OF TEXAS, N.A.,
as a Lender and Issuing Bank
Specified Percentage:
100%

By:
-------------------------------------
William C. Collins
Senior Vice President

901 Main Street, 67th Floor
Dallas, Texas 75202
Attn: William C. Collins
Senior Vice President

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<PAGE>

35455.04
100-504

-89-

<PAGE>

SCHEDULE 1

LIBOR LENDING OFFICES

NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

<PAGE>

SCHEDULE 2

EXISTING LIENS

PROPERTY SUBJECT AMOUNT OF
TO LIEN LIENHOLDER DEBT SECURED MATURITY DATE
-------- ---------- ------------ -------------

<PAGE>

SCHEDULE 3

EXISTING LITIGATION
AND MATERIAL LIABILITIES

<PAGE>

SCHEDULE 4

SUBSIDIARIES

State of
Incorporation Percentage
Name or Organization of Ownership Owner

<PAGE>

SCHEDULE 5

EXISTING INVESTMENTS

<PAGE>

SCHEDULE 6

EXISTING INDEBTEDNESS

<PAGE>

SCHEDULE 7

AUTHORIZATION, QUALIFICATION AND GOOD STANDING

<PAGE>

FIRST AMENDMENT TO CREDIT AGREEMENT

THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "FIRST AMENDMENT"), dated as
of February 1, 1996, is entered into among Power-One, Inc., a Delaware
corporation formerly known as Power-Merger, Inc. (the "BORROWER"), the banks
listed on the signature page hereof (the "LENDERS"), and NATIONSBANK OF TEXAS,
N.A., as administrative agent for the Lenders (in said capacity, the
"ADMINISTRATIVE LENDER").

A. Power-One LLC, a Delaware limited liability company ("POWER-ONE"),
NationsBank of Texas, N.A., in its capacity as a lender ("NationsBank"), and the
Administrative Lender heretofore entered into that certain Credit Agreement,
dated as of September 27, 1995 (the "CREDIT AGREEMENT"; the terms defined in the
Credit Agreement and not otherwise defined herein shall be used herein as
defined in the Credit Agreement).

B. Power-One has merged into the Borrower pursuant to the Agreement of
Merger effective as of February 1, 1996 (the "MERGER").

C. Union Bank and City National Bank became Lenders pursuant to
Section 1.6 of the Credit Agreement, effective November 15, 1995.

D. By matter of law and by the terms of that certain Assumption
Agreement, dated as of February 1, 1996, the Borrower has assumed all of the
obligations of Power-One under the Loan Documents.

E. The Borrower, Lenders and the Administrative Lender desire to amend
the Credit Agreement to make certain changes therein as a result of the Merger.

NOW, THEREFORE, in consideration of the covenants, conditions and
agreements hereafter set forth, and for other good and valuable consideration,
the receipt and adequacy of which are all hereby acknowledged, the Borrower,
Lenders and the Administrative Lender covenant and agree as follows:

1. AMENDMENTS TO CREDIT AGREEMENT.

(a) The definition of "Borrower" set forth in Article I of the Credit
Agreement is hereby amended to read as follows:

"`BORROWER' means Power-One, Inc., a Delaware corporation, successor
by merger with Power-One LLC, a limited liability company."

(b) The definition of "Excess Cash Flow" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:

<PAGE>

"`EXCESS CASH FLOW' means, with respect to the Borrower and its
Subsidiaries on a consolidated basis, the remainder of (i) EBITDA, minus
(ii) Restricted Payments, minus (iii) interest expense (including interest
expense pursuant to Capitalized Lease Obligations), minus (iv) Capital
Expenditures (excluding any Capital Expenditures made as a result of a
Shareholder Contribution), minus (v) expenditures in respect of
Acquisitions (excluding any portion of Acquisition expenditures made as a
result of a Shareholder Contribution), minus (vi) Working Capital
Adjustment, minus (vii) payments of principal of Indebtedness, minus
(viii) income Taxes, in each case for the four fiscal quarters immediately
preceding the date of calculation."

(c) The definition of "Loan Documents" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:

"`LOAN DOCUMENTS' means this Agreement, the Notes, the Security
Agreement, the Deeds of Trust, any other Collateral Document, the Fee
Letter, any Interest Hedge Agreement entered into with any Lender, and any
other document or agreement executed or delivered from time to time by the
Borrower, any Subsidiary of the Borrower or any other Person in connection
herewith or as security for the Obligations, including any such Loan
Document which is executed as a renewal, amendment, modification or
restatement of a Loan Document previously executed by Power-One LLC, a
Delaware limited liability company."

(d) The definition of "Member Contribution" set forth in Article I of the
Credit Agreement is hereby amended to be "Shareholder Contribution" and shall
read as follows:

"`SHAREHOLDER CONTRIBUTION' means any contribution of cash to the
Borrower or any Subsidiary of the Borrower made by any shareholder of the
Borrower or any of its Affiliates which is used by the Borrower for Capital
Expenditures or Acquisitions or pursuant to SECTION 8.1(c) or 8.1(q)
hereof."

(e) The definition of "Member Distributions" set forth in Article I of the
Credit Agreement is hereby amended to be "Shareholder Distributions" and shall
read as follows:

"`SHAREHOLDER DISTRIBUTIONS' means, as to any shareholder of the
Borrower or an Affiliate of such shareholder, the making by the Borrower of
any distribution, loan or advance to, or investment in, such Borrower or an
Affiliate of such member other than (a) advances, drawing accounts and
similar expenditures and salaries and bonuses paid in the ordinary course
of business, (b) sales of goods in the ordinary course of business, and
(c) Dividends."

(f) The definition of "Pretax Net Income" set forth in Article I of the
Credit Agreement

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<PAGE>

is hereby amended to read as follows:

"`PRETAX NET INCOME' means net profit (or loss) before taxes of the
Borrower and its Subsidiaries, on a consolidated basis, determined in
accordance with GAAP."

(g) The definition of "Restricted Payments" set forth in Article I of the
Credit Agreement is hereby amended to read as follows:

"`RESTRICTED PAYMENTS' means, collectively, (i) Dividends,
(ii) Deferred Compensation, (iii) Shareholder Distributions, (iv) Stephens
Fees, and (v) any (A) payment or prepayment of principal, premium or
penalty on any Subordinated Debt of the Borrower or any Subsidiary of the
Borrower or any defeasance, redemption, purchase, repurchase or other
acquisition or retirement for value, in whole or in part, of any
Subordinated Debt (including, without limitation, the setting aside of
assets or the deposit of funds therefor) and (B) prepayment of interest on
any Subordinated Debt.

(h) The definition of "Tax Distributions" set forth in Article I of the
Credit Agreement is hereby deleted therefrom.

(i) The fourth sentence of Section 4.1(a) of the Credit Agreement is
hereby amended to read as follows:

"Each of the Borrower and its Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of its
state, country or province of organization."

(j) The last sentence of Section 4.1(i) of the Credit Agreement is hereby
amended to read as follows:

"The charges, accruals and reserves on the books of the Borrower and
its Subsidiaries in respect of their Taxes are, in the judgment of the
Borrower, adequate."

(k) Section 7.3(g) of the Credit Agreement is hereby amended to read as
follows:

"(g) Investments in the form of loans to Donna M. Koep and John A
Martins in a principal amount not to exceed $100,000 each for the purpose
of financing a portion of the purchase by such Persons of their respective
shareholder interest in the Borrower; and"

(l) Section 7.7 of the Credit Agreement is hereby amended to read as
follows:

"Section 7.7 CAPITAL EXPENDITURES. The Borrower shall not, and
shall not permit

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<PAGE>

any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures (excluding any Capital Expenditures made as a result of a
Shareholder Contribution) during any fiscal year in an aggregate amount in
excess of $3,750,000 (the "MAXIMUM AMOUNT"); PROVIDED, HOWEVER, that the
Maximum Amount for each fiscal year shall be increased by an amount equal
to the excess, if any, of the Maximum Amount for the previous fiscal year
(before making any adjustments in accordance with this proviso) over the
actual aggregate Capital Expenditures (excluding any Capital Expenditures
made as a result of a Shareholder Contribution) for such previous fiscal
year."

(m) Section 7.8 of the Credit Agreement is hereby amended to read as
follows:

"Section 7.8 RESTRICTED PAYMENTS. The Borrower shall not, and shall
not permit any Subsidiary of the Borrower to, directly or indirectly
declare, pay or make any Restricted Payments except (i) any Subsidiary may
declare and pay Dividends to the Borrower, (ii) the Borrower shall be
permitted to pay (A) Deferred Compensation and (B) Stephens Fees; provided,
further, however, the Borrower shall not pay or make any Restricted
Payments permitted by this SECTION 7.8 unless there shall exist no Default
or Event of Default prior to or after giving effect to any such proposed
Restricted Payment."

(n) Section 7.16 of the Credit Agreement is hereby amended to read as
follows:

"Section 7.16 CAPITAL STOCK. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, issue, sell or otherwise dispose
of any Capital Stock in the Borrower or any Subsidiary of the Borrower or
any options or any rights to acquire such Capital Stock, except (i) to the
extent that the Net Cash Proceeds thereof are applied as provided in
SECTION 2.5(e) hereof or as described in SECTION 8.1(c) or (q) hereof and
(ii) any Subsidiary of the Borrower may issue Capital Stock to the
Borrower."

(o) Section 7.20 of the Credit Agreement is hereby amended to read as
follows:

"Section 7.20 AMENDMENT OF ORGANIZATIONAL DOCUMENTS. The Borrower
shall not, and shall not permit any Subsidiary of the Borrower to,
materially amend its certificate of formation, articles of incorporation or
partnership agreement, as applicable.

(p) Section 8.1(p) of the Credit Agreement is hereby amended to read as
follows:

"(p) Stephens Group, Inc. and its Affiliates shall fail to (i) own at
least 51% of the voting Capital Stock of the Borrower or (ii) otherwise
manage and control the Borrower; or"

(q) Existing Section 8.1(q) of the Credit Agreement is hereby deleted and
existing Section 8.1(r) of the Credit Agreement is hereby redesignated as
"Section 8.1(q)" to read as follows:

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<PAGE>

"(q) Except as a result of the Administrative Lender's gross
negligence or wilful misconduct, the Administrative Lender shall fail to
have a valid and perfected first priority Lien in 100% of the Capital Stock
of the Borrower."

2. CONSENT. Lenders hereby (i) consent to the Merger and (ii) agree that
the Merger shall not cause or result in a Default or Event of Default under the
Credit Agreement.

3. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that,as of
the date hereof and after giving effect to the amendments provided in the
foregoing Section 1 and the consent provided in the foregoing Section 2:

(a) the representations and warranties contained in the Credit Agreement
are true and correct on and as of the date hereof as if made on and as of such
date;

(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;

(c) the Borrower has full power and authority to execute, deliver and
perform this First Amendment, the Notes (as defined in Section 4(c) of this
First Amendment), the Amended Collateral Documents (as defined in Section 4(d)
of this First Amendment) and the Credit Agreement, as amended by this First
Amendment, the execution, delivery and performance of this First Amendment, the
Notes, the Amended Collateral Documents, and the Credit Agreement, as amended by
this First Amendment, has been duly authorized by all corporate action of the
Borrower, and this First Amendment, the Notes, the Amended Collateral Documents,
and the Credit Agreement, as amended hereby, constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable debtor
relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as rights
to indemnity may be limited by federal or state securities laws;

(d) neither the execution, delivery and performance of this First
Amendment, the Notes, the Amended Collateral Documents, or the Credit Agreement,
as amended by this First Amendment, nor the consummation of any transactions
herein or therein, will contravene or conflict with any Law to which the
Borrower or any of its Subsidiaries is subject or any indenture, agreement or
other instrument to which the Borrower or any of its Subsidiaries or any of
their respective property is subject; and

(e) no authorization, approval, consent or other action by, notice to, or
filing with, any governmental authority or other Person, is required for the
(i) execution, delivery or performance by the Borrower of this First Amendment,
the Notes, the Amended Collateral Documents, and the

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<PAGE>

Credit Agreement, as amended by this First Amendment, or (ii) acknowledgement of
this First Amendment by PEI or PUM.

4. CONDITIONS OF EFFECTIVENESS. The First Amendment shall be effective
as of February 1, 1996, subject to the following (except as otherwise waived by
Determining Lenders):

(a) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Determining Lenders;

(b) the Administrative Lender shall have received counterparts of this
First Amendment executed by the Borrower and acknowledged by PEI and PUM;

(c) the Administrative Lender shall have received for (i) NationsBank a
$7,500,000 Revolving Credit Note and a $15,000,000 Term Loan Note, (ii) Union
Bank a $5,000,000 Revolving Credit Note and a $10,000,000 Term Loan Note, and
(iii) City National Bank a $2,500,000 Revolving Credit Note and a $5,000,000
Term Loan Note, each duly executed by the Borrower (collectively, the "NOTES");

(d) the Administrative Lender shall have received such amendments,
modifications or restatements to the Collateral Documents as the Administrative
Lender shall require (collectively, the "AMENDED COLLATERAL DOCUMENTS"),
together with stock certificates evidencing 100% of the Capital Stock of the
Borrower and related stock powers;

(e) the Administrative Lender shall have received an Officer's Certificate
of the Borrower containing (i) certificate of incorporation of the Borrower
issued by the Delaware Secretary of State, (ii) bylaws of the Borrower,
(iii) corporation resolutions of the Borrower authorizing the execution and
delivery of this First Amendment, the Notes and the Amended Collateral Documents
to be executed by the Borrower and (iv) signatures and titles of officers of the
Borrower authorized to sign this First Amendment, the Notes and the Amended
Collateral Documents to be executed by the Borrower;

(f) the representations and warranties set forth in Section 3 shall be
true and correct; and

(g) the Administrative Lender and the Lenders shall have received in form
and substance satisfactory to the Administrative Lender and the Lenders, such
other documents, certificates and instruments as the Lenders shall require.

5. ACKNOWLEDGEMENT. By signing below, each of PEI and PUM
(i) acknowledges, consents and agrees to the execution, delivery and performance
by the Borrower of this First Amendment, the Notes, and the Amended Collateral
Documents and (ii) acknowledges and agrees that (A) its obligations in respect
of its Subordination Agreement are not released,

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<PAGE>

diminished, waived, modified, impaired or affected in any manner by this First
Amendment or any of the provisions contemplated herein and (B) references to the
Borrower in the Subordination Agreement shall mean and refer to Power-One, Inc.,
a Delaware corporation.

6. REFERENCE TO THE CREDIT AGREEMENT.

(a) Upon the effectiveness of this First Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this First
Amendment.

(b) The Credit Agreement, as amended by this First Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

7. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand all
costs and expenses of the Administrative Lender in connection with the
preparation, reproduction, execution and delivery of the First Amendment and the
other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender).

8. EXECUTION IN COUNTERPARTS. This First Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.

9. GOVERNING LAW; BINDING EFFECT. This First Amendment shall be governed
by and construed in accordance with the laws of the State of Texas and shall be
binding upon the Borrower and each Lender and their respective successors and
assigns.

10. HEADINGS. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.

11. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS FIRST
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.

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IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
as of the date first above written.

POWER-ONE, INC.

By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------

NATIONSBANK OF TEXAS, N.A.,
Individually and as Administrative Lender

By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------

UNION BANK

By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------

CITY NATIONAL BANK

By:
---------------------------------------
Name:
----------------------------------
Title:
---------------------------------

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<PAGE>

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<PAGE>

SECOND AMENDMENT TO CREDIT AGREEMENT

THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "SECOND AMENDMENT"), dated
as of September 18, 1996, is entered into among Power-One, Inc., a Delaware
corporation (the "BORROWER"), the banks listed on the signature pages hereof
(the "LENDERS"), and NATIONSBANK OF TEXAS, N.A., as administrative agent for
the Lenders (in said capacity, the "ADMINISTRATIVE LENDER").

A. The Borrower, certain of the Lenders and the Administrative Lender are
parties to that certain Credit Agreement, dated as of September 27, 1995, as
amended by that certain First Amendment to Credit Agreement, dated as of
February 1, 1996 (said Credit Agreement, as amended, the "CREDIT AGREEMENT"; the
terms defined in the Credit Agreement and not otherwise defined herein shall be
used herein as defined in the Credit Agreement).

B. The Borrower, Lenders and the Administrative Lender desire to amend
the Credit Agreement to (i) add Sumitomo Bank of California ("SUMITOMO") as a
Lender thereto, (ii) increase the Commitments, and (iii) make certain changes
therein.

1. AMENDMENTS TO CREDIT AGREEMENT.

(a) The definition of "REVOLVING CREDIT COMMITMENT" set forth in Section
1.1 of the Credit Agreement is hereby amended to read as follows:

"'REVOLVING CREDIT COMMITMENT' means $17,500,000.00".

(b) The definition of "TERM LOAN COMMITMENT" set forth in Section 1.1 of
the Credit Agreement is hereby amended to read as follows:

"'TERM LOAN COMMITMENT' means $32,500,000.00, as reduced from time to
time pursuant to SECTION 2.6 hereof."

"(c) AMORTIZATION. The Term Loan Commitment shall be permanently
reduced on each date set forth below, beginning on the Amortization Date,
in such amounts as set forth next to each such date below:

<PAGE>

Amount of Reduction of the
Dates Term Loan Commitment As of Each Date
----- ------------------------------------
December 31, 1995 $ 625,000

March 31, 1996 $ 625,000

June 30, 1996 $ 625,000

September 30, 1996 $ 625,000

December 31, 1996 $ 750,000

March 31, 1997 $ 750,000

June 30, 1997 $ 750,000

September 30, 1997 $ 750,000

December 31, 1997 $1,000,000

March 31, 1998 $1,000,000

June 30, 1998 $1,000,000

September 30, 1998 $1,000,000

December 31, 1998 $1,125,000

March 31, 1999 $1,125,000

June 30, 1999 $1,125,000

September 30, 1999 $1,125,000

December 31, 1999 $1,312,500

March 31, 2000 $1,312,500

June 30, 2000 $1,312,500

September 30, 2000 $1,312,500

December 31, 2000 $1,562,500

March 31, 2001 $1,562,500

June 30, 2001 $1,562,500

September 30, 2001 $1,562,500

December 31, 2001 $1,750,000

March 31, 2002 $1,750,000

June 30, 2002 $1,750,000

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<PAGE>

September 30, 2002 $1,750,000, or if different, the
remaining amount of the Term Loan
Commitment

(d) Section 7.7 of the Credit Agreement is hereby amended to read as follows:

"Section 7.7 CAPITAL EXPENDITURES. The Borrower shall not, and shall not
permit any Subsidiary of the Borrower to, make or commit to make any Capital
Expenditures (excluding any Capital Expenditures made as a result of a
Shareholder Contribution) during (i) Fiscal Year ending 1996 in excess of
$3,500,000, (ii) during Fiscal Year ending 1997 in excess of $5,000,000, and
(iii) during any Fiscal Year thereafter in excess of $3,750,000 (the "MAXIMUM
AMOUNT"); PROVIDED, HOWEVER, that the Maximum Amount for each fiscal year shall
be increased by an amount equal to the excess, if any, of the Maximum Amount for
the previous fiscal year (before making any adjustments in accordance with this
proviso) over the actual aggregate Capital Expenditures (excluding any Capital
Expenditures made as a result of a Shareholder Contribution) for such previous
fiscal year."

(e) Section 7.13 of the Credit Agreement is hereby amended to read as follows:

"Section 7.13 MINIMUM NET WORTH. At the end of each fiscal quarter
occurring during the periods indicated below, the Borrower shall not permit the
Net Worth to be less than the amount opposite the period in which such fiscal
quarter occurs:

Period Amount
------ ------

From Agreement Date to but not including Fiscal Year $15,000,000
end 1996

From and including Fiscal Year end 1996 to but not $15,000,000
including Fiscal Year end 1997

From and including Fiscal Year end 1997 to but not $17,000,000
including Fiscal Year end 1998

From and including Fiscal Year end 1998 to but not $20,000,000
including Fiscal Year end 1999

From and including Fiscal Year end 1999 to but not $26,000,000
including Fiscal Year end 2000

From and including Fiscal Year end 2000 and thereafter $30,000,000*

(f) The Specified Percentage of (i) Sumitomo is indicated beside its name
on the signature pages hereof and (ii) each other Lender is amended to be the
percentage beside each such Lender's name on the signature pages hereof.

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<PAGE>

(g) SCHEDULE 1 to the Credit Agreement is hereby amended to be in the form
of SCHEDULE 1 attached hereto.

2. REPRESENTATIONS AND WARRANTIES TRUE; NO EVENT OF DEFAULT. By its
execution and delivery hereof, the Borrower represents and warrants that, as of
the date hereof and after giving effect to the amendments provided in the
foregoing Section 1:

(a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects on and as of the date hereof as if
made on and as of such date;

(b) no event has occurred and its continuing which constitutes a Default
or an Event of Default;

(c) the Borrower has full power and authority to execute and deliver
this Second Amendment and the Notes (as defined in Section 3(c) of this
Second Amendment) and to perform this Second Amendment, the Notes and the
Credit Agreement, as amended by this Second Amendment, the execution and
delivery of this Second Amendment and the Notes and the performance of this
Second Amendment, the Notes and the Credit Agreement, as amended by this
Second Amendment, has been duly authorized by all corporate action of the
Borrower, and this Second Amendment, the Notes and the Credit Agreement, as
amended hereby, constitute the legal, valid and binding obligations of the
Borrower, enforceable in accordance with their respective terms, except as
enforceability may be limited by applicable debtor relief laws and by general
principles of equity (regardless of whether enforcement is sought in a
proceeding in equity or at law) and except as rights to indemnity may be
limited by federal or state securities laws;

(d) neither the execution and delivery of this Second Amendment and the
Notes, or the performance of this Second Amendment, the Notes or the Credit
Agreement, as amended by this Second Amendment, nor the consummation of any
transactions herein or therein, will contravene or conflict with any Applicable
Law to which the Borrower or any of its Subsidiaries is subject or any
indenture, agreement or other instrument to which the Borrower or any of its
Subsidiaries or any of their respective property is subject, except to the
extent that any such contravention or conflict could not reasonably be expected
to have a Material Adverse Effect; and

(e) no authorization, approval, consent or other action by, notice to, or
filing with, any governmental authority or other Person, is required for the (i)
execution and delivery of this Second Amendment and the Notes or performance by
the Borrower of this Second Amendment, the Notes and the Credit Agreement, as
amended by this Second Amendment, or (ii) acknowledgment of this Second
Amendment by PEI or PUM.

3. CONDITIONS OF EFFECTIVENESS. The Second Amendment shall be effective
as of September 18, 1996, subject to the following:

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<PAGE>

(a) the Administrative Lender shall have received counterparts of this
Second Amendment executed by the Lenders;

(b) the Administrative Lender shall have received counterparts of this
Second Amendment executed by the Borrower and acknowledged by PEI and PUM;

(c) the Administrative Lender shall have received for (i) NationsBank a
$5,450,000 Revolving Credit Note and a $9,606,250 Term Loan Note, (ii) Union
Bank a $5,450,000 Revolving Credit Note and a $9,606,250 Term Loan Note, (iii)
City National Bank a $3,100,000 Revolving Credit Note and a $5,287,500 Term Loan
Note, and (iv) Sumitomo a $3,500,000 Revolving Credit Note and a $6,125,000 Term
Loan Note, each duly executed by the Borrower (collectively, the "NOTES");

(d) the Administrative Lender shall have received an Officer's Certificate
of the Borrower containing (i) corporate resolutions of the Borrower authorizing
the execution and delivery of this Second Amendment and the Notes and (ii)
signatures of titles of officers of the Borrower authorized to sign this Second
Amendment and the Notes;

(e) the representations and warranties set forth in Section 3 shall be
true and correct in all material respects; and

(f) the Administrative Lender and the Lenders shall have received in form
and substance satisfactory to the Administrative Lender and the Lenders, such
other documents, certificates and instruments as the Lenders shall reasonably
require.

4. SECTION 11.6. The parties hereto agree that (i) the provisions of
Section 11.6 of the Credit Agreement shall not be required to be complied with
for the purpose of making Sumitomo a Lender to the Credit Agreement pursuant
to this Second Amendment and (ii) by signing below, Sumitomo shall be a
Lender under the Credit Agreement and shall have all rights and obligations
of a Lender thereunder.

5. PURCHASE BY SUMITOMO. Simultaneously with the satisfaction of the
Conditions of Effectiveness set forth in Section 3 hereof, Sumitomo shall be
deemed to have purchased without recourse an amount of each other Lender's
outstanding Advances such that after giving effect to this Second Amendment, the
percentage of each Lender's Commitment which has been utilized will be equal.

6. ACKNOWLEDGEMENT. By signing below, each of PEI and PUM (i)
acknowledges and consents to the execution, delivery and performance by the
Borrower of this Second Amendment and the Notes and (ii) acknowledges and agrees
that its obligations in respect of its Subordination Agreement (A) are not
released, diminished, waived, modified, impaired or affected in any manner by
this Second Amendment or any of the provisions contemplated herein except as
expressly provided herein and (B) include the Revolving Credit Commitment and
Term Loan Commitment, as increased by this Second Amendment.

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<PAGE>

7. RETURN OF NOTES. Promptly upon satisfaction of all the Conditions of
Effectiveness set forth in Section 3 hereof, NationsBank, Union Bank and City
National Bank shall return to the Borrower each of their respective promissory
notes which are being replaced by the Notes marked "Renewed" or "Replaced" or
with words of similar import.

8. REFERENCE TO THE CREDIT AGREEMENT.

(a) Upon the effectiveness of this Second Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this Second
Amendment.

(b) The Credit Agreement, as amended by this Second Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

9. COSTS, EXPENSES AND TAXES. The Borrower agrees to promptly pay all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of the Second Amendment
and the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender).

10. EXECUTION IN COUNTERPARTS. This Second Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which when taken together shall constitute but one and
the same instrument.

11. GOVERNING LAW; BINDING EFFECT. This Second Amendment shall be
governed by and construed in accordance with the laws of the State of Texas and
shall be binding upon the Borrower and each Lender and their respective
successors and assigns.

12. HEADINGS. Section headings in this Second Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Second Amendment for any other purpose.

13. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS SECOND
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.

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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as of the date first above written.

POWER-ONE, INC.

By:
----------------------------
Name:
----------------------------
Title:
----------------------------

NATIONSBANK OF TEXAS, N.A.,
Individually and as Administrative Lender

Specified Percentage:
31.28571429%

By:
----------------------------
Name:
-----------------------
Title:
-----------------------

UNION BANK

Specified Percentage:
31.28571429%

By:
----------------------------
Name:
-----------------------
Title:
-----------------------

CITY NATIONAL BANK

Specified Percentage:
17.42857142%

By:
----------------------------
Name:
-----------------------
Title:
-----------------------

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<PAGE>

SUMITOMO BANK OF CALIFORNIA

Specified Percentage:
20.00%

By:
----------------------------
Name:
-----------------------
Title:
-----------------------

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<PAGE>

SCHEDULE 1

LIBOR LENDING OFFICES

NATIONSBANK OF TEXAS, N.A.
901 Main Street, 67th Floor
Dallas, Texas 75202

UNION BANK
445 South Figueroa Street, 16th Floor
Los Angeles, California 90071-1100

CITY NATIONAL BANK
400 North Roxbury Street, 3rd Floor
Beverly Hills, California 90210

SUMITOMO BANK OF CALIFORNIA
611 West 6th Street, Suite 3900
Los Angeles, California 90017

<PAGE>

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

SECURITY AGREEMENT

Between

POWER-ONE, INC.
as Debtor

and
NATIONSBANK OF TEXAS, N.A.
as Administrative Lender

February 1, 1996

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

<PAGE>

TABLE OF CONTENTS
Page
----
I. GRANT

1.01. . . . . . . . . . . . . . . . . . ASSIGNMENT AND GRANT OF SECURITY 2
1.02. . . . . . . . . . . . . . . . . . . . . DESCRIPTION OF OBLIGATIONS 5
1.03. . . . . . . . . . . . . . . . . . . . . . . .DEBTOR REMAINS LIABLE 5
1.04. . . . . . . . . . . DELIVERY OF SECURITY AND INSTRUMENT COLLATERAL 6

II. REPRESENTATIONS AND WARRANTIES

2.01. . . . . . . . . . . . . . . . . . . .REPRESENTATIONS AND WARRANTIES 6

III. COVENANTS

3.01. . . . . . . . . . . . . . . . . . . . . . . . . FURTHER ASSURANCES 8
3.02. . . . . . . . . . . . . . . . . .EQUIPMENT, FIXTURES AND INVENTORY 9
3.03. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .INSURANCE 10
3.04. PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES, CHATTEL
PAPER AND INSTRUMENTS 11
3.05. . . . . . . . . . . . . . . . . . . . . .TRANSFERS AND OTHER LIENS 11
3.06. . . . . . . . . . . . . . . .RIGHTS TO DIVIDENDS AND DISTRIBUTIONS 12
3.07. . . . . . . . . . RIGHT OF ADMINISTRATIVE LENDER TO NOTIFY ISSUERS 12
3.08. . . . . . . . . . ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT 13

IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER

4.01. . . . . . . . . . . . . . . . . ADMINISTRATIVE LENDER MAY PERFORM 13
4.02. . . . . . . . . . . . . . . . . . ADMINISTRATIVE LENDER'S DUTIES 14
4.03. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .REMEDIES 14
4.04. . . . . . . . . . . . . . . . . . . . .FURTHER APPROVALS REQUIRED 16
4.05. . . . . . . . . . . . . . . . . . . . . . .INDEMNITY AND EXPENSES 17

V. MISCELLANEOUS

5.01. . . . . . . . . . . . . . . . . . . . . . . . . CUMULATIVE RIGHTS 17
5.02. . . . . . . . . . . . . . . . . . MODIFICATIONS; AMENDMENTS; ETC. 18
5.03. . . . . . . . . . . . . . . . . . . .CONTINUING SECURITY INTEREST 18
5.04. . . . . . . . . . . . . . . . . . . . . . . .GOVERNING LAW; TERMS 18
5.05. . . . . . . . . . . . . . . . . . . . . . . .WAIVER OF JURY TRIAL 18
5.06. . . . . . . . . . . . ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS 19
5.07. . . . . . . . . . . . . .NO INTERFERENCE, COMPENSATION OR EXPENSE 19
5.08. . . . . . . . . . . . . .WAIVERS OF RIGHTS INHIBITING ENFORCEMENT 19
5.09. . . . . . . . . . . . . . . . . . . . . . .NOTICES AND DELIVERIES 19
(a) MANNER OF DELIVERY . . . . . . . . . . . . . . . . . . 19
(b) ADDRESSES. . . . . . . . . . . . . . . . . . . . . 19
(c) EFFECTIVENESS . . . . . . . . . . . . . . . . . . . . 20

<PAGE>

5.10.. . . . . . . . . . . . . . . . . . . . . . .SUCCESSORS AND ASSIGNS 20
5.11.. . . . . . . . . . . . . . . . . . . . . . . . . . . LOAN DOCUMENT 20
5.12.. . . . . . . . . . . . . . . . . . . . . . . . . . . . DEFINITIONS 21
5.13.. . . . . . . . . . . . . . . . . . . . . . . . . . . .SEVERABILITY 21
5.14.. . . . . . . . . . . . . . . . . . . . . .OBLIGATIONS NOT AFFECTED 21
5.15.. . . . . . . . . . . . . . . . . . . . . . . . . . . .COUNTERPARTS 21
5.16.. . . . . . . . . . . . . . . . . . . . . . . . . .ENTIRE AGREEMENT 21

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<PAGE>

SCHEDULES:

Schedule 1 - Equipment, Fixtures and Inventory Locations
Schedule 2 - Trade Names
Schedule 3 - Restricted Accounts

-3-
<PAGE>

SECURITY AGREEMENT

SECURITY AGREEMENT (this "AGREEMENT"), dated as of February 1, 1996, made
by Power-One, Inc., a Delaware corporation ("DEBTOR"), as successor by merger
with Power-One LLC, a Delaware limited liability company ("POWER-LLC"), in favor
of NationsBank of Texas, N.A., a national banking association, as Administrative
Lender ("ADMINISTRATIVE LENDER") for itself and each other lender a party to the
Credit Agreement described below (singly, a "SECURED PARTY", and collectively,
the "SECURED PARTIES").

BACKGROUND:

(1) Administrative Lender, Secured Parties and Power-LLC entered into the
Credit Agreement dated as of September 27, 1995 (as the same has been and may
hereafter be supplemented, amended and modified from time to time, including but
not limited to, pursuant to that certain First Amendment to Credit Agreement of
even date herewith, executed by Debtor, Administrative Lender and Secured
Parties, being the "CREDIT AGREEMENT").

(2) Power-LLC merged into Debtor pursuant to that certain Agreement of
Merger effective as of February 1, 1996, whereby Debtor acquired all assets and
assumed all liabilities of Power-LLC, as further evidenced by that certain
Assumption Agreement of even date herewith, executed by Debtor in favor of the
Administrative Lender.

(3) It is the intention of the parties hereto that this Agreement create a
first priority security interest securing the payment of the obligations set
forth in SECTION 1.02 hereof.

(4) It is a condition precedent to the obligation of the Secured Parties
to make Advances under the Credit Agreement that Debtor shall have executed and
delivered this Agreement.

AGREEMENT.

NOW, THEREFORE, in consideration of the premises set forth herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in order to induce Secured Parties to make the Advances
and issue, or participate in the issuance of, Letters of Credit under the Credit
Agreement, Debtor hereby agrees with Administrative Lender for its benefit and
the ratable benefit of Secured Parties, as hereinafter set forth. By its
execution hereof, Debtor hereby ratifies, confirms, assumes, and accepts all
Loan Documents and Collateral Documents heretofore executed and delivered by
Power-LLC, together with all duties, obligations and liabilities of Power-LLC
thereunder.

<PAGE>

I. GRANT

1.01. ASSIGNMENT AND GRANT OF SECURITY. Debtor hereby assigns,
pledges, hypothecates and transfers to Administrative Lender, for its benefit
and the ratable benefit of Secured Parties, and hereby grants to Administrative
Lender, for its benefit and the ratable benefit of Secured Parties, a security
interest in, the entire right, title and interest of Debtor, in and to the
following assets of Debtor, whether now owned or hereafter acquired, including
but not limited to the following ("COLLATERAL"):

(a) all writings which evidence both a monetary obligation and a security
interest in or a lease of specific goods ("CHATTEL PAPER");

(b) all documents, warehouse receipts, bills of lading, including, without
limitation, documents of title (as defined in the UCC) or other receipts
covering, evidencing or representing collateral ("DOCUMENTS");

(c) all equipment (as defined in the UCC), and (whether or not included in
such definition) all vehicles, machinery, chattels, tools, parts, furniture,
furnishings, fixtures and supplies, of every nature, wherever located, all
additions, accessories and improvements thereto and substitutions therefor and
all accessories, parts and equipment which may be attached to or which are
necessary for the operation and use of such personal property or fixtures,
whether or not the same shall be deemed to be affixed to real property, together
with all accessions thereto, and all rights under or arising out of present or
future contracts relating to the foregoing ("EQUIPMENT");

(d) all property so related to particular real estate that an interest in
it arises under the real estate law of the jurisdiction in which such property
is located, including all equipment, fixtures and articles of personal property
now or hereafter attached to or used in or about any building or buildings now
erected or hereafter to be erected on any real property now or hereafter owned
or leased by Debtor (the "PROPERTY"), which are necessary to the complete and
comfortable use and occupancy of such building or buildings for the purposes for
which they were or are to be erected; all materials to be delivered to the
Property and used or to be used in connection with the construction of any
building to be constructed on the Property, including, but not limited to, all
masonry, siding, roof shingles, flooring, doors, windows, tile, shutters,
stoves, ovens, awnings, screens, cabinets, shades, blinds, carpets, draperies,
furniture, furnishings, plumbing, heating, air conditioning, lighting,
ventilating, refrigerating, cooking, laundry and incinerating equipment and all
fixtures and appurtenances thereto, and such other goods and chattels and
personal property as are ever used or furnished in operating such buildings or
the activities conducted therein, and all building materials and equipment now
or hereafter delivered to the Property and intended to be installed thereon
("FIXTURES");

(e) all general intangibles (as defined in the UCC), and (whether or not
included in such definition) all contract rights; all inventions, processes,
production methods, proprietary information and know-how; and all licenses or
other agreements granted to Debtor with respect to any of the foregoing; all
information, advertising lists, customer lists, identification of suppliers,
data, plans, blueprints, specifications, designs, drawings, recorded knowledge,
surveys, engineering reports, test reports, manuals, materials standards,
processing standards, performance standards, telephone numbers and telephone
listings, catalogs, books, records,

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<PAGE>

computer and automatic machinery software and programs, and the like pertaining
to operations by or the business of Debtor; all field accounting information and
all media in which or on which any of the information or knowledge or data or
records may be recorded or stored and all computer programs used for the
compilation or printout of such information, knowledge, records or data; all
licenses, consents, permits, variances, certifications and approvals of all
Tribunals now or hereafter held by Debtor pertaining to operations or business
now or hereafter conducted; all rights to receive return of deposits and trust
payments; all rights to payment under letters of credit and similar agreements;
all tax refunds (including, without limitation, all federal and state income tax
refunds and benefits of net operating loss carry forwards); and all causes of
action, rights, claims and warranties now or hereafter owned or acquired by
Debtor ("GENERAL INTANGIBLES");

(f) all instruments and letters of credit (each as defined in the Uniform
Commercial Code), and (whether or not included in such definitions) all
promissory notes, drafts, bills of exchange and trade acceptances
("INSTRUMENTS");

(g) all inventory in all of its forms, wherever located, now or hereafter
existing, including, but not limited to, (i) all raw materials and work in
process therefor, finished goods thereof, and materials used or consumed in the
manufacture or production thereof, (ii) goods in which Debtor has an interest in
mass or a joint or other interest or right of any kind (including, without
limitation, goods in which Debtor has an interest or right as consignee but only
to the extent of Debtor's interest therein), and (iii) goods which are returned
to or repossessed by Debtor, and all accessions thereto and products thereof and
documents therefor (any and all such inventory, accessions, products and
documents being the "INVENTORY");

(h) all accounts, contract rights, chattel paper, documents, instruments,
deposit accounts, general intangibles, tax refunds and other obligations of any
kind owing to Debtor, now or hereafter existing, whether or not arising out of
or in connection with the sale or lease of goods or the rendering of services,
and all rights now or hereafter existing in and to all security agreements,
leases, and other contracts securing or otherwise relating to any such accounts,
contract rights, chattel paper, documents, instruments, deposit accounts,
general intangibles or obligations (any and all such accounts, contract rights,
chattel paper, documents, instruments, deposit accounts, general intangibles and
obligations being the "RECEIVABLES");

(i) all of the following, to the extent that the following pertains to
manufacturing, production or maintenance operations of Debtor: trade secrets,
all know-how, inventions, processes, methods, information, data, plans,
blueprints, specifications, designs, drawings, engineering reports, test
reports, materials standards, processing standards and performance standards,
and all computer and automatic machinery software and programs directly related
thereto, and all licenses or other agreements to which Debtor is a party with
respect to any of the foregoing ("TRADE SECRETS");

(j) all agreements with each manufacturer, vendor, sales agent, sales
representative and each other Person pursuant to which Debtor receives,
maintains, sells, leases or otherwise disposes of Inventory, including all
agreements permitting the use of each such Person's name, logo, trademarks,
tradenames and advertising ("VENDOR AGREEMENTS");

(k) the Power-One Acquisition Documents;

-3-
<PAGE>

(l) all right, title and interest of Debtor in, to and under each contract
and other agreement relating to the lease, sale or other disposition of
Collateral;

(m) all rights, claims and benefits of Debtor against any Person arising
out of, relating to or in connection with Collateral purchased by Debtor,
including, without limitation, any such rights, claims or benefits against any
Person storing or transporting such Collateral;

(n) the balance of every deposit account of Debtor under control of
Administrative Lender and each other Secured Party and each of their respective
Affiliates and any other claim of Debtor against Administrative Lender and each
other Secured Party, now or hereafter existing, liquidated or unliquidated, and
all money, instruments, securities, documents, chattel paper, credits, claims,
demands, income, and any other property, rights and interests of Debtor which at
any time shall come into the possession or custody or under the control of
Administrative Lender or any Secured Party or any of its agents, affiliates or
correspondents, for any purpose, and the proceeds of any thereof (Administrative
Lender and each other Secured Party shall be deemed to have possession of any of
the Collateral in transit to or set apart for it or any of its agents,
affiliates or correspondents.

(o) 66% of the issued and outstanding capital stock of Power Electronics,
Inc., a corporation organized under the laws of the Commonwealth of Puerto Rico
("PEI"), together with all Dividends, cash, proceeds, profits, instruments,
distributions and other property from time to time distributed in respect
thereof, and any subscription rights or warrants to acquire any interest in PEI;

(p) 66% of the issued and outstanding capital stock of Poder Uno de
Mexico, S.A. de C.V., a corporation organized under the laws of the United
Mexican States ("PUM"), together with all Dividends, cash, proceeds, profits,
instruments, distributions and other property from time to time distributed in
respect thereof and any subscription rights or warrants to acquire any interest
in PUM;

(q) all licenses, permits and other rights related thereto;

(r) all insurance policies and bonds and claims and payments thereunder;

(s) all property similar to the above hereafter acquired by Debtor; and

(t) all accessions to, substitutions for and replacements, proceeds and
products of any and all of the foregoing Collateral (including, without
limitation, proceeds which constitute property of the types described in this
SECTION 1.01) and, to the extent not otherwise included, all (i) payments under
insurance (whether or not Administrative Lender is the loss payee thereof), or
any indemnity, warranty or guaranty, payable by reason of loss or damage to or
otherwise with respect to any of the foregoing Collateral and (ii) cash.

Notwithstanding the foregoing provisions of this SECTION 1.01, the
Collateral shall not include, and Debtor shall not hereby be deemed to grant a
security interest in, any rights of such Debtor under any license, lease,
agreement or contract that expressly prohibits any such assignment or security
interest; PROVIDED, HOWEVER, that in the event that any such prohibition may be
waived or avoided upon such Debtor's obtaining a consent to such assignment or
security

-4-
<PAGE>

interest or through the satisfaction of any other condition precedent and such
consent is obtained or such condition precedent is satisfied, the foregoing
provisions of this sentence shall not be effective with respect to such license,
lease, agreement or contract.

1.02. DESCRIPTION OF OBLIGATIONS. This Agreement creates a first
priority security interest (subject, however, to any Permitted Liens) securing
the payment and performance of any and all obligations now or hereafter existing
of Debtor, each Obligor and any other Person (other than Administrative Lender
or any Secured Party) under the Credit Agreement and the other Loan Documents,
including any extensions, modifications, substitutions, amendments and renewals
thereof, whether for principal, interest, fees, premium, expenses, reimbursement
obligations, indemnification or otherwise (all such obligations of Debtor, each
Obligor and each other Person being the "OBLIGATIONS"). Without limiting the
generality of the foregoing, this Agreement secures the payment of all amounts
which constitute part of the Obligations and would be owed by Debtor, each other
Obligor and any other Person (other than Administrative Lender or any Secured
Party) to Administrative Lender or any Secured Party under any Loan Document,
but for the fact that they are unenforceable or not allowable due to the
existence of a bankruptcy, reorganization or similar proceeding under any Debtor
Relief Law involving Debtor, any Obligor or any other Person (including all such
amounts which would become due or would be secured but for the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization or
like proceeding of Debtor, any other Obligor or any other Person under any
Debtor Relief Law).

1.03. DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (a) Debtor shall remain liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement had not been executed, (b) the exercise by Administrative Lender of
any of the rights hereunder shall not release Debtor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) neither Administrative Lender nor any Secured Party shall have any
obligation or liability under the contracts and agreements included in the
Collateral by reason of this Agreement, nor shall Administrative Lender or any
Secured Party be obligated to perform any of the obligations or duties of Debtor
thereunder or to take any action to collect or enforce any claim for payment
assigned hereunder.

1.04. DELIVERY OF SECURITY AND INSTRUMENT COLLATERAL. All certificates
or instruments representing or evidencing the Collateral shall be delivered to
and held by or on behalf of Administrative Lender pursuant hereto and shall be
in suitable form for transfer by delivery, or shall be accompanied by duly
executed instruments of transfer or assignment in blank, all in form and
substance satisfactory to Administrative Lender. Administrative Lender shall
have the right, as provided in SECTION 3.06, after the occurrence of an Event of
Default, and with prior written notice to Debtor, to transfer to or to register
in the name of Administrative Lender or any of its nominees any or all of such
Collateral. In addition, Administrative Lender shall have the right at any time
after the occurrence of an Event of Default to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations. Except as provided in
SECTION 3.08(d), Debtor maintains the voting rights in the Securities Collateral
which was granted in the Securities Collateral pursuant to SECTION 1.01(p).

-5-
<PAGE>

II. REPRESENTATIONS AND WARRANTIES

2.01. REPRESENTATIONS AND WARRANTIES. Debtor represents and warrants
to Administrative Lender and each Secured Party, with respect to itself and the
Collateral, as follows:

(a) As of the date hereof, all of the Equipment, Fixtures and Inventory
pledged by Debtor hereunder are located at the places specified on SCHEDULE 1
hereto (as supplemented from time to time by Debtor by written notice to
Administrative Lender) or in transit to a place specified on SCHEDULE 1 hereto
(as supplemented from time to time by Debtor by written notice to Administrative
Lender) or in transit for sale to a third-party purchaser that upon such sale
will become the obligor under a Receivable. The chief place of business and
chief executive office of Debtor and the office where Debtor keeps all of its
records concerning the Receivables, are located in Camarillo, California. As of
the date hereof, SCHEDULE 1 is a complete and correct list of, as to any leased
property on which any Collateral is located, the lease or other agreement (and
all amendments thereto) pursuant to which Debtor has use of such property
(complete and correct copies of which have been provided to Administrative
Lender), the lessor pursuant to such agreement, the recording information for
such agreement, the description of such property sufficient for recording and
the name of the record owner of such property. All Chattel Paper, promissory
notes or other instruments evidencing the Receivables (excluding checks) have
been delivered and pledged to Administrative Lender duly endorsed and
accompanied by such duly executed instruments of transfer or assignment as are
necessary for such pledge, to be held as pledged collateral.

(b) Debtor is the legal and beneficial owner of the Collateral pledged by
it free and clear of any Lien, security interest, option or other charge or
encumbrance except for the security interest created by this Agreement and
permitted pursuant to SECTION 7.2 of the Credit Agreement and any other Lien
permitted by the Credit Agreement. No effective financing statement or other
similar document used to perfect and preserve a security interest under the laws
of any jurisdiction covering all or any part of the Collateral is on file in any
recording office, except such as may have been filed in favor of Administrative
Lender relating to this Agreement and with respect to any Lien permitted by the
Credit Agreement. As of the date hereof, Debtor has the trade names set forth
on SCHEDULE 2 (and no others). Debtor (including any corporate or partnership
predecessor) has not existed or operated under any name other than as stated on
SCHEDULE 2 since the date seven years preceding the date of this Agreement.

(c) This Agreement and the pledge of the Collateral pursuant hereto,
together with the filing of financing statements containing the description of
the Collateral with the Secretary of the State of California and the United
States Trademark and Copyright Office, which will be made immediately following
the date of closing, creates a valid and perfected first priority security
interest in the Collateral (other than Collateral having an aggregate value not
in excess of $50,000) in which a security interest can be perfected by filing a
UCC financing statement (except for any Lien permitted by the Credit Agreement),
securing the payment of the Obligations; PROVIDED that additional actions may be
required with respect to the perfection of proceeds of the Collateral; FURTHER
PROVIDED that Secured Party retains physical possession of any Collateral, the
possession of which is required for perfection.

(d) No consent of any Person (other than with respect to licenses, leases,
agreements or contracts which expressly prohibit any assignment or security
interest) and no authorization,

-6-
<PAGE>

approval or other action by, and no notice to or filing with, any Tribunal
(other than the United States Trademark and Copyright Office) is required
(i) for the pledge by Debtor of the Collateral pledged by it hereunder, for the
grant by Debtor of the security interest granted hereby or for the execution,
delivery or performance of this Agreement by Debtor, (ii) for the perfection or
maintenance of the pledge, assignment and security interest created hereby
(including the first priority nature of such pledge, assignment and security
interest) or (iii) for the exercise by Administrative Lender of the rights
provided for in this Agreement or the remedies in respect of the Collateral
pursuant to this Agreement (except as may have been obtained by or at the
direction of Debtor).

(e) Debtor possesses all licenses and permits, including but not limited
to all applicable certificates of occupancy, licenses and permits and all health
and sanitation permits, required for the operations of its business except where
the failure to do so would not have a Material Adverse Effect.

(f) SCHEDULE 3 is a complete and correct list of all Acquisition
Documents.

(g) None of the Collateral described in SECTIONS 1.01(o) and 1.01(p)
("SECURITIES COLLATERAL") is subject to any unpaid capital call or dispute, any
buy-sell, voting trust, transfer restriction, preferential right to purchase or
similar agreement or any option, warrant, put or call or similar agreement. All
of the Securities Collateral are duly authorized, validly issued and non-
assessable and were not issued in violation of the Rights of any Person.

(h) All Inventory produced in the United States of America has been
produced in substantial compliance with the Fair Labor Standards Act.

(i) There are no conditions precedent to the effectiveness of this
Agreement that have not been satisfied or waived.

III. COVENANTS

3.01. FURTHER ASSURANCES. (a) Debtor agrees that, except for
restrictions related to Permitted Liens, where any agreement existing as of the
date hereof or hereafter to which Debtor is a party contains any restriction
that could reasonably be expected to prohibit Debtor from granting any security
interest under this Agreement, Debtor will use its best efforts to obtain the
necessary consent to or waiver of such restriction from any Person so as to
enable Debtor to effectively grant to Administrative Lender such security
interest under this Agreement.

(b) Debtor agrees that from time to time, at the expense of Debtor, Debtor
will promptly execute and deliver all further instruments and documents
(including supplements to all schedules), and take all further action, that may
be necessary or desirable, or that Administrative Lender may reasonably request,
in order to perfect and protect any pledge, assignment or security interest
granted or purported to be granted hereby, and the priority thereof, or to
enable Administrative Lender to exercise and enforce its rights and remedies
hereunder with respect to any Collateral. Without limiting the generality of
the foregoing, upon reasonable written request by Administrative Lender, Debtor
will: (i) mark conspicuously each Chattel Paper included in Receivables, and,
at the reasonable request of Administrative Lender, each of its records
pertaining to the Collateral with the following legend:

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THIS INSTRUMENT IS SUBJECT TO A SECURITY INTEREST AND LIEN PURSUANT TO
A SECURITY AGREEMENT DATED SEPTEMBER 27, 1995 (AS THE SAME HAS BEEN
AND MAY HEREAFTER BE AMENDED, MODIFIED OR RESTATED) MADE BY POWER-ONE
LLC, WHICH SECURITY INTEREST AND LIEN HAVE ALSO BEEN GRANTED, RATIFIED
AND CONFIRMED BY POWER-ONE, INC., AS SUCCESSOR BY MERGER TO POWER-ONE
LLC, IN FAVOR OF NATIONSBANK OF TEXAS, N.A., AS ADMINISTRATIVE LENDER
FOR CERTAIN LENDERS, AND PURSUANT TO A CREDIT AGREEMENT DATED AS OF
SEPTEMBER 27, 1995 (AS THE SAME HAS BEEN AND MAY HEREAFTER BE AMENDED,
MODIFIED OR RESTATED)

or such other legend, in form and substance reasonably satisfactory to and as
specified by Administrative Lender, indicating that such Chattel Paper or
Collateral is subject to the pledge, assignment and security interest granted
hereby; (ii) if any Collateral shall be evidenced by a promissory note or other
instrument or be Chattel Paper, deliver and pledge to Administrative Lender
hereunder such note, instrument or Chattel Paper duly indorsed and accompanied
by duly executed instruments of transfer or assignment, all in form and
substance reasonably satisfactory to Administrative Lender; and (iii) execute
and file such financing or continuation statements, or amendments thereto, and
such other instruments or notices, as may be necessary or desirable, or as
Administrative Lender may reasonably request, in order to perfect and preserve
the pledge, assignment and security interest granted or purported to be granted
hereby.

(c) In addition to such other information as shall be specifically
provided for herein, Debtor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other lists, documents, reports, and product, service and sales documents
in connection with the Collateral as Secured Party may reasonably request, all
in reasonable detail. In connection with its enforcement of the security
interest, Administrative Lender may use such information or transfer it to any
assignee or sublicensee permitted hereunder for such assignee's or sublicensee's
use.

(d) Debtor hereby authorizes Administrative Lender to file one or more
financing or continuation statements, and after 10 days' prior written notice to
Debtor, amendments thereto, relating to all or any part of the Collateral
without the signature of Debtor where permitted by law. A photocopy or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing statement
where permitted by law.

(e) Debtor will not, and will not permit any Person to, materially revise,
modify, amend or restate the articles of incorporation of any corporation the
stock or other interest in which is Collateral or the partnership, joint venture
or other organizational document of any partnership or joint venture any
interest in which is Collateral or terminate, cancel or dissolve any such
Person, except as permitted under the Credit Agreement.

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<PAGE>

3.02. EQUIPMENT, FIXTURES AND INVENTORY.

(a) Debtor shall not keep the Equipment, Fixtures and Inventory pledged by
it hereunder (other than Inventory sold in the ordinary course of business)
worth an aggregate amount exceeding $50,000 in any location unless (i) the
Debtor has delivered to Administrative Lender a financing statement for such
Equipment, Fixtures and Inventory kept by Debtor at such location or (ii) such
Equipment, Fixtures and Inventory are kept in Mexico in connection with the
operations of PUM.

(b) Debtor shall cause the Equipment and Fixtures pledged by it hereunder
that are necessary for Debtor's business to be maintained and preserved in the
same condition, repair and working order as when purchased, ordinary wear and
tear excepted in accordance with Debtor's past practices, and shall forthwith,
or in the case of any material loss or damage to any of the Equipment and
Fixtures as quickly as practicable after the occurrence thereof, make or cause
to be made all reasonable repairs, replacements, and other improvements in
connection therewith which are necessary or desirable to such end. Debtor shall
promptly furnish to Administrative Lender a statement respecting any loss or
damage which singly or in the aggregate equals or exceeds $50,000 for any fiscal
year to any of the Equipment and Fixtures pledged by it hereunder. Debtor shall
promptly furnish to Administrative Lender a statement respecting any loss or
damage which singly or in the aggregate equals or exceeds $50,000 for any fiscal
year to any of the Inventory pledged by it hereunder.

(c) Debtor shall pay promptly when due all material property and other
taxes, assessments and governmental charges or levies imposed upon, and all
claims (including claims for labor, materials and supplies) against, the
Collateral pledged by it hereunder, except such taxes as are being contested in
good faith by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP, except where the failure to file such
returns, pay such taxes or establish such reserves does not involve unpaid or
allegedly unpaid amounts, in aggregate, in excess of $50,000 for any fiscal
year. Debtor shall comply with, and shall use its best efforts to cause its
licensees to comply with, all requirements of the Fair Labor Standards Act.

3.03. INSURANCE. Debtor shall, at its own expense, maintain insurance
with respect to the Collateral in accordance with the terms set forth in
SECTION 5.5 of the Credit Agreement. Debtor further covenants and agrees to
keep the Collateral which is Inventory, Equipment, Fixtures and other tangible
personal property insured in such amounts, against such risks and with such
insurers as is consistent with customary industry practice, provided that none
of such insurance shall be in amounts less than the greater of (i) the
replacement value and (ii) the original cost of the covered property (less any
deduction standard in the industry for such type of property), subject in the
case of any property damage insurance to normal and customary rights granted in
the original course of business to (A) any landlord (with respect to the
property covered by any lease), (B) in the case of any equipment financing, to
any equipment lessor or lender (with respect to the equipment covered thereby),
or (C) mortgagees of any real property. All such policies of insurance shall be
written for the benefit of Administrative Lender and Debtor, as their interests
may appear, and shall provide for at least thirty Business Days' prior written
notice of cancellation to Administrative Lender. Debtor shall promptly furnish
to Administrative Lender evidence of such insurance in form and content
satisfactory to Administrative Lender. If Debtor fails to perform or observe
any applicable covenants as to insurance on any of such Collateral,
Administrative Lender may at its own option obtain

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insurance on only Administrative Lender's interest in such Collateral, any
premium thereby paid by Administrative Lender to become part of the Obligations,
bear interest prior to the existence of an Event of Default, at the then
applicable Base Rate Basis, and during the existence of an Event of Default, at
the Default Rate. In the event Administrative Lender maintains such substitute
insurance, the additional premium for such insurance shall be due on demand and
payable by Debtor to Administrative Lender in accordance with any notice
delivered to Debtor by Administrative Lender. Debtor hereby grants
Administrative Lender a security interest in any refunds of unearned premiums in
connection with any cancellation, adjustment or termination of any policy of
insurance required by Administrative Lender and in all proceeds of such
insurance and hereby appoints Administrative Lender its attorney-in-fact to
endorse any check or draft that may be payable to Debtor in order to collect
such refunds or proceeds. Any such sums collected by Administrative Lender
shall be credited, except to the extent applied to the purchase by
Administrative Lender of similar insurance, to any amounts then owing on the
Obligations in accordance with the Credit Agreement.

3.04. PLACE OF PERFECTION; RECORDS; COLLECTION OF RECEIVABLES, CHATTEL
PAPER AND INSTRUMENTS.

(a) Debtor shall keep its chief place of business and chief executive
office and the office where it keeps its records concerning the Receivables, and
the originals of all Chattel Paper and Instruments, at the location therefor
specified in SECTION 2.01(a). Debtor will hold and preserve such records and
Chattel Paper and Instruments and will permit representatives of Administrative
Lender at any time during normal business hours and after reasonable notice to
inspect and make abstracts from and copies of such records and Chattel Paper and
Instruments.

(b) Except as otherwise provided in this SECTION 3.04(b), Debtor shall
continue to collect, at its own expense, all amounts due or to become due Debtor
under the Receivables, Chattel Paper and Instruments. In connection with such
collections, Debtor may take (and, upon the occurrence and during the
continuance of an Event of Default at Administrative Lender's direction, shall
take) such action as Debtor or, after the occurrence and during the continuance
of an Event of Default, Administrative Lender, may deem necessary or advisable
to enforce collection of the Receivables, Chattel Paper and Instruments;
PROVIDED, HOWEVER, that Administrative Lender shall have the right (upon an
Event of Default which is continuing) (upon written notice to Debtor of its
intention to do so) to notify the account debtors or obligors under any
Receivables, Chattel Paper and Instruments of the assignment of such
Receivables, Chattel Paper and Instruments to Administrative Lender and to
direct such account debtors or obligors to make payment of all amounts due or to
become due to Debtor thereunder directly to Administrative Lender and, upon such
notification at the expense of Debtor, to enforce collection of any such
Receivables, Chattel Paper and Instruments, and to adjust, settle or compromise
the amount or payment thereof, in the same manner and to the same extent as
Debtor might have done or as Administrative Lender deems appropriate. After the
occurrence of an Event of Default, all amounts and proceeds (including
Instruments) received by Debtor in respect of the Receivables, Chattel Paper and
Instruments shall be received in trust for the benefit of Administrative Lender
hereunder, shall be segregated from other funds of Debtor and, after receipt of
notice from Administrative Lender, shall be forthwith paid over to
Administrative Lender in the same form as so received (with any necessary
indorsement) to be applied as provided in the Credit Agreement. Debtor shall
not adjust, settle or compromise the amount or payment of any Receivable,
Chattel Paper or Instrument, release wholly or partly any account debtor or
obligor thereof, or allow any credit or discount thereon other than those made
in the

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<PAGE>

ordinary course of business.

3.05. TRANSFERS AND OTHER LIENS. Debtor shall not (i) sell, assign (by
operation of law or otherwise) or otherwise dispose of, or grant any option with
respect to, any of the Collateral, except as permitted under the Credit
Agreement, (ii) create or permit to exist any Lien, security interest, option or
other charge or encumbrance upon or with respect to any of the Collateral
(excluding the Securities Collateral), except for the security interest under
this Agreement (and except as provided for in the Credit Agreement), or
(iii) with respect to the Securities Collateral, sell, assign or transfer any of
Debtor's rights in the Securities Collateral (except as provided for in the
Credit Agreement).

3.06. RIGHTS TO DIVIDENDS AND DISTRIBUTIONS. With respect to any
certificates, bonds, or other instruments or securities constituting a part of
the Collateral, Administrative Lender shall have authority during the
continuance of an Event of Default, upon written notice to Debtor of its
intention to do so, either to have the same registered in Administrative
Lender's name or in the name of a nominee, and, with or without such
registration, upon such notification to demand of the issuer thereof, and to
receive and receipt for, any and all Dividends (including any stock or similar
dividend or distribution) payable in respect thereof, whether they be ordinary
or extraordinary. If Debtor shall become entitled to receive or shall receive
any interest in or certificate (including, without limitation, any interest in
or certificate representing a Dividend or a distribution in connection with any
reclassification, increase, or reduction of capital, or issued in connection
with any reorganization), or any option or rights arising from or relating to
any of the Collateral, whether as an addition to, in substitution of, as a
conversion of, or in exchange for any of the Collateral, or otherwise, Debtor
agrees after receipt by Debtor of the notice referred to above, to accept the
same as Administrative Lender's agent and to hold the same in trust on behalf of
and for the benefit of Administrative Lender, and to deliver the same
immediately to Administrative Lender in the exact form received, with
appropriate undated stock or similar powers, duly executed in blank, to be held
by Administrative Lender, subject to the terms hereof, as Collateral. Unless an
Event of Default is in existence, Debtor shall be entitled to receive all cash
Dividends paid in respect of any of the Collateral (subject to the restrictions
of any other Loan Document). Administrative Lender shall be entitled to all
Dividends, and to any sums paid upon or in respect of any Collateral, upon the
liquidation, dissolution, or reorganization of the issuer thereof which shall be
paid to Administrative Lender to be held by it as additional collateral security
for the Obligations and application to the Obligations at the discretion of
Administrative Lender. All Dividends paid or distributed in respect of the
Collateral which are received by Debtor in violation of this Agreement shall,
until paid or delivered to Administrative Lender, be held by Debtor in trust as
additional Collateral for the Obligations.

3.07. RIGHT OF ADMINISTRATIVE LENDER TO NOTIFY ISSUERS. At any time
during the continuance of an Event of Default and at such other times as
Administrative Lender is entitled to receive Dividends and other property in
respect of or consisting of any Collateral which is or represents an equity or
ownership interest in any Person ("SECURITIES COLLATERAL"), Administrative
Lender may notify issuers of the Securities Collateral to make payments of all
Dividends directly to Administrative Lender and Administrative Lender may take
control of all proceeds of any Securities Collateral. Until Administrative
Lender elects to exercise such rights, during the continuance of an Event of
Default, Debtor, as agent of Administrative Lender, shall collect and segregate
all Dividends and other amounts paid or distributed with respect to the
Securities Collateral.

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<PAGE>

3.08. ADMINISTRATIVE LENDER APPOINTED ATTORNEY-IN-FACT. Debtor hereby
irrevocably appoints Administrative Lender Debtor's attorney-in-fact, with full
authority in the place and stead of Debtor and in the name of Debtor or
otherwise to take any action and to execute any instrument which Administrative
Lender may deem necessary or advisable to accomplish the purposes of this
Agreement, including, without limitation:

(a) to obtain and adjust insurance required to be paid to Administrative
Lender pursuant to SECTION 3.03,

(b) to ask, demand, collect, sue for, recover, compromise, receive and
give acquittance and receipts for moneys due and to become due under or in
connection with the Collateral,

(c) to receive, indorse, and collect any drafts or other Instruments,
documents and Chattel Paper, in connection therewith, and

(d) to file any claims or take any action or institute any proceedings
which Administrative Lender may deem necessary or desirable for the collection
of any of the Collateral or otherwise to enforce compliance with the terms and
conditions of any Collateral or the rights of Administrative Lender with respect
to any of the Collateral. DEBTOR HEREBY IRREVOCABLY GRANTS TO ADMINISTRATIVE
LENDER DEBTOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE OF AN EVENT OF
DEFAULT WHICH IS CONTINUING) TO VOTE ANY SECURITIES COLLATERAL AND APPOINTS
ADMINISTRATIVE LENDER DEBTOR'S ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS OF
DEBTOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF ADMINISTRATIVE LENDER'S
RIGHTS HEREUNDER. THE PROXY AND EACH POWER OF ATTORNEY HEREIN GRANTED ARE
COUPLED WITH AN INTEREST AND ARE IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF
THE OBLIGATIONS.

Secured Party shall not exercise any powers granted pursuant to this
appointment as attorney-in-fact at any time that Debtor is fully performing its
obligations hereunder. This appointment as attorney-in-fact shall terminate
upon the termination of this Agreement pursuant to SECTION 5.03 hereof.

IV. RIGHTS AND POWERS OF ADMINISTRATIVE LENDER

4.01. ADMINISTRATIVE LENDER MAY PERFORM. If Debtor fails to perform
any agreement contained herein, Administrative Lender may itself perform, or
cause performance of, such agreement, and the expenses of Administrative Lender
incurred in connection therewith shall be payable by Debtor under SECTION 4.05.

4.02. ADMINISTRATIVE LENDER'S DUTIES. The powers conferred on
Administrative Lender hereunder are solely to protect its interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, Administrative Lender
shall have no duty as to any Collateral, as to ascertaining or taking action
with respect to calls, conversions,

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exchanges, maturities, tenders or other matters relative to any Collateral,
whether or not Administrative Lender has or is deemed to have knowledge of such
matters, or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any reasonable care in the
custody and preservation of any Collateral in its possession if such Collateral
is accorded treatment substantially equal to that which Administrative Lender
accords its own property, except to the extent of any gross negligence or
willful misconduct of the Administrative Lender. Except as provided in this
SECTION 4.02, Administrative Lender shall not have any duty or liability to
protect or preserve any Collateral or to preserve rights pertaining thereto.
Nothing contained in this Agreement shall be construed as requiring or
obligating Administrative Lender, and Administrative Lender shall not be
required or obligated, to (i) present or file any claim or notice or take any
action, with respect to any Collateral or in connection therewith or (ii) notify
Debtor of any decline in the value of any Collateral.

4.03. REMEDIES. If any Event of Default shall have occurred and be
continuing:

(a) Administrative Lender may exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein or otherwise available
to it, all the rights and remedies of a secured party on default under the
Uniform Commercial Code in effect in the State of Texas at that time (the "UCC")
(whether or not the Uniform Commercial Code applies to the affected Collateral),
and also may (i) require Debtor to, and Debtor hereby agrees that it will at its
expense and upon request of Administrative Lender forthwith, assemble all or
part of the Collateral as directed by Administrative Lender and make it
available to Administrative Lender at a place to be designated by Administrative
Lender which is reasonably convenient to both parties or (ii) without notice,
except as specified below, sell the Collateral or any portion thereof in one or
more parcels at public or private sale, at any of Administrative Lender's
offices or elsewhere, for cash, on credit or for future delivery, and upon such
other terms as Administrative Lender may deem commercially reasonable. Debtor
agrees that, to the extent notice of sale shall be required by law, ten days'
written notice to Debtor of the time and place of any public sale or the time
after which any private sale is to be made shall constitute reasonable
notification. Administrative Lender shall not be obligated to make any sale of
Collateral regardless of notice of sale having been given. Administrative
Lender may adjourn any public or private sale from time to time by announcement
at the time and place fixed therefor, and such sale may, without further notice,
be made at the time and place to which it was so adjourned.

(b) All cash proceeds received by Administrative Lender upon any sale of,
collection of, or other realization upon, all or any part of the Collateral
shall be applied as follows:

FIRST: To the payment of all reasonable out-of-pocket costs and
expenses incurred in connection with the sale of, collection of or other
realization upon Collateral, including reasonable attorneys' fees and
disbursements;

SECOND: To the payment of the Obligations as provided in the Credit
Agreement and in such order and in such manner consistent with Applicable
Laws as Administrative Lender in its discretion shall decide (with Debtor
remaining liable for any deficiency); and

THIRD: To the extent of the balance (if any) of such proceeds, to
Debtor or other Person legally entitled thereto.

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(c) All payments received by Debtor under or in connection with any
Collateral shall be received in trust for the benefit of Administrative Lender,
shall be segregated from other funds of Debtor and shall be forthwith paid over
to Administrative Lender in the same form as so received (with any necessary
indorsement).

(d) Because of the Securities Act of 1933, as amended ("SECURITIES ACT"),
and other laws, including without limitation state "blue sky" laws, or
contractual restrictions or agreements, there may be legal restrictions or
limitations affecting Administrative Lender in any attempts to dispose of the
Collateral and the enforcement of its rights hereunder. For these reasons,
Administrative Lender is hereby authorized by Debtor, but not obligated, during
the continuance of any Event of Default, to sell or otherwise dispose of any of
the Collateral at private sale, subject to an investment letter, or in any other
manner which will not require the Collateral, or any part thereof, to be
registered in accordance with the Securities Act, or the rules and regulations
promulgated thereunder, or any other law. Administrative Lender is also hereby
authorized by Debtor, but not obligated, to take such actions, give such
notices, obtain such consents, and do such other things as Administrative Lender
may deem required or appropriate under the Securities Act or other securities
laws or other laws or contractual restrictions or agreements in the event of a
sale or disposition of any Collateral. Debtor clearly understands that
Administrative Lender may in its discretion approach a restricted number of
potential purchasers and that a sale under such circumstances may yield a lower
price for the Collateral than would otherwise be obtainable if same were
registered and sold in the open market. No sale so made in good faith by
Administrative Lender shall be deemed to be not "commercially reasonable"
because so made. Debtor agrees that in the event Administrative Lender shall,
during the continuance of an Event of Default, sell the Collateral or any
portion thereof at any private sale or sales, Administrative Lender shall have
the right to rely upon the advice and opinion of appraisers and other Persons,
which appraisers and other Persons are acceptable to Administrative Lender, as
to the best price reasonably obtainable upon such a private sale thereof. In
the absence of actual fraud, such reliance shall be conclusive evidence that
Administrative Lender handled such matter in a commercially reasonable manner
under Applicable Law.

(e) If Administrative Lender shall determine to exercise its right to sell
any or all of the Collateral, and if in the opinion of counsel for
Administrative Lender it is necessary, or if in the opinion of Administrative
Lender it is advisable, to have the Collateral or that portion thereof to be
sold, registered under the provisions of the Securities Act, Debtor will, to the
fullest extent it has the capability to do so, cause the issuers of the
Collateral contemplated to be sold to execute and deliver, and cause the
directors and officers of each thereof to execute and deliver, all at Debtor's
expense, all such instruments and documents, and to do or cause to be done all
such other acts and things, as may be necessary or, in the opinion of
Administrative Lender, advisable to register the Collateral or that portion
thereof to be sold, under the provisions of the Securities Act and to cause the
registration statement relating thereto to become effective and to remain
effective for such period as Administrative Lender may deem appropriate to
facilitate the sale or other disposition of such Collateral from the date of the
first public offering of the Collateral or that portion thereof to be sold, and
to make all amendments thereto and/or to the related prospectus which, in the
opinion of Administrative Lender, are necessary or advisable, all in conformity
with the requirements of the Securities Act. Debtor shall use its best efforts
to cause each issuer of Collateral to comply with the provisions of the
securities or "blue sky" laws of any jurisdiction which Administrative Lender
shall designate and to cause each Issuer to make available to its security
holders, as soon as practicable, an earnings statement which will satisfy

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the provisions of the Securities Act and applicable "blue sky" laws.

(f) (i) Debtor will maintain the accounts listed as restricted
and blocked accounts on SCHEDULE 3 (the "RESTRICTED ACCOUNTS") with
Administrative Lender, in the name of Debtor, but such Restricted Accounts
shall be owned by Administrative Lender and shall be under the sole control
and dominion of Administrative Lender.

(ii) It shall be a term and condition of each Restricted
Account, notwithstanding any term or condition to the contrary in any other
agreement relating to such Restricted Account, that no amount (including
interest and other proceeds of the cash and other property in the
Restricted Account) shall be paid or released to or for the account of, or
withdrawn by or for the account of, Debtor or any other Person from such
Restricted Account.

(iii) After the occurrence of an Event of Default,
Debtor will promptly instruct each account debtor in respect of Receivables
arising from any sale of Inventory in the ordinary course of business to
make payment to the Restricted Accounts.

Debtor understands and acknowledges that Administrative Lender may and permits
Administrative Lender to remove amounts from the Restricted Accounts from time
to time and use the amounts to reduce the Obligations.

4.04. FURTHER APPROVALS REQUIRED.

(a) In connection with the exercise by Administrative Lender of its rights
hereunder that effects the disposition of or use of any Collateral, it may be
necessary to obtain the prior consent or approval of Tribunals and other Persons
to a transfer or assignment of Collateral.

(b) Debtor hereby agrees, during the continuance of an Event of Default,
to execute, deliver, and file, and hereby appoints Administrative Lender as its
attorney-in-fact, during the continuance of an Event of Default, to execute,
deliver, and file on Debtor's behalf and in Debtor's name, all applications,
certificates, filings, instruments, and other documents (including without
limitation any application for an assignment or transfer of control or
ownership) that may be necessary or appropriate, in Administrative Lender's
opinion, to obtain such consents, waivers, or approvals. Debtor further agrees
to use its best efforts to obtain the foregoing consents, waivers, and
approvals, including receipt of consents, waivers, and approvals under
applicable agreements prior to a Default or Event of Default. Debtor
acknowledges that there is no adequate remedy at law for failure by it to comply
with the provisions of this SECTION 4.04 and that such failure would not be
adequately compensable in damages, and therefore agrees that this SECTION 4.04
may be specifically enforced. Secured Party shall not exercise any powers
granted pursuant to this appointment as attorney-in-fact at any time that Debtor
is fully performing its obligations hereunder. This appointment as attorney-in-
fact shall terminate upon the termination of this Agreement pursuant to
SECTION 5.03 hereof.

4.05. INDEMNITY AND EXPENSES. (a) Debtor agrees to indemnify
Administrative Lender and each Secured Party from and against any and all
claims, losses and liabilities (including reasonable attorneys' fees) growing
out of or resulting from this Agreement (including, without limitation,
enforcement of this Agreement), expressly including such claims, losses or
liabilities arising out of mere negligence of Administrative Lender or any
Secured Party, except claims,

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losses or liabilities resulting from Administrative Lender's or any Secured
Party's gross negligence or willful misconduct.

(b) Debtor will upon demand pay to Administrative Lender and each Secured
Party the amount of any and all reasonable expenses, including the reasonable
fees and expenses of its counsel and of any experts and agents, which
Administrative Lender and each Secured Party may incur in connection with
(i) the administration of this Agreement, (ii) the custody, preservation, use or
operation of, or the sale of, collection from, or other realization upon, any of
the Collateral, (iii) the exercise or enforcement of any of the rights of
Administrative Lender or any Secured Party hereunder or (iv) the failure by
Debtor to perform or observe any of the provisions hereof.

V. MISCELLANEOUS

5.01. CUMULATIVE RIGHTS. All rights of Administrative Lender and each
other Secured Party under the Loan Documents are cumulative of each other and of
every other right which Administrative Lender and each other Secured Party may
otherwise have at law or in equity or under any other contract or other writing
for the enforcement of the security interest herein or the collection of the
Obligations. The exercise of one or more rights shall not prejudice or impair
the concurrent or subsequent exercise of other rights.

5.02. MODIFICATIONS; AMENDMENTS; ETC. No amendment or waiver of any
provision of this Agreement, and no consent to any departure by Debtor here
from, shall in any event be effective unless the same shall be in writing and
signed by Administrative Lender, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.

5.03. CONTINUING SECURITY INTEREST. This Agreement shall create a
continuing security interest in the Collateral and shall (a) remain in full
force and effect until the later of (i) the final payment in full of the
Obligations and all amounts payable under this Agreement (other than Obligations
which are contingent and unliquidated and not due and owing on such date and
which pursuant to the provisions of the Credit Agreement, the Letters of Credit
or the Collateral Documents survive the termination of the Credit Agreement, the
termination of the Commitments, or the expiration or cancellation of the Letters
of Credit) and (ii) the expiration or termination of the obligation of all
Secured Parties to extend credit to Debtor and the expiration of all Letters of
Credit, (b) be binding upon Debtor, its successors and assigns, and (c) inure to
the benefit of, and be enforceable by, Administrative Lender and its successors,
transferees and assigns. Upon any such termination, Administrative Lender will,
at Debtor's expense, execute and deliver to Debtor such documents as Debtor
shall reasonably request to evidence such termination. Debtor agrees that to
the extent that Administrative Lender or any Secured Party receives any payment
or benefit and such payment or benefit, or any part thereof, is subsequently
invalidated, declared to be fraudulent or preferential, set aside or is required
to be repaid to a trustee, receiver, or any other party under any Debtor Relief
Law, common law or equitable cause, then to the extent of such payment or
benefit, the Obligations or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if such payment or benefit had
not been made and, further, any such repayment by Administrative Lender or any
Secured Party, to the extent that Administrative Lender or any Secured Party did
not directly receive a corresponding cash payment, shall be added to and be
additional Obligations payable upon

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demand by Administrative Lender or any Secured Party and secured hereby, and, if
the lien and security interest hereof shall have been released, such lien and
security interest shall be reinstated with the same effect and priority as on
the date of execution hereof all as if no release of such lien or security
interest had ever occurred.

5.04. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCEPT TO THE
EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF TEXAS. UNLESS OTHERWISE DEFINED
HEREIN OR IN THE CREDIT AGREEMENT, TERMS USED IN ARTICLE 9 OF THE UCC ARE USED
HEREIN AS THEREIN DEFINED.

5.05. WAIVER OF JURY TRIAL. ADMINISTRATIVE LENDER AND DEBTOR HEREBY
WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDINGS INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY
ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR THE RELATIONSHIP
ESTABLISHED HEREUNDER.

5.06. ADMINISTRATIVE LENDER'S RIGHT TO USE AGENTS. Administrative
Lender may exercise its rights under this Agreement through an agent or other
designee.

5.07. NO INTERFERENCE, COMPENSATION OR EXPENSE. Administrative Lender
may exercise its rights under this Agreement (a) without resistance or
interference by Debtor and (b) without payment of any rent, license fee or
compensation of any kind to Debtor.

5.08. WAIVERS OF RIGHTS INHIBITING ENFORCEMENT. Debtor waives (a) any
claim that, as to any part of the Collateral, a public sale, should
Administrative Lender elect so to proceed, is, in and of itself, not a
commercially reasonable method of sale for such Collateral, (b) except as
otherwise provided in this Agreement, TO THE EXTENT PERMITTED BY APPLICABLE LAW,
NOTICE OR JUDICIAL HEARING IN CONNECTION WITH ADMINISTRATIVE LENDER'S
DISPOSITION OF ANY OF THE COLLATERAL INCLUDING ANY AND ALL PRIOR NOTICE AND
HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT DEBTOR
WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES
OR OF ANY STATE, AND ALL OTHER REQUIREMENTS AS TO THE TIME, PLACE AND TERMS OF
SALE OR OTHER REQUIREMENTS WITH RESPECT TO THE ENFORCEMENT OF ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER and (c) all rights of redemption, appraisal, valuation
or to the marshalling of assets.

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5.09. NOTICES AND DELIVERIES.

(a) MANNER OF DELIVERY. All notices, communications and materials to be
given or delivered pursuant to this Agreement shall, except in those cases where
giving notice by telephone is expressly permitted, be given or delivered in
writing. All written notices, communications and materials shall be sent by
registered or certified mail, postage prepaid, return receipt requested, by
telecopier, or delivered by hand. In the event of a discrepancy between any
telephonic notice and any written confirmation thereof, such written
confirmation shall be deemed the effective notice except to the extent
Administrative Lender or Debtor has acted in reliance on such telephonic notice.

(b) ADDRESSES. All notices, communications and materials to be given or
delivered pursuant to this Agreement shall be given or delivered at the
following respective addresses and telecopier and telephone numbers and to the
attention of the following individuals or departments:

(i) if to Debtor, to it at:

Power-One, Inc.
740 Calle Plano
Camarillo, California 93012-8583
Telecopier No.: (805) 484-0445
Telephone No.: (805) 987-8741

Attention: Eddie K. Schnopp

(ii) if to Administrative Lender, to it at:

NationsBank of Texas, N.A.
NationsBank Plaza
901 Main Street
67th Floor
Dallas, Texas 75202
Telecopier No.: (214) 508-0980
Telephone No.: (214) 508-9074

Attention: William C. Collins

or at such other address or, telecopier or telephone number or to the attention
of such other individual or department as the party to which such information
pertains may hereafter specify for the purpose in a notice to the other
specifically captioned "Notice of Change of Address".

(c) EFFECTIVENESS. Each notice, communication and any material to be
given or delivered to Administrative Lender or Debtor pursuant to this Agreement
shall be effective or deemed delivered or furnished (i) if sent by mail, on the
fifth Business Day after such notice, communication or material is deposited in
the mail, addressed as above provided, (ii) if sent by telecopier, when such
notice, communication or material is transmitted to the appropriate number
determined as above provided in this SECTION 5.09 and the appropriate receipt is
received or otherwise acknowledged and (iii) if sent by hand delivery or
overnight courier, when left at the

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<PAGE>

address of the addressee addressed as above provided.

5.10. SUCCESSORS AND ASSIGNS. All of the provisions of this Agreement
shall be binding and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

5.11. LOAN DOCUMENT. This Agreement is a Loan Document executed
pursuant to the Credit Agreement and shall (unless otherwise expressly indicated
herein) be construed, administered and applied in accordance with the terms and
provisions thereof.

5.12. DEFINITIONS. Capitalized terms not otherwise defined herein have
the meaning specified in the Credit Agreement and, to the extent of any
conflict, terms as defined in the Credit Agreement shall control (PROVIDED, that
a more expansive or explanatory definition shall not be deemed a conflict).

5.13. SEVERABILITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under present or future laws during the term
thereof, such provision shall be fully severable, this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part hereof, and the remaining provisions hereof shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom. Furthermore,
IN LIEU of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a legal, valid, and enforceable
provision as similar in terms to the illegal, invalid, or unenforceable
provision as may be possible.

5.14. OBLIGATIONS NOT AFFECTED. To the fullest extent permitted by
Applicable Law, the obligations of Debtor under this Agreement shall remain in
full force and effect without regard to, and shall not be impaired or affected
by:

(a) any amendment or modification or addition or supplement to any Loan
Document, any instrument delivered in connection therewith or any assignment
or transfer thereof;

(b) any exercise, non-exercise, or waiver by Administrative Lender or
any Secured Party of any right, remedy, power or privilege under or in
respect of, or any release of any guaranty, any collateral or the Collateral
or any part thereof provided pursuant to, this Agreement or any other Loan
Document;

(c) any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any other Loan Document or any
assignment or transfer of any thereof; or

(d) any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Debtor, any Obligor or
any other Person, whether or not Debtor shall have notice or knowledge of any
of the foregoing.

5.15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, but all such counterparts together shall constitute but one and the
same instrument.

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<PAGE>

5.16. ENTIRE AGREEMENT. THIS WRITTEN AGREEMENT, TOGETHER WITH THE
OTHER LOAN DOCUMENTS, REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE
PARTIES.

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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK

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<PAGE>

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered by their respective duly authorized officers or members
as of the date first above written.

DEBTOR:

POWER-ONE, INC.

By:
---------------------------------------
Name:
---------------------------------
Title:
-------------------------------

ADMINISTRATIVE LENDER:

NATIONSBANK OF TEXAS, N.A.

By:
-----------------------------------------
William C. Collins, Senior Vice President

SECURED PARTY:

NATIONSBANK OF TEXAS, N.A.

By:
-----------------------------------------
William C. Collins, Senior Vice President

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<PAGE>

Schedule 1

Equipment, Inventory and Fixtures Locations

*To Be Provided By Debtor*

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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

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<PAGE>

Schedule 2

Trade Names

*To Be Provided By Debtor*

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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

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<PAGE>

Schedule 3

Restricted Accounts

*To Be Provided By Debtor*

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THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.

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<PAGE>

PLEDGE AGREEMENT
----------------

THIS PLEDGE AGREEMENT is made as of September ___, 1995, by
________________________________________, a __________________ corporation [AN
INDIVIDUAL RESIDENT OF ____________] ("Pledgor"), in favor of NationsBank of
Texas, N.A., a national banking association, as Administrative Lender
("Administrative Lender") for NationsBank of Texas, N.A., and each other lender
a party to the Credit Agreement described below (singly, a "Secured Party" and
collectively, the "Secured Parties").

A. AGREEMENT

1. PLEDGE. Upon the terms hereof, for value received, the Pledgor hereby
irrevocably and unconditionally pledges, assigns, hypothecates and transfers to
the Administrative Lender, for the ratable benefit of the Administrative Lender
and Secured Parties, a first and prior pledge and security interest in (a) all
member interests of Power-One LLC, a Delaware limited liability company
("Power-One"), now or hereafter owned beneficially or of record by the Pledgor,
including the member interests described on Exhibit A attached hereto, and
(b) all proceeds thereof, and any increase and profits received therefrom
(except any distribution permitted under the Credit Agreement including Tax
Distributions) (collectively, "Collateral"). Unless otherwise defined in this
agreement, terms used herein shall have the meanings set forth in the Credit
Agreement, dated as of September 29, 1995, among Power-One, the Administrative
Lender, and the Secured Parties (as amended, modified, supplemented, renewed or
extended from time to time, "Credit Agreement").

B. OBLIGATION

1. DESCRIPTION OF OBLIGATION. The following obligations (collectively,
"Obligation") are secured by this agreement:

a. All debt, obligations, liabilities and agreements of any nature
of Power-One to the Secured Parties or any Secured Party, whether matured
or unmatured, fixed or contingent, including all future advances, now or
hereafter existing, in each case arising pursuant to or in connection with
(i) this agreement; (ii) the Credit Agreement; (iii) all other Loan
Documents; and (iv) all amendments, modifications, renewals, extensions,
increases, substitutions or rearrangements of any of the foregoing.

b. All reasonable costs incurred by the Administrative Lender or any
Secured Party to obtain, preserve, perfect and enforce this agreement, the
other Loan Documents, and the pledge and security interest granted hereby,
collect the Obligation, and maintain, preserve, collect and enforce the
Collateral, including without limitation taxes, assessments, reasonable
attorneys' fees and reasonable legal expenses, and reasonable expenses of
sale.

c. Interest on the above amounts as agreed between Power-One and the
Secured

<PAGE>

Parties, including, without limitation, interest, reasonable fees and other
charges that would accrue or become owing both prior to and subsequent to
and but for the commencement of any proceeding against or with respect to
Power-One under any chapter of the Bankruptcy Code of 1978, 11 U.S.C.
Section 101 ET SEQ. whether or not a claim is allowed for the same in any
such proceeding.

C. COVENANTS, REPRESENTATIONS AND WARRANTIES

1. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and warrants
that (a) it has full power, authority and legal right to execute, deliver and
perform this agreement; (b) the member interests of Power-One described on
Exhibit A constitutes 100% of the issued and outstanding member interests of
Power-One owned by it; (c) the member interests pledged hereunder are duly
authorized, validly issued, fully paid and nonassessable; (d) the pledge,
assignment and delivery of the Collateral create a valid, so long as the
Administrative Lender retains physical possession of the Collateral, first and
prior perfected security interest in the Collateral and no other security
agreement covering the Collateral, or any part thereof, has been made, and no
pledge or security interest, other than the one herein created, has attached or
been perfected in the Collateral or in any part thereof, provided that
additional action may be required with respect to the perfection of proceeds of
the Collateral; and (e) Pledgor has no knowledge of any dispute, right of
setoff, counterclaim or defense exists with respect to any part of the
Collateral. The delivery at any time by the Pledgor to the Administrative
Lender of Collateral shall constitute a representation and warranty by the
Pledgor under this agreement that, with respect to such Collateral, and each
item thereof, the Pledgor is the sole legal and beneficial owner of, with good
title to, the Collateral; and the matters warranted in this paragraph are true
and correct.

2. COVENANTS.

a. AFFIRMATIVE COVENANTS. The Pledgor covenants and agrees
(i) promptly to deliver to the Administrative Lender all instruments,
certificates, documents or agreements evidencing any of the Collateral;
(ii) from time to time promptly to execute and deliver to the
Administrative Lender all such other assignments, certificates,
supplemental writings and financing statements, and do all other acts or
things, as the Administrative Lender or any Secured Party may reasonably
request in order more fully to evidence and perfect the security interest
and pledge herein created or to effect the purposes of this agreement; and
(iii) promptly to notify the Administrative Lender of any claim, action or
proceeding materially adversely affecting title to the Collateral, or any
part thereof, or the security interest therein.

b. NEGATIVE COVENANTS. The Pledgor covenants and agrees that the
Pledgor will not (i) sell, assign or transfer any of the Pledgor's rights
in the Collateral, unless such sale is expressly made subject to the Lien
granted herein; (ii) create any other security interest or

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<PAGE>

pledge in, mortgage or otherwise encumber the Collateral or any part
thereof; (iii) cause, permit, or suffer Power-One to issue any member
interests to the Pledgor that is not concurrently delivered to the
Administrative Lender; or (iv) agree to amend or modify the operating
agreement for Power-One (or otherwise agree or obligate the Pledgor) in
such a manner as to require additional capital contributions to be made by
the Pledgor in respect of its member interest.

D. RIGHTS OF SECURED PARTIES

1. RIGHTS TO DIVIDENDS, DISTRIBUTIONS, AND PAYMENTS. With respect to
such instruments which are certificates, bonds or other securities, the
Administrative Lender may demand of Power-One, and may receive and receipt for,
any and all dividends and other distributions (other than cash dividends)
payable in respect thereof, whether ordinary or extraordinary, other than those
distributions permitted by the Credit Agreement. The Administrative Lender
shall have the authority, following an Event of Default and upon written notice
to the Pledgor to do so, to have such certificates, bonds or other securities
registered either in the Administrative Lender's name or in the name of a
nominee. If, while this agreement is in effect, the Pledgor shall become
entitled to receive or shall receive any certificate (including, without
limitation, any certificate representing a dividend or a distribution in
connection with any reclassification, increase or reduction of capital, or
issued in connection with any reorganization), option or rights, whether as an
addition to, in substitution of, as a conversion of or in exchange for any of
the Collateral, or otherwise, the Pledgor agrees to accept the same as the
Administrative Lender's agent and to hold the same in trust on behalf of and for
the benefit of the Administrative Lender, and to deliver the same forthwith to
the Administrative Lender in the exact form received, with appropriate undated
stock powers, duly executed in blank, to be held by the Administrative Lender,
subject to the terms hereof, as additional collateral security for the
Obligation. Until an Event of Default shall have occurred, the Pledgor shall be
entitled to receive all cash distributions paid in respect of the Collateral.
After the occurrence of an Event of Default, the Administrative Lender shall be
entitled to all cash distributions (except for Tax Distributions), and to any
sums paid upon or in respect of the Collateral upon the liquidation, dissolution
or reorganization of the issuer thereof which shall be paid to the
Administrative Lender to be held by it as additional collateral security for the
Obligation. In case any distribution shall be made on or in respect of the
Collateral pursuant to the reorganization, liquidation or dissolution of the
issuer thereof, the property so distributed shall be delivered to the
Administrative Lender to be held by it as additional collateral security for the
Obligation. After an Event of Default, all sums of money and property so paid
or distributed in respect of the Collateral (other than proceeds of any
liquidation or similar proceeding) which are received by the Pledgor shall,
until paid or delivered to the Administrative Lender, be held by the Pledgor in
trust as additional Collateral for the Obligation.

2. PRESERVATION OF COLLATERAL. Neither the Administrative Lender nor any
Secured Party shall have any duty to fix or preserve rights against prior
parties to the Collateral, nor be liable for

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<PAGE>

any delay in the collection of, or failure to use diligence to collect on, the
Obligation or any amount payable in respect of the Collateral.

3. PERFORMANCE BY THE ADMINISTRATIVE LENDER. Should any covenant, duty
or agreement of the Pledgor fail to be performed in accordance with its terms
hereunder, the Administrative Lender may, but shall never be obligated to,
perform or attempt to perform such covenant, duty or agreement on behalf of the
Pledgor, and any amount expended by the Administrative Lender in such
performance or attempted performance shall become a part of the Obligation,
shall be payable upon demand and shall bear interest at a per annum rate equal
to the lesser of the Highest Lawful Rate and the sum of the Base Rate Basis plus
two percent.

4. VOTING RIGHTS. Subject to Section F.1. hereof, it is expressly
understood and agreed that the Pledgor shall retain all voting rights to the
Collateral until the occurrence of an Event of Default, at which time such
voting rights shall transfer to the Administrative Lender, at its sole
discretion.

5. POWER OF ATTORNEY. PLEDGOR HEREBY IRREVOCABLY GRANTS TO THE
ADMINISTRATIVE LENDER PLEDGOR'S PROXY (EXERCISABLE FROM AND AFTER THE OCCURRENCE
OF AN EVENT OF DEFAULT WHICH IS CONTINUING) TO VOTE ANY COLLATERAL AND APPOINTS
THE ADMINISTRATIVE LENDER PLEDGOR'S ATTORNEY-IN-FACT TO PERFORM ALL OBLIGATIONS
OF PLEDGOR UNDER THIS AGREEMENT AND TO EXERCISE ALL OF THE ADMINISTRATIVE
LENDER'S RIGHTS HEREUNDER. THE PROXY AND POWER OF ATTORNEY HEREIN GRANTED, AND
EACH STOCK POWER AND SIMILAR POWER NOW OR HEREAFTER GRANTED (INCLUDING ANY
EVIDENCED BY A SEPARATE WRITING) ARE COUPLED WITH AN INTEREST AND ARE
IRREVOCABLE PRIOR TO FINAL PAYMENT IN FULL OF THE OBLIGATIONS.

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<PAGE>

E. DEFAULT

1. RIGHTS AND REMEDIES. Upon the occurrence of an Event of Default, in
addition to any and all other rights and remedies which the Administrative
Lender or any Secured Party may then have hereunder, under any other Loan
Documents, under Applicable Law or otherwise, the Administrative Lender at its
option may, subject to any limitation or restriction imposed by any applicable
bankruptcy, insolvency or other law relating to the relief of debtors,
(a) obtain from any Person information regarding the Pledgor, any issuer of the
Collateral, or any of their businesses, which information any such Person may
furnish without liability to the Pledgor; (b) require the Pledgor to give
possession or control of any of the Collateral to the Administrative Lender;
(c) unless earlier permitted hereunder, take control of funds generated by the
Collateral and any other proceeds (except any distribution permitted under the
Credit Agreement including Tax Distributions) and exercise all other Rights
which an owner of such Collateral may exercise; (d) declare the entire unpaid
balance of principal and interest on the Obligation immediately due and payable,
without notice, demand or presentment, which are hereby expressly waived;
(e) reduce its claim to judgment, foreclose or otherwise enforce its security
interest in all or any part of the Collateral by any available judicial
procedure; (f) after notification, if any, provided for in this agreement or any
other Loan Documents, sell or otherwise dispose of, at the office of the
Administrative Lender, all or any part of the Collateral, and any such sale or
other disposition shall be in accordance with Applicable Law, and may be as a
unit or in parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale of any part of the Collateral shall not
exhaust the Administrative Lender's power of sale, but sales may be made from
time to time until all of the Collateral has been sold or until the Obligation
has been paid in full), and at any such sale it shall not be necessary to
exhibit the Collateral; (g) at its discretion, retain the Collateral in
satisfaction of the Obligation whenever the circumstances are such that the
Administrative Lender is entitled to do so under Applicable Law; (h) apply by
appropriate judicial proceedings for appointment of a receiver for the
Collateral, or any part hereof, and the Pledgor hereby consents to any
appointment; (i) buy the Collateral at any public sale; and (j) buy the
Collateral at any private sale, subject to any restrictions imposed by
Applicable Law. Any Secured Party may buy the Collateral at any public sale and
buy the Collateral at any private sale, subject to the restrictions imposed by
Applicable Law. Pledgor agrees that, if notice is required to be given by
Applicable Law, 10 days' advance written notice shall constitute reasonable
notice. The Administrative Lender shall apply the proceeds of any collection,
sale, disposition or other realization upon any Collateral as follows:

FIRST, to the payment of the reasonable costs and expenses of such
collection, sale, disposition, or other realization, including reasonable
out-of-pocket costs and expenses of the Administrative Lender and the
reasonable fees and expenses of its agents and counsel;

NEXT, to the payment of the Obligations, equally and ratably to each
Secured Party in accordance with the respective amounts thereof due and
owing to each Secured Party; and

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<PAGE>

FINALLY, to the payment to the Pledgor, or its successors or assigns,
or as a court of competent jurisdiction may direct, of any surplus then
remaining.

If the proceeds of collection, sale, disposition, or other realization are
insufficient to cover the costs and expenses of such realization and the payment
in full of the Obligation, the Pledgor shall not remain liable for any
deficiency.

2. TRANSFER

a. The Pledgor recognizes that the Administrative Lender may be
unable to effect a public sale of any or all of the Collateral by reason of
certain prohibitions contained in the Securities Act and applicable state
securities laws, but may be compelled to resort to one or more private
sales thereof to a restricted group of purchasers who will be obliged to
agree, among other things, to acquire such Collateral for their own account
for investment and not with a view to the distribution or resale thereof.
The Pledgor acknowledges and agrees that any such private sale conducted in
the manner described herein may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any private sale shall be
made in a commercially reasonable manner. The Administrative Lender shall
be under no obligation to delay a sale of any of the Collateral for the
period of time necessary to permit the issuer of the Collateral to register
such Collateral for public sale under the Securities Act, or under
applicable state securities laws, even if the issuer of the Collateral
would agree to do so.

b. The Pledgor agrees (i) that in the event the Administrative
Lender shall, upon any Event of Default, sell the Collateral or any portion
thereof, at a private sale or sales, the Administrative Lender shall have
the right to rely upon the advice and opinion of a member of a nationally
recognized investment banking firm acceptable to the Administrative Lender,
as to the best price reasonably obtainable upon such a private sale
thereof, and (ii) in the absence of fraud, wilful misconduct and gross
negligence, that such reliance shall be conclusive evidence that the
Administrative Lender handled such matter in a commercially reasonable
manner under the Uniform Commercial Code.

3. NOTICE. Notification of the time and place of any public sale of the
Collateral, or reasonable notification of the time after which any private sale
or other intended disposition of the Collateral is to be made, shall be sent to
the Pledgor and to any other Person entitled under Applicable Law to notice.

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<PAGE>

F. GENERAL

1. ADMINISTRATIVE LENDER'S DUTIES. The Secured Parties hereby appoint
NationsBank of Texas, N.A. as Administrative Lender to act as their agent as
provided herein. In the event the Administrative Lender is replaced pursuant to
Section 10.1(b) of the Credit Agreement, the successor Administrative Lender
appointed in accordance with Section 10.1(b) of the Credit Agreement shall be
the Administrative Lender hereunder. The powers conferred on the Administrative
Lender hereunder are solely to protect the Secured Parties' interest in the
Collateral and shall not impose any duty upon it to exercise any such powers.
Except for the safe custody of any Collateral in its possession and the
accounting for moneys actually received by it hereunder, the Administrative
Lender shall have no duty as to any Collateral, as to ascertaining or taking
action with respect to calls, conversions, exchanges, maturities, tenders, or
other matters relative to any Collateral, whether or not the Administrative
Lender or any Secured Party has or is deemed to have knowledge of such matters,
or as to the taking of any necessary steps to preserve rights against prior
parties or any other rights pertaining to any reasonable care in the custody and
preservation of any Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Administrative Lender accords
its own property. Except as set forth herein the Administrative Lender shall
not have any duty or liability to protect or preserve any Collateral or to
preserve rights pertaining thereto. Nothing contained in this agreement shall
be construed as requiring or obligating the Administrative Lender, and the
Administrative Lender shall not be required or obligated, (a) to present or file
any claim or notice or take any action, with respect to any Collateral or in
connection therewith or (b) to notify Pledgor of any decline in the value of any
Collateral.

2. CUMULATIVE RIGHTS. All rights and remedies of the Administrative
Lender and the Secured Parties hereunder are cumulative of each other and of
every other right or remedy which the Administrative Lender or the Secured
Parties may otherwise have at law or in equity or under any other contract or
other writing for the enforcement of the security interest herein or the
collection of the Obligation, and the exercise of one or more rights or remedies
shall not prejudice or impair the concurrent or subsequent exercise of other
rights or remedies.

3. WAIVER. Should any part of the Obligation be payable in installments,
the acceptance by any Secured Party at any time and from time to time of partial
payment of the aggregate amount of all installments then matured shall not be
deemed as a waiver of any Event of Default then existing. No waiver by the
Administrative Lender or any Secured Party of any Event of Default shall be
deemed to be a waiver of any other subsequent Event of Default, nor shall any
such waiver by the Administrative Lender or any Secured Party be deemed to be a
continuing waiver. No delay or omission by the Administrative Lender or any
Secured Party in exercising any right or power hereunder, or under any other
Loan Documents, shall impair any such right or power or be construed as a waiver
thereof or an acquiescence therein, nor shall any single or partial exercise of
any such right or power preclude other or further exercise thereof, or the
exercise of any other right or power of the Administrative Lender or any Secured
Party hereunder or under such other writings.

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<PAGE>

4. INTEREST; LIMITATION OF LAW. No provision herein or in any Loan
Documents shall require the payment or permit the collection of interest in
excess of the maximum permitted by Applicable Law. If, in any contingency
whatsoever, the Administrative Lender or any Secured Party shall receive
anything of value from the Pledgor deemed interest under Applicable Law which
would exceed the maximum amount of interest permissible under Applicable Law,
the provisions of the Credit Agreement shall govern.

5. PARTIES BOUND. This agreement shall be binding on the Pledgor and its
heirs, successors, assigns, administrators and legal representatives, and shall
inure to the benefit of the Administrative Lender and the Secured Parties, and
their successors, permitted assigns and legal representatives; provided,
however, that the Pledgor may not assign its rights or obligations hereunder
without the prior written consent of the Administrative Lender. The rights,
powers and interests held by the Administrative Lender hereunder may be
transferred and assigned by the Administrative Lender, in whole or in part, at
such time and upon such terms as permitted by the Credit Agreement.

6. NOTICE; WAIVERS BY PLEDGOR. Notice shall be deemed reasonable if sent
by telex or telegraph, or certified mail return receipt requested, postage
prepaid, or by a reputable commercial overnight delivery service, at least five
days before the related action (or if Applicable Law specifies a longer period,
such longer period) to the address of the Pledgor given above. The Pledgor
waives notices of the creation, advance, increase, existence, extension or
renewal of, and of any indulgence with respect to, the Obligation; waives
presentment, demand, notice of dishonor and protest; waives notice of the amount
of the Obligation outstanding at any time, notice of any change in financial
condition of any Person liable for the Obligation or any part thereof, notice of
any Event of Default and all other notices respecting the Obligation; waives all
rights of redemption, appraisal, or valuation; and agrees that maturity of the
Obligation and any part thereof may be accelerated, increased, extended or
renewed one or more times by the Secured Parties in their discretion, without
notice to the Pledgor.

7. MODIFICATIONS. No provision hereof shall be modified or limited
except by a written agreement expressly referring hereto and to the provisions
so modified or limited and signed by the Administrative Lender, nor by course of
conduct, usage of trade or mercantile law.

8. CONTROL. Notwithstanding anything herein to the contrary, this
agreement and the transactions contemplated hereby do not and will not
constitute, create, or have the effect of constituting or creating, directly or
indirectly, actual or practical ownership of the Pledgor or the issuer of the
Collateral by the Administrative Lender, or control, affirmative or negative,
direct or indirect, by the Administrative Lender or the Secured Parties, over
the management or any aspect of the day-to-day operation of the Pledgor or the
issuer of the Collateral, which control remains in the Pledgor and the issuer of
the Collateral.

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<PAGE>

9. OBLIGATIONS NOT AFFECTED. To the fullest extent permitted by
Applicable Law, the pledge, assignment and security interest granted herein and
obligations of the Pledgor under this agreement shall remain in full force and
effect without regard to, and shall not be impaired or affected by:

a. any amendment or modification or addition or supplement to any
Loan Document, any instrument delivered in connection therewith or any
assignment or transfer thereof, including but not limited to any increase
in the Commitment;

b. any exercise, non-exercise, or waiver by the Administrative
Lender or any Secured party of any right, remedy, power or privilege under
or in respect of, or any release of any guaranty, any collateral or the
Collateral or any part thereof provided pursuant to, this Agreement or any
other Loan Document;

c. any waiver, consent, extension, indulgence or other action or
inaction in respect of this Agreement or any other Loan Document or any
assignment or transfer of any thereof; or

d. any bankruptcy, insolvency, reorganization, arrangement,
readjustment, composition, liquidation or the like of Power-One, any other
Obligor or any other Person, whether or not Debtor shall have notice or
knowledge of any of the foregoing.

10. TAX DISTRIBUTIONS. The Pledgor acknowledges that the terms of the
Credit Agreement permit Tax Distributions to be made to the Pledgor. In
consideration for permitting such Tax Distributions, to the extent that the
Pledgor shall realize a reduction in state or federal income Taxes for any year
as a result of losses incurred by Power-One, the Pledgor agrees to make an
equity contribution to Power-One in the amount of such reduction in federal and
state income Taxes within 30 days after the Pledgor files its Tax returns for
such year in an amount equal to the lesser of (i) the amount of such reduction
in federal and state income taxes or (ii) the aggregate Tax Distributions paid
to the Pledgor since the date of this agreement.

11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND THE UNITED STATES OF AMERICA.
WITHOUT EXCLUDING ANY OTHER JURISDICTION, THE PLEDGOR AGREES THAT THE STATE AND
FEDERAL COURTS OF TEXAS LOCATED IN DALLAS, TEXAS SHALL HAVE JURISDICTION OVER
PROCEEDINGS IN CONNECTION HEREWITH.

12. CONSENT TO PLEDGE BY OTHER MEMBERS. The Pledgor hereby consents to
the execution and delivery by each other member interest owner in Power-One of a
pledge agreement in form and substance similar to this Agreement, the effect of
which will cause 100% of the member interests

-9-
<PAGE>

in Power-One to be assigned to secure the Obligations.

13. NO RECOURSE. Notwithstanding anything in this agreement to the
contrary, other than the obligation to contribute the Tax Distributions as
provided in Section 10 of this agreement, the Pledgor shall have no personal
liability as a result of the Pledgor's execution and delivery of this Agreement,
and the only recourse the Administrative Lender and the Secured Parties shall
have hereunder shall be against the Collateral.

14. WAIVER OF JURY TRIAL. THE PLEDGOR AND THE ADMINISTRATIVE LENDER
HEREBY KNOWINGLY, VOLUNTARILY, IRREVOCABLY AND INTENTIONALLY WAIVE, TO THE
MAXIMUM EXTENT PERMITTED BY LAW, ALL RIGHT TO TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR CLAIM ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE
LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY. THIS PROVISION IS A
MATERIAL INDUCEMENT TO EACH LENDER ENTERING INTO THE CREDIT AGREEMENT.

15. ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE OTHER LOAN
DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE
PARTIES.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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<PAGE>

IN WITNESS WHEREOF, the Pledgor has executed this Pledge Agreement as of
September ___, 1995.

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

Address of Pledgor:

By:
- ------------------------------ -------------------------------------
Name:
- ------------------------------ -------------------------------
Title:
------------------------------

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<PAGE>

NATIONSBANK OF TEXAS, N.A., as Administrative
Lender and as a Secured Party

By:
-------------------------------------
William C. Collins
Senior Vice President

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<PAGE>

Exhibit A to Pledge Agreement

-13-

<PAGE>

PRODUCT AND COMPONENT AGREEMENT

This Product and Component Agreement (the "Agreement") is entered into by and
between CALEX Manufacturing Company, Inc. having offices at 2401 Stanwell
Drive, Concord CA 94520 ("CALEX") and Power-One, Inc. having offices at 740
Calle Plano, Camarillo, CA 93012 ("POWER-ONE"), as of this second day of
April 1996 (the "Effective Date").

RECITALS

POWER-ONE is engaged in the design, manufacture, and sale of Power Conversion
Products, including AC-DC Power Supplies and DC-DC CONVERTERS, which are
incorporated in AC-DC Power Supplies or sold separately.

CALEX designs, manufactures and sells a family of DC-DC CONVERTERS and possesses
proprietary information pertaining to the design, manufacture, and application
of those devices.

POWER-ONE desires to purchase CALEX'S DC-DC CONVERTERS for its use and/or sale
to others. POWER-ONE also desires to obtain a license to manufacture these
devices.

CALEX is willing to sell its family of DC-DC converters and the components
contained in such devices and to license the manufacturing and design technology
and know-how for such devices to POWER-ONE on the terms set forth herein.

CALEX desires to purchase certain components and sub-assemblies from POWER-ONE
for use in CALEX'S manufacturing activities.

POWER-ONE is willing to sell such components and sub-assemblies to CALEX on the
terms set forth herein.

In consideration of the mutual covenants herein contained and intending to be
legally bound by the provisions of this Agreement, the parties agree as follows:

I. DEFINITIONS

For all purposes of this Agreement, except as otherwise expressly provided or
unless the context otherwise requires, the terms defined in this Article 1 have
the meanings assigned to them in this Article 1 and include the plural as well
as the singular. As used in this Agreement and the Addendums attached hereto,
the following definitions shall apply.

"DC-DC CONVERTER" means a PRODUCT that converts Direct Voltage (DC) into a
different Direct Voltage (DC) and which has an output power capacity of 60 Watts
or less.

/s/SPC /s/ DJH
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1 CALEX POWER-ONE
<PAGE>

"PRODUCTS" mean DC-DC CONVERTERS manufactured by CALEX at any time prior to
the fifth anniversary of the date of this Agreement, including, but not limited
to, those identified on Addendum A and MODIFIED STANDARD PRODUCTS; provided,
however, that PRODUCTS shall not include any products which are developed for a
specific customer and have unique characteristics and specifications that
require major product changes or require PCB (Printed Circuit Board) artwork or
case size changes.

"MODIFIED STANDARD PRODUCT" means any PRODUCT that is modified by Licensor
with either minor electrical or mechanical changes, but does not require PCB
(Printed Circuit Board) artwork or case size changes.

"COMPONENTS" mean those parts that are purchased from third parties or
manufactured by one of the parties to this Agreement for inclusion in the
devices it manufactures or for sale to the other party to this Agreement.
Such COMPONENTS shall generally include commercially available items and
items that are subject to CALEX' special requirements, selection or testing.
COMPONENTS shall not include any SUB-ASSEMBLIES, such as magnetics or cases.
CALEX COMPONENTS are COMPONENTS that are to be sold by CALEX hereunder;
POWER-ONE COMPONENTS are COMPONENTS that are to be sold by POWER-ONE
hereunder.

"SUB-ASSEMBLY" means a group of COMPONENTS that are assembled by either
party or by a third party. SUB-ASSEMBLIES are usually required in order to
manufacture a PRODUCT. POWER-ONE SUB-ASSEMBLIES are those to be sold by
POWER-ONE hereunder. CALEX SUB-ASSEMBLIES are those to be sold by CALEX
hereunder.

"MODELS" mean individual PRODUCTS that are part of a SERIES, but that
have different electrical specifications from other MODELS in the same SERIES.

"SERIES" mean a set of MODELS that are combined to form a group of PRODUCTS
that has similar characteristics in terms of electrical and physical
specifications.

"CORRECTION" means a change made in any PRODUCT to make the PRODUCTS
conform to the then current specifications applicable to that PRODUCT.

"SUBSIDIARY" means a corporation, company or other entity fifty percent
(50%) or more of whose control or outstanding voting shares or securities are,
now or hereafter, owned or controlled, directly or indirectly, by CALEX or
POWER-ONE.

"ORDER" means a POWER-ONE or CALEX purchase order or changes thereto, in
written or electronic format, for a PRODUCT or COMPONENT.

/s/SPC /s/ DJH
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2 CALEX POWER-ONE
<PAGE>

II. TERM OF AGREEMENT

A. CALEX OBLIGATIONS. CALEX agrees to sell PRODUCTS, CALEX COMPONENTS,
AND SUB-ASSEMBLES to POWER-ONE on the terms and conditions set forth herein for
an initial term of five (5) years from the Effective Date; such term shall be
automatically renewed for successive one (1) year periods thereafter, unless
notice of termination is given by one party to the other at least one hundred
and eighty (180) days prior to the termination date of the initial term or of
any yearly renewal term, or unless earlier terminated under any other provision
of this Agreement.

B. POWER-ONE OBLIGATIONS. POWER-ONE agrees to sell POWER-ONE
COMPONENTS, AND SUB-ASSEMBLES to CALEX on the terms and conditions set forth
herein for an initial ten (10) years from the Effective Date; such term and
shall be automatically renewed for successive one (1) year periods thereafter,
unless notice of termination is given by one party to the other at least one
hundred and eighty (180) days prior to the termination date of the initial term
or of any yearly renewal term, or unless earlier terminated under any other
provision of this Agreement.

III. LICENSE

Contemporaneous with the execution of, and as a condition to the
effectiveness of, this Agreement, the parties are executing the license (the
"License") set forth in Addendum B.

IV. PRODUCT

A. ADDITIONAL PRODUCTS

CALEX agrees to develop one new SERIES for POWER-ONE within one year of
the Effective Date. The type shall be substantially similar to, and the
specifications shall be as good as, a Computer Products Incorporated NFC25
SERIES low density DC-DC CONVERTERS.

In addition, CALEX agrees to develop at least one new SERIES for
POWER-ONE, the type and specification to be negotiated by the parties, in each
of the second though fifth years of this Agreement; provided, however, if the
present owners of CALEX sell in the aggregate 51% or more of the equity interest
in CALEX in one or more transactions, this obligation shall cease on the third
anniversary of such sale.

CALEX agrees to develop two MODELS within one hundred and eighty (180)
days of the Effective Date. The type and specification is to be determined by
POWER-ONE.

Nothing contained in this Agreement shall prevent POWER-ONE or CALEX from
developing either through third parties or through the use of its own personnel,
or from acquiring from third parties, products, sub-assemblies, or components
similar to and

/s/SPC /s/ DJH
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3 CALEX POWER-ONE
<PAGE>

competitive with the PRODUCTS, COMPONENTS, and SUB-ASSEMBLIES covered hereby.
Furthermore, nothing herein shall preclude POWER-ONE or CALEX from marketing
such developed or acquired products to others. Any such product, subassembly or
component manufactured by CALEX prior to the fifth anniversary of this Agreement
shall be included in PRODUCTS, CALEX COMPONENTS, or CALEX SUB-ASSEMBLIES.

B. LABELING

CALEX will supply all PRODUCTS with labels covering those items identified
on Addendum C. The artwork for the POWER-ONE logo will be supplied by POWER-ONE.
The type of label will be chosen on a case-by-case basis for each model, and
includes printing on a label to be affixed to the PRODUCT, or some type of
automated printing, or otherwise mutually agreed upon printing technique.

Subject to the foregoing limitations, POWER-ONE may require CALEX to affix,
and otherwise use POWER-ONE trademarks and type numbers on or in connection with
the PRODUCTS furnished. Moreover, CALEX will remove from all PRODUCTS, which are
so marked, any trademark or name owned or used by CALEX.

C. DISCONTINUATION OF PRODUCTION.

In the event that CALEX decides to discontinue any PRODUCT, it shall notify
POWER-ONE at least ninety (90) days before such discontinuance, and CALEX shall
continue to make COMPONENTS used in the original PRODUCT available under this
Agreement for at least one year from the date of such notice to POWER-ONE.

V. PRODUCT QUALIFICATION AND ACCEPTANCE

Preliminary qualification testing of selected initial production units of
the PRODUCTS manufactured by CALEX for POWER-ONE shall be conducted and
completed, per specification, before the first scheduled shipment of PRODUCTS to
POWER-ONE. During the term of this Agreement, POWER-ONE may elect to do on-going
quality and product verification testing of any PRODUCT.

VI. ORDERING AND SCHEDULING

A. AGREEMENT TERMS AND CONDITIONS APPLICABLE TO ORDERS. CALEX shall sell
such quantities of PRODUCTS and CALEX COMPONENTS as POWER-ONE shall from time to
time order as provided in this Agreement. POWER-ONE shall sell such quantities
of POWER-ONE COMPONENTS and POWER-ONE SUB-ASSEMBLES as CALEX shall from time to
time order as provided in this Agreement, subject to the limitation in Section
G, below. The ordering of PRODUCTS, COMPONENTS and SUB-ASSEMBLIES shall be by
means of individual ORDERS. This Agreement sets forth the terms and conditions
applicable to ORDERS from either party, and replaces in their

/s/SPC /s/ DJH
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4 CALEX POWER-ONE
<PAGE>

entirety the pre- printed terms and conditions appearing on POWER-ONE forms and
on CALEX forms.

B. ORDER CONTENT, ACCEPTANCE, AND LEAD-TIMES. Each ORDER shall specify
quantities, prices, delivery schedules, destination, and other similar matters
necessary for the individual transaction to be adequately described. ORDERS and
related instructions which are consistent with the terms of this Agreement shall
be accepted by CALEX or POWER-ONE. CALEX or POWER-ONE, as the case may be, shall
acknowledge receipt of each ORDER within two (2) days after receipt and shall
deliver ordered units of PRODUCTS or COMPONENTS or SUB-ASSEMBLIES in accordance
with delivery schedules indicated on the ORDERS, provided such dates are in
accordance with the lead-times set forth below.

C. LEAD-TIMES. CALEX will provide all PRODUCTS with a lead time of three
to four weeks, unless a different lead time is agreed to in writing by- the
parties. Over the course of the Agreement, both parties will work together to
reduce the lead-times.

D. RESCHEDULING OF PRODUCT DELIVERIES. POWER-ONE has the right to
issue changes to ORDERS to increase or decrease quantities of PRODUCTS scheduled
for delivery in accordance with the following schedule:

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Days from Change Order to Quantity in Time Frame
Scheduled Delivery Date Permitted to be Changed
(Time Frame)
- --------------------------------------------------------------------------------
30 Days or less No changes allowed
- --------------------------------------------------------------------------------
31 Days or greater 100% variance*
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

* 100% variance permitted as long as rescheduled within twelve months, or else
the CALEX COMPONENTS purchased for these PRODUCTS will be purchased by POWER-ONE
under the terms of COMPONENTS pricing.

E. LEAD-TIMES AND RESCHEDULING OF COMPONENTS DELIVERIES. POWER-ONE and
CALEX have the right to issue changes to ORDERS to increase or decrease
quantities of COMPONENTS ordered from the other party; however, both parties
will directly pass through lead-times, cancellation, and any other contractual
terms of its suppliers to the other party for the purchase of COMPONENTS to be
subsequently sold to the other party. Up to five (5) days may be added for
handling. Changes in lead-times will be given in writing to the other party
within ten (10) days. The parties shall use their best efforts to establish
lead-times for COMPONENTS manufactured by either party.

F. DELINQUENT SHIPMENT OF PRODUCT ORDERS. CALEX agrees to deliver exact
quantities as specified on ORDERS. CALEX agrees to deliver units to POWER-ONE'S
dock no sooner than three (3) business days prior to, and no later than

/s/SPC /s/ DJH
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5 CALEX POWER-ONE
<PAGE>

one (1) business day after, the scheduled delivery date. Units delivered within
this time frame are considered "on time". Any purchase order delinquent more
than five (5) days, upon request by Power-One, shall be air shipped, per
POWER-ONE'S instructions, prepaid to POWER-ONE or its customer. CALEX to invoice
for normal surface charges and absorb the excess shipping charges.

G. POWER-ONE SUB-ASSEMBLIES. POWER-ONE shall fulfill any ORDER for
POWER-ONE SUB-ASSEMBLIES in its sole discretion, and shall have no obligation to
sell such SUB-ASSEMBLY to CALEX hereunder.

VII. COMPONENTS

A. CALEX COMPONENTS.

1. PURCHASING INFORMATION. All CALEX COMPONENTS may be purchased
either directly from CALEX under this Agreement or at POWER-ONE'S election from
CALEX'S suppliers.

2. RECOMMENDED COMPONENTS. CALEX shall recommend to POWER-ONE the
CALEX COMPONENTS and quantity thereof used per unit of PRODUCT, and shall
provide failure rates, where available, for POWER-ONE'S information in
establishing POWER-ONE inventory and stocking levels. CALEX shall furnish
consumption factors for supplies. CALEX shall promptly advise POWER-ONE of any
changes in CALEX'S recommendations.

3. CALEX'S AUTHORIZATION/NOTICE. CALEX grants POWER-ONE the right to
use CALEX-furnished information to purchase the COMPONENTS directly from any
suppliers thereof, as well as the right to have CALEX'S suppliers use any
CALEX-owned, paid for, or supplied tooling and test equipment on such supplier's
premises to supply such COMPONENTS to POWER-ONE. CALEX shall so notify its
suppliers. POWER-ONE shall also have the right at its cost to develop a second
source for all CALEX COMPONENTS and tooling. CALEX may have access to any
second-source developed by POWER-ONE for CALEX COMPONENTS, and POWER-ONE shall
so advise CALEX of any such second source..

B. POWER-ONE COMPONENTS. POWER-ONE COMPONENTS may be purchased directly
from POWER-ONE by CALEX, or at POWER-ONE'S election from POWER-ONE'S suppliers.
POWER-ONE COMPONENTS shall initially include those components listed on Addendum
K. At any time during the term of this Agreement POWER-ONE COMPONENTS shall
include approximately one hundred (100) items on which CALEX has expended the
greatest dollar volume for purchases for its own account during the preceding
six month period plus such additional COMPONENTS as are agreed upon by the
parties from time to time in writing. CALEX shall supply POWER-ONE from time to
time information about its purchases sufficient to identify the one hundred
(100) COMPONENTS.

/s/SPC /s/ DJH
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6 CALEX POWER-ONE
<PAGE>

C. COMPONENTS SUPPLY AFTER CESSATION OF MANUFACTURING.

1. CESSATION. To the extent that COMPONENTS are reasonably
available from third parties, each party shall continue to purchase COMPONENTS
as necessary for it to fulfill its obligations to sell COMPONENTS to the other
under this Agreement. If at any time during the term of this Agreement, either
party intends to discontinue manufacturing a COMPONENT, it shall notify the
other party in writing at least 30 days prior to such discontinuance.

2. CONTINUING OBLIGATION TO SUPPLY. If either party gives notice of its
intent to cease making COMPONENTS as provided in Subparagraph 1 of this Article
VII(C) the party shall, within thirty (30) days after request from the other
party, furnish available manufacturing drawings, specifications and other
information for manufacturing such COMPONENTS, and in such event the party
grants the other party the nonexclusive right to make, use, and sell such
COMPONENTS and to purchase such COMPONENTS obtained from others.

VIII. PRICES/PAYMENT/PACKING

A. PRICES FOR PRODUCTS AND COMPONENTS. CALEX prices for PRODUCTS and
CALEX COMPONENTS are as provided in Addendum G. If POWER-ONE purchases CALEX
COMPONENTS from CALEX' vendors, the pricing will be negotiated by POWER-ONE and
CALEX vendors.

POWER-ONE prices for POWER-ONE COMPONENTS and SUB-ASSEMBLIES are as
provided in Addendum H.

Each party shall pay any amounts due to the other party hereunder in U.S.
dollars. The prices include all packing charges and are:

For CALEX -- The FOB shipping point shall be Concord, CA, USA.
For POWER-ONE -- The FOB shipment point shall be from Point of Shipment.

B. PRICE CHANGES. The prices set forth in Addendum G and H are firm
for three (3) months. The parties will have quarterly meetings to review and
adjust the prices per Addendum G and H, unless both parties agree not to meet.
All ORDERS not shipped prior to the effective date of any increase or decrease
shall be billed at the new prices.

C. SPECIAL PRICING. CALEX agrees that special discounts may be
negotiated for specific bid opportunities, as required, subject to mutual
written agreement of the parties.

D. PAYMENT TERMS.

1. Either party may submit its invoices to the other party only after
shipment of PRODUCTS, COMPONENTS or SUB-ASSEMBLIES.

/s/SPC /s/ DJH
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7 CALEX POWER-ONE
<PAGE>

2. Invoices shall be payable within forty-five (45) days after receipt of
PRODUCTS, COMPONENTS or SUB-ASSEMBLIES, provided, however, that if any party is
delinquent in making its payment in any two consecutive months or any three
months within a twelve month period, future shipments to such party may at the
option of the other party be made COD.

3. The shipping party shall separately list freight charges on invoices
and have a copy of the freight bills, if other than UPS, available for review.

4. Each invoice shall specify Purchase Order number, part number,
quantity shipped and monetary amounts in U.S. dollars. Packaging slips shall
specify Purchase Order number, part number, revision level, unit of measure and
quantity shipped.

E. TAXES. The PRODUCTS, COMPONENTS and SUB-ASSEMBLES to be sold
hereunder are purchased for resale in the ordinary course of business and
therefore should be exempt from sales, use and other similar taxes. If the
PRODUCTS, SUB-ASSEMBLIES, or COMPONENTS become taxable, the buyer is responsible
for taxes. A party shall specify in the applicable ORDER that if any purchase is
not for resale and shall indemnify the seller from all taxes, penalties and
interest resulting from a failure to so specify or to pay any applicable tax.

F. PACKING. PRODUCTS and COMPONENTS shall be suitably packed and shipped
in accordance with the packing and shipping requirements of common carriers, and
in such manner as is reasonably calculated to protect against damage from
transportation, weather and other environmental conditions.

IX. FORECASTS

Each Party shall provide the other Party with the following forecasts of
its purchases of PRODUCTS, COMPONENTS and SUB-ASSEMBLES:

A. A twelve month general forecast delivered on each anniversary of
the Effective Date of this Agreement.

B. A rolling six-month forecast delivered on the first of each month
commencing April 1,1996.

X. DOCUMENTATION

A. ADDENDUM D. CALEX shall ship a complete set of the documents
identified on Addendum D within thirty (30) days of the Effective Date of this
Agreement. All such documents and revisions, whether written or oral, shall be
available to POWER-ONE, whether or not originally supplied. Whenever available
or can be made available, a computer file will be delivered in addition to the
hard-copy document.

/s/SPC /s/ DJH
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8 CALEX POWER-ONE
<PAGE>

B. ADDITIONAL DOCUMENTS. Upon request, CALEX shall furnish POWER-ONE
with photo negatives and/or line art and/or electronic media as available, for
all photographs/drawings relating to the PRODUCTS.

C. UPDATES. CALEX shall provide changes to any materials supplied
pursuant to Paragraphs A and B above, as a result of:

(1) subsequent inclusion of any improvement or CORRECTION,

(2) changes in the specifications for any PRODUCT,

(3) any other change in a PRODUCT, and

(4) any other causes affecting the information supplied to POWER-ONE.

D. MEDIA. Upon POWER-ONE'S request, CALEX will furnish to POWER-ONE
on a continual basis, all media used by CALEX in promotion of the PRODUCTS.
CALEX grants POWER-ONE the non-exclusive right to reproduce, modify, translate,
and distribute such materials and the right to disclose the information
contained therein for its own purposes. CALEX shall provide camera ready copy
and/or electronic media as available for POWER-ONE.

XI. QUALITY ASSURANCE/TESTING

A. CALEX'S QUALITY ASSURANCE AND TESTING. CALEX shall document a quality
plan and perform quality assurance in accordance with Addendum E. The quality
plan shall conform to the requirements specified by ISO 9001, as appropriate. No
PRODUCTS shall be shipped by CALEX until they have been processed in accordance
with the tests, inspections and controls defined in Addendum E and can be
demonstrated to meet the requirements of this Agreement.

B. POWER-ONE OBSERVATION. CALEX'S manufacture and testing of PRODUCTS
to be delivered hereunder may be witnessed by POWER- ONE representatives at
CALEX'S premises at all reasonable times, and upon POWER-ONE'S request, CALEX
shall attempt to arrange for visits of POWER-ONE personnel to CALEX'S suppliers
of materials for the PRODUCTS. CALEX may be visited by customers, distributors,
or representatives of POWER-ONE from time to time on reasonable advance notice
and upon execution by such visitors of reasonable written promises of
confidentiality.

POWER-ONE may, from time to time, station employees in CALEX'S facility for
the purposes of monitoring CALEX'S performance, quality assurance, and
engineering in relation to this Agreement, provided such persons have signed
such written promises of

/s/SPC /s/ DJH
------ ---------
9 CALEX POWER-ONE
<PAGE>

confidentiality as CALEX may request. CALEX will use its best efforts to support
and accommodate POWER-ONE personnel while at CALEX.

C. PROBLEMS. In the event POWER-ONE determines that PRODUCTS or CALEX
COMPONENTS do not operate in accordance with the specifications or fail to meet
the quality/assurance testing described above, it shall notify CALEX. CALEX
shall promptly evaluate any defective PRODUCT or CALEX COMPONENT and shall
notify POWER-ONE of the result of its evaluation and its corrective action plan,
if needed, within ten (10) days after receipt of such notice from POWER-ONE.

In the event CALEX determines that POWER-ONE COMPONENTS or POWER-ONE SUB-
ASSEMBLIES do not operate in accordance with the specifications or fail to meet
the quality/assurance testing described above, it shall notify POWER-ONE.
POWER-ONE shall promptly evaluate any defective POWER-ONE COMPONENT or
SUBASSEMBLY and shall notify CALEX of the result of its evaluation and its
corrective action plan, if needed, within ten (10) days after receipt of such
notice from CALEX.

Any dispute regarding the specification or corrective action plan that are
not resolved by the parties shall be resolved in accordance with section 3.3 of
Addendum E.

XII. CONFIGURATION CONTROL

A. CHANGES BY CALEX.

1. CALEX shall not make or incorporate any change in any PRODUCT or
CALEX COMPONENT which negatively affects specifications, form, fit, function,
regulatory approvals, interface, interchangeability, reliability,
maintainability, or costs, without prior written approval of POWER-ONE.

2. Changes not negatively affecting specifications, form, fit,
function, regulatory approvals, interface, interchangeability, reliability,
maintainability, or costs of a PRODUCT or CALEX COMPONENT, may be made and
incorporated in the PRODUCT or CALEX COMPONENT, as the case may be, by CALEX at
CALEX'S expense provided CALEX gives prior written notice of such changes to
POWER-ONE and, as required, furnishes POWER-ONE with updated Test Programs and
documents related to such change. These changes include, but are not limited to
the procedures, processes, test parameters, or other material related to the
manufacture of the PRODUCT or COMPONENT.

3. CALEX shall, at its expense, provide POWER-ONE with a copy of
each Engineering Change Order (ECO) or like documentation issued by it during
the term of this Agreement with respect to operation of any PRODUCT. Such copy
shall be provided to POWER- ONE as soon as practicable, but no later than three
(3) days after issuance by CALEX.

/s/SPC /s/ DJH
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10 CALEX POWER-ONE

<PAGE>

B. SPECIFICATION, ENGINEERING, AND OTHER CHANGES IN SPECIFICATION. The
specifications for the PRODUCTS, CALEX SUB-ASSEMBLES, and CALEX COMPONENTS may
be amended or otherwise changed from time-to-time by written agreement of CALEX
and POWER-ONE. Prior to any such change becoming effective, all PRODUCTS,
SUB-ASSEMBLES, and COMPONENTS shipped by CALEX to POWER-ONE shall continue to
conform to the existing Specifications, unless POWER-ONE shall otherwise
request. The specifications for the POWER-ONE PRODUCTS, COMPONENTS, OR
SUB-ASSEMBLES may be amended or otherwise changed from time-to-time by
POWER-ONE. POWER-ONE shall give CALEX 30 days notice of any such change. Prior
to any such change becoming effective, all COMPONENTS shipped by POWER-ONE to
CALEX shall continue to conform to the existing Specifications, unless CALEX
shall otherwise request.

C. POWER-ONE CHANGES. POWER-ONE may propose changes to the specifications
for any PRODUCT or CALEX COMPONENT, and in such event, CALEX shall consider the
feasibility of any such proposal. CALEX shall, within a reasonable period of
time, not to exceed fifteen (15) days after receipt of the POWER-ONE proposal,
furnish to POWER-ONE in writing its comments regarding such proposed changes,
including whether it is willing to implement the same, the price change, if any,
and the time schedule required for implementation.

D. CHANGE IN SOURCE OF COMPONENTS. CALEX and POWER-ONE shall each notify
the other party in advance of, and the reasons for, any change in the source
(including addition of new vendors) of purchased COMPONENTS.

E. CHANGE INDUCED PROBLEMS. In the event POWER-ONE determines, after any
engineering or any other change by CALEX, that any PRODUCT or CALEX COMPONENT
does not operate in accordance with the specifications or fails to meet the
quality/assurance testing described above, it shall notify CALEX. CALEX shall
promptly evaluate any defective PRODUCT or CALEX COMPONENT and shall notify
POWER-ONE of the result of its evaluation and its corrective action plan, if
needed, within ten (10) days after receipt of such notice from POWER-ONE. Any
dispute regarding the corrective action plan that are not resolved by the
parties shall be resolved in accordance with section 3.3 of Addendum E.

F. CHANGES IN COMPONENTS OR PRODUCTS. In the event that any change to a
PRODUCT or CALEX COMPONENT, that is approved by POWER-ONE, negatively affects
the interchangeability of such PRODUCT or COMPONENT, CALEX shall provide a
different part number for the new PRODUCT or COMPONENT. All PRODUCTS and
COMPONENTS thereafter delivered by CALEX shall be promptly identified to
POWER-ONE by date code AND lot code.

XIII. TERMINATION

A. TERMINATION FOR DEFAULT.

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<PAGE>

1. BY POWER-ONE. In the event that CALEX fails to fulfill its obligations
under this Agreement or under the License in any material respect, POWER-ONE may
terminate its obligations under this Agreement, other than its obligation to pay
for PRODUCTS and CALEX COMPONENTS, upon sixty (60) days prior written notice;
provided, however, if during the period of such notice CALEX shall have remedied
such failure, POWER-ONE'S obligations under this Agreement shall continue in
full force and effect as it would have had such failure not occurred. Any such
termination shall not affect the License or CALEX'S obligation to furnish
PRODUCT and CALEX COMPONENTS thereafter.

2. BY CALEX. In the event that POWER-ONE fails to fulfill its obligations
under this Agreement or under the License in any material respect, CALEX may
terminate its obligations under this Agreement, other than its obligation to pay
for POWER-ONE COMPONENTS or SUB-ASSEMBLES, upon sixty (60) days prior written
notice; provided, however, if during the period of such notice POWER-ONE shall
have remedied such failure, CALEX'S obligations to so furnish PRODUCTS and CALEX
COMPONENTS under this Agreement shall continue in full force and effect as it
would have had such failure not occurred. Any such termination shall not affect
POWER-ONE'S obligation to furnish POWER-ONE COMPONENTS or SUB-ASSEMBLES
thereafter.

B. RIGHTS CUMULATIVE. The parties' rights set forth above are in addition
to and shall not limit or prejudice any other right or remedy available under
this Agreement, at law, or in equity, including its right to recover any money
amounts or require performance of any obligations due at the time of such
termination.

XIV. POWER-ONE SUPPORT

POWER-ONE will assist CALEX, on an on-going basis, in the following
categories:

Database programs for quality and management reports
SPC systems
Process and engineering systems
COMPONENTS/components procurement.

Such support shall be made available to CALEX at POWER-ONE headquarters and
will be available on a reasonable basis and a reasonable period of time.

POWER-ONE agrees to consider manufacturing PRODUCT for purchase by CALEX.
Since POWER-ONE is in a start-up mode for DC-DC CONVERTERS and the processes,
costs, and capacity is unknown, terms and conditions, including pricing, will be
negotiated at a later date if POWER-ONE determines, in its sole discretion, to
commence such manufacturing.

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XV. WARRANTIES

Neither party shall be obligated to warrant COMPONENTS manufactured by
others; provided that each party shall use its best efforts to pass on to the
other party warranties given by third parties with respect thereto. CALEX'S and
POWER-ONE'S warranties with respect to PRODUCT or COMPONENTS manufactured by it
are set forth on Addendums I and J respectively.

XVI. GENERAL PROVISIONS

A. GOVERNING LAW. This Agreement shall be construed, governed and
interpreted in accordance with the laws, but not the rules relating to the
choice of law, of the State of California.

B. CAPTIONS/HEADINGS. The captions and headings of the Articles, clauses
and paragraphs contained herein have been inserted for the convenience of the
parties and shall not be construed as a part of or modifying any provisions of
this Agreement.

C. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be delivered in person, by telecopier or by
registered or certified mail, postage prepaid, to the parties as follows:

If to POWER-ONE:

POWER-ONE
740 Calle Plano
Camarillo, Calif. 93012
Attn: David Hage
Telecopier: 805 388 0476

If to CALEX:

CALEX
2401 Stanwell Drive
Concord, Calif. 94520
Attn: Steve Mathias
Telecopier: 510 687 4424

or to such other address as either party may have furnished to the other in
writing in accordance herewith. Notices delivered in person shall be deemed
given when so delivered, notices given by telecopier shall be deemed delivered
upon receipt of confirmation, and notices delivered by mail shall be deemed
received three days after mailing.

D. FORCE MAJEURE. Neither POWER-ONE nor CALEX shall be liable to the
other for delays in the performance of or completion of this Agreement if notice
of

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<PAGE>

such delay is provided and if such delay is caused by strikes, riots, wars,
government regulations, acts of God, fire, flood or other similar causes beyond
its control. Whenever any such occurrence is delaying or threatens to delay
either party's timely performance under this Agreement, that party shall
promptly give notice thereof, including all relevant information with respect
thereto, to the other party. None of the foregoing shall, however, excuse or
postpone any obligation of either party to pay money under this Agreement.

E. ASSIGNMENT AND BENEFITS. All of the terms and conditions of this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by
the respective successors and permitted assigns of the parties hereto. Except as
specifically stated in this Agreement, neither this Agreement nor any of the
rights, interests or obligations of any party hereunder shall be assigned or
delegated by either party hereto without the prior written consent of the other.
Such consent shall not be withheld unreasonably. Any unauthorized assignment or
delegation shall be null and void. Notwithstanding the foregoing, either party
may assign or otherwise transfer its rights and obligations to its subsidiaries,
or successors in interest (whether by purchase of stock or assets, merger,
operation of law, or otherwise) of that portion of its business related to the
subject matter hereof.

F. WAIVER. The failure of either party to insist, in any one or more
instances, upon the performance of any of the terms, covenants or conditions of
this Agreement or to exercise any right hereunder, shall not be construed as a
waiver of the future performance of any such term, covenant or condition or the
future exercise of such right.

G. SEVERABILITY. The illegality, invalidity or unenforceability of any
part of this Agreement shall not affect the legality, validity or enforceability
of the remainder of this Agreement. If any part of this Agreement shall be found
to be illegal, invalid or unenforceable, this Agreement shall be given such
meaning as would make this Agreement legal, valid and enforceable in order to
give effect to the intent of the parties.

H. INDEPENDENT CONTRACTORS. It is agreed that the relationship between
the parties is that of independent contractors, and nothing contained in this
Agreement shall be construed or implied to create the relationship of partners,
joint ventures, agent and principal, employer and employee, or any relationship
other than that of independent contractors. At no time shall either party make
any commitments or incur any charges or expenses for or in the name of the other
party.

I. COUNTERPARTS. This Agreement may be executed in counterparts, any one
of which need not contain the signatures of more than one party, but all of
which, taken together, shall constitute one and the same agreement.

J. PUBLICITY. No party, except as may be required by law or federal
regulation, shall make any public announcements concerning the other party's
name in regards to the execution, existence or performance of this Agreement
without first submitting the text of such public announcement to the other party
and receiving the approval of the other party, which approval shall not be
unreasonably delayed or withheld.

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<PAGE>

K. TRADEMARKS AND TRADE NAMES. Nothing contained in this Agreement shall
be construed as licensing either party to use any trademark or trade name owned
or used by the other party without the prior written consent of the other party.
When marketing the PRODUCTS, POWER-ONE shall have the right to use its own
trademarks or trade names.

L. RISK OF LOSS. Until such time as the deliverable items are in the
possession of the common carrier, all risk of loss shall be the manufacturer of
the PRODUCT or reseller of the COMPONENT.

M. COMPLIANCE WITH LAW. The parties shall comply with all applicable
laws, rules, regulations and orders of the United States and all jurisdictions
and any agency or court thereof in connection with this Agreement and the
transactions contemplated thereby.

N. AMENDMENTS AND MODIFICATIONS. No amendment or modification of this
Agreement shall be valid or binding upon the parties unless signed by their
respective authorized officers.

O. ADDENDA/ATTACHMENTS. The Addenda, attachments and other documents
referred to in this Agreement and all specifications, drawings and documents
referenced therein are hereby incorporated in and made part of this Agreement.

P. ENTIRE AGREEMENT. This Agreement, including the addenda, and the
License Agreement state the entire agreement between the parties with respect to
the subject matter hereof and shall supersede all previous proposals,
negotiations, representations, commitments, writings, agreements, and other
communications, both oral and written, between the parties.

Q. REPRESENTAITON BY COUNSEL. Interpretation. Each party acknowledges
that it has been represented by counsel in connection with this Agreement and
the transactions contemplated by this Agreement. Accordingly, any rule of law,
or any legal decision that would require interpretation of any claimed
ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement shall be
interpreted in a reasonable manner to effect the intent of the parties.

R. ARBITRATION OF DISPUTES.

1. PROCEDURE; . Except for actions seeking injunctive relief, which may be
brought before any state or federal court in California, any dispute arising out
of or relating to this Agreement (or any exhibit or schedule hereto) or the
breach, termination or validity hereof or thereof, shall be resolved in the
following manner:
a. the parties shall use all reasonable efforts to resolve the dispute
through direct discussions within 30 days of written notice that there
is such a dispute; or

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b. if no amicable settlement is reached as a result of the procedure
described in (a), the matter shall be finally settled by arbitration
conducted expeditiously by a single arbitrator in accordance with the
Rules for Non-Administered Arbitration of Business Disputes
promulgated by the CPR Institute for Dispute Resolution (formerly
Center for Public Resources). No arbitrator may serve who has had at
any time a material personal or financial relationship with any
participant to the dispute or any Affiliate of any such participant.
The place of arbitration shall be either Los Angeles or San Francisco,
California. This can be decided by a coin flip or any other random
means. The arbitration shall be governed by the United States
Arbitration Act, 9 U.S.C. sections 1-16 and judgment upon the award of
the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrator is not empowered to act as AMIABLE
COMPOSITEUR or to award damages in excess of compensatory damages and
each party hereto hereby waives any damages in excess of compensatory
damages. The arbitrator shall have the power to order equitable relief
as if sitting as a court of equity.

2. CONFIDENTIALITY; . The dispute resolution proceedings contemplated
by this provision shall be as confidential and private as permitted by law. To
that end, the parties shall not disclose the existence, content or results of
any proceedings conducted in accordance with this provision, and materials
submitted in connection with such proceedings shall not be admissible in any
other proceeding; provided, however, that this confidentiality provision shall
not prevent a petition to vacate or enforce an arbitral award, and shall not bar
disclosures required by law. The parties agree that any decision or award
resulting from proceedings in accordance with this dispute resolution provision
shall have no preclusive effect in any other matter involving third parties.

This Agreement has been duly signed by authorized representatives of
the parties and shall become effective as of the first date set forth above (the
"Effective Date").

CALEX Manufacturing Company, Inc. POWER-ONE, Inc.

By:/s/ S.P. Cuff By: /s/ David J. Hage
---------------------------- --------------------------------
S.P. Cuff David J. Hage
---------------------------- -----------------------------------
(Printed/typed name) (Printed/typed name)
,
Title: President Title: Vice President
----------------------- ----------------------------

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16 CALEX POWER-ONE

<PAGE>

ADDENDUM TABLE OF CONTENTS

ADDENDUM A - PRODUCT SPECIFICATIONS AND LEAD TIMES

ADDENDUM B - TECHNOLOGY AND KNOW-HOW LICENSE

ADDENDUM C - LABEL INFORMATION

ADDENDUM D - DOCUMENTATION

ADDENDUM E - QUALITY PROVISIONS

ADDENDUM F - RETURN MATERIAL AUTHORIZATION PROCEDURE

ADDENDUM G - CALEX PRICING

ADDENDUM H - POWER-ONE PRICING

ADDENDUM I - WARRANTY FOR CALEX PRODUCT AND CALEX COMPONENTS MANUFACTURED BY
CALEX

ADDENDUM J - WARRANTY FOR POWER-ONE PRODUCT AND COMPONENTS MANUFACTURED BY
POWER-ONE

ADDENDUM K - LIST OF POWER-ONE COMPONENTS

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17 CALEX POWER-ONE

<PAGE>

ADDENDUM A - PRODUCT SPECIFICATIONS AND LEAD TIMES

PRODUCTS AND PRODUCT DESCRIPTIONS:

PRODUCTS are those products as defined in the Agreement including those
contained in the current 1996 CALEX DC/DC Catalog. POWER-ONE will order
PRODUCTS using its own part numbering system. Lead times will be 4 weeks.

PRODUCT SPECIFICATIONS:

PRODUCTS are presented "as designed" and shall be qualified using the CALEX
datasheets. If any CALEX PRODUCT requires changes, including PC boards, to meet
published CALEX maximum and minimum specifications, CALEX will make those
changes at its expense. If any CALEX PRODUCT requires changes, including PC
boards, to meet its published CALEX typical specifications, CALEX will use its
best efforts to make those changes at its expense. POWER-ONE may, at its
discretion, change specifications and/or establish maximum and/or minimum
values, including changing specifications for output noise, turn-on overshoot,
and thermal cycling for the following CALEX PRODUCTS: NT, EC, WD, TC, LV, HP,
RM, UM, SD, and SIP SERIES; provided, however:

1. Mutually acceptable conditions under which measurements will be made must be
determined.

2. POWER-ONE at its cost will re-engineer and test such PRODUCTS, and CALEX
will implement the changes on a best efforts basis. If CALEX implements the
changes pursuant to POWER-ONE'S direction, CALEX shall have no liability if the
changed PRODUCT fails to meet the new specification. Minor PC board changes
(e.g., pad size) will be done by CALEX at its expense. Major PC board changes
requiring prototyping will be done by CALEX at POWER-ONE'S expense.

3. In any event, changes requested by POWER-ONE as to any specification will
not degrade any other current published specifications or require case changes.

MEASUREMENTS METHODS AND EQUIPMENT:

QUALIFICATION TESTING

All catalog datasheet parameters and the PRODUCT specifications referenced above
shall be tested for qualification and acceptance.

NOISE

The noise of all PRODUCTS will be measured on a mutually agreed upon set-up
using standard methods and equipment.

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<PAGE>

TEMPERATURE CYCLING

Temperature cycling of future designs will be done by POWER-ONE in accordance
with MIL-STD-883 Method 1010. These tests will approve and/or improve
encapsulating methods and materials. POWER-ONE will test the existing
designs and best efforts will be made by CALEX, with assistance by POWER-ONE,
to improve encapsulation materials and methods to upgrade existing products
with the objective of no failures.

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<PAGE>

ADDENDUM B

<PAGE>

TECHNOLOGY AND KNOW-HOW LICENSE AGREEMENT

This Technology and Know-How License Agreement (this "Agreement") is
made as of April 2, 1996 (the "Effective Date"), by and between Calex
Manufacturing Company, Inc., a California corporation ("Licensor") and
Power-One, Inc. a California corporation ("Licensee").

RECITALS

WHEREAS, Licensor and Licensee have entered into that certain Product
and Component Agreement dated as of April 2, 1996 (the "Product and Component
Agreement"), pursuant to which Licensor has agreed to sell certain products and
components and to license certain technology related to such products and
components to Licensee, and licensee has agreed to sell certain components to
Licensor;

WHEREAS, as an inducement to Licensee to consummate the transactions
contemplated in the Product and Component Agreement, and in consideration of the
obligations of Licensee under this Agreement Licensor has agreed to grant to
Licensee a license to certain technology and know-how on the terms and
conditions contained herein, and Licensee desires Licensor to grant such
license.

NOW, THEREFORE, in consideration of the premises and mutual covenants
in this Agreement and the Product and Component Agreement, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.

1. DEFINITIONS. The following terms, when used herein with initial capital
letters, shall have the respective meanings set forth in the is Article 1.
All terms used herein with initial capital letters but not defined herein
shall have the meanings ascribed to such terms in the Product and Component
Agreement.

1.1 AFFILIATE. The term "Affiliate" shall mean any person or entity
directly or indirectly controlling, controlled by, or under common control with,
the person or entity specified.

1.2 CONFIDENTIAL INFORMATION. The term "Confidential Information" shall
mean those elements of the Technology and Know-How and of all the technical
information, know-how, technology, formulae, compositions, samples, prototypes,
information, manuals, ideas, inventions, improvements, data, files, supplier and
customer identities and lists, accounting records, business and marketing plans,
and information and documentation and all copies and tangible embodiments
thereof (in whatever form or medium) that are not generally known by the public
in which either of the parties have

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<PAGE>

rights; provided, however, that any of the foregoing shall not be considered
Confidential Information if it: (i) has entered into the public domain
through no wrongful act or breach of any obligation of confidentiality on the
receiving party's or any third party's part; (ii) was in the lawful knowledge
and possession of, or was independently developed by, the receiving party
prior to the time it was disclosed to, or learned by, the receiving party as
evidenced by written records kept in the ordinary course of business by the
receiving party or by written or other documentary proof of actual use by the
receiving party; (iii) was rightfully received from a third party not in
violation of any contractual, legal or fiduciary obligation by such third
party; or (iv) was approved for release by written authorization by the party
having rights in such information.

1.3 FIELD OF USE. The term "Field of Use" shall mean the business of
designing, manufacturing, distributing, selling, advertising, marketing and
promoting the Products.

1.4 IMPROVEMENTS. The term "Improvements" shall mean any improvement,
upgrade, enhancement, modification or update (Including error corrections) to,
and translations and derivative works of, the Technology and Know-How, other
than those which constitute, or are primarily useful to develop, make, market,
sell or use, New Generations.

1.5 KNOWLEDGE. The term "Knowledge" shall mean actual knowledge without
independent investigation.

1.6 MODELS. The term "Models" shall have the meaning given to it in the
Product and Component Agreement.

1.7 MODIFIED STANDARD PRODUCTS. The term "Modified Standards Products"
shall have the meaning given to it in the Product and Component Agreement.

1.8 NEW GENERATION. The term "New Generation" shall mean a new Series or
a Model thereof which differs from any existing Series or Model subject to this
Agreement by reason of a material improvement in the ratio of power output
capacity to case volume or by reason of a significant change to form, fit, or
function.

1.9 PRODUCTS. The term "Products" shall have the meaning given to it in
the Product and Component Agreement.

1.10 SERIES. The term "Series" shall have the meaning given to it in the
Product and Component Agreement.

1.11 TECHNOLOGY AND KNOW-HOW. The term "Technology and Know-How" shall
mean (i) the patents, if any, described on Schedule A, attached hereto and
incorporated herein, and all extensions, reissues, divisions, continuations and
continuations in part of same, (ii) all of Licensor's technology and know-how
necessary or reasonably useful for practicing the inventions taught by such
patents or necessary or reasonably useful for the manufacture, assembly,
operation or servicing of the Products, and (iii) all documents,

/s/SPC /s/ DJH
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<PAGE>

drawings, plans, specifications, processes, trade secrets, parts/supplies lists,
manufacturing/assembly instructions, manuals, software and other material in
Licensor's possession necessary or reasonably useful for the manufacture,
assembly, operation or servicing of the Products.

1.12 TRAINING AND TECHNICAL SUPPORT. The term "Training and Technical
Support" shall mean training and technical support relating to the Technology
and Know-How and the implementation of the Technology and Know-How into the
Products (including, without limitation, the theory, operation, manufacturing,
process engineering, design processes and methodology, installation, and
application of the Products).

1.13 DC=DC CONVERTER. The term "DC-DC Converter" shall have the meaning
given to it in the Product and Component Agreement.

1.14 SUCCESSOR. The term "Successor" means, with respect to a party, a
person or entity which, by purchase, merger or otherwise succeeds to
substantially all of the business and assets of that party.

2. LICENSE.

2.1 GRANT TO LICENSEE.

2.1.1 GRANT OF TECHNOLOGY AND KNOW-HOW LICENSE. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Licensee a sole right
and license to use, copy, and create derivative works of, the Technology and
Know-How only for the Field of Use and to make, have made, use and sell devices,
methods and processes covered under any of the patents included in the
Technology and Know-How or otherwise covered by the Technology and Know-How:
only for the Field of Use, in any manner and by any means and under such name or
names as Licensee shall determine, throughout the world during the Term hereof.
Notwithstanding the foregoing, Licensor shall continue to have all rights in and
to the Technology and Know-How; provided that Licensor shall not license,
authorize or permit third parties other than Licensor's Affiliates or Successors
to use the Technology and Know-How for the Field of Use during the Term of this
Agreement.

2.1.2 SUBLICENSES. Licensee shall have the right to grant sublicenses in
and to the Technology and Know-How only to Licensee's Affiliates and Successes,
and to subcontractors, provided any such subcontractor shall only use such
sublicense in order to manufacture Products, Components, or Sub-assemblies
exclusively for Licensee:

3. FEES. As full and complete consideration for all rights granted by
Licensor and all representations, warranties and agreements of Licensor
hereunder Licensee agrees to pay to Licensor the sum of One Million Five Hundred
Thousand Dollars ($1,500,000), as follows:

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<PAGE>

3.1 One Hundred Fifty Thousand Dollars ($150,000) payable on the Effective
Date; and

3.2 Two Hundred Fifty Thousand Dollars ($250,000) payable following the
Effective Date, but within three (3) days of delivery to Licensee of
substantially all of the documents identified in Addendum D of the Product and
Component Agreement ("First Payment");

3.3 Four Hundred Thousand Dollars ($400,000) payable upon the earlier of
(i) verification of performance to the specifications in Addendum A of the
Product and Component Agreement of a production lot of each Model delivered
for initial stocking; or (ii) six (6) months after the due date for payment
of the amount set forth in Section 3.2, provided, however, that Power-One
shall not be obligated to make the payment to this clause (ii) unless
Licensor using its good faith, best efforts to modify the Models to meet the
specifications in Addendum A of the Product and Component Agreement and
Licensor has not materially and unjustifiably delayed delivery of units.

3.4 Three Hundred Fifty Thousand Dollars ($350,000), payable on the first
anniversary of the due date of First Payment.

3.5 Three Hundred Fifty Thousand Dollars ($350,000), payable on the second
anniversary of the due date of First Payment.

Licensee acknowledges that it is aware of and has evaluated the nature of the
Technology and Know-How, that it deems it valuable to Licensee, that all or
material portions of it are not known to Licensee, that all or material
portions of it are not generally known to others, and that its disclosure to
Licensee, and the other services to be provided by Licensor hereunder, will
provide Licensee substantial business and competitive benefit. Licensee
acknowleges that the payments required hereunder are due and payable
irrespective of whether substantial portions of the Technology and Know-How
are or become known to others, so long as such knowledge by others does not
result from a breach of this Agreement by Licensor.

4. TRAINING, TECHNICAL AND MARKETING SUPPORT.

4.1 TRAINING AND TECHNICAL SUPPORT. Promptly following Licensee's
request, Licensor shall provide, on a commercially reasonable best efforts
basis, Training and Technical Support to employees of Licensee, or to any
manufacturers or distributors of Licensee, by telephone, or at Licensee's (or
Licensee's manufacturers' or distributors') facilities or upon Licensee's
request, at Licensor's facilities. During the first year of the Term,
Licensor shall provide at least three (3) full-time people at no additional
cost to Licensee. During each subsequent year of the Term, Licensor shall
provide the necessary support and training to fulfill all of its obligations
under this Agreement, at no additional cost to Licensee.

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<PAGE>

4.2 MARKETING AND SALES SUPPORT. Licensor shall provide marketing and
sales support (including without limitation product line analysis, competitor
information, advertising and sales literature) relating to the Products to
Licensee. Where possible, Licensee shall offer to Licensor, marketing
information relating to the Products.

4.3 TRAVEL EXPENSES. If at Licensee's request Licensor is required to
provide training or technical support at a location greater than fifty (50)
miles from Licensor's headquarters, Licensee shall reimburse Licensor, in
accordance with Licensee's standard travel policy, for reasonable travel
expenses incurred by Licensor in providing such training or technical support,
provided that Licensor supplies Licensee with receipts or other satisfactory
evidence reflecting the expenses incurred.

5. PRODUCT PERFORMANCE. The Technology and Know-How is sufficient to permit
Licensee to manufacture Products (using similar processes as Licensor) that will
achieve the performance parameters set forth in Licensor's specifications for
such products.

6. REPRESENTATIONS AND WARRANTIES OF LICENSOR. Licensor hereby warrants and
represents that:

6.1 DUE AUTHORITY. Licensor has the full right, power and authority to
enter into this Agreement, and it is under no legal prohibition, restraint, or
restriction with respect thereto.

6.2 NO INFRINGEMENT. (i) To the best of Licensor's Knowledge and subject to
the provistions of the last paragraph of Section 3, Licensor is the sole and
exclusive owner of all right, title and interest in and to that protion of the
Technology and Know-How which is susceptible of exclusive ownership; (ii)
Licensor has the full right, power and authority to grant Licensee the right and
license granted hereunder, and (iii) To the best of Licensor's Knowlege,
Licensee's use of the Technology and Know-How in and in connection with the
Products and the manufacture, sale, marketing, advertisement, promotion,
distribution or other commercial exploitation of the Products as permitted by
this Agreement will not infringe upon or otherwise violate any patent or other
intellectual property rights of any person or entity.

7. INDEMNIFICATION

7.1 BY LICENSOR. Licensor shall indemnify, defend and hold Licensee
harmless from and against all liabilities, damages, judgements, penalties,
losses, costs, expenses (including without limitation court costs and
attorneys' fees), claims, demands, suits or other legal actions suffered by
Licensee or brought by any third party against Licensee or Licensor arising
out of or relating to any breach or alleged breach of Licensor's
representations, warranties or agreements made by Licensor in Article VI
hereof.

7.2 BY LICENSEE. Licensor shall indemnify, defend and hold Licensee
harmless from and against all liabilities, damages, judgements, penalties,
losses, costs, expenses

/s/SPC /s/ DJH
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6 CALEX POWER-ONE

<PAGE>

(including without limitation court costs and attorneys' fees), claims, demands,
suits or other legal actions suffered by Licensor or brought by any third party
against Licensor or Licensee, but only to the extent that the same arises out of
or relates to any claim by any third party that any Improvement disclosed by
Licensee to Licensor pursuant to Section 8.1 infringes any patent, trade secret,
copyright or other intellectual property right of a third party.

8. IMPROVEMENTS, NEW GENERATION, AND UPDATED MATERIAL.

8.1 DISCLOSURE OF IMPROVEMENTS. Each party shall disclose to the other
party any Improvement created, developed, invented or made by, or for, such
party.

8.2 OWNERSHIP OF IMPROVEMENTS. Licensor and Licensee shall jointly own
any Improvement created, developed, invented or made by, or for, either party.

8.3 OWNERSHIP OF NEW GENERATIONS. Licensor shall not have any right,
title or interest in or to any New Generation created, developed, invented or
made by, or for, Licensee. Licensee shall be entitled to apply at its own
expense for patent or other intellectual property protection for any such New
Generation created, developed, invented or made by, or for, Licensee. Licensor
shall cooperate, at the prosecuting Licensee's expense, in any reasonable manner
in assisting Licensee in obtaining copyright or patent registrations for same in
the name of Licensee and in obtaining other forms of proprietary rights
protection for same.

8.4 UPDATED MATERIAL. Licensor shall promptly provide Licensee with all
documents, drawings, plans, specifications, processes, trade secrets,
parts/supplies lists, manufacturing/assembly instructions, manuals, software and
other material relating to the manufacture, assembly, operation or servicing of
the Products and which constitute Technology or Know-how, including without
limitation the documents referred to in Addendum D of the Product and Component
Agreement. In addition, each party shall provide the other with any revisions
or updates to such documents as well as all documentation relating primarily to
Improvements made by such Party.

9. REGISTRATION, MAINTENANCE AND ENFORCEMENT.

9.1 INTELLECTUAL PROPERTY RIGHTS PROTECTION.

9.1.1 REGISTRATION BY LICENSOR. Licensor shall, at Licensor's
expense, take all commercially reasonable actions to preserve its rights in and
to the Technology and Know-How and other materials or items furnished by
Licensor hereunder, but shall not be required to file for any patents.

/s/SPC /s/ DJH
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7 CALEX POWER-ONE

<PAGE>

9.1.2 REGISTRATION BY LICENSEE. In the event Licensor does not agree
that a patent or copyright application be filed, then Licensee shall have
the right (but not the obligation) to seek patent or other intellectual
property protection for any of the Technology and Know-How in Licensor's
name. Any and all expenses incurred in connection with the foregoing shall be
borne by Licensee. Licensor shall furnish Licensee with all reasonably
requested information, assistance and documentation to assist Licensee in
obtaining such registrations including, without limitation, filing a joint
application in those jurisdictions where registration of a user or of a
license is permitted or required by law. Such registrations shall be deemed
to be included in the grants of license set forth in Section 2.1 hereof.

9.2 ENFORCEMENT OF THE TECHNOLOGY AND KNOW-HOW.

9.2.1 NOTIFICATION. In the event either party has Knowledge of any
products or processes that may infringe or misappropriate or in any way
adversely affect the other party's right in and to the Technology and
Know-How, the party having such Knowledge shall promptly notify the other
party of same.

9.2.2 ENTITLEMENT TO TAKE ACTION FOR TECHNOLOGY AND KNOW-HOW.
Licensor shall have the right (but not the obligation) to undertake any
demand, suit or other action on account of any actual or suspected
infringement or misapporpriation of the Technology and Know-How. Licensee
shall provide such materials, cooperation and assistance as may be reasonably
required to assist Licensor in such action.

9.2.3 LICENSEE'S RIGHTS. If Licensor elects not to take such action
pursuant to this Section 9.2, then upon written notice to Licensor, Licensee
shall have the right (but not the obligation) to take such action, solely
within its Field of Use. Licensor shall take all reasonable steps and shall
provide such materials, cooperation and assistance as may be reasonably
required to assist Licensee in such action.

9.2.4 ENTITLEMENT TO PROCEEDS. The party prosecuting any demand,
suit or other action as provided in this Section 9.2 shall bear all expenses,
legal or otherwise, thereof and shall be exclusively entitled to proceeds or
recoveries resulting therefrom.

9.3 INFRINGEMENT CLAIMS. Licensee shall give Licensor written notice as
promptly as practicable and in any case within ten (10) days of any claim or
assertion by any third party that the use of any part of the Technology and
Know-How by Licensee infringes any rights of any third party. Licensor shall
have the right at its sole cost to defend against any such claim of
infringement, and Licensee shall give all reasonable cooperation. If, as a
result of any actual or claimed infringement by the Technology and Know-How
of any third party rights an injunction is issued prohibiting Licensee from
using the Technology and Know-How as provided herein, and if there has
occured a related breach by Licensor of any representation made by it under
Section 6.2 hereof, and if the required notice and cooperation were given by
Licensee, Licensor shall, if Licensor has not

/s/SPC /s/ DJH
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8 CALEX POWER-ONE

<PAGE>

defended such claims, reimburse Licensee for any reasonable costs incurred.
In such event Licensor shall also at its sole expense either procure the
right for Licensee to continue to use the Technology and Know-How as provided
herein or modify the Technology and Know-How so as to make it non-infringing
or provide alternative technology and know-how of substantially similar
utility. Licensor's inability to either procure the right for Licensee to
continue to use the Technology and Know-How as provided herein or to so
modify the Technology and Know-How or provide such alternative technology and
know-how within sixty (60) days of the issuance of an injunction prohibiting
Licensee from using the Technology and Know-How as provided herein is a
breach of this Agreement and the Licensee shall have all of its rights
arising out of such breach, including but not limited to those in Section 7.1
hereof.

10. TERM.

10.1 TERM. This Agreement shall commence on the Effective Date and remain
in full force and effect until the fifth anniversary of the Effective Date,
unless sooner terminated as hereinafter provided. Notwithstanding any
termination hereunder, if at such time there exists no uncured breach or default
on the part of Licensee under this Agreement, licensee shall have a fully-paid
exclusive license until the tenth (10) anniversary of the Effective Date., After
the tenth (10) anniversary the Licensee shall have a fully paid non-exclusive
worldwide perpetual license to use, copy, and create derivative works of, the
Technology and Know-How as it exists as of the date of termination only for the
Field of Use and to make, have made, use and sell devices, methods and processes
covered under any of the patents included in the Technology and Know-How or
otherwise covered by the Technology and Know-How, which have been issued as of
the date of termination only for the Field of Use. Notwithstanding the
foregoing, Licensor shall continue to have at all times all rights in and to the
Technology and Know-How; provided that Licensor shall not license, authorize or
permit third parties other than Licensor's Affiliates or Successors to use the
Technology and Know-How for the Field of Use during the Term of this Agreement.

10.2 TERMINATION FOR CONVENIENCE. Licensee, at its sole option, may
terminate any or all of its further obligations and rights under this
Agreement at any time. Termination of this Agreement shall not, however,
release Licensee from the obligation to make payment of all amounts provided
in Section 3 or from any obligation of confidentiality hereunder.

11. BREACH AND REMEDIES.

11.1 BREACH. In the event a party does not comply with any material
provision of this Agreement and the non-breaching party elects to give the
breaching party written notice of such noncompliance, then the breaching
party shall have sixty (60) days from the receipt of such notice to remedy
the breach, provided that in the case of an obligation to pay money, such
cure period shall be ten (10) days.

/s/SPC /s/ DJH
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9 CALEX POWER-ONE

<PAGE>

11.2 REMEDIES.

11.2.1 EQUITABLE RELIEF AND MONETARY DAMAGES. Licensor acknowledges
that breach of this Agreement would cause immediate and irreparable harm to
Licensee for which money damages could not adequately compensate the other
party. Therefore, Licensee shall have the right to enforce this Agreement,
not only by an action or actions for damages, but also by an action or
actions for specific performance or injunctive or other equitable relief in
order to enforce or prevent any violations of the terms or conditions of this
Agreement, without proof of actual damages.

11.2.2 SCOPE OF REMEDIES. Under no circumstances other than the
unjustified failure by Licensee to pay when due the amounts required to be
paid under Section 3 may the relief granted to Licensor include the
rescission or termination of the license granted hereunder, and Licensor
hereby irrevocably waives any rights it may have, at law or in equity, to
obtain any termination or rescission in any other case.

11.2.3 ACCELERATION ON PAYMENT DEFAULT. Subject to the provisions of
section 3, if Licensee shall fail to make any payment required under Section 3
within the time required, as it may be extended by the cure provisions of
Section 11.1, all amounts required to be paid under Section 3 shall at once
become due and payable without notice.

11.3 ABRIBITRATION OF DISPUTES.

11.3.1 PROCEDURE. Except for actions seeking injunctive relief,
which may be brought before any state or federal court in California, any
dispute arising out of or relating to this Agreement (or any exhibit or
schedule hereto) or the breach, termination or validity hereof or thereof,
shall be resolved in the following manner:

a. the parties shall use all reasonable efforts to resolve the dispute
through direct discussions within 30 days of written notice that there
is such a dispute; or

b. if no amicable settlement is reached as a result of the procedure
described in (a), the matter shall be finally settled by an
arbitration conducted expeditiously by a single arbitrator in
accordance with the Rules for Non-Administered Arbitration of
Business Disputes promulgated by the CPR Institute for Dispute
Resolution (formerly Center for Public Resources). No arbitrator may
serve who has had at any time a material personal or financial
relationship with any participant to the dispute or any Affiliate of
any such participant. The place of arbitration shall be either Los
Angeles or San Francisco, California. This can be decided by a coin
flip or any other random means. The arbitration shall be governed by
the United States Arbitration Act. 9 U.S.C. sections 1-16 and
judgement upon the award of the arbitrator may be entered by any
court having jurisdiction thereof. The arbitrator is not empowered to
act AS AMIABLE COMPOSITEUR or

/s/SPC /s/ DJH
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10 CALEX POWER-ONE

<PAGE>

to award damages in excess of compensatory damages and each party
hereto hereby waives any damages in excess of compensatory damages.
The arbitrator shall have the power to order equitable relief as if
sitting as a court of equity.

11.3.2 CONFIDENTIALITY;. The dispute resolution proceedings
contemplated by this provision shall be as confidential and private as permitted
by law. To that end, the parties shall not disclose the existence, content or
results of any proceedings conducted in accordance with this provision, and
materials submitted in connection with such proceedings shall not be admissible
in any other proceeding; provided, however, that this confidentiality provision
shall not prevent a petition to vacate or enforce an arbitral award, and shall
not bar disclosures required by law. The parties agree that any decision or
award resulting from proceedings in accordance with this dispute resolution
provision shall have no preclusive effect in any other matter involving third
parties.

12. CONFIDENTIALITY.

12.1 CONFIDENTIALITY OBLIGATION. Each party acknowledges that during
the Term of this Agreement, it may have access to the other party's
Confidential Information. All Confidential Information of a party disclosed
under this Agreement shall remain the exclusive property of the disclosing
party, subject to any license expressly granted herein. Each party agrees:
(i) to take all reasonable measures necessary to protect the confidential
nature of Confidential Information of the other party disclosed to it by the
other party including notifying in writing its Affiliates and its and their
employees, agents, consultants, contractors, licensees, sublicensees, joint
venturers, distributors or anyone else with whom such party works to complete
the purposes of this Agreement, of the confidential nature of such
Confidential Information; (ii) except as provided in this Agreement or as
required by law or court order or as necessary to assert rights hereunder,
not to disclose to third parties or copy any Confidential Information of the
other party or allow any third party access to the Confidential Information
of the other party without first obtaining such party's written consent; and
(iii) not to use, or permit others to use, any Confidential Information of
the other party except under the licenses set forth herein or as may be
provided for in separate agreements with such other party. In addition, each
party agrees to use its best efforts and utmost diligence: (i) to safeguard
the Confidential Information of each other party disclosed to it and (ii) to
protect such Confidential Information against disclosure, misuse, espionage,
loss and theft.

12.2 COMPELLED DISCLOSURE. In the event that a party is required by law
or court order to disclose any Confidential Information of any other party, that
party shall: (i) notify such other party in writing as soon as possible, but in
no event less than ten (10) calender days prior to any such disclosure; (ii)
cooperate with such other party to preserve the confidentiality of such
Confidential Information consistent with applicable law; and (iii) use its best
efforts to limit any such disclosure to the minimum disclosure necessary to
comply with the law or court order.

/s/SPC /s/ DJH
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11 CALEX POWER-ONE

<PAGE>

13. GENERAL.

13.1 SURVIVAL. Article 7 shall survive the termination of this
Agreement for any reason.

13.2 ENTIRE AGREEMENT. The Agreement and all Schedules attached hereto
and incorporated herein by this reference and the Product and Component
Agreement contain the entire agreement between the parties hereto with respect
to the subject matter hereof and supersede any previous understandings or
agreements, whether written or oral, in respect of such subject matter.

13.3 COMPLIANCE WITH LAWS. The parties shall comply with all applicable
laws, rules, regulations and orders of the United States and all jurisdictions
and any agency or court thereof in connection with this Agreement and the
transactions contemplated thereby.

13.4 BINDING AGREEMENT, ASSIGNMENT. All of the terms and conditions of
this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by the respective successors and permitted assigns of the parties
hereto. Except as specifically stated in this Agreement, neither this Agreement
nor any of the rights, interests or obligations of any party hereunder shall be
assigned or delegated by either party hereto without the prior written consent
of the other. Such consent shall not be withheld unreasonably. Any
unauthorized assignment or delegation shall be null and void. Notwithstanding
the foregoing, either party may assign or otherwise transfer its rights and
obligations to its subsidiaries, or successors in interest (whether by purchase
of stock or assets, merger, operation of law, or otherwise) of that portion of
its business related to the subject matter hereof, but the transferring party
shall remain jointly and severally liable with the transferee for any payment
obligation hereunder. Licensee may grant sublicenses pursuant to Section 2.1.2
hereof, without the consent of Licensor.

13.5 AMENDMENT AND WAIVER. This Agreement may be amended or any
provision of this Agreement may be waived; provided that any such amendment or
waiver shall be effective only if such amendment or waiver is set forth in a
writing executed by both parties hereto. No course of dealing between persons
having any interest in this Agreement will be deemed effective to modify, amend
or discharge any part of this Agreement or any rights or obligations of any
person under or by reason of this Agreement. The failure of either party to
enforce any provision of this Agreement shall not be construed to be a waiver of
such provision or the right of such party thereafter to encore such provision or
any other provision of this Agreement.

/s/SPC /s/ DJH
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12 CALEX POWER-ONE

<PAGE>

13.6 RELATIONSHIP OF PARTIES. Except as specifically provided herein, no
party shall act or represent or hold itself out as having authority to act as an
agent or partner of the other party, or in any way bind or commit the other
party to any obligations. Any such act will create a separate liability in the
party so acting to any and all third parties affected thereby. The rights,
duties, obligations and liabilities of the parties shall be several and not
joint or collective, and nothing contained in this Agreement shall be construed
as creating a partnership, joint venture, agency, trust or other association of
any kind, each party being individually responsible only for its obligations as
set forth in this Agreement.

13.7 SEVERABILITY. The illegality, invalidity or unenforceability of
any part of this Agreement shall not affect the legality, validity or
enforeceability of the remainder of this Agreement. If any part of this
Agreement shall be found to be illegal, invalid or unenforceable, this Agreement
shall be given such meaning as would make this Agreement legal, valid and
enforceable in order to give effect to the intent of the parties.

13.8 FURTHER ASSURANCES. Each of the parties agrees to execute and
deliver such other documents and to take all such other actions as any of the
other parties, its successors, assigns or other legal representatives may
reasonably request to effect the terms of this Agreement and the execution and
delivery of any and all affidavits, testimonies, declarations, oaths, samples,
exhibits, specimens and other documentation as may be reasonably required.

13.9 GOVERNING LAW. This Agreement shall be construed, governed and
interpreted in accordance with the laws, but not the rules relating to the
choice of law, of the State of California.

13.10 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be delivered in person, by
telecopier or by registered or certified mail, postage prepaid, to the parties
as follows:

If to Licensee:
Power-One
740 Calle Plano
Camarillo, Calif. 93012
Attn: David Hage
Telecopier: 805 388 0476

If to Licensor:
Calex Manufacturing Company, Inc.
2401 Stanwell Drive
Concord, Calif. 94520
Attn: Steve Mathias
Telecopier: 510 687 4424

/s/SPC /s/ DJH
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13 CALEX POWER-ONE

<PAGE>

13.11 HEADING. The captions and headings of the Articles, clauses and
paragraphs contained herein have been inserted for the convenience of the
parties and shall not be construed as part of or modifying any provisions of
this Agreement.

13.12 COUNTERPARTS. This Agreement may be executed in counterparts, any
one of which need not contain the signatures of more than one party, but all of
which, taken together, shall constitute one and the same agreement.

13.13 REPRESENTATION BY COUNSEL; INTERPRETATION. Each party
acknowledges that it has been represented by counsel in connection with this
Agreement and the transactions contemplated by this Agreement. Accordingly, any
rule of law, or any legal decision that would require interpretation of any
claimed ambiguities in this Agreement against the party that drafted it has no
application and is expressly waived. The provisions of this Agreement, shall
be interpreted in a reasonable manner to effect the intent of the parties.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.

CALEX Manufacturing Company, Inc. POWER-ONE, Inc.

BY: /s/ S.P. Cuff By: /s/ David J. Hage
--------------------------- ---------------------------

Name: S.P. Cuff Name: David J. Hage
-------------------------- --------------------------

Title: President Title: Vice President
------------------------- ---------------------------------

/s/SPC /s/ DJH
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14 CALEX POWER-ONE

<PAGE>

SCHEDULE A

[Patent List]

No Patents are subject to this Agreement at this time, however any patent issued
to Licensor during the five years following the Effective Date covering Products
that are 60W or less or including any claim such that the patent is included in
the definition of Know-How and Technology will be subject to this Agreement and
the license granted herein.

/s/SPC /s/ DJH
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15 CALEX POWER-ONE

<PAGE>

ADDENDUM C-LABEL INFORMATION

In addition to POWER-ONE name & Logo (artwork to be supplied by POWER-ONE).

Power-One Series/Model
Date Code (Week/Year) 4 digits, e.g., 5296
Revision, e.g., B
Made in USA

/s/SPC /s/ DJH
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20 CALEX POWER-ONE

<PAGE>

ADDENDUM D - DOCUMENTATION

All documents and revisions, whether written or oral, shall be available to
POWER-ONE, whether or not originally supplied. Whenever available or can be
made available, a computer file will be delivered in addition to the hard-copy
document.

A. TECHNICAL (IN GENERAL AND FOR EACH PRODUCT):
--------------------------------------------

PRODUCT Specifications
Engineering Specifications
Complete Magnetics Specifications
Engineering Drawings, Schematics, PCB Artwork/Layouts, and Parts Lists
Engineering Test Plans and Results
Manufacturing Test Plans and Results
PRODUCT Manuals
Design Reports and Design Data
Test Specifications and Procedures
Maintenance Instruction and Training Documents and Manuals
Manufacturing Plans
Manufacturing Drawings
Manufacturing Test Equipment Documents
Manufacturing Process Instructions
Assembly Tooling Document
Parts Tooling Documents
UL, CSA, EN, IEC, VDE, CE, FCC, and other applicable regulatory approval
documents, to the extent CALEX has in its sole discretion decided to pursue
such approvals

B. MARKETING LITERATURE
--------------------

ADVERTISING & PROMOTIONAL MATERIAL SHALL MINIMALLY CONSIST OF:
Data Sheets
Application Notes
Competitive information and comparisons
Presentation material

C. PURCHASING INFORMATION
----------------------

Sole-Source COMPONENTS
Unique or special COMPONENTS
Supplier Lists
Purchase Specifications
Supplier Quotation and Contract Documents

/s/SPC /s/ DJH
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21 CALEX POWER-ONE
<PAGE>

ADDENDUM E - QUALITY PROVISIONS
1. GENERAL QUALITY APPROACH

POWER-ONE is seeking to procure from CALEX PRODUCTS which shall meet all
agreed to requirements, be substantially error free upon delivery to designated
destinations, can be delivered directly to end users without additional test,
and can be expected to show continuing improvement in inherent reliability
through analysis of failures and subsequent corrective action to avoid repeated
occurrences.

POWER-ONE believes that the use of statistical methods by CALEX is
essential to achieving the above objectives. This Addendum outlines a quality
approach based on these methods. Respective POWER-ONE and CALEX
accountabilities relating to product quality are outlined below.

POWER-ONE shall provide liaison through a representative who shall
represent POWER-ONE on all matters relating to quality, performance, or
suitability of PRODUCTS for delivery. The representative (who may be required
to sign an appropriate confidentiality agreement) may review all production,
inspection, and test data, as established in this Addendum and the Quality Plan,
prior to delivery.

A Quality Plan, per the attached outline, shall be jointly developed. The
plan shall document the policies, procedures, and processes to be utilized by
POWER-ONE and CALEX for implementation of these quality provisions and be made
part of the Agreement.

Any action on the part of POWER-ONE shall not relieve CALEX of its basic
quality responsibilities or its responsibilities set forth elsewhere in the
Agreement.

2. POWER-ONE SHALL BE RESPONSIBLE FOR THE FOLLOWING:

2.1 Coordinating CALEX'S plans and delivery to meet POWER-ONE Just-In-Time
requirements, to the extent the ordering and delivery policies of CALEX or
CALEX'S suppliers are consistent therewith.

2.2 Confirming the Quality Plan and the utilization of statistical methods by
CALEX to support continuous quality improvement in the PRODUCTS.

2.3 Interfacing with CALEX'S personnel in the areas of Engineering,
Manufacturing and Quality.

2.4 Providing data feedback for use by CALEX.

3. CALEX SHALL BE RESPONSIBLE FOR THE FOLLOWING:

3.1 Responding to reasonable corrective action requests.

/s/SPC /s/ DJH
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22 CALEX POWER-ONE

<PAGE>

3.2 Providing access to CALEX's facility for POWER-ONE representatives to
witness any assembly or testing of PRODUCTS, perform statistical audits, or
complete any of the other tasks outlined in the Agreement, subject to a
requirement to execute a reasonable confidentiality agreement.

3.3 Performing failure analysis and providing data and corrective action
relating to the PRODUCTS to POWER-ONE as required withing 14 days.

If both parties cannot agree on the resolution of a problem that arises from a
customer problem, application, quality, reliability, or specification issue, the
parties agree to hire an independent consultant/arbitrator to review all data
and recommendations and make a judgement, which will be final and binding. The
parties will share equally in the cost of the arbitrator. If the parties cannot
agree on an independent consultant/arbitrator within thirty (30) days, either
party may apply to the American Arbitration Association for the appointment of
one.

3.4 Furnishing POWER-ONE

a) reports which provide POWER-ONE immediate notification of items such
as discovery by CALEX of any latent defect or latent failure tendency that could
affect a PRODUCT.

b) reports on quality performance including, but not limited to:

i. Supplier performance data, as available.
ii. In-process test and inspection yields and Pareto of defects
on a weekly basis.
iii. Status and impact of corrective action program.
iv. The results of life, environmental or extended testing, as
available.
v. Field reliability and failure Pareto on a monthly basis.

4. POWER-ONE AND CALEX JOINTLY PARTICIPATE IN THE FOLLOWING:

4.1 Organizing and implementing corrective action for problems submitted by
POWER-ONE and/or CALEX.

4.2 Developing the Quality Plan which shall define the policies, procedures,
and processes to be utilized in performing the obligation of the Agreement.

4.3 Reviewing and reaching agreement on the need for requalification as the
result of significant manufacturing changes which may impact quality, such as:
a. process changes
b. supplier manufacturing relocation
c. supplier substitution

/s/SPC /s/ DJH
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23 CALEX POWER-ONE

<PAGE>

5. QUALITY, RELIABILITY, AND DELIVERY GOALS

Quality Goals:

1996 1997 198

Pretest 96% 97% 98%
Final Test 98% 98.5% 99%
Incoming Insp. 2000ppm 1000ppm 500ppm
Field Failures 1000ppm 600ppm 400ppm

Reliability, e.g., On-going Reliability Testing and Life Testing to be mutually
determined.

Delivery performance goals include 98% on-time by Q4 or 1996

6. QUALITY PLAN OUTLINE

The Quality Plan is a prerequisite for delivery of PRODUCTS to POWER-ONE,
therefore, all PRODUCTS delivered under the Agreement must be fully processed in
accordance with the Quality Plan.

Additions or changes to the Quality Plan shall be completed and agreed to by
POWER-ONE and CALEX quality management organizations, as needed for
administration of the Quality Plan. A formal review of the Quality Plan shall
be held on a schedule mutually agreed upon by POWER-ONE and CALEX.

CONTENTS

Process Flow chart with inspection and test gates

Manufacturing Processes and Testing Procedures
Incoming Inspection
Subassembly/Assembly Test
Final Test
Packaging

Statistical Methods in Inspection and Test Processes
Inspection
Manufacturing and Test Processes
Statistical Reports

Product Reliability plan

/s/SPC /s/ DJH
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24 CALEX POWER-ONE

<PAGE>

ADDENDUM F - RETURN MATERIAL AUTHORIZATION PROCEDURE

CALEX will provide a written procedure within 30 days to POWER-ONE to
enable efficient return of product to CALEX.

/s/SPC /s/ DJH
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25 CALEX POWER-ONE

<PAGE>

ADDENDUM G - CALEX PRICING

CALEX COMPONENT PRICING

Prior to the first anniversary of the Effective Date, CALEX COMPONENTS
purchased from third parties and sold by CALEX to POWER-ONE will be at the
price that the supplier charges CALEX, plus a 15% mark-up. After the first
anniversary date of the Effective Date, an additional 8% handling fee will be
added.

Pricing for CALEX COMPONENTS manufactured by CALEX and sold to POWER-ONE will be
based on the CALEX COMPONENTS' actual costs, plus 15% After the first
anniversary date of the Effective Date, an additional 8% handling fee will be
added.

Price for all CALEX COMPONENTS will be reviewed and adjusted so as to conform to
such pricing formula on a quarterly basis.

CALEX SUB-ASSEMBLIES PRICING

CALEX agrees to establish a price methodology for CALEX SUB-ASSEMBLIES similar
to that in the section below, "CALEX PRODUCT PRICING".

CALEX PRODUCT PRICING

It is understood that CALEX will sell PRODUCTS to POWER-ONE at a price that is
actual material and actual direct labor, plus 15%. After the first anniversary
of the Effective Date, an additional 8% handling fee will be added. Pricing for
CALEX PRODUCTS will be based on CALEX'S standard cost of material and labor, as
shown in the example below. Following each month, the pricing shall be adjusted
based on actual costs as shown in the example below. Within ten (10) days after
such determination, CALEX shall issue a credit or invoice for the difference
between standard and actual costs.

The price will be reviewed and adjusted on a quarterly basis based on the actual
costs on the last month of the prior quarter.

CALEX will sell PRODUCTS to POWER-ONE at a price that is derived using
incremental costs as defined below: This means that CALEX will charge POWER-ONE
for:
Material and Supplies
Direct Labor, Payroll Taxes and benefits
Plus 15%

CALEX will include the following manufacturing expenses as part of the actual
cost of goods:

Outside Prof. Serivces. = temporary employees, hired through a
contracting agency and used in direct manufacturing operations.

/s/SPC /s/ DJH
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26 CALEX POWER-ONE
<PAGE>

Freight/Shipping = costs to bring manufacturing materials and supplies
into CALEX.

Materials/Supplies = materials directly associated with the
manufacturing and shipment of product.

Product/Part Exp. = materials and components used directly in the
assembly of product, but without reference to quantity in a bill of
material.

CALEX will not charge POWER-ONE for anything else, including but not limited to:

Supervision
Rent & Utilities
G & A
Interest
Depreciation & Amortization

/s/SPC /s/ DJH
------ ---------
27 CALEX POWER-ONE

<PAGE>

EXAMPLE:

Total Sales $475,314

Standard Cost of Goods

Standard Material 80,000
Standard Labor 80,000
Standard Overhead 50,000

Sales to Power-One 46,000

Standard Material 20,000
Standard Labor 20,000
15% 6,000

Calculation of Power-One

Total Standard Material & Labor 160,000
Power-One Standard Material & Labor 40,000
Power-One allocation % 25%

Calculation of Variance

Standard Cost of Goods Sold 212,223
Actual Labor/Overhead 141,314
Purchase Price Variance (33,847)
Material & Labor Variance (49,596)
Total (Actual) Cost of Goods Sold 270,094

Variance (Standard COGS vs Total/Actual 57,871
Less Actual Overhead -39,612
Plus Outside Prof. Services 7,661
Plus Freight/Shipping 5,114
Plus Materials/Supplies 1,801
Plus Product/Part Expense 1,806

Total Variance 34,641

Calculation of Power-One

Total Variance 34,641
Power-One allocation % 25%
Power-One Cost Adjustment 8,660
15% 1,299

/s/SPC /s/ DJH
------ ---------
28 CALEX POWER-ONE

<PAGE>

Additional Invoice for Cost Adjustment 9,959

Calculation of Power-One

Original Billing during the Month 46,000
Additional Invoice for Cost Adjustment 9,959

Total Power-One Billing $55,959

/s/SPC /s/ DJH
------ ---------
29 CALEX POWER-ONE

<PAGE>

ADDENDUM H - POWER-ONE PRICING

Prior to the first anniversary of the Effective Date, POWER-ONE COMPONENTS
purchased from third parties and sold by POWER-ONE to CALEX will be at the price
that the supplier charges POWER-ONE, plus a 20% mark-up. After the first
anniversary of the Effective Date, an additional 8% handling fee will be added.

Pricing for POWER-ONE COMPONENTS manufactured by POWER-ONE and sold to CALEX
will be based on the POWER-ONE COMPONENTS' actual costs, plus 20%. After the
first anniversary of the Effective Date, an additional 8% handling fee will be
added.

Prices for all POWER-ONE COMPONENTS will be reviewed and adjusted in compliance
with the foregoing method on a quarterly basis.

Prices for POWER-ONE SUB-ASSEMBLIES will be determined from time-to-time and
shall be furnished to CALEX upon its request.

/s/SPC /s/ DJH
------ ---------
30 CALEX POWER-ONE

<PAGE>

ADDENDUM I - WARRANTY FOR CALEX PRODUCTS AND CALEX COMPONENTS MANUFACTURED BY
CALEX.

All CALEX PRODUCTS are warranted against defects in workmanship, materials and
construction under normal use. The warranty does not apply to any CALEX
products subject to misuse, neglect, accident, improper installation or
misapplication. The liability for defective components shall be limited to the
obligations of the original manufacturer's warranty covering these components.

EXCEPT FOR THOSE EXPRESSLY SET FORTH IN THIS SECTION, CALEX HEREBY DISCLAIMS ALL
REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, AS TO ANY PRODUCT OR
COMPONENT, INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE. CALEX WILL NOT BE LIABLE FOR ANY DAMAGE,
LOSS, COST OR EXPENSE FOR BREACH OF WARRANTY, EXCEPT AS AND TO THE EXTENT
EXPRESSLY SET FORTH IN THIS SECTION, AND BUYER AGREES THAT CALEX'S WARRANTY
LIABILITY, AND BUYER'S EXCLUSIVE REMEDY, ARE EXPRESSLY LIMITED TO THE REPAIR OR
REPLACEMENT OF PRODUCTS PURSUANT TO THE WARRANTY SET FORTH IN THIS SECTION.
BUYER HEREBY EXPRESSLY WAIVES ALL CLAIMS FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL,
EXEMPLARY OR PUNITIVE DAMAGES ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS
AGREEMENT, THE PRODUCTS OR COMPONENTS, INCLUDING (BUT NOT LIMITED TO) ANY SUCH
DAMAGES ARISING BY BREACH OF WARRANTY, FAILURE OR DELAY IN MANUFACTURE OR
DELIVERY OF PRODUCTS, OR IN USE OR PERFORMANCE OF PRODUCTS.

The period of time for any warranty will be the then current POWER-ONE warranty
time period, not to exceed 5 years from the shipment date.

For service under this warranty buyer must advise the factory promptly of all
pertinent details. An RMA (Returned Material Authorization) number must be
assigned by the factory prior to the return of any material and must be
referenced on all paperwork accompanying the returned material.

/s/SPC /s/ DJH
------ ---------
31 CALEX POWER-ONE

<PAGE>

ADDENDUM J - WARRANTY FOR POWER-ONE PRODUCT AND COMPONENTS AND SUB-ASSEMBLIES
MANUFACTURED BY POWER-ONE

POWER-ONE LIMITED WARRANTY
PRODUCT SHALL BE WARRANTED AGAINST DEFECTS IN MATERIALS AND WORKMANSHIP FOR A
PERIOD OF TWO (2) YEARS FROM DATE OF SHIPMENT. EXCEPT FOR THOSE EXPRESSLY SET
FORTH IN THIS SECTION, SELLER HEREBY DISCLAIMS ALL REPRESENTATIONS AND
WARRANTIES, EXPRESS OR IMPLIED, AS TO THE PRODUCT, INCLUDING BUT NOT LIMITED TO
ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
SELLER WILL NOT BE LIABLE FOR ANY DAMAGE, LOSS, COST OR EXPENSE FOR BREACH OF
WARRANTY, EXCEPT AS AND TO THE EXTENT EXPRESSLY SET FORTH IN THIS SECTION, AND
BUYER AGREES THAT SELLER'S WARRANTY LIABILITY, AND BUYER'S EXCLUSIVE REMEDY, ARE
EXPRESSLY LIMITED TO THE REPAIR OR REPLACEMENT OF PRODUCTS PURSUANT TO THE
WARRANTY SET FORTH IN THIS SECTION. BUYER HEREBY EXPRESSLY WAIVES ALL CLAIMS
FOR CONSEQUENTIAL, INCIDENTAL, OR SPECIAL DAMAGES ARISING OUT OF OR IN ANY WAY
CONNECTED WITH THIS AGREEMENT, INCLUDING (BUT NOT LIMITED TO) ANY SUCH DAMAGES
ARISING BY BREACH OF WARRANTY, FAILURE OR DELAY IN MANUFACTURE OR DELIVERY OF
PRODUCTS, OR IN USE OR PERFORMANCE OF PRODUCTS.

This warranty is honored at Camarillo, California, provided the defective
product is returned freight pre-paid. Seller will charge for the handling and
service of products returned in error or out of warranty. For service under this
warranty buyer must advise the factory promptly of all pertinent details. An
RMA (Returned Material Authorization) number must be assigned by the factory
prior to the return of any material and must be referenced on all paperwork
accompanying the returned material.

The liability for defective components shall be limited to the obligations of
the original manufacturer's warranty covering these components.

/s/SPC /s/ DJH
------ ---------
32 CALEX POWER-ONE

<PAGE>

ADDENDUM K - LIST OF POWER-ONE COMPONENTS

CALEX PART NUMBER DESCRIPTION POWER-ONE
EQUIVALENT
CAPACITORS
1 C5423-02 68UF, 10V TBD
2 C5430-09 4.7UF, 16V TBD
3 C5440-03 15UF, 25V TBD
4 C5443-01 10F, 25V TBD
5 C5453-01 10UF, 35V TBD
6 C5520-24 1000UF, 10V TBD
7 C5583-42 56UF, 50V TBD
8 C3025-100-335 3.3UF, 100V TBD
9 CT7227-10-476 47UF, 10V TBD
10 CT7227-20-226 22UF, 20V TBD

TRANSISTORS
11 Q0352-46 MJE341/344 TBD
12 Q0353-12 IRF630 TBD
13 Q0353-13 IRF540 TBD
14 Q0353-23 IRF640 TBD

IC'S
15 IC-UCC3805N UCC3805N TBD
16 IC0421-40 TL431CLP TBD
17 IC0422-37 CNY17-1 TBD
18 IC0422-57 S19110DJ TBD
19 IC0422-656 MC34060AP TBD
20 ICSM-MIC1427CM MIC1427CM TBD
21 ICSM-MOC205 MOC205 TBD
22 ICSM-S19111DY S19111DY TBD
23 ICSM-S19112DY S19112DY TBD
24 ICSM-TL431CD TL431CD TBD

DIODES
25 D220-04 MBR 1045 TBD
26 D2200-08 MURI620CT TBD
27 D220-12 MUR820 TBD
28 D2700-001 IN5306,2.2mA TBD
29 D2800-01 SA5.0 TBD
30 D2800-02 SA15 TBD
31 D2800-11 SA150 TBD
32 D2900-16 MBR2045CT, SCHOTTKY TBD
33 DD-AK-B6660T MBRD660CT TBD

/s/SPC /s/ DJH
------ ---------
33 CALEX POWER-ONE

<PAGE>

CORES & BOBBINS
34 W0970-62 B65542-B-TI, 148FID TBD
35 W0970-76 RM8, B65812-B1 TBD
36 W0979-82 RM6SP TBD
37 W0990-101 RM8/1-3C81, NO HOLE TBD
38 W0990-109 1408PL00-3C81, CORE TBD
39 W0990-110 1408PA100-3C81, CORE TBD
40 W0990-118 RM6SPLOO-SC85 NO HOLE TBD
41 W0990-129 P14/8/1-3C85-A0160 NO HOLE TBD
42 W0990-81 B64290-K0037-X TOROID TBD
43 W0990-94 58120-A2-17 125 PERM TBD

/s/SPC /s/ DJH
------ ---------
34 CALEX POWER-ONE

<PAGE>

GOVERNMENT OF THE
COMMONWEALTH OF PUERTO RICO
OFFICE OF THE GOVERNOR

Grant of Tax Exemption to POWER ELECTRONICS, INC. (hereinafter referred to as
"applicant" or "grantee"), in Case No. 94-8-S-12 pursuant to the terms of Act
No. 8 of January 24, 1987, as amended.

DECREE

WHEREAS, Act No. 8 of January 24, 1987, as amended (hereinafter referred
to as "the Act"), empowers the Governor of the Commonwealth of Puerto Rico to
grant tax exemption from specified taxes to eligible service units when it is
proved to the satisfaction of the Governor that the applicant has
established, or will establish, an eligible service unit as defined in the
Act and that the same will be in the best interests of the Commonwealth of
Puerto Rico;

WHEREAS, the Governor of the Commonwealth of Puerto Rico, after having
examined the findings of fact and conclusions of the Special Examiner, the
report of the Director of the Office of Industrial Tax Exemption, and other
documents relative to this case, is of the opinion that the applicant has
proved that it will operate an eligible service unit within the meaning of
the Act and that the same will be in the best interests of the Commonwealth
of Puerto Rico;

NOW, THEREFORE, BE IT DECREED BY THE GOVERNOR OF THE COMMONWEALTH OF
PUERTO RICO, that the applicant, Power Electronics, Inc., be hereby granted
tax exemption in accordance with the applicable terms of the Act, covering
the performance of the designated service activity of carrying out assembly,
testing and packaging operations of products such as, but not limited to:
power supplies and transformers for export, commercial and mercantile
distribution of said products, provided that the operations shall be carried
out substantially as described in the application;

BE IT FURTHER DECREED, that the grantee herein shall be entitled to an
exemption period of fifteen (15) years in view of the location of the
exempted business at the municipality of Isabela, Puerto Rico, and that the
effective date of said tax exemption shall be May 18, 1994 for income and
property tax purposes, as requested by grantee;

BE IT FURTHER DECREED, that the effective date of this grant for
municipal license tax purposes will be July 1, 1994. Grantee will commence to
be sixty (60%) percent exempt with respect to the municipal license tax
payments due on July 1, 1994.

BE IT FURTHER DECREED, that the grantee shall be subject to the
following conditions:

(1) Eighty percent (80%) of its employees, technicians and/or
professionals shall be residents of Puerto Rico;

(2) Such services shall not be utilized directly or indirectly in Puerto
Rico, except those to be rendered to another firm in Puerto Rico that
ultimately exports the designated service product;

BE IT FURTHER DECREED, that if at any time during the effectiveness of
this grant such services are utilized directly or indirectly in Puerto Rico,
the provisions of this grant shall not be applicable, and, therefore, such
services shall be fully taxable, except those that fall within the exception
mentioned in the paragraph above;

BE IT FURTHER DECREED, that this grant shall be subject to the condition
that the grantee increases the average export billings of the services herein
contemplated to a minimum annual volume of $500,000.00 within twelve (12)
months after the commencement of operations;

<PAGE>

-2- Case No. 94-8-S-12

BE IT FURTHER DECREED, that the grantee may operate in conjunction with a
service unit that renders services for the local market, provided that it can
show to the satisfaction of the Secretary of the Department of the Treasury
of the Commonwealth of Puerto Rico the income derived from the services
rendered for markets outside of Puerto Rico by means of an accounting method
that accurately reflect said transactions;

BE IT FURTHER DECREED, that this grant of tax exemption shall be subject
to the condition that grantee must maintain six employees; in the event that
grantee employs less than five (5) persons, the tax exemption herein
recommended will be suspended until increasing the number of full time
employees to five (5) or more;

BE IT FURTHER DECREED, that the employment requirement mentioned above
shall not include the company owners, nor employees of grantee's associated
local concern or employees of grantee that renders services for the local
market;

BE IT FURTHER DECREED, that the grantee shall make all possible efforts
to hire its production workers from the unemployed labor force listed in the
Employment Service Division of the Bureau of Employment Security of the
Department of Labor and Human Resources of Puerto Rico;

BE IT FURTHER DECREED, that this grant shall be subject to the condition
that if grantee generates industrial development income of more than one
million dollars ($1,000,000) during any taxable year, it shall pay a special
surtax of .00075 of the exempted business' sales volume which shall never be
greater than one-half of one percent (.005) of the net industrial development
income and the same shall form a part and be remitted to the Secretary of the
Treasury together with their annual income tax return;

BE IT FURTHER DECREED, that the grantee shall make all possible efforts
to buy from local manufacturers all the products, components, equipment,
machinery and materials necessary for its operations;

BE IT FURTHER DECREED, that the cost and expenses attributable to the
facilities used in common shall be prorated in a proportionate share that
will be determined by multiplying the cost and expenses attributable to such
facilities used in common by a fraction having as its numerator the annual
gross sales of the services rendered by the service unit covered by this
grant, and as its denominator the total gross sales of all services rendered
by all the service units utilizing such facilities;

BE IT FURTHER DECREED, that this grant of tax exemption shall become
retroactively null and void unless the grantee shall file with the Office of
Industrial Tax Exemption, within ninety (90) days after the receipt of this
grant by the grantee, a duly notarized and sworn declaration wherein the
grantee expresses its unconditional acceptance of this grant and of all the
conditions, provisions, and findings which are an integral part hereof;

<PAGE>

-3- Case No. 94-8-S-12

BE IT FURTHER DECREED, that the continuance of this grant of tax
exemption shall be conditional upon compliance by the grantee with such
regulations and requirements as the Environmental Quality Board of the
Commonwealth of Puerto Rico has heretofore promulgated and may hereafter
promulgate, relative to the control of water, air, ground and any other
environmental pollution, and which may be applicable to the service
operations of the grantee;

BE IT FURTHER DECREED, that the tax exemption granted herein shall be
applicable only to the property directly used in connection with the
performance of the designated service activity hereinbefore listed and to the
industrial development income (as defined in the Act) derived from the
performance of said designated service activity which give rise to the
exemption provided by this decree;

BE IT FURTHER DECREED, that said tax exemption shall include exemptions
to the extent provided in the Act from all Commonwealth taxes, and from
license fees, and other municipal taxes levied by any ordinance of any
municipality, except as otherwise hereinbefore provided in this decree;

BE IT FURTHER DECREED, that the tax exemption shall not include exemption
from:

a. Workmen's compensation premiums as provided by law;
b. Fees for motor vehicle licenses or plates;
c. Taxes levied under Act No. 286, of April 6, 1946;
d. License fees or excises levied under the Excise Tax
Act of Puerto Rico, approved October 8, 1987; PRO-
VIDED, that the attention of the grantee hereof is
called to the fact that it may avail itself, to the
extent applicable and while in force or otherwise
modified, of certain exemptions contained in the
Excise Act of Puerto Rico such as, among others,
those contained in Section 3.013 thereof;

BE IT FURTHER DECREED, that as a condition to the continuance of the tax
exemption hereby granted the grantee shall be required, in conformance with
Section 10 of Act No. 8, SUPRA, to file with the Secretary, regardless of its
gross or net income, an annual income tax return, separate from any other
return it is required to file, in relation to the business operations of the
trade that is the object of the exemption and in accordance with the Income
Tax Act in force; the exempted business shall also be required to keep in
Puerto Rico the accounting records relative to its operations separately, as
well as the necessary records and files, and to make and submit such sworn
statements, and comply with the rules and regulations in force for the proper
fulfillment of the purposes of this Act and that the Secretary may prescribe
from time to time in connection with the levying and collection of all kinds
of taxes; every exempted business shall file duly completed reports and
surveys for the preparation of statistic and economic studies that from time
to time may be requested by the Administrator in the performance of his
duties; Provided further, that the grantee shall file duly completed reports
that may be requested by the Office of the Commissioner of Financial
Institutions;

BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico shall determine for each taxable year covered by
this exemption what property and what income the grantee has used in, or
derived from the service operations hereby declared tax exempt, PROVIDED,
that nothing contained herein shall deprive the grantee of its right to
administrative and judicial review of such determinations of the Secretary of
the Treasury of the Commonwealth of Puerto Rico available by Constitution,
Law or Regulation;

<PAGE>

-4- Case No. 94-8-S-12

BE IT FURTHER DECREED, that this grant of tax exemption shall be subject
to the continuing condition that grantee shall be required to keep its
corporate books and accounts in Puerto Rico;

BE IT FURTHER DECREED, that the Secretary of the Treasury of the
Commonwealth of Puerto Rico, in determining what property has been used in
and what income has been derived from the service operations of the grantee
hereby declared tax exempt, may review the accounts and records of the
grantee to determine that all purchase prices, sales prices, rates of lease,
overhead or any other cost allocations, and all other prices, rates, and cost
allocations are fixed on the basis of normal business operations and not for
the purposes of avoiding taxes ordinarily chargeable to activities not within
the scope of the service operations hereby declared tax exempt or of charging
to the operations carried on outside of Puerto Rico; PROVIDED, that wherever
the Secretary of the Treasury of the Commonwealth of Puerto Rico finds that
such rates or charges are made for the purposes of extending the coverage of
the tax exemption beyond the scope of the service operations hereby declared
tax exempt he shall make such reasonable adjustments as necessary for the
purpose of calculating the amount of taxes payable by the grantee, if any, and
he shall make such recommendations to the Governor as to such other action as
may be taken under the provisions of Section 8(c)(1) of the Act and the Rules
and Regulations promulgated hereunder; PROVIDED, that nothing contained
herein shall deprive the grantee of its right to administrative and judicial
review of such determination of the Secretary of the Treasury of the
Commonwealth of Puerto Rico available by Constitution, Law, or Regulation;

BE IT FURTHER DECREED, that the grantee shall operate the business
covered by this grant in good faith and in accordance with the principles of
normal business operations, and shall not wilfully attribute to the
operations and accounts for the activities covered by this grant, activities
carried on in Puerto Rico or any other place which are not part of the
operations of the tax exempt business covered by this grant;

BE IT FURTHER DECREED, that during the period of effectiveness of this
grant the grantee shall acquire no property and take no other action
forbidden by the provisions of Section 7 of the Act;

BE IT FURTHER DECREED, that the tax exemption hereby granted shall
expire according to the effective date fixed in the grant pursuant to the
provisions of the Act, unless previously terminated by revocation in
accordance with the applicable provisions of the Act;

BE IT FURTHER DECREED, that upon acceptance of this grant of tax
exemption, the grantee recognizes that it shall be required to comply with
all the relevant provisions of the Act, and all rules and regulations
promulgated by the Director of the Office of Industrial Tax Exemption and
approved by the Governor in accordance with the provisions of Section 9(i) of
the Act, regardless of whether or not said provisions are specifically
mentioned in this grant of tax exemption; PROVIDED, however, that this decree
shall, upon its acceptance by grantee, constitute a contract between the
Commonwealth of Puerto Rico and the grantee;

BE IT FURTHER DECREED, that upon receipt of properly certified copies of
this grant of tax exemption, the Director of the Office of Industrial Tax
Exemption shall immediately forward a copy to the grantee.

SIGNED AND ACKNOWLEDGED: R.F. NO. 95-007 /s/ Pedro Rossello
----------------------------
PEDRO ROSSELLO
GOVERNOR

/s/ Jorge H. Nayas
- -------------------------
JORGE H. NAYAS
UNDER [Illegible]

THIS 4 DAY OF JANUARY DE 1995

<PAGE>

GRANTEE

GOVERNMENT OF THE
COMMONWEALTH OF PUERTO RICO
OFFICE OF INDUSTRIAL TAX EXEMPTION

Report of the Special Examiner on the application for tax exemption of POWER
ELECTRONICS, INC., Case No. 94-8-S-12, pursuant to the terms of Act No. 8 of
January 24, 1987, as amended.

On May 18, 1994, an application for tax exemption was filed by Power
Electronics, Inc., requesting a grant of tax exemption under the provisions
of Act No. 8 of January 24, 1987, as amended, for the operation of a service
unit covering the performance of the designated service activity of carrying
out assembly, testing and packaging operations of products such as, but not
limited to: power supplies and transformers for export. Commercial and
mercantile distribution of said products.

Copies of the application were referred to the government agencies in the
regular manner.

Proper notices of the filing of the application have been published in
the June 17, 1994 and June 21, 1994 issues of the daily newspapers "El Nuevo
Dia" and "El Vocero, respectively. No one appeared within the time provided
by said notices to raise any objection to the granting of the application and
no written opposition has been filed with the Special Examiner.

Based on the sworn application, the evidence, affidavits and other papers
submitted by the applicant, as well as the investigations and report of the
Economic Development Administration, the Special Examiner hereby makes the
following findings of fact and conclusions of law;

FINDINGS OF FACT

1. Organization and Ownership

The applicant, Power Electronics, Inc., is a corporation organized under
the laws of Puerto Rico. The main stockholders of said corporation are
Messrs. Sharyl Owen, Steve P. Cole and Steve J. Goldman.

2. Location

The applicant utilizes an area of 10,000 square feet located at the
municipality of Isabela, Puerto Rico.

3. Machinery and Equipment

The machinery and equipment utilized in the service unit of the applicant
have a total cost of $48,400.00 and will invest $53,500.00 in equipment
within one (1) year.

4. Description of Service

The applicant is engage in the designated service activity of carrying
out assembly, testing and packaging operations of products such as, but not
limited to: power supplies and transformers for export. Commercial and
mercantile distribution of said products.

The manner in which the service will be rendered in Puerto Rico is fully
described in the report of the Economic Development Administration, Finding
of Fact No. 7, hereof.

It is expected that applicant's annual billings for rendering such
service at contemplated rate of operations for the first year will have a
sales value of approximately $4,126,736.00 and $6,000,000.00 within two (2)
years.

The service will be utilized in the United States and foreign countries.

<PAGE>

-2- Case No. 94-8-S-12

5. Employment

The applicant expects to employ approximately 6 persons by the end of the
first year of operations with a total annual payroll of approximately
$53,040.00.

6. Effect on U.S. Economy - Other Considerations

According to the sworn application, no enterprise under common or related
ownership with the applicant corporation has had any substantial labor
relations problems within the past two years; the applicant nor any of its
stockholders has or has had in the past any proprietary interest in the
amount of 25% or more in any tax exempt enterprise which was or is engaged
in a substantially similar economic activity; the applicant will not use any
physical facilities including, but not limited to land, buildings, machinery,
equipment, inventories, supplies, trademarks, patents and marketing outlets
having a value of $25,000 or more previously used by a predecessor exempted
business; and, finally, the proposed operation in Puerto Rico will not
substantially and adversely affect the employees of an enterprise on the
United States under common or related ownership.

<PAGE>

-3- Case No. 94-8-S-12

CONCLUSIONS OF LAW

The applicant in the present case has requested tax exemption for the
operation of a service unit covering the performance of the designated
service activity of carrying out assembly, testing and packaging operations of
products such as, but not limited to: power supplies and transformers for
export, commercial and mercantile distribution of said products, under the
provisions of Section 2(d)(4) of Act No. 8 of January 24, 1987, as amended
(hereinafter referred to as the "Act").

On the basis of the evidence submitted and the report of the Economic
Development Administration, it has been determined that the service unit
which has requested tax exemption is eligible under the provisions of Section
2(d)(4) of the Act.

The applicant's designated services will fall within the definition of
Designated Services Nos. (1) and (9) of Section 2(i) of the Act.

It has been determined also that the service unit under consideration
qualifies as a "service unit" within the definition of Section 2(i) of the
Act.

The Special Examiner recommends that the Governor should consider
applicant as a service unit pursuant to the provisions of Section 2(i) of the
Act in view of the contributions that said unit will make to the welfare of
the Commonwealth of Puerto Rico.

In view of the foregoing, the Special Examiner recommends the granting of
tax exemption to Power Electronics, Inc., for the performance of the above
mentioned designated service activities, under the provisions of Section
2(d)(4) of the Act, subject to the condition that the applicant shall render
on a continued basis, an amount of sales of said services of $500,000.00
within twelve (12) months after the commencement of operations.

Petitioner has a grant of tax exemption in Case No. 87-8-RI-46 for
manufacturing operations covering direct power supplies and transformers. The
Special Examiner concurs with the Economic Development Administration and
determine that the provisions of Section 7 of the Act are not applicable in
this case.

In view of the location of the service unit, the applicant is eligible
for a tax exemption period of fifteen (15) years, pursuant to the terms of
Section 3(d) of the Act.

<PAGE>

THIRD AMENDMENT TO CREDIT AGREEMENT

THIS THIRD AMENDMENT TO CREDIT AGREEMENT (this "THIRD AMENDMENT"), dated as
of August 18, 1997 (but effective as of September 30, 1995), is entered into
among Power-One, Inc., a Delaware corporation (the "BORROWER"), the banks listed
on the signature pages hereof (the "LENDERS"), and NATIONSBANK OF TEXAS, N.A.,
as administrative agent for the Lenders (in said capacity, the "ADMINISTRATIVE
LENDER").

A. The Borrower, certain of the Lenders and the Administrative Lender are
parties to that certain Credit Agreement, dated as of September 27, 1995, as
amended by that certain First Amendment to Credit Agreement, dated as of
February 1, 1996, as amended by that certain Second Amendment to Credit
Agreement, dated as of September 18, 1996 (said Credit Agreement, as amended,
the "CREDIT AGREEMENT"; the terms defined in the Credit Agreement and not
otherwise defined herein shall be used herein as defined in the Credit
Agreement).

B. The Borrower, Lenders and the Administrative Lender desire to amend
the Credit Agreement to make certain changes therein.

1. AMENDMENTS TO CREDIT AGREEMENT.

(a) The definition of "EBIT" set forth in Section 1.1 of the Credit
Agreement is hereby amended to read as follows:

"EBIT" means, determined in accordance with GAAP on a consolidated
basics for the Borrower and its Subsidiaries, without duplication, the sum
of (a) for any period, Pretax Net Income (excluding therefrom, to the extent
in determining Pretax Net Income, any items of extraordinary gain,
including net gains on the sale of assets other than asset sales in the
ordinary course of business, and adding thereto, to the extent included in
determining Pretax Net Income, any items of extraordinary loss, including
net losses on the sale of assets other than asset sales in the ordinary
course of business), plus (ii) interest expense and (b) for the period of
four consecutive fiscal quarters ending on September 29, 1996, $2,261,081
(which amount was allocated to inventory as part of the Power-One
Acquisition).

(b) Section 5.12 of the Credit Agreement is hereby amended by adding the
following language at the end thereof:

<PAGE>

"The Borrower, the Lenders and the Administrative Lender acknowledge
that as an accommodation to the Borrower the Lenders have not filed any
Collateral Documents in Mexico covering assets of the Borrower located in
Mexico (all assets of the Borrower now or hereafter located in Mexico being
herein called the "Mexican Collateral"). The Borrower acknowledges and
agrees that upon the request of the Determining Lenders, the Borrower shall
(i) execute and deliver such further documents and do such other acts and
things as the Administrative Lender may reasonably request to properly and
adequately register and perfect the Lien of the Lenders in the Mexican
Collateral under Mexican Law and (ii) pay all recording and other similar
fees, taxes and expenses related to registering and perfecting the Lien of
the Lenders in the Mexican Collateral."

(a) the representations and warranties contained in the Credit Agreement
are true and correct in all material respects on and as of the date hereof as if
made on and as of such date;

(b) no event has occurred and is continuing which constitutes a Default or
an Event of Default;

(c) the Borrower has full power and authority to execute and deliver
this Third Amendment and to perform this Third Amendment and the Credit
Agreement, as amended by this Third Amendment, the execution and delivery of
this Third Amendment and the performance of this Third Amendment and the
Credit Agreement, as amended by this Third Amendment, has been duly
authorized by all corporate action of the Borrower, and this Third Amendment
and the Credit Agreement, as amended hereby, constitute the legal, valid and
binding obligations of the Borrower, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
debtor relief laws and by general principles of equity (regardless of whether
enforcement is sought in a proceeding in equity or at law) and except as
rights to indemnity may be limited by federal or state securities laws;

(d) neither the execution and delivery of this Third Amendment, or the
performance of this Third Amendment or the Credit Agreement, as amended by
this Third Amendment, nor the consummation of any transactions herein or
therein, will contravene or conflict with any Applicable Law to which the
Borrower or any of its Subsidiaries is subject or any indenture, agreement or
other instrument to which the Borrower or any of its Subsidiaries or any of
their respective property is subject, except to the extent that any such
contravention or conflict could not reasonably be expected to have a Material
Adverse Effect; and

- 2 -

<PAGE>

Agreement, as amended by this Third Amendment, or (ii) acknowledgment of this
Third Amendment by PEI or PUM.

3. CONDITIONS OF EFFECTIVENESS. Notwithstanding the date of this Third
Amendment, this Third Amendment shall be effective as of September 30, 1995,
subject to the following:

(a) the Administrative Lender shall have received counterparts of this
Third Amendment executed by the Lenders;

(b) the Administrative Lender shall have received counterparts of this
Third Amendment executed by the Borrower and acknowledged by PEI and PUM;

(d) the Administrative Lender and the Lenders shall have received in form
and substance satisfactory to the Administrative Lender and the Lenders, such
other documents, certificates and instruments as the Lenders shall reasonably
require.

4. ACKNOWLEDGEMENT. By signing below, each of PEI and PUM (i)
acknowledges and consents to the execution, delivery and performance by the
Borrower of this Third Amendment and (ii) acknowledges and agrees that its
obligations in respect of its Subordination Agreement are not released,
diminished, waived, modified, impaired or affected in any manner by this Third
Amendment or any of the provisions contemplated herein except as expressly
provided herein.

5. REFERENCE TO THE CREDIT AGREEMENT.

(a) Upon the effectiveness of this Third Amendment, each reference in the
Credit Agreement to "this Agreement", "hereunder", or words of like import shall
mean and be a reference to the Credit Agreement, as amended by this Third
Amendment.

(b) The Credit Agreement, as amended by this Third Amendment, and all
other Loan Documents shall remain in full force and effect and are hereby
ratified and confirmed.

6. COSTS, EXPENSES AND TAXES. The Borrower agrees to promptly pay all
reasonable costs and expenses of the Administrative Lender in connection with
the preparation, reproduction, execution and delivery of the Third Amendment and
the other instruments and documents to be delivered hereunder (including the
reasonable fees and out-of-pocket expenses of counsel for the Administrative
Lender).

7. EXECUTION IN COUNTERPARTS. This Third Amendment may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of

- 3 -

<PAGE>

which when so executed and delivered shall be deemed to be an original and all
of which when taken together shall constitute but one and the same instrument.

8. GOVERNING LAW; BINDING EFFECT. This Third Amendment shall be
governed by and construed in accordance with the laws of the State of Texas
and shall be binding upon the Borrower and each Lender and their respective
successors and assigns.

9. HEADINGS. Section headings in this Third Amendment are included
herein for convenience of reference only and shall not constitute a part of this
Third Amendment for any other purpose.

10. ENTIRE AGREEMENT. THE CREDIT AGREEMENT, AS AMENDED BY THIS THIRD
AMENDMENT, AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN
THE PARTIES AS TO THE SUBJECT MATTER THEREIN AND HEREIN AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL
AGREEMENTS BETWEEN THE PARTIES.

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REMAINDER OF PAGE LEFT INTENTIONALLY BLANK
- --------------------------------------------------------------------------------
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- 4 -

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as of the date first above-written.

POWER-ONE, INC.

By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------

NATIONSBANK OF TEXAS, N.A.,
Individually and as Administrative Lender

By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------

UNION BANK

By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------

CITY NATIONAL BANK

By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------

- 5 -

<PAGE>

SUMITOMO BANK OF CALIFORNIA

By:
----------------------------------
Name:
-----------------------------
Title:
-----------------------------

ACKNOWLEDGED AND AGREED:

POWER ELECTRONICS, INC.

By:
------------------------------
Name:
-------------------------
Title:
-------------------------

PODER UNO de MEXICO, S.A. de C.V.

By:
------------------------------
Name:
-------------------------
Title:
-------------------------

- 6 -

<PAGE>
EXHIBIT 10.16

POWER-ONE, INC.
EMPLOYEE STOCK PURCHASE PLAN

<PAGE>

TABLE OF CONTENTS

PAGE

1. PURPOSE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. ELIGIBILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS. . . . . . . . . . . . 3
5. OFFERING PERIODS . . . . . . . . . . . . . . . . . . . . . . . . . . 4
6. PARTICIPATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
7. METHOD OF PAYMENT OF CONTRIBUTIONS . . . . . . . . . . . . . . . . . 4
8. GRANT OF OPTION. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
9. EXERCISE OF OPTION . . . . . . . . . . . . . . . . . . . . . . . . . 5
10. DELIVERY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS . . . . . . . . 6
12. ADMINISTRATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
13. DESIGNATION OF BENEFICIARY . . . . . . . . . . . . . . . . . . . . . 7
14. TRANSFERABILITY. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
15. USE OF FUNDS; INTEREST . . . . . . . . . . . . . . . . . . . . . . . 8
16. REPORTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
17. ADJUSTMENTS OF AND CHANGES IN THE STOCK. . . . . . . . . . . . . . . 9
18. TERM OF PLAN; AMENDMENT OR TERMINATION . . . . . . . . . . . . . . . 9
19. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
20. CONDITIONS UPON ISSUANCE OF SHARES . . . . . . . . . . . . . . . . . 10
21. PLAN CONSTRUCTION. . . . . . . . . . . . . . . . . . . . . . . . . . 10
22. EMPLOYEES' RIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . 11
23. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

i
<PAGE>

POWER-ONE, INC.
EMPLOYEE STOCK PURCHASE PLAN

The following constitute the provisions of the Power-One, Inc. Employee
Stock Purchase Plan.

1. PURPOSE

The purpose of this Plan is to provide Eligible Employees with an incentive
to advance the best interests of the Corporation (and those Subsidiaries
which may be designated by the Committee as "Participating Corporations")
by providing a method whereby they may voluntarily purchase Common Stock at
a favorable price and upon favorable terms.

2. DEFINITIONS

Capitalized terms used herein which are not otherwise defined shall have
the following meanings.

"ACCOUNT" shall mean the bookkeeping account maintained by the
Corporation, or by a recordkeeper on behalf of the Corporation, for a
Participant pursuant to Section 7(a).

"BOARD" shall mean the Board of Directors of the Corporation.

"CODE" shall mean the Internal Revenue Code of 1986, as amended.

"COMMITTEE" shall mean the committee appointed by the Board to
administer this Plan pursuant to Section 12.

"COMMON STOCK" shall mean the common stock of the Corporation.

"COMPANY" shall mean the Corporation and its Subsidiaries.

"COMPENSATION" shall mean an Eligible Employee's regular earnings,
overtime pay, sick pay, shift differential, shift premium, vacation pay,
incentive compensation, commissions and bonuses. Compensation also
includes any amounts contributed as salary reduction contributions to a
plan qualifying under Section 401(k), 125 or 129 of the Code. Any other
form of remuneration is excluded from Compensation, including (but not
limited to) the following: prizes, awards, housing allowances, stock option
exercises, stock appreciation rights, restricted stock exercises,
performance awards, auto allowances, tuition reimbursement and other forms
of imputed income.

1
<PAGE>

"CONTRIBUTIONS" shall mean all bookkeeping amounts credited to the
Account of a Participant pursuant to Section 7(a).

"CORPORATION" shall mean Power-One, Inc., a Delaware corporation.

"ELIGIBLE EMPLOYEE" shall mean any employee of the Corporation, or of
any Subsidiary which has been designated in writing by the Committee as a
"Participating Corporation" (including any Subsidiaries which have become
such after the date that this Plan is approved by shareholders).
Notwithstanding the foregoing, "Eligible Employee" shall not include any
employee who [(i) has not as of the Grant Date completed at least [24
maximum] months of continuous full-time employment with the Company, (ii)
whose customary employment is for less than [20 maximum] hours per week,
(iii) whose customary employment is for not more than [five maximum] months
in a calendar year, or (iv) is a "highly compensated employee" (as such
term is defined for purposes of Section 414(q) of the Code)]. [THE
BRACKETED EXCLUSIONS IN (i) THROUGH (iv) ABOVE ARE THE ONLY EXCLUSIONS
PERMITTED UNDER THE CODE. EACH OF THESE EXCLUSIONS IS OPTIONAL AND NEED
NOT BE INCLUDED. THE MONTHLY AND HOURLY LIMITS ARE THE MAXIMUM
EXCLUSIONARY LIMITS THAT CAN BE IMPLEMENTED UNDER SECTION 423 OF THE CODE.
THE PLAN COULD IMPOSE SHORTER MONTHLY OR HOURLY LIMITS.]

"EFFECTIVE DATE" shall mean ______________, 199__.

"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended.

"EXERCISE DATE" shall mean, with respect to an Offering Period, the
last day of that Offering Period.

"FAIR MARKET VALUE" shall mean the closing price of a Share on The New
York Stock Exchange on such date (or, in the event that the Common Stock is
not traded on such date, on the immediately preceding trading date), as
reported in THE WALL STREET JOURNAL or, in the event the Common Stock is
not listed on The New York Stock Exchange, the "Fair Market Value" shall be
the closing price of the Common Stock for such date (or, in the event that
the Common Stock is not traded on such date, on the immediately preceding
trading date), as reported by the National Association of Securities
Dealers Automated Quotation ("NASDAQ") or, if such price is not reported,
the mean of the bid and asked prices per Share as reported by NASDAQ or, if
such prices are not so listed or reported, as determined by the Committee
(or its delegate), in its discretion

"GRANT DATE" shall mean the first day of each Offering Period.

"OFFERING PERIOD" shall mean the six-consecutive month period
commencing on each January 1 and July 1.

2
<PAGE>

"OPTION" shall mean the stock option to acquire Shares granted to a
Participant pursuant to Section 8.

"OPTION PRICE" shall mean the per share exercise price of an Option as
determined in accordance with Section 8(b).

"PARTICIPANT" shall mean an Eligible Employee who has elected to
participate in this Plan and who has filed a valid and effective
Subscription Agreement to make Contributions pursuant to Section 6.

"PLAN" shall mean this Power-One, Inc. Employee Stock Purchase Plan,
as amended from time to time.

"RULE 16b-3" shall mean Rule 16b-3 promulgated under Section 16.

"SECTION 16" shall mean Section 16 of the Exchange Act.

"SHARE" shall mean a share of Common Stock.

"SUBSCRIPTION AGREEMENT" shall mean the written agreement filed by an
Eligible Employee with the Corporation pursuant to Section 6 to participate
in this Plan.

"SUBSIDIARY" shall mean any corporation in an unbroken chain of
corporations (beginning with the Corporation) in which each corporation
(other than the last corporation) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one or more of the
other corporations in the chain.

3. ELIGIBILITY

Any person employed as an Eligible Employee as of a Grant Date shall be
eligible to participate in this Plan during the Offering Period in which
such Grant Date occurs, subject to the Eligible Employee satisfying the
requirements of Section 6.

4. STOCK SUBJECT TO THIS PLAN; SHARE LIMITATIONS

The total number of Shares to be made available under this Plan is
___________ authorized and unissued or treasury shares of Common Stock, or
Shares repurchased on the open market, subject to adjustments pursuant to
Section 17. The aggregate number of Shares a Participant may purchase
under this Plan during each Offering Period shall not exceed ____________
Shares, subject to adjustments pursuant to Section 17. In the event that
all of the Shares made available under this Plan are subscribed prior to
the expiration of this Plan, this Plan may be terminated in accordance with
Section 18.

<PAGE>

5. OFFERING PERIODS

During the term of this Plan, the Corporation will offer Options to
purchase Shares to all Participants during each Offering Period. Each
Option shall become effective on the Grant Date. The term of each Option
shall be six months and shall end on the Exercise Date. The first Offering
Period shall commence on or after the Effective Date. Offering Periods
shall continue until this Plan is terminated in accordance with Section 18,
or, if earlier, until no Shares remain available for Options pursuant to
Section 4.

6. PARTICIPATION

An Eligible Employee may become a participant in this Plan by completing a
Subscription Agreement on a form approved by and in a manner prescribed by
the Committee (or its delegate). To become effective, Subscription
Agreements must be filed with the Corporation prior to the applicable Grant
Date and must set forth the percentage of the Eligible Employee's
Compensation (which shall be a whole percentage point [not less than 1% and
not more than 10%]) to be credited to the Participant's Account as
Contributions each pay period. Subscription Agreements shall contain the
Eligible Employee's authorization and consent to the Corporation's
withholding from his or her Compensation the amount of his or her
Contributions. A Subscription Agreement shall remain valid only for the
Offering Period for which it relates.

7. METHOD OF PAYMENT OF CONTRIBUTIONS

(a) The Corporation shall maintain on its books, or cause to be maintained
by a recordkeeper, an Account in the name of each Participant. The
percentage of Compensation elected to be applied as Contributions by a
Participant shall be deducted from such Participant's Compensation on
each payday during the period for payroll deductions set forth below
and such payroll deductions shall be credited to that Participant's
Account as soon as administratively practicable after such date. A
Participant may not make any additional payments to his or her
Account. A Participant's Account shall be reduced by any amounts used
to pay the Option Price of Shares acquired, or by any other amounts
distributed pursuant to the terms hereof.

(b) Payroll deductions with respect to an Offering Period shall commence
as of the first day of the payroll period which coincides with or
immediately follows the applicable Grant Date and shall end on the
last day of the payroll period which coincides with or immediately
precedes the applicable Exercise Date, unless sooner terminated by the
Participant as provided in this Section or until his or her
participation terminates pursuant to Section 11.

<PAGE>

(c) A Participant may terminate his or her Contributions during an
Offering Period by completing and filing with the Corporation, in such
form and on such terms as the Committee (or its delegate) may
prescribe, a withdrawal form. Such termination shall be effective as
soon as administratively practicable after its receipt by the
Corporation.

8. GRANT OF OPTION

(a) On each Grant Date, each Eligible Employee who is a participant during
that Offering Period shall be granted an Option to purchase a number
of Shares. The Option shall be exercised on the Exercise Date. The
number of Shares subject to the Option shall be determined by dividing
the Participant's Account balance as of the applicable Exercise Date
by the Option Price.

(b) The Option Price per Share of the Shares subject to an Option shall be
the lesser of: (i) 85% of the Fair Market Value of a Share on the
applicable Grant Date; or (ii) 85% of the Fair Market Value of a Share
on the applicable Exercise Date.

(c) Notwithstanding anything else contained herein, a person who is
otherwise an Eligible Employee shall not be granted any Option or
other right to purchase Shares under this Plan to the extent (i) it
would, if exercised, cause the person to own "stock" (as such term is
defined for purposes of Section 423(b)(3) of the Code) possessing 5%
or more of the total combined voting power or value of all classes of
stock of the Corporation, or any Subsidiary, or (ii) such Option
causes such individual to have rights to purchase stock under this
Plan and any other plan of the Company which accrue at a rate which
exceeds $25,000 of the fair market value of the stock of the
Corporation or of a Subsidiary (determined at the time the right to
purchase such Stock is granted) for each calendar year in which such
right is outstanding. For this purpose a right to purchase Shares
accrues when it first become exercisable during the calendar year. In
determining whether the stock ownership of an Eligible Employee equals
or exceeds the 5% limit set forth above, the rules of Section 424(d)
of the Code (relating to attribution of stock ownership) shall apply.

9. EXERCISE OF OPTION

Unless a Participant's Plan participation is terminated as provided in
Section 11, his or her Option for the purchase of Shares shall be exercised
automatically on the Exercise Date for that Offering Period, without any
further action on the Participant's part, and the maximum number of whole
Shares subject to such Option shall be purchased at the Option Price with
the balance of such Participant's Account. If any amount (which is not
sufficient to purchase a whole Share) remains in a Participant's Account
after the exercise of his or her Option on the Exercise Date: (i) such
amount shall be credited to such Participant's Account for the next
Offering Period, if he or

<PAGE>

she is then a Participant; or (ii) if such Participant is not a Participant
in the next Offering Period, or if the Committee so elects, such amount
shall be refunded to such Participant as soon as administratively
practicable after such date.

10. DELIVERY

As soon as administratively practicable after the Exercise Date, the
Corporation shall deliver to each Participant a certificate representing
the Shares purchased upon exercise of his or her Option. The Corporation
may make available an alternative arrangement for delivery of Shares to a
recordkeeping service. The Committee (or its delegate), in its discretion,
may either require or permit the Participant to elect that such
certificates be delivered to such recordkeeping service. In the event the
Corporation is required to obtain from any commission or agency authority
to issue any such certificate, the Corporation will seek to obtain such
authority. Inability of the Corporation to obtain from any such commission
or agency authority which counsel for the Corporation deems necessary for
the lawful issuance of any such certificate shall relieve the Corporation
from liability to any Participant except to return to the Participant the
amount of the balance in his or her Account.

11. TERMINATION OF EMPLOYMENT; CHANGE IN ELIGIBLE STATUS

(a) Upon a Participant's termination from employment with the Company for
any reason or in the event that a Participant is no longer an Eligible
Employee or if the Participant elects to terminate Contributions
pursuant to Section 7(c), at any time prior to the last day of an
Offering Period in which he or she participates, such Participant's
Account shall be paid to him or her or in cash, or, in the event of
such Participant's death, paid to the person or persons entitled
thereto under Section 13, and such Participant's Option for that
Offering Period shall be automatically terminated.

(b) A Participant's termination from Plan participation precludes the
Participant from again participating in this Plan during that Offering
Period. However, such termination shall not have any effect upon his
or her ability to participate in any succeeding Offering Period,
provided that the applicable eligibility and participation
requirements are again then met. A Participant's termination from
Plan participation shall be deemed to be a revocation of that
Participant's Subscription Agreement and such Participant must file a
new Subscription Agreement to resume Plan participation in any
succeeding Offering Period.

12. ADMINISTRATION

(a) The Board shall appoint the Committee, which shall be composed of not
less than two members of the Board. Each member of the Committee, in
respect of any transaction at a time when an affected Participant may
be subject to Section 16 of the Exchange Act, shall be a "non-employee
director" within the

<PAGE>

meaning of Rule 16b-3 promulgated under Section 16. The Board may,
at any time, increase or decrease the number of members of the
Committee, may remove from membership on the Committee all or any
portion of its members, and may appoint such person or persons as it
desires to fill any vacancy existing on the Committee, whether
caused by removal, resignation, or otherwise. The Board may also,
at any time, assume or change the administration of this Plan.

(b) The Committee shall supervise and administer this Plan and shall have
full power and discretion to adopt, amend and rescind any rules deemed
desirable and appropriate for the administration of this Plan and not
inconsistent with the terms of this Plan, and to make all other
determinations necessary or advisable for the administration of this
Plan. The Committee shall act by majority vote or by unanimous
written consent. No member of the Committee shall be entitled to act
on or decide any matter relating solely to himself or herself or any
of his or her rights or benefits under this Plan. The Committee shall
have full power and discretionary authority to construe and interpret
the terms and conditions of this Plan, which construction or
interpretation shall be final and binding on all parties including the
Corporation, Participants and beneficiaries. The Committee may
delegate ministerial non-discretionary functions to third parties,
including officers of the Corporation.

(c) Any action taken by, or inaction of, the Corporation, the Board or the
Committee relating to this Plan shall be within the absolute
discretion of that entity or body. No member of the Board or
Committee, or officer of the Corporation shall be liable for any such
action or inaction.

13. DESIGNATION OF BENEFICIARY

(a) A Participant may file, in a manner prescribed by the Committee (or
its delegate), a written designation of a beneficiary who is to
receive any Shares or cash from such Participant's Account under this
Plan in the event of such Participant's death. If a Participant's
death occurs subsequent to the end of an Offering Period but prior to
the delivery to him or her of any Shares deliverable under the terms
of this Plan, such Shares and any remaining balance of such
Participant's Account shall be paid to such beneficiary (or such other
person as set forth in Section 13(b)) as soon as administratively
practicable after the Corporation receives notice of such
Participant's death and any outstanding unexercised Option shall
terminate. If a Participant's death occurs at any other time, the
balance of such Participant's Account shall be paid to such
beneficiary (or such other person as set forth in Section 13(b)) in
cash as soon as administratively practicable after the Corporation
receives notice of such Participant's death and such Participant's
Option shall terminate. If a Participant is married and the
designated beneficiary is not his

<PAGE>

or her spouse, spousal consent shall be required for such designation
to be effective.

(b) Beneficiary designations may be changed by the Participant (and his or
her spouse, if required) at any time on forms provided and in the
manner prescribed by the Committee (or its delegate). If a
Participant dies with no validly designated beneficiary under this
Plan who is living at the time of such Participant's death, the
Corporation shall deliver all Shares and/or cash payable pursuant to
the terms hereof to the executor or administrator of the estate of the
Participant, or if no such executor or administrator has been
appointed, the Corporation, in its discretion, may deliver such Shares
and/or cash to the spouse or to any one or more dependents or
relatives of the Participant, or if no spouse, dependent or relative
is known to the Corporation, then to such other person as the
Corporation may designate.

14. TRANSFERABILITY

Neither Contributions credited to a Participant's Account nor any Options
or rights with respect to the exercise of Options or right to receive
Shares under this Plan may be anticipated, alienated, encumbered, assigned,
transferred, pledged or otherwise disposed of in any way (other than by
will, the laws of descent and distribution, or as provided in Section 13)
by the Participant. Any such attempt at anticipation, alienation,
encumbrance, assignment, transfer, pledge or other disposition shall be
without effect and all amounts shall be paid and all shares shall be
delivered in accordance with the provisions of this Plan. Amounts payable
or Shares deliverable pursuant to this Plan shall be paid or delivered only
to the Participant or, in the event of the Participant's death, to the
Participant's beneficiary pursuant to Section 13.

15. USE OF FUNDS; INTEREST

All Contributions received or held by the Corporation under this Plan will
be included in the general assets of the Corporation and may be used for
any corporate purpose. No interest will be paid to any Participant or
credited to his or her Account under this Plan.

16. REPORTS

Statements shall be provided to Participants as soon as administratively
practicable following each Exercise Date. Each Participant's statement
shall set forth, as of such Exercise Date, that Participant's Account
balance immediately prior to the exercise of his or her Option, the Fair
Market Value of a Share, the Option Price, the number of whole Shares
purchased and his or her remaining Account balance, if any.

<PAGE>

17. ADJUSTMENTS OF AND CHANGES IN THE STOCK

In the event that the Shares shall be changed into or exchanged for a
different number or kind of shares of stock or other securities of the
Corporation or of another corporation (whether by reason or merger,
consolidation, recapitalization, stock split, combination of shares, or
otherwise), or if the number of Shares shall be increased through a stock
split or the payment of a stock dividend, then there shall be substituted
for or added to each Share theretofore reserved for sale under this Plan,
the number and kind of shares of stock or other securities into which each
outstanding Share shall be so changed, or for which each such Share shall
be exchanged, or to which each such Share is entitled, as the case may be,
or the number or kind of securities which may be sold under this Plan and
the purchase price per Share shall be appropriately adjusted consistent
with such change in such manner as the Committee (or its delegate) may deem
equitable to prevent substantial dilution or enlargement of rights granted
to, or available for, Eligible Employees under this Plan.

18. TERM OF PLAN; AMENDMENT OR TERMINATION

(a) This Plan shall become effective as of the Effective Date. No new
Offering Periods shall commence on or after the tenth anniversary of
the Effective Date and this Plan shall terminate on such date unless
sooner terminated pursuant to this Section 18.

(b) The Board may amend, modify or terminate this Plan at any time without
notice. Shareholder approval for any amendment or modification shall
not be required, except to the extent required by Section 423 of the
Code or other applicable law, or deemed necessary or advisable by the
Board. No amendment, modification, or termination pursuant to this
Section 18(b) shall, without written consent of the Participant,
affect in any manner materially adverse to the Participant any rights
or benefits of such Participant or obligations of the Corporation
under any Option granted under this Plan prior to the effective date
of such change. Changes contemplated by Section 17 shall not be
deemed to constitute changes or amendments requiring Participant
consent. Notwithstanding the foregoing, the Committee shall have the
right to designate from time to time the Subsidiaries whose employees
may be eligible to participate in this Plan and such designation shall
not constitute any amendment to this Plan requiring shareholder
approval.

19. NOTICES

All notices or other communications by a Participant to the Corporation
contemplated by this Plan shall be deemed to have been duly given when
received in the form and manner specified by the Committee (or its
delegate) at the location, or by the person, designated by the Committee
(or its delegate) for that purpose.

<PAGE>

20. CONDITIONS UPON ISSUANCE OF SHARES

Shares shall not be issued with respect to an Option unless the exercise of
such Option and the issuance and delivery of such Shares complies with all
applicable provisions of law, domestic or foreign, including, without
limitation, the Securities Act of 1933, as amended, the Exchange Act, any
applicable state securities laws, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the
Shares may then be listed.

As a condition precedent to the exercise of any Option, if, in the opinion
of counsel for the Corporation such a representation is required under
applicable law, the Corporation may require any person exercising such
Option to represent and warrant that the Shares subject thereto are being
acquired only for investment and without any present intention to sell or
distribute such Shares.

21. PLAN CONSTRUCTION

(a) It is the intent of the Corporation that transactions in and affecting
Options in the case of Participants who are or may be subject to the
prohibitions of Section 16 satisfy any then applicable requirements of
Rule 16b-3 so that such persons (unless they otherwise agree) will be
entitled to the exemptive relief of Rule 16b-3 in respect of those
transactions and will not be subject to avoidable liability
thereunder. Accordingly, this Plan shall be deemed to contain and the
Shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule
16b-3 to qualify for the maximum exemption from Section 16 with
respect to Plan transactions.

(b) This Plan and Options are intended to qualify under Section 423 of the
Code.

(c) If any provision of this Plan or of any Option would otherwise
frustrate or conflict with the intents expressed above, that provision
to the extent possible shall be interpreted so as to avoid such
conflict. If the conflict remains irreconcilable, the Committee may
disregard the provision if it concludes that to do so furthers the
interest of the Corporation and is consistent with the purposes of
this Plan as to such persons in the circumstances.

22. EMPLOYEES' RIGHTS

Nothing in this Plan (or in any agreement related to this Plan) shall
confer upon any Eligible Employee or Participant any right to continue in
the service or employ of the Company or constitute any contract or
agreement of service or employment, or interfere in any way with the right
of the Company to reduce such person's compensation or other benefits or to
terminate the services or employment or such Eligible Employee or
Participant, with or without cause, but nothing contained in this

<PAGE>

Plan or any document related hereto shall affect any other contractual
right of any Eligible Employee or Participant. No Participant shall have
any rights as a shareholder until a certificate for Shares has been
issued in the Participant's name following exercise of his or her Option.
No adjustment will be made for dividends or other rights as a
shareholder for which a record date is prior to the issuance of such
Share certificate. Nothing in this Plan shall be deemed to create any
fiduciary relationship between the Corporation and any Participant.

23. MISCELLANEOUS

(a) This Plan and related documents shall be governed by, and construed in
accordance with, the laws of the State of California. If any
provision shall be held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of this Plan shall
continue to be fully effective.

(b) Captions and headings are given to the sections of this Plan solely as
a convenience to facilitate reference. Such captions and headings
shall not be deemed in any way material or relevant to the
construction of interpretation of this Plan or any provision hereof.

(c) The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Company. Nothing in this Plan shall
be construed to limit the right of the Company (i) to establish any
other forms of incentives or compensation for employees of the
Company, or (ii) to grant or assume options (outside the scope of and
in addition to those contemplated by this Plan) in connection with any
proper corporate purpose.

<PAGE>
EXHIBIT 10.17

SELECTION LETTER

August ___, 1997

Power-One, Inc.
740 Calle Plano
Camarillo, California 93012

Ladies and Gentleman:

The undersigned, an executive officer of Power-One, Inc. (the
"Company"), has received the letter (the "Letter") dated August 11, 1997 from
the Company concerning the exchange of Deferred Compensation. The undersigned
has also received the Registration Statement of the Company that accompanied
the Letter.

On the terms and conditions stated in the Letter, subject to
and upon the consummation of the Offering (as defined in the Letter), the
undersigned hereby elects to exchange for Common Stock __% of the
undersigned's Deferred Compensation.

The undersigned acknowledges that the Common Stock will not be
registered under the Securities Act of 1933, as amended (the "Act"), based,
in part, on reliance that the issuance of the Common Stock is exempt from
registration under Section 4(2) of the Act as not involving any public
offering. The undersigned further acknowledges that the Company's reliance on
such exemption is predicated, in part, on the representations set forth below
made by the undersigned to the Company.

(a) The undersigned is acquiring the Common Stock solely
for the undersigned's own account, for investment purposes only, and not
with an intent to sell, or for resale in connection with any
distribution of all or any portion of the Common Stock within the
meaning of the Act;

(b) Either (i) the undersigned has a preexisting business
relationship with the Company or its officers or directors, or (ii) the
undersigned has sufficient business or financial experience, or has
relied upon the advice of the undersigned's legal counsel, tax advisors,
and/or investment advisors, to have the capacity to protect the
undersigned's interests in connection with the purchase of the Common
Stock;

(c) The undersigned has been given access to all books,
records and other information of the Company which the undersigned has
desired to review and analyze in connection with the undersigned's
purchase of the Common Stock;

(d) The undersigned understands that the Common Stock is
characterized as "restricted securities" under the federal securities
laws since the Common Stock is being acquired from the Company in a
transaction not involving a public offering and that under such laws
and applicable regulations such securities may be resold

<PAGE>

without registration under the Act only in certain limited
circumstances. The undersigned represents that the undersigned is
familiar with Rule 144 promulgated under the Act, as presently in
effect, and understands the resale limitations imposed thereby and by
the Act; and

(e) At no time was an oral representation made to the
undersigned relating to the purchase of the Common Stock nor was the
undersigned presented with or solicited by any leaflet, public or
promotional meeting, newspaper or magazine article, radio or television
advertisement or any other form of general advertising relating to the
purchase of the Common Stock.

Additionally, the undersigned acknowledges that the Common
Stock received in the exchange, if any, will not be registered stock and
will bear a legend similar to the following: "The securities represented
hereby have not been registered under the Securities Act of 1933, as
amended, and no sale, gift, transfer or other disposition thereof or of
any interest therein shall be valid or effective (1) unless and until
registered pursuant to the provisions of such act and registered or
qualified under applicable state securities or "Blue Sky" laws, or (2)
unless an exemption from such registration and qualification
requirements is available and deemed to be so, in writing, by counsel
for the company."

Very truly yours,

---------------------------------
Print Name of Executive Officer

By:
-----------------------------
(signature of Executive
Officer)

Dated: August __, 1997

<PAGE>

EXHIBIT 10.18

AMENDMENT TO EMPLOYMENT AND COMPENSATION AGREEMENTS

THIS AMENDMENT TO EMPLOYMENT AND COMPENSATION AGREEMENTS (the
"Amendment") is made and entered into as of this 11th day of September, 1997
by and among the individuals whose names appear on the signature page hereof
(the "Parties") and Power-One, Inc., a Delaware corporation (the "Company")
and amends each of such Parties' respective Employment and Compensation
Agreement, as amended, that such Party has entered into with the Company.

The Parties and the Company each wish to amend their respective
Employment and Compensation Agreement as set forth herein in order to better
express the current intentions of the Parties.

NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the Parties and the Company,
the Parties and the Company each agree that they are hereby amending their
respective Employment and Compensation Agreement by eliminating from each
agreement any and all rights of such Party to "put" their stock ownership to
the Company.

Except as expressly modified by the provisions of this Amendment,
each Employment and Compensation Agreement shall remain unchanged and in full
force and effect.

This Amendment may be executed in one or more counterparts, all of
which shall be considered one and the same agreement, and shall become
effective when one or more counterparts have been signed by each party and
delivered to each party.

1
<PAGE>

IN WITNESS WHEREOF, the Parties and the Company have executed this
Amendment as of the date first set forth above.

POWER-ONE, INC.

----------------------------------------
By: Steven Goldman
Title: Chief Executive Officer
(executing on behalf of the Company with
respect to each agreement except his own
agreement)

----------------------------------------
By: Eddie K. Schnopp
Title: Chief Financial Officer
(executing on behalf of the Company with
respect to Mr. Goldman's agreement)

----------------------------------------
Steven Goldman

----------------------------------------
Eddie K. Schnopp

----------------------------------------
Dennis Roark

----------------------------------------
Brad Godfrey

----------------------------------------
David Hage

----------------------------------------
Donna Koep

----------------------------------------
John Martins

S-1

<PAGE>

EXHIBIT 11

Power One Inc.
Statement regarding computation of pro forma
per share earnings
(In thousands, except per share data)

Six months
Year ended ended
December 31, 1996 June 30, 1997
----------------- -------------

Pro forma net income used to compute
pro forma earnings per share ........... $ 2,869 $ 2,568
Add interest on other liabilities
converted to common stock (net of
income taxes at statutory rates) ....... 39 21
----------- -----------
Pro forma net income for pro forma
earnings per share ..................... $ 2,908 $ 2,589
----------- -----------
----------- -----------

Computation of pro forma weighted average shares outstanding:

Common shares outstanding ............. 10,000,000 10,000,000
Conversion of preferred stock to
common stock ......................... 1,427,599 1,427,599
Conversion of other liabilities to
common stock ......................... 63,054 63,054
Dilutive effect of 1996 stock option
grant after application of treasury
stock method ......................... 357,118 428,542
Dilutive effect of 1997 stock option
grants after application of treasury
stock method and assumed outstanding
for all periods presented ............ 27,656 27,656
----------- -----------
Number of shares used to compute pro
forma earnings per share ............. 11,875,427 11,946,851
----------- -----------
----------- -----------
Pro forma earnings per share .......... $ .24 $ .22
----------- -----------
----------- -----------

<PAGE>
EXHIBIT 23.1

INDEPENDENT AUDITORS' CONSENT AND REPORT ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors and Stockholders of
Power-One, Inc.:

We consent to the use in this Registration Statement of Power-One, Inc. on
Form S-1 of our report dated March 14, 1997, appearing in the Prospectus, which
is part of this Registration Statement, and to the references to us under the
headings "Selected Financial and Operating Data" and "Experts" in such
Prospectus.

Our audits of the financial statements referred to in our aforementioned
report also included the financial statement schedule of the Company listed in
Item 16. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, such financial statement schedule, when considered in
relation to the basic consolidated and combined financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.

DELOITTE & TOUCHE LLP

Los Angeles, California
September 12, 1997