POWER ONE INC, S-1, 1997-08-05

POWER ONE INC
S-1, 1997-08-05

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<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 5, 1997

REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

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

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

POWER-ONE, INC.

(Exact name of Registrant as specified in its charter)

<TABLE>
<S> <C> <C>
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:

<TABLE>
<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>

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

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. / /
--------------------------

<TABLE>
<CAPTION>
PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED(1) BE REGISTERED(1) PER SHARE PRICE(2)(3) REGISTRATION FEE(2)
<S> <C> <C> <C> <C>
Common Stock, $0.001 par value................. 5,750,000 Shares $13.00 $74,750,000 $22,652
</TABLE>

(1) Includes 750,000 shares which the Underwriters have the option to purchase
from the Company to cover over-allotments, if any.

(2) Calculated pursuant to Rule 457(o).

(3) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a).
--------------------------

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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- --------------------------------------------------------------------------------
<PAGE>
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 AUGUST 5, 1997
PROSPECTUS

5,000,000 SHARES

POWER-ONE, INC.

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 will apply 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.

<TABLE>
<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.
<PAGE>
[ART TO COME]

IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.

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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 AND (II) 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. AND ITS WHOLLY-OWNED SUBSIDIARIES
POWER-ELECTRONICS, INC. ("P-E") AND PODER UNO DE MEXICO, S.A. DE C.V. ("PODER
UNO"). 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 OEM customers include industry leaders such as Teradyne, Cisco
Systems, Siemens, General Electric, Hewlett-Packard and Unisys. The Company is
also a leading provider of power supplies to electronic distribution customers
in the U.S., including Pioneer Standard Electronics, Sterling Electronics,
Capstone (Arrow) and Kent 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 exactly match 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 75% 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 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

<TABLE>
<S> <C>
Common Stock offered........................................ 5,000,000 shares

Common Stock to be outstanding after the Offering(1)........ 16,446,968 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
</TABLE>

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

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

4
<PAGE>
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)...... 11,832 11,903

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
</TABLE>

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

<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 11,343 $ 11,343 $ 35,903
Total assets......................................................... 76,939 76,939 87,399
Total debt........................................................... 45,237 45,237 662
Total stockholders' equity........................................... 2,852 19,974 75,009
</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 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.

(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, 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 all outstanding shares of the Redeemable
Preferred Stock and accrued dividends thereon, 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 1,446,968 shares of Common
Stock which is intended to occur upon the closing of the Offering. Pursuant
to

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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."

6
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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, the Company's top three customers, consisting of its largest
distributor and two OEMs, accounted for approximately 31% 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 merged with another distributor. As a
result, the distributor no longer carries the Company's products. While the
Company believes 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 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

7
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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 significant 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 cannot be accurately predicted. Historically, the Company
has not actively engaged in substantial exchange rate hedging activities.

8
<PAGE>
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 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

9
<PAGE>
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. 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 in 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 have a material adverse impact on the Company's
financial statements. See "Business--Management Information Technology."

10
<PAGE>
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 48.8% (46.6% 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 are subject to laws, regulations and government
policies in the U.S. and abroad. Additionally, the Company's product standards
are certified by various international agencies. Changes in such laws,
regulations, policies or certification standards could 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 an adverse effect on the Company's financial
statements.

ENVIRONMENTAL RISKS

Power-One is subject to federal, state and local laws and regulations (in
both the U.S. and abroad) that govern the handling, transportation and discharge
of materials into the environment. Should there be an environmental occurrence
or incident, the Company's financial results may be adversely affected. The

11
<PAGE>
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 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
16,446,968 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, 11,446,968 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 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

12
<PAGE>
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. 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. All the Holders,
other than Holders who are holding Redeemable Preferred with a liquidation
value of $ , have agreed to exchange their Redeemable Preferred and the
dividends accrued thereon for shares of Common Stock (the "Exchange"). As a
result, contemporaneous with the consummation of the Offering, shares
will be issued in exchange for the Redeemable Preferred and the dividends
accrued thereon, 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 $4,567 per day; thus, the exact number of shares to be
issued in exchange for the accrued dividends will continue to increase at the
rate of 381 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 plus all accrued but unpaid
dividends.

In addition, on August , 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
$ for Common Stock. Accordingly, the Company will issue, upon
consummation of the Offering, 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. The
Company has also agreed to pay all amounts owing to the management 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."

14
<PAGE>
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 approximately $ million of the net proceeds from
the Offering to repay all the amounts outstanding under the Company's existing
bank credit facility (the "Credit Facility"). 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 $ 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 $ will be used to
redeem the Redeemable Preferred that was 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 plus accrued but unpaid dividends.
All holders of Redeemable Preferred, other than holders of 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."

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 6,225
------- --------- -----------
Total debt.................................... 45,237 45,237 662
------- --------- -----------
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
-------
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, 11,446,968
shares outstanding pro forma, 16,446,968
shares outstanding pro forma as adjusted(2)... 10 11 16
Additional capital.............................. 94 17,457 72,252
Notes receivable from stockholders.............. (235) (235)
Retained earnings............................... 2,983 2,741 2,741
------- --------- -----------
Total stockholders' equity.................... 2,852 19,974 75,009
------- --------- -----------
Total capitalization.............................. $65,211 $65,211 $75,671
------- --------- -----------
------- --------- -----------
</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,
shares subject to options to be granted to Non-Employee Directors upon
consummation of the Offering at the initial public offering price and
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 $8.2 million, or $0.72 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 $46.8 million, or $2.85 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 $9.15 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................................................... $ (.72)
Increase per share attributable to new investors......................... 3.57
---------
Pro forma net tangible book value per share after the Offering............. 2.85
---------
Dilution per share to new investors........................................ $ 9.15
---------
---------
</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............. 11,446,968 69.6% $ 17,468,000 22.5% $ 1.53
New investors..................... 5,000,000 30.4% 60,000,000 77.5% 12.00
------------ ----- ------------- -----
Total........................... 16,446,968 100.0% $ 77,468,000 100.0%
------------ ----- ------------- -----
------------ ----- ------------- -----
</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. shares
will be subject to options to be granted to Non-Employee Directors upon
consummation of the Offering at the initial public offering price and
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........... 11,832
-------------
-------------

<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........... 11,903
---------
---------
</TABLE>

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
</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 $ 35,903
Total assets............................................................. 76,939 76,939 87,399
Total debt............................................................... 45,237 45,237 662
Total stockholders' equity............................................... 2,852 19,974 75,009
</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 all outstanding shares of the Redeemable
Preferred Stock and accrued dividends thereon 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 1,446,968 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 was incorporated in 1973 as a manufacturer of AC/DC power
supplies. The Company operated solely from its Southern California facility
until 1981, at which time it commenced additional operations in Isabela, Puerto
Rico. In 1988, the 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, the
Company moved substantially all of its Puerto Rico manufacturing operations 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
Power-One 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>
the year 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 a 62.0%
increase 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 $6.2 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 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 fiscal
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. 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 OEM customers
include industry leaders such as Teradyne, Cisco Systems, Siemens, General
Electric, Hewlett-Packard and Unisys. The Company is also a leading provider of
power supplies to electronic distribution customers in the U.S., including
Pioneer Standard Electronics, Sterling Electronics, Capstone (Arrow) and Kent
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
exactly match 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 was incorporated in 1973 as a manufacturer of AC/DC power
supplies. The Company operated solely from its Southern California facility
until 1981, at which time it commenced additional operations in Isabela, Puerto
Rico. In 1988, the 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, the
Company moved substantially all of its Puerto Rico manufacturing operations 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
Power-One 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 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.

27
<PAGE>
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. 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 toward flexible, scaleable,
low-cost sub-systems and components that facilitate their goals of rapid and

28
<PAGE>
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 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 size 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 it 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 850,000 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 25% 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 40 distribution companies who have locations in more than
170 cities worldwide. Twenty-four 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. The strengths of Power-One's distribution network are its annual
sales volume, 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 half of 1997, respectively. No other
distributor accounted for more than 10% of the Company's annual net sales during
the last three years. 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 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 32% 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
1% 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. 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 Puerto Rico, the Dominican
Republic and Mexico is provided a minimum of 40 hours of classroom training.
Selected employees participate in Power-One's annual planning sessions and
monitor adherence

34
<PAGE>
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 in 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 31% to $27.4 million
at June 30, 1997, as compared to $20.9 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,
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

35
<PAGE>
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., an
affiliate of Stephens 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., 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 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 $ per year 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 at
least two independent directors, 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 at least two independent directors, 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 August 1997 the Plan was amended to
provide that (i) on September 1, 1997 and on each subsequent January 1 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 10% of the then outstanding shares of Common
Stock 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 five percent of the outstanding
shares on the date of grant.

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
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 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 1998, each
Non-Employee Director on such date will be granted stock options to purchase
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 three-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 six 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 two years after the date of such termination of
services.

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 January 31, 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.

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.

43
<PAGE>
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 an ownership interest in 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. 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.

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 SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING(1) OFFERING(1)(2)
----------------------- -----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- --------------------------------------------------------------------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Stephens Group, Inc.(3)(4)........................................... 3,738,866 32.7% 3,738,866 22.7%
Warren A. Stephens(3)(5)............................................. 592,602 5.2 592,602 3.6
W. R. Stephens, Jr.(3)(6)............................................ 765,035 6.7 765,035 4.7
Elizabeth Stephens Campbell(3)(7).................................... 675,034 5.9 675,034 4.1
Steven J. Goldman.................................................... 1,803,901 15.8 1,803,901 11.0
Eddie K. Schnopp(8).................................................. 336,709 2.9 336,709 2.0
Dennis R. Roark...................................................... 505,092 4.4 505,092 3.1
David J. Hage........................................................ 452,700 4.0 452,700 2.8
Brad W. Godfrey...................................................... 226,507 2.0 226,507 1.4
Jon E.M. Jacoby(3)(9)................................................ 1,466,257 12.8 1,466,257 8.9
Douglas H. Martin(3)(10)............................................. 112,165 1.0 112,165 0.7
All executive officers and directors as a group (7 persons).......... 5,047,544 44.1 5,047,544 30.7
</TABLE>

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

(1) Gives effect to the Recapitalization as if such Recapitalization occurred on
June 30, 1997. See "Recapitalization." Percentage ownership is based on
11,446,968 shares of Common Stock outstanding before the Offering and
16,446,968 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 (33.4% 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 16,446,968 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."

47
<PAGE>
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 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."

48
<PAGE>
TRANSFER AGENT OR REGISTRAR

The Transfer Agent and Registrar for the Common Stock is
.

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
16,446,968 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"), all of the 11,446,968 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 164,470 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."

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..........................................................................
----------
----------
</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.

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
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

50
<PAGE>
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.

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

51
<PAGE>
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
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
------- ------- -----------

<CAPTION>
PRO FORMA
(NOTE 2)
-----------
(UNAUDITED)
<S> <C> <C> <C> <C>
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 $--
------- -----------
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 11,446,968 shares)... 10 10 11
Additional capital........................................ 90 94 17,457
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 19,974
------- ------- ----------- -----------
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.......... 11,832 11,903
----------- ---------
----------- ---------
</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 preferred stock to
common stock (Unaudited) (Note
2)............................ (15,153,698) (17,122) 1,446,968 1 $ 17,363
---------- --------- ----------- --------- ----- ----------- -----
PRO FORMA BALANCE, JUNE 30, 1997
(Note 2) (Unaudited)............ -- $ -- $ -- 11,446,968 $ 11 $ 17,457 $ (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 preferred stock to
common stock (Unaudited) (Note
2)............................ (242) 17,122
----------- ---------
PRO FORMA BALANCE, JUNE 30, 1997
(Note 2) (Unaudited)............ $ 2,741 $ 19,974
----------- ---------
----------- ---------
</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. 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 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. Upon election of the preferred
stockholders and closing of the public offering contemplated by this Prospectus,
it is anticipated that all of the 15,153,698 preferred shares outstanding plus
accrued dividends theron 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 into 1,446,968 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.

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.

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.

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

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.

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.

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 (CONTINUED)
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. At December 31, 1996 and June 30, 1997
the Company was in compliance with all debt covenants.

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 gain on the original swap agreement, which has been deferred
and is being amortized over the life of the agreements.

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>

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 (CONTINUED)
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>

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.

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

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.

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.

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

11. REDEEMABLE PREFERRED STOCK (CONTINUED)
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.

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'

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 (CONTINUED)
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.

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
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-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

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%
Foreign 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-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

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-21
<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 Consolidated 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......................... 51
Index to Consolidated 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

POWER-ONE, INC.

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........................................... *
Printing and engraving expenses................................................... *
Legal fees and expenses........................................................... *
Accounting fees and expenses...................................................... *
Blue Sky qualification fees and expenses.......................................... *
Transfer Agent and Registrar fees................................................. *
D&O Insurance..................................................................... *
Miscellaneous fees and expenses................................................... *
-----------
Total........................................................................... $ *
-----------
-----------
</TABLE>

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

* To be provided by Amendment.

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
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

3.1* Restated Certificate of Incorporation of the Company

3.2* 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* Amendment to 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 , 1997
</TABLE>

II-2
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
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* License Agreement between the Company and Calex Manufacturing Company
dated April 2, 1996

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

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>

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

* To be filed by Amendment.

(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, 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.

II-3
<PAGE>
(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 5th day of August, 1997.

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

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

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Steven J. Goldman and Eddie K. Schnopp,
and each of them acting individually, as his attorney in fact, each with full
power of substitution, for him in any and all capacities, to sign any and all
amendments to this Registration Statements (including post-effective
amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys to any and all amendments to said Registration Statement, or any
related registration statement this is to be effective upon filing pursuant to
Rule 462(b) under the Securities Act of 1933.

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 August 5, 1997
Steven J. Goldman Officer)

Vice President, Chief
/s/ EDDIE K. SCHNOPP Financial Officer and
- ------------------------------ Secretary August 5, 1997
Eddie K. Schnopp (Principal Financial and
Accounting Officer)

/s/ JON E.M. JACOBY
- ------------------------------ Director August 5, 1997
Jon E.M. Jacoby

/s/ DOUGLAS H. MARTIN
- ------------------------------ Director August 5, 1997
Douglas H. Martin

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
- ----------- -------------------------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement

3.1* Restated Certificate of Incorporation of the Company

3.2* 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* Amendment to 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 , 1997

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* License Agreement between the Company and Calex Manufacturing Company
dated April 2, 1996

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

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>

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

* To be filed by Amendment.

<PAGE>
EMPLOYMENT AND COMPENSATION AGREEMENT

THIS EMPLOYMENT AGREEMENT, dated as of September__, 1995, is made
by and between Power-One LLC, a Delaware limited liability company
("Company"), and _____________ ("Executive") and supersedes all previous
agreements by and between Executive and Power-One, Inc., a California
corporation ("Power-One").

WHEREAS, Company desires to employ Executive and Executive desires
to be employed by Company.

NOW, THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, Company and Executive hereby agree as follows:

1. DUTIES, RESPONSIBILITIES

A. EMPLOYMENT. Company hereby engages Executive as ________ of
Company and Executive hereby accepts such engagement by Company upon the
terms and conditions specified below.

B. DUTIES. Executive shall perform the duties and obligations of
________ of Company which shall consist generally of
[responsibility for the overall management of the business and internal
operations of Company, including responsibility for the day-to-day operations
of its business.] Except to the extent otherwise hereinafter provided,
Executive's duties and responsibilities shall be generally consistent with the
services rendered by Executive as _________ of Power-One over the year prior
to the date of this Agreement. Executive shall perform such additional or other
duties, consistent with such position, as may be assigned to him from time to
time by __________ or Company's Managers.

During the term of this Agreement, Executive shall devote all of
Executive's time, skill and efforts to the performance of Executive's duties
for the Company. Company expects that Executive shall at all times use
Executive's best efforts to conduct him[HER]self in a reputable, ethical
manner that will not bring discredit to the Company. Executive shall at all
times perform such services in compliance in all material respects with, and
to the extent of Executive's authority shall use reasonable efforts to ensure
that all work done under Executive's direct supervision is in compliance
with, any and all laws, rules and regulations applicable to Company of which
Executive is aware.

1
<PAGE>

2. TERM

The initial term of employment under this Agreement (the "Initial
Term") shall commence on the date of this Agreement and terminate on December
31, 1997, unless earlier terminated as provided in Section 4. Company may
offer to extend Initial Term for two (2) additional one (1) year periods
(each an "Extension Term") by notifying Executive in writing at least ninety
(90) days prior to the expiration of the Initial Term or the first Extension
Term of its desire to so extend. Executive shall notify Company within
thirty (30) days whether Executive wishes to accept such offer. If this
Agreement is extended for either Extension Term, it shall thereafter be
terminable, other than upon expiration, only as provided in Section 4.
References herein to the "Term" shall refer to both the Initial Term and the
Extension Terms, if this Agreement is so extended. The period from the date
of this Agreement through December 31, 1996 and each twelve (12) month period
from January 1, to December 31 thereafter during the Term is sometimes
referred to generally as an "Employment Year".

3. COMPENSATION AND RELATED MATTERS

A. BASE SALARY. Except as may be otherwise established by
Company and Executive in writing, in consideration of the services to be
rendered hereunder, Company shall pay Executive a base salary (the "Base
Salary") in the amount of $_______ per year, payable according to Company's
regular payroll practices, but in no event less than monthly. Company's
Managers shall determine the Base Salary for each subsequent calendar year,
including 1996; provided, however, that Company's Managers shall not decrease
Executive's Base Salary for any subsequent calendar year.

B. BONUS. In addition to the Base Salary, a bonus (the "Bonus")
shall be paid to Executive. For the period ending December 31, 1995, the
Bonus shall be paid in accordance with Power-One's current Bonus Plan. All
future Bonus amounts shall be determined by Company's Managers, which
determination shall be generally consistent with Bonuses payable to Executive
under Power-One's Bonus Plan.

C. BENEFITS. Executive shall receive benefits (e.g. car
allowance, health, life and disability insurance, pension, home office,
profit sharing programs, vacation periods, sick leave and other fringe
benefits) on the same overall basis (i.e., without singling out any
particular item of benefits) made available by Company to its employees or
other executives.

D. DEFERRED COMPENSATION. In addition to other compensation that
Executive may be entitled to receive hereunder,

2
<PAGE>

Executive shall also be entitled to receive deferred compensation amounts
(the "Deferred Compensation") as follows:

(i) Company shall credit the amount of $_______ to a book
reserve (the "Deferred Compensation Account") established for this purpose as
of the effective date of this Agreement.

(ii) The amount credited to the Deferred Compensation Account
from time to time, shall hereafter be credited with an amount in the nature
of interest thereon ("Interest") at a rate equal to ten percent (10%) per
annum, compounded annually, until such account has been fully distributed to
Executive or to the beneficiary or beneficiaries of Executive.

(iii) Executive shall forfeit any rights Executive may have
to the payment of Deferred Compensation under this Agreement in the event
that Executive is terminated For Cause (as defined in Section 4(C) below) at
any time during the Term, or if Executive terminates Executive's employment
with Company Without Good Reason (as defined in Section 4(F) below) during
the Initial Term.

(iv) Upon termination of Executive's employment with Company
other than as set forth in subsection (iii) above and subject to subsection
(v) below, Company shall pay to Executive all amounts credited to Executive's
Deferred Compensation Account, including Interest thereon, in twenty (20)
quarterly installments of 1/20th of the Deferred Compensation Account on the
date of such termination plus Interest accruing after such date on the
declining balance thereon, on the last day of each calendar quarter,
commencing with the quarter following the date on which Executive becomes
entitled to payment of such amounts (the "DC Date"); provided, however, that
the minimum amount of any such payment shall be the lesser of One Hundred
Twenty Five Thousand Dollars ($125,000) and the remaining balance in the
Deferred Compensation Account; provided further that Company may in its sole
discretion elect to pay all Deferred Compensation amounts in a lump sum, or
prepay the balance of any unpaid installments. Any prepayment under this
clause (iv) shall be applied to the installments in the inverse order of
their due date. The DC Date shall be determined as follows:

(a) TERMINATION BY COMPANY WITHOUT CAUSE OR BY
EXECUTIVE. If Executive is terminated by Company Without Cause (as
defined in Section 4(D) below) or, except as set forth in subsection
(iii) above, if Executive terminates Executive's employment with Company
for any reason, the DC Date is the first day of such termination.

(b) EXPIRATION OF THE TERM. If Executive ceases to be
employed by Company as a result of expiration

3
<PAGE>

of the Initial Term or the Extension Term and the parties do not agree to
extend the Term for any additional periods, the DC Date is the last day
of the then current Term of the Agreement; provided, however, that if
Executive continues to be employed by Company after expiration of the
Initial Term or the Extension Term as an "at-will" employee, the DC Date
is the last day of Executive's employment with Company.

(c) TERMINATION BY DEATH OR TOTAL AND PERMANENT
DISABILITY. If Executive dies, the DC Date is the date of death. If
Executive is terminated by reason of Total and Permanent Disability (as
defined in Section 4(B) below) of Executive, the DC Date is the
Termination Date as defined in Section 4(B).

(d) PUBLIC OFFERING; CHANGE OF CONTROL. If a "Public
Offering" (as defined below) or a "Change of Control" (as defined below)
occurs, the DC Date is the first day of the month next following the
date of the Public Offering or Change of Control. Notwithstanding the
payment terms set forth in this subsection (iv), if a Public Offering or
Change of Control occurs and the Public Offering or Change of Control
results in a distribution under Section 6.8C(ii) of Company's current
Operating Agreement (the "Operating Agreement"), Company shall pay or
cause to be paid, in a lump sum rather than in installments, an amount
equal to the same percentage of the then outstanding amount in
Executive's Deferred Compensation Account (including any remaining
balance if installment payments have already commenced), as the
percentage by which the Adjusted Capital Contributions (as defined in
the Operating Agreement) of the Members is reduced by such distribution.

For purposes of this Agreement, a "Public Offering" shall mean a
public offering by Company and/or its Members of any securities of Company
which are entitled to vote generally in the election of directors or
Managers of Company, including any offering by a successor of Company
resulting from a merger or consolidation of Company with its affiliates or
any other similar restructuring. For purposes of this Agreement, a "Change
of Control" shall mean either (x) an acquisition of equity interests of
Company if the acquiring person would thereafter be the beneficial owner of
50% or more of Company's Sharing Ratios or equity securities or be entitled
to elect more than 50% of the Managers or directors of Company; (y) a
merger or consolidation of Company resulting in the holders of Company's
Membership Interests or other equity interests immediately prior to such
transaction holding less than 50% of the total voting stock of the
surviving company after such transaction; or (z) a sale or exchange of all
or more than 50% (by value) of the property and assets of Company.
Notwithstanding anything to the contrary contained herein, Change of
Control

4
<PAGE>

shall not include any merger or combination of Company with any or all
of its affiliates or any other similar restructuring.

(v) No payment of Deferred Compensation shall be made if a
"Default" or an "Event of Default" exists and for so long as such Default or
Event of Default continues, or the payment of the Deferred Compensation would
cause a Default or an Event of Default, under any agreement then in existence
between or among Company and one or more banks, insurance companies or other
institutional lenders. As soon as the Default or Event of Default no longer
exists or the payment would not constitute a Default or an Event of Default,
Company shall pay Executive any amounts not paid as a result of the preceding
sentence, together with interest at ten percent (10%) per annum, compounded
annually. If a payment of Deferred Compensation is not made to Executive
pursuant to this subsection (v), such payment shall cease accruing Interest
as provided in subsection (ii) above and shall only accrue interest as
provided in this subsection (v).

(vi) The obligations of Company with respect to the payment
of Deferred Compensation to Executive are not funded in any way and are
entered into by Company for the purpose of providing deferred compensation to
a select group of management personnel, including Executive. Nothing in this
Agreement nor any action taken as a result of this Agreement, including, but
not limited to the creation on the books of Company of the Deferred
Compensation Account, the crediting of any amounts thereto, or the purchase
or maintenance of any assets for the purpose of satisfying Company's
obligations under this Agreement, shall create or be construed to create a
trust of any kind or a fiduciary relationship between Company and Executive,
Executive's beneficiary, or any other person. Any funds that may be invested
by Company to fund any of the obligations under this Agreement shall continue
for all purposes to be part of the general funds of Company and no person
other than Company shall by virtue of the provisions of this Agreement have
any interest in any such funds. To the extent that any person acquires a
right to receive payments from Company under this Agreement, that right shall
be no greater than the right of any unsecured general creditor of Company.

E. MEMBERSHIP INTEREST. Subject to Section 3(E)(iii) and
(iv) below, upon termination of Executive's employment with Company and for a
period of sixty (60) days thereafter (the "Call Option Period"), Company
shall have the right to purchase Executive's Membership Interest (as defined
in the Operating Agreement) in Company for a purchase price (the "Purchase
Price") to be determined according to the provisions of this Section 3(E);
provided, however, that if Company does not exercise its right to purchase
Executive's Membership Interest for the Purchase Price during the Call Option
Period, subject to Section

5
<PAGE>

3(E)(iii) and (iv) below, Executive shall have the right for a period of
sixty (60) days after expiration of the Call Option Period (the "Put Option
Period"), to demand that Company repurchase Executive's Membership Interest
for a purchase price (the "Repurchase Price") to be determined according to
the provisions of this Section 3(E). The Purchase Price or Repurchase Price
shall be paid in twenty (20) quarterly installments of 1/20th of the Purchase
Price or Repurchase Price, as appropriate, plus interest at the rate of ten
percent (10%) per annum, compounded annually, on the unpaid portion, on the
last day of each calendar quarter, commencing with the quarter following
termination of Executive's employment; provided, however, that Company may in
its sole discretion elect to pay the entire Purchase Price or Repurchase
Price in a lump sum, or prepay the balance of any unpaid installments. Any
prepayment under this Section 3(E) shall be applied to the installments in
the inverse order of their due date. The Purchase Price and the Repurchase
Price shall be determined as follows:

(i) TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE
WITHOUT GOOD REASON DURING THE TERM. If Executive is terminated by Company
for Cause at any time during the Term or if Executive terminates this
Agreement Without Good Reason during the Term, the Purchase Price and the
Repurchase Price shall be the lesser of Executive's Capital Account balance
and the amount of Executive's Adjusted Capital Contributions, in each case
computed as of the date of termination.

(ii) TERMINATION FOR ANY OTHER REASON. If Executive's
employment with Company is terminated for any reason other than those set
forth in subsection (i) above, the Purchase Price is the aggregate amount of
the distribution Executive would receive pursuant to Section 6.8C of the
Operating Agreement if (x) all of the assets of Company were sold for a cash
purchase price equal to six times EBITDA (as defined below), (y) all "Total
Debt" (as defined in the Credit Agreement between Company, NationsBank of
Texas, N.A. and such other lenders as are listed therein, dated as of even
date hereof) and all Deferred Compensation existing under this and other
Employment and Compensation Agreements entered into as of the date hereof
("Aggregate Deferred Compensation") were then paid in full, and (z) the
remaining proceeds were distributed to the Members (including Executive)
pursuant to said Section 6.8C and the Repurchase Price is the aggregate
amount of the distribution Executive would receive pursuant to Section 6.8C
of the Operating Agreement if (x) all of the assets of Company were sold for
a cash purchase price equal to five and three-fourths times EBITDA, (y) all
bank, insurance company or other institutional debt of Company and the
Aggregate Deferred Compensation were then paid in full, and (z) the remaining
proceeds were distributed to the Members (including Executive) pursuant to
said Section 6.8C. "EBITDA" means the sum of the amounts for the prior
twelve (12) month period ending on the last day of the calendar quarter

6
<PAGE>

immediately preceding such calculation of (i) net income, (ii) interest
expense, (iii) taxes, (iv) total depreciation expense and (iv) total
amortization expense, all of the foregoing as determined in conformity with
Generally Accepted Accounting Principles ("GAAP").

(iii) PUBLIC OFFERING; CHANGE OF CONTROL. If a Public
Offering or a Change of Control occurs, Executive's Membership Interest shall
fully vest and neither Company nor Executive shall have any further purchase
or repurchase rights with respect to such Membership Interest.
Notwithstanding the payment terms set forth above, if (i) a Public Offering
or Change of Control occurs, (ii) prior thereto the Company has become
obligated to make payments with respect to the purchase of Executive's
Membership Interest under this Agreement, and (iii) the Public Offering or
Change of Control results in a distribution under Section 6.8C(ii) of the
Operating Agreement, Company shall pay or cause to be paid, in a lump sum
rather than in installments, an amount equal to the same percentage of the
then outstanding Purchase Price or the Repurchase Price, as appropriate,
(including any remaining balance if installment payments have already
commenced), as the percentage by which the Adjusted Capital Contributions of
the Members is reduced by such distribution.

(iv) EFFECT ON COMPANY DEBT; DELAWARE LAW. No payment of
the Purchase Price or the Repurchase Price, as appropriate, shall be made if
(y) such payment violates Delaware law or (z) a "Default" or an "Event of
Default" exists and for so long as such Default or Event of Default
continues, or the payment of the Purchase Price or the Repurchase Price would
cause a Default or an Event of Default, under any agreement then in existence
between or among Company and one or more banks, insurance companies or other
institutional lenders. As soon as such payment would not violate Delaware
law, the Default or Event of Default no longer exists, or the payment would
not constitute a Default or an Event of Default, Company shall pay Executive
any amounts not paid as a result of the preceding sentence, together with
interest at ten percent (10%) per annum, compounded annually. If a payment
of the Purchase Price or the Repurchase Price is not made to Executive
pursuant to this subsection (iv), such payment shall cease accruing interest
as provided above and shall only accrue interest as provided in this
subsection (iv).

4. TERMINATION OF EMPLOYMENT

A. BY DEATH. The Term shall terminate, without liability
except as provided in this Section 4(A), automatically upon the death of
Executive. The "Termination Date" in the event of Executive's death during
the Term shall be the date of death. In the case of Executive's death,
Company shall pay to Executive's beneficiaries or estate, as appropriate, (i)
promptly after the Termination Date all accrued but unpaid Base Salary and

7
<PAGE>

vacation pay, on a pro rata basis with respect to any incomplete periods, up
to and including the day before the Termination Date; (ii) as soon as
practicable, but in no event later than sixty (60) days after the end of the
Employment Year, all Bonuses on a pro rata basis with respect to any
incomplete periods, up to and including the day before the Termination Date;
and (iii) subject to Section 3(D)(v), Deferred Compensation as set forth in
Section 3(D)(iv)(c). In addition to the foregoing, subject to Section
3(E)(iv), Company shall have the right during the Call Option Period to
purchase Executive's Membership Interest in Company for the Purchase Price as
provided in Section 3(E) and, if Company does not exercise such right within
the Call Option Period, Executive shall have the right during the Put Option
Period to demand repurchase of Executive's Membership Interest in Company for
the Repurchase Price as provided in Section 3(E).

B. BY TOTAL AND PERMANENT DISABILITY. The Term shall
terminate, without liability except as provided in this Section 4(B), upon
the "Total and Permanent Disability" of Executive. "Total and Permanent
Disability" shall mean, with respect to Executive, the absence of Executive
from Executive's employment by reason of any mental or physical illness,
disability or incapacity for a period of six (6) consecutive months, or for
shorter periods aggregating six (6) months in any consecutive twelve (12)
month period. Determination of Executive's mental or physical disability
shall be made by Managers based upon examination and certification by a
physician selected by Managers. If the physician selected by Managers is not
Executive's personal physician, Executive has right to have his personal
physician present at any such examination. The "Termination Date" in the
event of such illness, disability or incapacity shall be the last day of such
six (6) month period or aggregate of six (6) months as applicable. In the
case of Executive's Total and Permanent Disability, Company shall pay to
Executive (or Executive's representative) (i) promptly after the Termination
Date all accrued but unpaid Base Salary and vacation pay, on a pro rata basis
with respect to any incomplete periods, up to and including the day before
the Termination Date; (ii) as soon as practicable, but in no event later than
sixty (60) days after the end of the Employment Year, all Bonuses on a pro
rata basis with respect to any incomplete periods, up to and including the
day before the Termination Date; and (iii) subject to Section 3(D)(v),
Deferred Compensation as set forth in Section 3(D)(iv)(c). Subject to
Section 3(E)(iv), Company shall have the right to purchase and Executive
shall have the right to demand repurchase of Executive's Membership Interest
in Company in accordance with Section 4(A) above.

C. BY COMPANY FOR CAUSE. The Term may be terminated, without
liability except as provided in this Section 4(C), by Company for Cause (any
such termination of the Term, a "Termination For Cause"). "Cause" shall mean
(i) Executive willfully commits a material breach of this Agreement; or

8
<PAGE>

(ii) Executive is convicted of or pleads guilty or no contest to a felony
involving any financial impropriety or which would materially interfere with
Executive's ability to perform his services under this Agreement or which
would be materially injurious to Power-One (which conviction, through lapse
of time or otherwise, is not subject to further appeal, during which appeal
Company will be entitled to suspend, but not terminate, Executive's
employment and Company's payment obligations, provided that in the event such
conviction is overturned or vacated, Executive will be paid retroactively all
compensation withheld by Company in connection with said suspension).

Any termination under this Section 4(C) shall be effective upon
receipt of written notice of such termination (specifying the grounds for
such termination) or upon such other date as may be specified by Company in
the notice (the "Termination Date"). In the case of Executive's Termination
For Cause, all benefits provided to Executive by Company hereunder shall
thereupon cease and Company shall (i) pay to Executive within thirty (30)
days of the Termination Date all accrued but unpaid Base Salary and, to the
extent required by California law, vacation pay, on a pro rata basis with
respect to any incomplete periods, up to and including the day before the
Termination Date, and (ii) subject to Section 3(E)(iv), purchase Executive's
Membership Interest in Company as provided in Section 3(E)(i).

D. BY COMPANY WITHOUT CAUSE. The Term may be terminated at any time
by Company, without advance notice, without Cause, and other than by reason of
Executive's death or Total and Permanent Disability (any such termination of the
Term, a "Termination Without Cause"), without liability on its part except as
provided in this Section 4(D). Any termination under this Section 4(D) shall be
effective upon receipt of written notice of such termination or upon such other
date as may be specified by Company in the notice (the "Termination Date"). In
the event that the Term is terminated Without Cause, Company shall (i) pay or
cause to be paid within fifteen (15) business days of the Termination Date in a
lump sum an amount equal to Executive's Base Salary through the end of what, but
for the termination, would otherwise have been the remainder of the Term (the
"Remainder Term"), (ii) pay or cause to be paid as soon as practicable, but in
no event later than sixty (60) days after the end of each Employment Year, all
Bonuses which Executive would have been entitled to through the end of the
Remainder Term, (iii) allow Executive to continue to participate in all employee
benefit plans in effect as of the Termination Date, including, without
limitation, all life, disability and health insurance programs and retirement,
profit-sharing and pension plans, as they may be amended from time to time, for
the Remainder Term, or at the option of Company (exercised within ninety (90)
days of the Termination Date or, if earlier, at such time continued
participation becomes infeasible, with notice to be given to Executive as soon
as practicable), the payment to Executive of

9
<PAGE>

the amount of Company's contributions to such employee insurance programs and
plans for Executive as if they had been made on behalf of Executive for the
Remainder Term based on the level of Executive's participation in such
programs at the time of termination, unless such levels are based on
Executive's compensation in which case they shall increase accordingly;
provided that with respect to any retirement, pension or profit sharing plans
for which continued participation cannot occur pursuant to such plans,
Company shall (a) pay to Executive the amount it would have paid to
Executive's account as Company contribution on an annual basis at the
year-end for each year included in the Remainder Term, and (b) Executive
shall be entitled to distribution of vested amounts in any such plan in
accordance with the terms of such plans; and (iv) subject to Section 3(D)(v),
pay or cause to be paid all amounts credited to Executive's Deferred
Compensation Account pursuant to Section 3(D)(iv)(a). Subject to Section
3(E)(iv), Company shall the right to purchase and Executive shall have the
right to demand repurchase of Executive's Membership Interest in Company in
accordance with Section 4(A) above.

E. BY EXECUTIVE FOR GOOD REASON. Executive shall have the right
to terminate Executive's employment, without further obligation or liability
to Company, except that any termination of Executive's employment under this
Section 4(E) shall require the Company to make the same payments it would
make upon Termination Without Cause by Company under Section 4(D), upon the
occurrence of any one or more of the following events, which events shall be
deemed termination by Executive for "Good Reason":

(i) If Executive's position (including responsibilities,
title, reporting requirements or authority) is reduced below the level of a
[vice president] of Company; or

(ii) If Company willfully commits a material breach of
this Agreement; or

(iii) If Company requires Executive to render Executive's
services hereunder at a location greater than fifty (50) miles from
Camarillo, California without Executive's prior written consent; provided,
however, that if Company requests that Executive relocate to any such
location and Executive does not agree to such relocation, the provisions of
subsection (i) above shall not apply but Company agrees to use its best
efforts to employ Executive in a managerial position with Company.

Upon the failure to cure any of the events/breaches set out above
within ten (10) business days after Company's receipt of written notice (the
"Initial Notice") from Executive specifying the applicable events/breaches,
Executive shall have the right to elect to terminate Executive's employment for
Good Reason by giving a second written notice (the "Second Notice") to

10
<PAGE>

Company to such effect; provided, however, that with respect to any such
events/breaches that are capable of prospective cure, if Company commences to
effect such a cure within the foregoing ten (10) day period, Company shall be
permitted additional time to cure and not be deemed in breach so long as it
diligently continues to seek to effect a cure. Any termination by Executive
pursuant to this Section 4(E) shall be effective upon receipt of the Second
Notice by Company of such termination or upon such other date as may be
specified by Executive in the Second Notice (the "Termination Date").

F. BY EXECUTIVE WITHOUT GOOD REASON. The Term may be terminated
at any time by Executive, without advance notice, for any reason (any such
termination of the Term, a "Termination Without Good Reason"), without any
further liability on Executive's part. Any termination by Executive pursuant
to this Section 4(F) shall be effective upon (i) receipt by Company of
written notice of such termination if such notice does not specify another
date or (ii) the date specified in the written notice of termination, if a
date is specified (the "Termination Date"). In the event that the Term is
terminated Without Good Reason, all benefits provided to Executive by Company
hereunder shall thereupon cease and Company shall pay to Executive, (i)
within thirty (30) days of the Termination Date all accrued but unpaid Base
Salary and, to the extent required by California law, vacation pay, on a pro
rata basis with respect to any incomplete periods, up to and including the
day before the Termination Date, (ii) as soon as practicable, but in no event
later than sixty (60) days after the end of the Employment Year, all Bonuses
declared but not yet payable, (iii) subject to Section 3(D)(v), if
termination by Executive Without Good Reason occurs after the Initial Term,
all amounts credited to Executive's Deferred Compensation Account as provided
for in Section 3(D)(iv)(a); and (iv) subject to Section 3(E)(iv), Company
shall purchase Executive's Membership Interest in Company as provided for in
Section 3(E)(i).

G. EXECUTIVE'S TERMINATION OBLIGATIONS.

(i) Executive hereby acknowledges and agrees that all
personal property and equipment furnished to or prepared by Executive in the
course of or incident to Executive's employment belong to Company and shall
be promptly returned to Company upon termination of the Term. "Personal
property" includes, without limitation, all books, manuals, records, reports,
notes, contracts, lists, blueprints, and other documents, or materials, or
copies thereof, and all other proprietary information relating to the
business of Company. Following termination, Executive will not retain any
written or other tangible material containing any proprietary information of
Company.

11
<PAGE>

5. CONFIDENTIALITY

A. NONDISCLOSURE OF CONFIDENTIAL MATERIAL. In the performance of
Executive's duties, Executive will have access to confidential records,
including, but not limited to, trade secrets, development, marketing,
organizational, financial, managerial, administrative, manufacturing,
production, distribution and sales information (including customer lists),
data, specifications and processes presently owned or at any time hereafter
developed, by Company, its subsidiaries or affiliates that is not otherwise
part of the public domain (collectively, the "Confidential Material"). All
such Confidential Material is disclosed to Executive in confidence. Except
in the performance of Executive's duties to Company, Executive shall not,
directly or indirectly, disclose or use any such Confidential Material,
unless such Confidential Material ceases to be confidential because it has
become part of the public domain (not due to a breach by Executive of
Executive's obligations hereunder). All records, files, drawings, documents,
equipment and other tangible items, wherever located, relating in any way to
the Confidential Material or otherwise to Company's business (including, the
businesses of its subsidiaries and affiliates), which Executive shall
prepare, use or encounter, shall be and remain Company's sole and exclusive
property and shall be included in the Confidential Material. Upon
termination of this Agreement Executive shall promptly deliver to Company any
and all of the Confidential Material, not previously delivered to Company,
that may be, or at any previous time has been, in the possession or under the
control of Executive.

B. NOT HIRE AWAY. During the Term and for a period of two (2)
years thereafter, Executive shall not solicit any employee of Company (or any
of its subsidiaries or affiliates) or encourage any such employee to leave
the employment of Company (or any of its subsidiaries or affiliates); except
that (a) if the Term expires in the ordinary course, the two (2) year period
provided above will be twelve (12) months; (b) the proscriptions and
restrictions set out above will be inapplicable and accordingly of no force
or effect in the event Executive is terminated Without Cause pursuant to
Section 4(D), or terminates Executive's employment for Good Reason pursuant
to Section 4(E); and (c) none of the proscriptions and restrictions described
above will apply with respect to any personal assistant or secretary who
reports solely to Executive, whose services and employment Executive will be
free to solicit at any time without restriction provided that such personal
assistant or secretary agrees to be bound by the provisions of Section 5(A).

6. ASSIGNMENT; SUCCESSORS AND ASSIGNS.

Executive and Company each agrees that they will not assign, sell,
transfer, delegate or otherwise dispose of, whether voluntarily or
involuntarily, any rights or obligations under

12
<PAGE>

this Agreement, except by Executive pursuant to community property laws or
laws of descent and distribution and except by Company as provided below. In
addition, the benefits provided pursuant to this Agreement shall not be
subject to garnishment, attachment, or any other legal process by creditors
of Executive or any person or persons designated as beneficiaries under this
Agreement or any other payee of the benefits provided hereunder.
Furthermore, Executive's rights shall not be subject to encumbrance or the
claims of creditors. Any purported assignment, transfer, or delegation in
violation of this Section 6 shall be null and void.

7. NOTICES

Any notice, request, claim, demand, document and other
communication hereunder to any party shall be effective upon receipt (or
refusal of receipt) and shall be in writing and delivered personally or sent
by telex, telecopy, or certified or registered mail, postage prepaid, or
other similar means of communication, as follows:

(a) If to Company:

Power-One LLC
c/o Stephens Group, Inc.
111 Center Street
Suite 2500
Little Rock, Arkansas 72201
Attention: Douglas H. Martin
Fax No.: (501) 377-3483

With a copy to:

Stephens Group, Inc.
111 Center Street
Suite 2500
Little Rock, Arkansas 72201
Attention: Michael B. Johnson, Esq.
Fax No.: (501) 377-2677

(b) If to Executive, to Executive at the address set forth below
under Executive's signature;

With a copy to:

O'Melveny & Myers
1999 Avenue of the Stars
Los Angeles, California 90067
Attention: Kendall R. Bishop, Esq.
Fax No.: (310) 246-6779

or at any such other address as either party shall have specified by notice
in writing to the other.

13
<PAGE>

8. ENTIRE AGREEMENT

The terms of this Agreement are intended by the parties to be the
final expression of their agreement with respect to the employment of
Executive by Company and may not be contradicted by evidence of any prior or
contemporaneous agreement. The parties further intend that this Agreement
shall constitute the complete and exclusive statement of its terms and that
no extrinsic evidence whatsoever may be introduced in any judicial,
administrative, or other legal proceeding to vary the terms of this Agreement.

9. AMENDMENTS; WAIVERS

This Agreement may not be modified, amended, or terminated except
by an instrument in writing, signed by Executive and Company. By an
instrument in writing similarly executed, either party (Executive or Company)
may waive compliance by the other party with any provision of this Agreement
that such other party was or is obligated to comply with or perform,
provided, however, that such waiver shall not operate as a waiver of, or
estoppel with respect to, any other or subsequent failure. No failure to
exercise and no delay in exercising any right, remedy, or power hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
of any right, remedy, or power hereunder preclude any other or further
exercise thereof or the exercise of any other right, remedy, or power
provided herein or by law or in equity.

10. SEVERABILITY; ENFORCEMENT

If any provision of this Agreement, or the application thereof to
any person, place, or circumstance, shall be held by a court of competent
jurisdiction to be invalid, unenforceable, or void, the remainder of this
Agreement and such provisions as applied to other persons, places, and
circumstances shall remain in full force and effect.

11. GOVERNING LAW

This Agreement will be governed by and interpreted in accordance
with the laws of the State of California, without regard to the conflict of
laws principles thereof, including all matters of construction, validity,
performance and enforcement.

12. COUNTERPARTS

This Agreement may be executed in one or more counterparts and each
counterpart shall be deemed to be an original but all counterparts together
shall constitute one instrument.

14
<PAGE>

13. DISPUTE RESOLUTION

Company and Executive agree that any dispute relating to this
Agreement in any respect shall be submitted to binding mediation by an agreed
independent organization specializing in mediation dispute resolution, or if
no Agreement can be reached, by Judicial Arbitration and Mediation Services
(JAMS). Company and Executive further agree that such mediation shall take
place in Los Angeles.

14. CAPTIONS

The captions and headings contained herein are solely for
convenience and reference and do not constitute a part of this Agreement.

<PAGE>

IN WITNESS WHEREOF, the parties have duly executed this Agreement
as of the date first written above.

POWER-ONE LLC EXECUTIVE
("Company")

By:
--------------------------- ---------------------------

Its:
---------------------------

S-1

<PAGE>
AMENDMENT TO EMPLOYMENT AND COMPENSATION AGREEMENT

Reference is made to the Employment and Compensation Agreement (the
"AGREEMENT") between Steven J. Goldman ("EXECUTIVE") and Power-One LLC, a
Delaware limited liability company ("POWER-ONE LLC"), dated September 27,
1995 and in full force and effect as of the date hereof. This Amendment to
the Agreement (this "AMENDMENT") is made as of the 1st day of February, 1996
by and between Executive and Power-One, Inc., a Delaware corporation and
successor to Power-One LLC ("COMPANY"). All capitalized terms not otherwise
defined herein shall have the meanings given them in the Agreement.

WHEREAS, Executive was a member of Power-One LLC and is now a
common stockholder of Company;

WHEREAS, Power-One LLC was merged into Power-One Merger, Inc., a
Delaware corporation ("MERGER"), with Merger as the surviving corporation;

WHEREAS, effective upon the merger, Merger changed its name to
Power-One, Inc.;

WHEREAS, Executive and Company desire to amend the Agreement to
reflect this change in corporate structure;

NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein the parties hereto agree to amend the Agreement
as follows:

1. Section 3D(iv)(d) of the Agreement is hereby deleted in its entirety and
replaced with the following:

(d) PUBLIC OFFERING; CHANGE OF CONTROL. If a "Public
Offering" (as defined below) or a "Change of Control" (as defined below)
occurs, the DC Date is the first day of the month next following the date
of the Public Offering or Change of Control. Notwithstanding the payment
terms set forth in this subsection (iv), if a Public Offering or Change of
Control occurs that results in a sale or redemption of preferred stock of
Company, Company shall pay or cause to be paid, in a lump sum rather than
in installments, an amount equal to the same percentage of the then
outstanding amount in Executive's Deferred Compensation Account (including
any remaining balance if installment payments have already commenced), as
the percentage of preferred stock that is sold or redeemed.

For purposes of this Agreement, a "Public Offering" shall mean a
public offering by Company of any securities of Company which are entitled
to vote generally

1
<PAGE>

in the election of directors of Company, including any offering by a
successor of Company resulting from a merger or consolidation of Company
with its affiliates or any other similar restructuring but excluding an
offering pursuant to a registration statement on Form S-8. For purposes
of this Agreement, a "Change of Control" shall mean either (x) an
acquisition of equity interests of Company if the acquiring person would
thereafter be the beneficial owner of 50% or more of Company's voting
securities or be entitled to elect more than 50% of the directors of
Company; (y) a merger or consolidation of Company resulting in the
holders of Company's equity interests immediately prior to such
transaction holding less than 50% of the total voting stock of the
surviving company after such transaction; or (z) a sale or exchange of
all or more than 50% (by value) of the property and assets of Company.
Notwithstanding anything to the contrary contained herein, Change of
Control shall not include any merger or combination of Company with any
or all of its affiliates or any other similar restructuring.

2. Section 3E of the Agreement is hereby deleted in its entirety and
replaced with the following:

E. STOCKHOLDER RIGHTS. Subject to Section 3(E)(iii) and (iv)
below, upon termination of Executive's employment with Company and for a
period of sixty (60) days thereafter (the "CALL OPTION PERIOD"), Company
shall have the right to purchase all of the common stock of Company owned by
Executive for a purchase price (the "PURCHASE PRICE") to be determined
according to the provisions of this Section 3(E); provided, however, that if
Company does not exercise its right to purchase Executive's common stock for
the Purchase Price during the Call Option Period, subject to Section
3(E)(iii) and (iv) below, Executive shall have the right for a period of
sixty (60) days after expiration of the Call Option Period (the "PUT OPTION
PERIOD"), to demand that Company repurchase Executive's common stock for a
purchase price (the "REPURCHASE PRICE") to be determined according to the
provisions of this Section 3(E). The Purchase Price or Repurchase Price
shall be paid in twenty (20) quarterly installments of 1/20th of the Purchase
Price or Repurchase Price, as appropriate, plus interest at the rate of ten
percent (10%) per annum, compounded annually, on the unpaid portion, on the
last day of each calendar quarter, commencing with the quarter following
termination of Executive's employment; provided, however, that Company may in
its sole discretion elect to pay the entire Purchase Price or Repurchase
Price in a lump sum, or prepay the balance of any unpaid installments. Any
prepayment under this Section 3(E) shall be applied to the installments in
the inverse order of their due date. The Purchase Price and the Repurchase
Price shall be determined as follows:

(i) TERMINATION BY COMPANY FOR CAUSE OR BY EXECUTIVE WITHOUT
GOOD REASON DURING THE TERM. If Executive is

2
<PAGE>

terminated by Company for Cause at any time during the Term or if Executive
terminates this Agreement Without Good Reason during the Term, the Purchase
Price and the Repurchase Price shall be calculated at a price of One Dollars
($1) per share of common stock.

(ii) TERMINATION FOR ANY OTHER REASON. If Executive's
employment with Company is terminated for any reason other than those set
forth in subsection (i) above, the Purchase Price is the aggregate amount of
the distribution Executive would receive if (w) all of the assets of Company
were sold for a cash purchase price equal to six times EBITDA (as defined
below), (x) all "Total Debt" (as defined in the Credit Agreement between
Company, NationsBank of Texas, N.A. and such other lenders as are listed
therein, dated as of even date hereof) and all Deferred Compensation existing
under this and other Employment and Compensation Agreements entered into as
of the date hereof ("AGGREGATE DEFERRED COMPENSATION") were then paid in
full, (y) all of the Company's outstanding preferred stock was redeemed in
full, including the payment of all accrued and unpaid dividends thereon, and
(z) the remaining proceeds were divided by the total number of shares of
common stock of Company and then multiplied by the number of shares of common
stock owned by Executive and the Repurchase Price is the aggregate amount of
the distribution Executive would receive if (w) all of the assets of Company
were sold for a cash purchase price equal to five and three-fourths times
EBITDA, (x) all bank, insurance company or other institutional debt of
Company and the Aggregate Deferred Compensation were then paid in full, (y)
all of the Company's outstanding preferred stock was redeemed in full,
including the payment of all accrued and unpaid dividends thereon, and (z)
the remaining proceeds were divided by the total number of shares of common
stock of Company and then multiplied by the number of shares of common stock
owned by Executive. "EBITDA" at any date means the sum of (A) net income,
(B) interest expense, (C) taxes, (D) total depreciation expense and (E) total
amortization expense, all of the foregoing as determined in conformity with
Generally Accepted Accounting Principles ("GAAP"), for the prior twelve (12)
month period ending on the last day of the calendar quarter immediately
preceding such calculation for which either audited or unaudited and reviewed
financial statements are available.

(iii) PUBLIC OFFERING; CHANGE OF CONTROL. If a Public
Offering or a Change of Control occurs, neither Company nor Executive shall have
any further purchase or repurchase rights with respect to the common stock.
Notwithstanding the payment terms set forth above, if (i) a Public Offering or
Change of Control occurs, (ii) prior thereto the Company has become obligated to
make payments with respect to the purchase of Executive's common stock under
this Agreement, and (iii) the Public Offering or Change of Control results in a
sale or redemption of preferred stock of Company, Company shall

3
<PAGE>

pay or cause to be paid, in a lump sum rather than in installments, an amount
equal to the same percentage of the then outstanding Purchase Price or the
Repurchase Price, as appropriate, (including any remaining balance if
installment payments have already commenced), as the percentage of preferred
stock that is sold or redeemed.

3. The following Section 3(F) is hereby inserted in its entirety as follows:

F. PREFERRED STOCK INTERESTS. Upon termination of Executive's
employment with Company for any reason and for a period of sixty (60) days
thereafter (the "PREFERRED CALL OPTION PERIOD"), Company shall have the right
to purchase all of the preferred stock of Company owned by Executive for a
purchase price of One Dollar ($1) per share plus any accrued but unpaid
dividends (the "PREFERRED PURCHASE PRICE"); provided, however, that if
Company does not exercise its right to purchase Executive's preferred stock
during the Preferred Call Option Period, subject to Section 3(E)(iii) and
(iv) above, Executive shall have the right for a period of sixty (60) days
after expiration of the Preferred Call Option Period (the "PREFERRED PUT
OPTION PERIOD"), to demand that Company repurchase Executive's preferred
stock for the Preferred Purchase Price. The Preferred Purchase Price shall
be paid in twenty (20) quarterly installments of 1/20th of the Preferred
Purchase Price plus interest at the rate of ten percent (10%) per annum,
compounded annually, on the unpaid portion, on the last day of each calendar
quarter, commencing with the quarter following termination of Executive's
employment; provided, however, that Company may in its sole discretion elect
to pay the entire Preferred Purchase Price in a lump sum, or prepay the
balance of any unpaid installments. Any prepayment under this Section 3(F)
shall be applied to the installments in the inverse order of

4
<PAGE>

their due date. If a Public Offering or a Change of Control occurs, neither
Company nor Executive shall have any further purchase or repurchase rights
with respect to the preferred stock. Notwithstanding the payment terms set
forth above, if (i) a Public Offering or Change of Control occurs, (ii) prior
thereto the Company has become obligated to make payments with respect to the
purchase of Executive's preferred stock under this Agreement, and (iii) a
Public Offering or Change of Control results in a sale or redemption of
preferred stock of Company, Company shall pay or cause to be paid, in a lump
sum rather than in installments, an amount equal to the same percentage of
the then outstanding Preferred Purchase Price (including any remaining
balance if installment payments have already commenced), as the percentage of
preferred stock that is sold or redeemed.

4. The last sentence of Section 4(A) is hereby deleted in its entirety and
replaced with the following:

In addition to the foregoing, subject to Section 3(E)(iv), (i) Company shall
have the right during the Call Option Period to purchase Executive's common
stock in Company for the Purchase Price as provided in Section 3(E) and, if
Company does not exercise such right within the Call Option Period, Executive
shall have the right during the Put Option Period to demand repurchase of
Executive's common stock in Company for the Repurchase Price as provided in
Section 3(E) and (ii) Company shall have the right during the Preferred Call
Option Period to purchase Executive's preferred stock in Company for the
Preferred Purchase Price as provided in Section 3(F) and, if Company does not
exercise such right within the Preferred Call Option Period, Executive shall
have the right during the Preferred Put Option Period to demand repurchase of
Executive's preferred stock in Company for the Preferred Purchase Price as
provided in Section 3(F).

5. The last sentence of Section 4(B) is hereby deleted in its entirety and
replaced with the following:

In addition to the foregoing, subject to Section 3(E)(iv), Company shall have
the right to purchase and Executive shall have the right to demand repurchase
of Executive's common stock and preferred stock in Company in the same manner
as described in the last sentence of Section 4(A) above.

6. The last sentence of Section 4(C) is hereby deleted in its entirety and
replaced with the following:

In the case of Executive's Termination For Cause, all benefits provided to
Executive by Company hereunder shall thereupon cease and Company shall (i)
pay to Executive within thirty (30) days of the Termination Date all accrued
but unpaid Base Salary and, to the extent required by California law,
vacation pay, on a pro rata basis with respect to any incomplete periods, up
to and

5
<PAGE>

including the day before the Termination Date, and (ii) subject to Section
3(E)(iv), purchase Executive's common stock in Company as provided in Section
3(E)(i) and Executive's preferred stock in Company as provided in Section
3(F).

7. The last sentence of Section 4(D) is hereby deleted in its entirety and
replaced with the following:

In addition to the foregoing, subject to Section 3(E)(iv), Company shall the
right to purchase and Executive shall have the right to demand repurchase of
Executive's common stock and preferred stock in Company in the same manner as
described in the last sentence of Section 4(A) above.

8. The first sentence of Section 4(F) is hereby deleted in its entirety and
replaced with the following:

Except for a termination of Executive's employment for Good Reason in
accordance with Section 4(E) above, the Term may be terminated at any time by
Executive, without advance notice, for any reason (any such termination of
the Term, a "Termination Without Good Reason"), without any further liability
on Executive's part.

9. The last sentence of Section 4(F) is hereby deleted in its entirety and
replaced with the following:

In the event that the Term is terminated Without Good Reason, all benefits
provided to Executive by Company hereunder shall thereupon cease and Company
shall pay to Executive, (i) within thirty (30) days of the Termination Date
all accrued but unpaid Base Salary and, to the extent required by California
law, vacation pay, on a pro rata basis with respect to any incomplete
periods, up to and including the day before the Termination Date, (ii) as
soon as practicable, but in no event later than sixty (60) days after the end
of the Employment Year, all Bonuses declared but not yet payable; and (iii)
subject to Section 3(D)(v), if termination by Executive Without Good Reason
occurs after the Initial Term, all amounts credited to Executive's Deferred
Compensation Account as provided for in Section 3(D)(iv)(a); and (iv) subject
to Section 3(E)(iv), Company shall purchase Executive's common stock in
Company as provided in Section 3(E)(i) and Executive's preferred stock in
Company as provided in Section 3(F).

10. Every reference to "Managers" in the Agreement is hereby deleted and
replaced with "Board of Directors."

Except as expressly provided above, the Agreement is not modified
in any respect, and the Agreement as herein modified is hereby ratified and
confirmed in all respects.

6
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Amendment
as of the date first written above.

POWER-ONE, INC.

By:
------------------------
Eddie K. Schnopp

Its: Vice President, Finance
and Logistics, Chief
Financial Officer and Secretary

ACCEPTED AND AGREED:

- -------------------------
STEVEN J. GOLDMAN

<PAGE>

POWER ONE, INC

1996 STOCK INCENTIVE PLAN

<PAGE>
TABLE OF CONTENTS

Page

1. THE PLAN. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Purpose. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Administration . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Participation. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Shares Subject to the Plan . . . . . . . . . . . . . . . . . . . . 2
1.5 Grant of Awards. . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Exercise of Awards . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Payment Forms. . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Cashless Exercises . . . . . . . . . . . . . . . . . . . . . . . . 3

2. OPTIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.2 Option Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.3 Option Period. . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.4 Exercise of Options. . . . . . . . . . . . . . . . . . . . . . . . 3
2.5 Limitations on Grant of ISOs . . . . . . . . . . . . . . . . . . . 4

3. STOCK APPRECIATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . 4
3.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.2 Exercise of Stock Appreciation Rights. . . . . . . . . . . . . . . 5
3.3 Payment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

4. RESTRICTED STOCK AWARDS . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.1 Grants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.2 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. PERFORMANCE SHARE AWARDS. . . . . . . . . . . . . . . . . . . . . . . . . 7

6. OTHER PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.1 Rights of Eligible Persons, Participants
and Beneficiaries. . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Adjustments Upon Changes in Capitalization; Acceleration;
Possible Early Termination of Awards . . . . . . . . . . . . . . . . 8
6.3 Termination of Employment. . . . . . . . . . . . . . . . . . . . . . 9
6.4 Government Regulations . . . . . . . . . . . . . . . . . . . . . . .10
6.5 Tax Withholding. . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.6 Amendment, Termination and Suspension. . . . . . . . . . . . . . . 11
6.7 Effective Date of the Plan . . . . . . . . . . . . . . . . . . . . 12
6.8 Term of the Plan . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 12

7. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
7.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

i
<PAGE>

POWER ONE, INC
1996 STOCK INCENTIVE PLAN

1. THE PLAN.

1.1 PURPOSE.

The purpose of this 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. Capitalized terms are defined in Article
7.

1.2 ADMINISTRATION.

1.2.1 COMMITTEE. This Plan shall be administered by the
Committee, acting by a majority vote. The Committee may delegate
administrative functions to third parties, including employees of the
Company. All actions of the Committee are subject to this Plan.

1.2.2 POWERS OF COMMITTEE. The Committee has authority to (a)
construe and interpret this Plan and any related agreements, (b) further
define the terms used in this Plan, (c) prescribe, amend and rescind rules
and regulations relating to the administration of this Plan, (d) establish
and modify the terms of Award Agreements including, but not limited to,
restrictions on transfer and repurchase rights, (e) determine the effect, if
any, on a Participant's rights from leaves of absence and (f) make all other
determinations necessary or advisable for the administration of this Plan.
The determination of the Committee on any of the foregoing matters shall be
conclusive.

1.2.3 BINDING DETERMINATIONS. Any action taken by, or inaction
of, the Company, the Board or the Committee relating to this Plan is within
the absolute discretion of that group or entity. No member of the Board or
Committee, or officer or employee of the Company or any Subsidiary, will be
liable for any such action or inaction. In determining whether to take any
action permitted under the Plan, the Company, the Board or the Committee may
rely upon the advice of counsel and accountants of 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 7, 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, and (c) fill any vacancy existing
on the Committee, whether caused by removal, resignation or otherwise.

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1.3 PARTICIPATION.

Awards may be granted only to 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 NUMBER OF SHARES. The aggregate number of Shares that
may be issued pursuant to all Awards, including ISOs, may not exceed
1,000,000. Each of the foregoing limits is subject to adjustment under
Section 6.2. Shares may be issued for any lawful consideration.

1.4.2 CALCULATION OF AVAILABLE SHARES AND REPLENISHMENT. If
any Option or Stock Appreciation Right lapses or terminates without having
been exercised in full, or any Shares subject to a Restricted Stock Award or
Performance Share Award do not vest or are not delivered, the unpurchased,
unvested or undelivered Shares will again be available for purposes of this
Plan. The foregoing sentence does not apply to Shares withheld under Section
6.5.

1.5 GRANT OF AWARDS.

The Committee will determine the Eligible Persons to whom Awards
will be granted, the terms and conditions of Awards (which need not be
identical) and the number of Shares subject to each Award. Each Award will
be evidenced by an Award Agreement approved by the Committee. 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 Company receives an executed Exercise Agreement from the
Participant, together with payment of any required Purchase Price in
accordance with Section 1.7 or 1.8. Awards are exercisable only for whole
shares. Fractional shares will be disregarded for all purposes under this
Plan.

1.7 PAYMENT FORMS.

The Purchase Price of each Award 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 Company, (b) if the Committee approves, a Note,
or (c) if the Shares are publicly traded, by Shares already owned by the
Participant. 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

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the date of delivery. Shares used to satisfy the Purchase Price will be
valued at their Fair Market Value on the exercise date.

1.8 CASHLESS EXERCISES.

Award Agreements may also provide that the Option may be exercised
and payment can be made by delivering a properly executed exercise notice to
the Company, together with irrevocable instructions to a bank or broker to
promptly deliver to the Company the amount of sale proceeds necessary to pay
the Purchase Price and, unless otherwise provided by the Committee, any
applicable tax withholding under Section 6.5. The date of exercise will be
deemed to be the date the Company receives the proceeds.

2. OPTIONS.

2.1 GRANTS.

Options may be granted to any Eligible Person. Each Option must be
designated by the Committee as either an 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 Company 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 will be
determined by the Committee. In the case of ISOs the Purchase Price per
Share must be at least 100% (110% in the case of persons described in Section
2.5.2) of the Fair Market Value of the Shares on the Award Date.

2.3 OPTION PERIOD.

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 Plan. 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. If an

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Option granted concurrently with a Stock Appreciation Right is exercised, the
number of Shares subject to the Option and the related Stock Appreciation
Right will be reduced by the number of Shares subject to the portion of the
Option which has been exercised.

2.5 LIMITATIONS ON GRANT OF ISOS.

2.5.1 $100,000 LIMIT. If the aggregate Fair Market Value of
Shares with respect to which ISOs first become exercisable by a Participant
in any calendar year exceeds $100,000, taking into account Shares subject to
all ISOs granted by the Company which are held by the Participant, the excess
will be treated as NQSOs. To determine whether the $100,000 limit is
exceeded, the Fair Market Value of Shares subject to Options shall be
determined as of the Award Dates of the Options. In reducing the number of
Options treated as ISOs to meet the $100,000 limit, the most recently granted
Options will be reduced first. If a reduction of simultaneously granted
Options is necessary to meet the $100,000 limit, the Company may designate
which Shares are to be treated as Shares acquired pursuant to an ISO.

2.5.2 LIMITATION ON PURCHASE PRICE AND TERM. No ISO may be
granted to any person who, on the Award Date, owns (or who is deemed to own
under Section 424(d) of the Code) outstanding Shares possessing more than 10%
of the total combined voting power of all classes of stock of the Company,
unless the Purchase Price of such Option is at least 110% of the Fair Market
Value of the Shares subject to the Option and such Option by its terms is not
exercisable after the expiration of five years from the Option's Award Date.

3. STOCK APPRECIATION RIGHTS.

3.1 GRANTS.

The Committee may grant Stock Appreciation Rights concurrently with
the grant of other Awards or independently. 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 who 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.

3.2 EXERCISE OF STOCK APPRECIATION RIGHTS.

3.2.1 CONCURRENTLY GRANTED STOCK APPRECIATION RIGHTS. A Stock
Appreciation Right granted concurrently with an Award shall be exercisable only
to the extent that the

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related Award is exercisable, and only when the Fair Market Value of the
Shares subject to the related Award exceeds the exercise price of the related
Award. If a Stock Appreciation Right granted concurrently with an Award is
exercised, the number of Shares subject to the related Award will 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 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 fewer than the remaining
number of Shares subject to such Stock Appreciation Right.

3.2.2 INDEPENDENT STOCK APPRECIATION RIGHT. A Stock
Appreciation Right granted independent of an Award will be exercisable
pursuant to the terms of the applicable Award Agreement.

3.3 PAYMENT.

3.3.1 CONCURRENTLY GRANTED STOCK APPRECIATION RIGHTS. Upon
exercise of a Stock Appreciation Right and surrender of an exercisable
portion of the related Award, the Participant will be entitled to receive
payment of an amount determined by multiplying

(a) the difference between the Purchase Price per Share under
the related Award and the Fair Market Value of a Share on the exercise date
of the Stock Appreciation Right, by

(b) the number of Shares with respect to which the Stock
Appreciation Right is being exercised.

3.3.2 INDEPENDENT STOCK APPRECIATION RIGHTS. Upon exercise of
a Stock Appreciation Right granted independently of an Award, the Participant
will be entitled to receive payment of an amount based on the difference
between the Fair Market Value per Share on the Award Date and the Fair Market
Value per Share on the exercise date of the Stock Appreciation Right. Such
amount shall be paid as described in Section 3.3.3.

3.3.3 FORM OF PAYMENT. The amount determined under Section
3.3.1 or 3.3.2 will be paid solely in cash, or, if the Committee approves, in
Shares (valued at Fair Market Value on the exercise date of the Stock
Appreciation Right), or in any combination of Shares and cash.

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4. RESTRICTED STOCK AWARDS.

4.1 GRANTS.

The Committee may grant one or more Restricted Stock Awards to any
Eligible Person. Each Award Agreement will specify the number of Shares to
be issued to the Participant, the Award Date, the consideration for such
Shares to be paid by the Participant, the extent to which the Participant
will be entitled to dividends, voting and other rights in respect of the
Shares, and the restrictions imposed on such Shares. Stock certificates
evidencing Shares of Restricted Stock pending the lapse of restrictions will
bear a legend making appropriate reference to the restrictions imposed and
will be held by the Company or by a third party designated by the Committee
until the restrictions have lapsed. Upon issuance of the Restricted Stock
Award, the Participant may be required to provide such further assurance and
documents as the Committee requires.

4.2 RESTRICTIONS.

4.2.1 RESTRICTIONS. Except as provided under this Plan or the
Award Agreement, Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise disposed of or encumbered, either voluntarily or
involuntarily, until the restrictions have lapsed.

4.2.2 DIVIDENDS AND VOTING RIGHTS. Unless otherwise provided
in the Award Agreement, a Participant receiving a Restricted Stock Award will
be entitled to cash dividends and voting rights for all Shares issued even
though they are not vested, but such rights will terminate immediately as to
any restricted Shares that cease to be eligible for vesting.

4.2.3 REPAYMENT. If the Participant has paid or received cash
(including any dividends) in connection with the Restricted Stock Award, the
Award Agreement will specify whether and to what extent such cash will be
returned (with or without an earnings factor) as to any restricted Shares
that cease to be eligible for vesting.

5. PERFORMANCE SHARE AWARDS.

The Committee may grant Performance Share Awards based upon factors
the Committee deems relevant. The Award Agreement shall specify the maximum
number of Shares (if any) subject to the Performance Share Award, the
consideration to

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be paid for any Shares issuable to the Participant, the duration of the
Award, and the conditions upon which delivery of any Shares or cash to the
Participant will be based. The amount of cash or Shares that may be
deliverable pursuant to such Award will be based upon the degree of
attainment over a specified period (a "performance cycle") of such measure(s)
of the performance of the Company (or any part thereof) or the Participant as
may be established by the Committee. The Committee may provide for full or
partial credit, prior to completion of such performance cycle or the
attainment of the performance achievement specified in the Award Agreement,
in the event of the Participant's death, Retirement, Total Disability, or an
Event, or as the Committee determines.

6. OTHER PROVISIONS.

6.1 RIGHTS OF ELIGIBLE PERSONS, PARTICIPANTS AND BENEFICIARIES.

6.1.1 NO BINDING COMMITMENT. Status as an Eligible Person is
not a commitment that any Award will be made to any Eligible Person.

6.1.2 NO EMPLOYMENT CONTRACT. Nothing contained in this Plan
(or any document related hereto) shall confer upon any Eligible Person 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 of such person,
with or without cause. Nothing contained in this Plan (or any related
document) shall affect any other contractual right of any Eligible Person or
Participant.

6.1.3 LIMITATIONS ON TRANSFERABILITY. Amounts payable pursuant
to an Award will be paid only to the Participant or, if the Participant dies,
to the Participant's Beneficiary. If a Personal Representative has been
appointed for a Participant, payment will be made to the Personal
Representative. Other than by will or the laws of descent and distribution
or other exception to transfer restrictions authorized by the Committee, no
benefit payable under, or interest in, this Plan or in any Award shall be
subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any such attempted action
shall be void. No such benefit or interest shall be, in any manner, liable
for, or subject to, debts, contracts, liabilities, engagements or torts of
any Eligible Person, Participant or Beneficiary. The Committee shall
disregard any attempted transfer, assignment or other alienation prohibited
by the preceding sentence or other

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applicable law and shall pay or deliver such cash or Shares in accordance
with this Plan.

6.1.4 NO TRUST OR FUND. Awards are payable in Shares or from
the general assets of the Company. No Participant, Beneficiary or other
person shall have any right, title or interest in any fund or in any specific
asset (including Shares) of the Company by reason of any Award. Neither the
provisions of this Plan (or of any documents related hereto), nor the
creation or adoption of this Plan, nor any action taken pursuant to this
Plan, shall create a trust of any kind or a fiduciary relationship between
the Company and any Participant, Beneficiary or other person. If a
Participant, Beneficiary or other person acquires a right to receive anything
other than Shares upon exercise of an Award, such right will be no greater
than the right of any unsecured general creditor of the Company.

6.2 ADJUSTMENTS UPON CHANGES IN CAPITALIZATION; ACCELERATION; POSSIBLE
EARLY TERMINATION OF AWARDS.

6.2.1 ADJUSTMENTS. If the outstanding Shares are changed into
or exchanged for cash or a different number or kind of shares or securities
of the Company 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 Company is a party, or
through a combination, consolidation, 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.

6.2.2 ACCELERATION. Upon the occurrence of an Event, the
Committee may (i) make each Option and Stock Appreciation Right immediately
exercisable, vest Restricted Stock free of restrictions, and pay to each
Participant the number of Shares covered by each Performance Share Award,
(ii) determine that only certain benefits under Awards shall be accelerated
and the extent to which they shall be accelerated, and/or (iii) establish a
different time in respect of such Event for such acceleration; PROVIDED,
however, that if the Committee does not accelerate the benefits under Awards
upon the occurrence of such Event pursuant to this Section 6.2.2, and, within
two (2) years from the occurrence of such Event, a Participant's employment
or services with the Company terminates for any reason other than for Cause,
then effective as of the day prior to the date of such termination, all of
the Participant's Option and Stock Appreciation Rights shall become
immediately exercisable, the Participant's Restricted

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Stock shall vest free of restrictions, and, within a reasonable time after
such date of termination, the number of Shares covered by each of
Participant's Performance Share Awards shall be paid to Participant. The
Committee may accord any Participant a right to refuse any acceleration,
whether pursuant to the Award Agreement or otherwise.

6.2.3 POSSIBLE EARLY TERMINATION OF AWARDS. If any Option has
been fully accelerated pursuant to Section 6.2.2 but is not exercised prior
to (a) a dissolution of the Company, or (b) a reorganization event described
in Section 6.2.1 that the Company does not survive, or (c) the consummation
of reorganization event described in Section 6.2.1 that results in an Event
approved by the Board, and no provision has been made for the survival,
substitution, exchange or other settlement of such Award, such Award shall
thereupon terminate.

6.3 TERMINATION OF EMPLOYMENT.

6.3.1 OPTIONS.

(a) Any Option, to the extent not exercised, will terminate and
become null and void upon a termination of employment of the Participant,
except as set forth in this Section 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 termination of
employment of the Participant for Cause. The Committee will 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 were exercisable on the date of the Participant's
termination of employment:

(i) If the Participant's employment terminates by any
reason other than death, Total Disability or Cause, the Participant
will have 90 days after the date of termination of employment to
exercise any Option;

(ii) If the Participant's employment terminates for Cause,
the Option shall lapse immediately upon Participant's termination of
employment.

(iii) If the Participant's employment by the Company
terminates by reason of Total

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Disability, or if the Participant suffers a Total Disability within
90 days of a termination of employment described in Section
6.3.1(b)(i), 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, termination of
employment), to exercise any Option;

(iv) If the Participant dies while employed by the Company,
or within 90 days after a termination of employment under Section
6.3,1(b)(i) or 6.3.1(b)(ii) above, the Participant's Beneficiary may
exercise, at any time within 180 days after the date of the
Participant's death (or, if earlier termination of employment) any
Option.

6.3.2 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.

6.3.3 RESTRICTED STOCK AWARDS AND PERFORMANCE SHARE AWARDS. If a
Participant's employment terminates for any reason, (a) Shares subject to the
Participant's Restricted Stock Award will be forfeited in accordance with the
related Award Agreement to the extent such Shares have not become vested on the
date of termination of employment; and (b) Shares subject to the Participant's
Performance Share Award will be forfeited in accordance with the related Award
Agreement to the extent such Shares have not been issued or become issuable on
that date.

6.3.4 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
Participant's Award exercisable to the Participant, or Participant's Beneficiary
or Personal Representative, as the case may be, upon such terms as the Committee
determines.

6.3.5 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 Company or another
Subsidiary.

6.4 GOVERNMENT REGULATIONS.

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This Plan, the granting of Awards, the issuance or transfer of
Shares, and the payment of money, pursuant thereto are subject to all
applicable federal and state laws, rules and regulations and to such
approvals by any regulatory or governmental agency (including, but not
limited to, "no action" positions of the Commission) that may, in the
judgment of the Committee, be necessary or advisable. Without limiting the
generality of the foregoing, no Awards may be granted, no Shares will be
issued, and no cash payments may be made by the Company, pursuant to any such
Award, unless and until, in each such case, all legal requirements applicable
to the issuance or payment have been complied with. In connection with any
stock issuance or transfer, the person acquiring the Shares must, if
requested, give assurances satisfactory to the Committee in respect of such
matters as the Committee deems desirable to assure compliance with all
applicable legal requirements. A Participant will not be entitled to the
privilege of stock ownership as to any Shares not actually issued to such
Participant.

6.5 TAX WITHHOLDING.

6.5.1 WITHHOLDING OBLIGATION. Upon any exercise, vesting, or
payment of any Award or, if required under the Code, upon the disposition by
a Participant or other person 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 Company has the right at its option to require payment
by cashier's check payable to the Company of, or to deduct from amounts
payable in cash, the amount of any taxes that the Company may be required to
withhold with respect to such transactions. If a tax is required to be
withheld in connection with the issuance or transfer of Shares, the
Participant may elect, with Committee approval, to have the Company reduce
the number of such Shares issued or transferred by the number of Shares
(valued at Fair Market Value) necessary to accomplish such withholding.

6.5.2 TAX WITHHOLDING LOANS. The Committee may permit a loan
from the Company to a Participant in the amount of any taxes that the Company
may be required to withhold, for a term, at a rate of interest and pursuant
to such other terms established by the Committee.

6.6 AMENDMENT, TERMINATION AND SUSPENSION.

6.6.1 AMENDMENT, TERMINATION AND SUSPENSION. The Board may, at
any time, terminate or, from time to time, amend, modify or suspend this Plan or
any part hereof. In addition, the Committee may, from time to time, amend or
modify any provision of this Plan and, with the consent of the Participant, make
such modifications of the terms of such Participant's Award as it deems
advisable. The Committee,

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with the consent of the Participant, also may amend the terms of any Option
or Stock Appreciation Right to provide that the Purchase Price of the Shares
remaining subject to the original Award be reestablished at a price not less
than 100% of the Fair Market Value of the Shares on the effective date of the
amendment. No modification of any other term of any Award that is amended in
accordance with the foregoing shall be required, although the Committee may
make such further modifications of any such Award as are not inconsistent
with this Plan. No Awards may be granted during any suspension of this Plan
or after its termination.

6.6.2 SHAREHOLDER APPROVAL. If an amendment would materially
(a) increase the benefits accruing to Participants, (b) increase the
aggregate number of Shares that may be issued or (c) modify the requirements
of eligibility for participation in this Plan, the amendment shall be
approved by the Board and, to the extent then required by applicable law, by
the shareholders of the Company.

6.6.3 EFFECT ON OUTSTANDING AWARDS. Awards issued before the
effective date of any amendment, suspension or termination of this Plan will
not without specific action of the Board or the Committee and the consent of
the Participant, in any way modify, amend, alter or impair any rights or
obligations under any such Award.

6.7 EFFECTIVE DATE OF THE PLAN.

This Plan will be effective upon its approval by the Board, subject
to approval by the shareholders of the Company within twelve months from the
date of such Board approval.

6.8 TERM OF THE PLAN.

Unless previously terminated by the Board, this Plan will terminate
at the close of business on February 23, 2006, and no Awards will be granted
under it thereafter.

6.9 GOVERNING LAW.

This Plan and all documents related hereto shall be governed by, and
construed in accordance with, the laws of the state of incorporation of the
Company. If any provision is held by a court of competent jurisdiction to be
invalid and unenforceable, the remaining provisions of this Plan will continue
to be fully effective. It is the intent of the Company that this Plan and
Awards satisfy and be interpreted in a manner that satisfies the applicable
requirements of Section 1361, ET. SEQ., of the Code and regulations promulgated
thereunder at any time that the Company has elected to be taxed as an S-
Corporation thereunder. If any provision of this Plan or of any Award Agreement
would

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otherwise frustrate or conflict with the intent expressed above, that
provision to the extent possible shall be interpreted and deemed amended to
avoid such conflict.

7. DEFINITIONS.

7.1 DEFINITIONS.

"AWARD" means any Option, Stock Appreciation Right, Restricted
Stock Award, or Performance Share Award, granted under this Plan.

"AWARD AGREEMENT" means a written agreement, approved by the
Committee, setting forth the terms of an Award. Award Agreements for ISOs
shall include any terms and conditions required for "incentive stock options"
under Section 422 of the Code.

"AWARD DATE" means the date upon which the Committee took the
action granting an Award or such later date set by the Committee.

"BENEFICIARY" means the person(s) or trust(s) entitled by will or
the laws of descent and distribution to receive the benefits specified under
this Plan if a Participant dies. If the Company is an S-Corporation, the
Participant's Beneficiary must be a person eligible to be an S-Corporation
shareholder pursuant to Section 1361 of the Code.

"BOARD" means the Board of Directors of the Company.

"CAUSE" means that the Committee, acting in good faith, determines
that the Participant has: (a) 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) been convicted of a felony, or
entered a plea of guilty or nolo contendre with respect to such a crime; or
(c) violated any fiduciary duty or duty of loyalty owed to the Company; or
(d) been generally incompetent or grossly negligent in the discharge of the
Participant's duties and responsibilities; or (e) engaged or is engaging in
immoderate use of alcoholic beverages or narcotics or other substance abuse;
or (f) violated 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.

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"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.

"COMMON STOCK" means the Common Stock of the Company.

"COMPANY" means Power One, Inc., a Delaware corporation, and its
successors, and, where the context so warrants, its Subsidiaries.

"EBITDA" at any date means the sum of (i) net income, (ii) interest
expense, (iii) taxes, (iv) total depreciation expense and (v) total
amortization expense, all of the foregoing as determined in conformity with
Generally Accepted Accounting Principles ("GAAP"), for the prior twelve (12)
month period ending on the last day of the calendar quarter immediately
preceding such calculation for which either audited or unaudited and reviewed
financial statements are available.

"ELIGIBLE PERSON" means (a) an officer or key employee of the
Company, (b) a member of the Board of Directors of the Company, (c) an
independent contractor who performs services as an advisor or consultant for
the Company. Service as an Eligible Person shall be considered employment for
all purposes of the Plan; provided, however, that only individuals who
satisfy clause (a) of this definition may be granted ISOs under the Plan.

"EVENT" means approval by the shareholders of the Company of any of
the following:

(a) The dissolution or liquidation of the Company;

(b) An agreement to merge or consolidate, or otherwise
reorganize, with or into one or more entities other than Subsidiaries, as a
result of which less than 50% of the outstanding voting securities of the
surviving or resulting entity are, or are to be, owned by former
shareholders of the Company; or

(d) A person or entity that is not a stockholder of the Company
on the date this Plan is adopted by the Board acquiring directly or
indirectly 50% or more of the Company's outstanding voting securities.

14
<PAGE>

"EXERCISE AGREEMENT" means a written agreement, approved by the
Committee, setting forth the terms for exercise of an Award.

"FAIR MARKET VALUE" on any date shall mean:

(a) if the Shares are publicly traded: (i) 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; (ii) if the
Shares are not listed or admitted to trade on a national securities
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; (iii) 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 designated as an incentive stock option within
the meaning of Section 422 of the Code, the award of which contains such
provisions as are necessary to comply with that Section.

"NQSO" means an option designated as or deemed by Section 2.5 to be a
nonqualified stock option.

"NOTE" means a promissory note approved by the Committee evidencing a
loan from the Company to the Eligible Person of an amount equal to the Purchase
Price of an Award. Any Note shall be subject to the following terms:

15
<PAGE>

(a) The principal of the note shall not exceed the amount
required to be paid to the Company upon the exercise or receipt of such
Award, and the note shall be delivered directly to the Company 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 principal balance of the Note shall become due
and payable on the tenth day after the termination of employment or service
of a Participant.

(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 shall conform with applicable rules and
regulations of the Federal Reserve Board as then in effect.

"OPTION" means an option to purchase Shares under this Plan. An
Option shall be designated by the Committee as an NQSO or an ISO.

"PARTICIPANT" means an Eligible Person who has been granted an Award.

"PERFORMANCE SHARE AWARD" means an Award made pursuant to Article 5.

"PERSONAL REPRESENTATIVE" means the person or persons who, upon the
Total Disability or incompetence of a Participant, has lawfully acquired on
behalf of the Participant the power to exercise the rights and receive the
benefits specified in this Plan. If the Company is an S Corporation, the
Participant's Personal Representative must be a person eligible to be an S
Corporation shareholder pursuant to Section 1361 of the Code.

"PURCHASE PRICE" means the exercise price, if any, payable by the
Participant to the Company upon exercise of an Award in accordance with the
applicable Award Agreement and Exercise Agreement; provided, however, that such
exercise

16
<PAGE>

price shall not be less than the minimum lawful consideration required under
applicable state law.

"RESTRICTED STOCK" means Shares awarded to a Participant, subject
to payment of such consideration, if any, and such conditions on vesting and
transfer and such other restrictions as are established in or pursuant to
this Plan, 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 Company or any Subsidiary and, in the case of employees, at
the Company's normal retirement age and in accordance with the retirement
policies of the Company then in effect.

"SHARES" means shares of the Company's Common Stock.

"STOCK APPRECIATION RIGHT" means a right to receive a number of
Shares or an amount of cash, or a combination of Shares and cash, determined
as provided in Section 3.3. Any Stock Appreciation Right granted in
connection with an ISO shall contain such terms as may be required to comply
with Section 422 of the Code.

"SUBSIDIARY" means any corporation or other entity a majority or
more of the outstanding voting stock or voting power of which is beneficially
owned directly or indirectly by the Company.

"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 may include.

<PAGE>
EXHIBIT 21

SUBSIDIARIES OF POWER-ONE, INC.

Power-Electronics, Inc.
Poder Uno de Mexico, S.A. de C.V.

<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
August 4, 1997

<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 (UNAUDITED) AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 JUN-30-1997
<CASH> 1,684 2,052
<SECURITIES> 0 0
<RECEIVABLES> 11,029 15,096
<ALLOWANCES> (638) (754)
<INVENTORY> 18,840 19,617
<CURRENT-ASSETS> 32,555 37,833
<PP&E> 11,390 12,147
<DEPRECIATION> (2,506) (3,506)
<TOTAL-ASSETS> 72,705 76,939
<CURRENT-LIABILITIES> 23,044 26,490
<BONDS> 0 0
16,287 17,122
0 0
<COMMON> 10 10
<OTHER-SE> 1,115 2,842
<TOTAL-LIABILITY-AND-EQUITY> 72,705 76,939
<SALES> 74,210 40,173
<TOTAL-REVENUES> 74,210 40,173
<CGS> 45,305 24,348
<TOTAL-COSTS> 45,305 24,348
<OTHER-EXPENSES> 20,903 10,430
<LOSS-PROVISION> 435 116
<INTEREST-EXPENSE> 4,222 2,009
<INCOME-PRETAX> 3,792 3,434
<INCOME-TAX> 396 866
<INCOME-CONTINUING> 3,396 2,568
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,396 2,568
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0

</TABLE>