<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
GENERAC PORTABLE PRODUCTS, INC.
(Exact name of registrant as specified in its charter)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 3621 13-4006887
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Identification Number)
Code Number)
</TABLE>
--------------------------
1 GENERAC WAY
JEFFERSON, WISCONSIN 53549
(920) 674-3750
(Address, including zip code, and telephone number, including area code,
of registrants' principal executive offices)
DORRANCE J. NOONAN, JR.
GENERAC PORTABLE PRODUCTS, INC.
1 GENERAC WAY
JEFFERSON, WISCONSIN 53549
(920) 674-3750
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
with copies to:
<TABLE>
<S> <C>
MARK ZVONKOVIC, ESQ. ALAN DEAN, ESQ.
KING & SPALDING DAVIS POLK & WARDWELL
1185 AVENUE OF THE AMERICAS 450 LEXINGTON AVENUE
NEW YORK, NEW YORK 10036 NEW YORK, NEW YORK 10017
(212) 556-2100 (212) 450-4000
</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, 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 of 1933, check the following
box and list the Securities Act of 1933 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 of 1933, check the following box and list the
Securities Act of 1933 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(d)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 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,
check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF CLASS OF SECURITIES TO BE REGISTERED OFFERING PRICE(1)(2) REGISTRATION FEE
<S> <C> <C>
Common Stock, $.01 par value $126,500,000 $35,167
</TABLE>
(1) Includes $16,500,000 of shares issuable upon exercise of the underwriters'
overallotment option.
(2) Estimated solely for the purpose of computing the registration fee pursuant
to Rule 457(o).
--------------------------
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 SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED MAY 21, 1999
SHARES
[GENERAC LOGO]
GENERAC PORTABLE PRODUCTS, INC.
COMMON STOCK
-----------------
GENERAC PORTABLE PRODUCTS, INC. IS OFFERING SHARES OF ITS COMMON
STOCK. THIS IS OUR INITIAL PUBLIC OFFERING AND NO PUBLIC MARKET CURRENTLY EXISTS
FOR OUR SHARES. WE ANTICIPATE THAT THE INITIAL PUBLIC OFFERING PRICE WILL BE
BETWEEN $ AND $ PER SHARE.
-------------------
WE HAVE FILED AN APPLICATION FOR THE COMMON STOCK TO BE LISTED ON THE NEW YORK
STOCK EXCHANGE UNDER THE SYMBOL "GPP."
-------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 11.
-----------------
PRICE $ A SHARE
-------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS COMPANY STOCKHOLDERS
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
PER SHARE..................... $ $ $ $
TOTAL......................... $ $ $ $
</TABLE>
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE NOT
APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS IS
TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SELLING STOCKHOLDERS HAVE GRANTED THE UNDERWRITERS THE RIGHT TO PURCHASE UP
TO AN ADDITIONAL SHARES TO COVER OVER-ALLOTMENTS. MORGAN STANLEY & CO.
INCORPORATED EXPECTS TO DELIVER THE SHARES TO PURCHASERS ON , 1999.
-------------------
MORGAN STANLEY DEAN WITTER
BT ALEX. BROWN
SALOMON SMITH BARNEY
, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..............................
Risk Factors....................................
Special Note Regarding Forward-Looking
Statements....................................
Use of Proceeds.................................
Dividend Policy.................................
Capitalization..................................
Dilution........................................
Unaudited Pro Forma Consolidated Financial
Information...................................
Selected Historical and Pro Forma Financial
Data..........................................
Management's Discussion and Analysis
of Financial Condition and Results
of Operations.................................
<CAPTION>
PAGE
-----
<S> <C>
Business........................................
Management......................................
Principal and Selling Stockholders..............
Certain Relationships and Related
Party Transactions............................
Description of Certain Indebtedness.............
Description of Capital Stock....................
Shares Eligible for Future Sale.................
Underwriters....................................
Experts.........................................
Legal Matters...................................
Where You Can Find More
Information...................................
Index to Financial Statements...................
</TABLE>
Our principal executive offices are located at 1 Generac Way, Jefferson,
Wisconsin 53549, and our telephone number is (920) 674-3750. Our web site is
"www.generac-portables.com". The information in the web site is not incorporated
by reference into this prospectus.
In this prospectus, "Generac Portable Products," the "company," "we," "us"
and "our" each refers to Generac Portable Products, Inc. and its subsidiaries on
a consolidated basis and, as the context requires, the Portable Products
Division of Generac Corporation.
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of common stock.
Until , 1999, all dealers that buy, sell or trade our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
Unless otherwise indicated, all information in this prospectus (1) reflects
a 1,250 for one stock split of our common stock that occurred on May 20, 1999
and (2) assumes that the underwriters' over-allotment option will not be
exercised.
3
<PAGE>
(This page has been left blank intentionally.)
4
<PAGE>
PROSPECTUS SUMMARY
THIS SECTION HIGHLIGHTS SOME OF THE INFORMATION IN THIS PROSPECTUS AND
SUMMARIZES THE MATERIAL TERMS OF THIS OFFERING. IT IS NOT COMPLETE AND MAY NOT
CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THE
COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY, INCLUDING THE
"RISK FACTORS" SECTION AND THE FINANCIAL STATEMENTS AND THE NOTES TO THOSE
STATEMENTS.
GENERAC PORTABLE PRODUCTS
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. Our two principal product
lines are portable generators and pressure washers. We estimate that in 1998, as
measured by net sales, we were:
- the largest U.S. manufacturer of portable generators, with an overall
domestic market share of approximately 29%, and
- the second largest U.S. manufacturer of consumer pressure washers, with an
overall domestic market share of approximately 33%.
Over the past three years, our net sales have grown at a compounded annual
rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4
million in 1998. In both our product categories, we offer one of the broadest
lines of innovative products across all major price points. Our products are
well represented in multiple channels of retail distribution, including the
leading home center chains, mass merchants and warehouse clubs, as well as
independent dealers. We have been the major supplier of portable generators to
Sears since 1961, and the largest supplier to Sears of consumer pressure washers
since Sears established itself in that category in 1994. We are also a core
supplier of portable generators and consumer pressure washers to Home Depot, the
largest and one of the fastest growing retail home center chains in the U.S.
We believe that our strength in each product category is the result of our
engineering and manufacturing capabilities which emphasize delivering superior
customer value through innovation in product development and focus on product
quality. We have been successful in improving manufacturing flexibility and
operating profitability through the strategic vertical integration of our
manufacturing processes, the streamlining of our production processes and the
standardization of our components.
The strength of our product offerings has enabled us to take advantage of
the strong growth in the engine-powered tools market as well as of favorable
demographic trends. Growth in demand for our products is driven by increasing
consumer awareness of the uses of portable generators and pressure washers in
consumer applications, the continuing momentum of national retailers, improving
affordability and performance, and an expanding middle-aged segment of the
population which historically has been the dominant purchaser of our products.
In 1959, Robert Kern founded Generac Corporation, the former parent of
Generac Portable Products, Inc. and an integrated manufacturer of engines and
generators. In July 1998, The Beacon Group III--Focus Value Fund, L.P., certain
members of management and certain other investors, including Robert Kern,
acquired the Portable Products Division of Generac Corporation for a purchase
price of $305.5 million. We have exclusive supply rights until 2007 to Generac
Corporation's current family of engines for use in portable generators and
pressure washers. The same dedicated management team that built the Portable
Products Division of Generac Corporation into a leader in the portable
engine-powered tools industry continues to lead our company.
5
<PAGE>
COMPETITIVE STRENGTHS
LEADING MARKET POSITIONS. In 1998, as measured by net sales, we believe we
were the largest U.S. supplier of portable generators and the second largest
U.S. supplier of consumer pressure washers.
WELL-ESTABLISHED AND GROWING DISTRIBUTION CHANNELS. We sell our products
under the Craftsman-Registered Trademark- and Companion-Registered Trademark-
labels through Sears and under the Generac-Registered Trademark- name through
Home Depot and other leading retailers, including B.J.'s Wholesale Club, Costco,
HomeBase, Lowe's and True Value hardware stores.
INNOVATIVE DESIGN AND ENGINEERING EXPERTISE. Our product design efforts are
focused on anticipating trends in consumer preferences and on engineering our
products to incorporate these preferences.
LOW COST MANUFACTURING OPERATIONS AND COMPONENTS. Our strategic vertical
integration and focus on using standardized components in our manufacturing
processes enable us to realize savings through reduced inventory levels, greater
leverage with suppliers and improved production flexibility. We have increased
our total annual production of units from approximately 120,000 in 1995 to over
675,000 in 1998, a compounded annual growth rate of 78%. Our low cost structure
is further enhanced by our effective sourcing strategies based on worldwide
supply relationships, as well as by our exclusive access to lower cost engines
manufactured by Generac Corporation.
ESTABLISHED BRAND NAME AND REPUTATION. The Generac brand name has a 40-year
heritage in the engine-powered tools industry. We established our leading brand
name primarily by providing high-quality, innovative and reliable products as
well as a high level of customer service and product support.
SUPERIOR CUSTOMER SERVICE AND COMMITMENT TO QUALITY. We support our strong
relationships with retailers through our "program sales approach" which provides
innovative sales and marketing programs to educate end-users and increase
retailers' effectiveness in selling our full line of products. We maintain
strict quality inspection procedures throughout the manufacturing process and a
comprehensive independent dealer network which facilitates after-sales
servicing.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY
INCENTIVE. Our management team has over 100 years of collective experience in
the engine-powered tools industry. Our senior managers have a substantial
financial interest in our continued success through their direct investment in
our common stock and participation in our stock option program.
BUSINESS STRATEGY
GROWING MARKET SHARE THROUGH ALLIANCES WITH STRONG, FAST-GROWING
RETAILERS. Our strong strategic relationships with Sears, Home Depot and other
leading retailers will position us to gain market share as these retailers grow.
EXPANDING THROUGH STRATEGICALLY MANAGED PRODUCT LINES. Our strategy is to
develop a continuous stream of innovative products that deliver the highest
quality and best overall value in the industry. We also offer one of the
broadest selections of portable generators and pressure washers which is
attractive to leading retailers who use a "good, better, best" merchandising
strategy.
CONTINUING PRODUCT INNOVATION AND DIVERSIFICATION INTO NEW AND RELATED
PRODUCTS. High level engineering capabilities, a dedicated research and
development group and efficient manufacturing operations provide us with
significant resources for continued product innovations and new product
development. Our current product development program includes mobile back-up
power generators and pressure washers incorporating a new Dial-A-Cleaner-TM-
cleaning system.
CONTINUING COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. We seek to
continually improve profitability, productivity and product quality. We strive
to maintain our low cost operations by taking advantage of our engineering and
manufacturing capabilities to either manufacture or purchase
6
<PAGE>
components. This strategy enables us to lower costs, better control product
quality, shorten supply lead times, maintain lower inventory levels and achieve
greater overall manufacturing flexibility.
PURSUING INTERNATIONAL MARKET OPPORTUNITIES. Our strategy is to accelerate
European sales growth by taking advantage of our product line breadth and brand
name recognition to gain shelf space and placements in new and existing European
markets. We currently offer our portable generators throughout Europe to leading
retailers such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus (Germany), BRICO
(Belgium), Continente (Spain), Carrefour (France) and Jumbo (Switzerland).
INDUSTRY OVERVIEW
We estimate that the U.S. portable generator market was $492 million in 1998
and that it has grown at a 16% compounded annual rate from $230 million since
1993. We believe that this market will continue to grow at a 16% compounded
annual rate to reach approximately $900 million in 2002. Our research indicates
that sales of the four largest manufacturers accounted for approximately 85% of
the total market in 1998.
We estimate that the U.S. consumer pressure washer market was $300 million
in 1998 and has grown at a 43% compounded annual rate from $50 million since
1993. We believe that this market will grow at a 15% compounded annual rate to
reach approximately $527 million in 2002. In addition, the U.S. commercial
pressure washer market was approximately $120 million in 1998. While the
commercial pressure washer market is still highly fragmented, the consumer
market is consolidating. Our research indicates that sales of the four largest
manufacturers accounted for an estimated 80% of the consumer pressure washer
market in 1998.
7
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered: shares
Common stock to be outstanding after the shares
offering...................................
Over-allotment option........................ shares
Use of proceeds.............................. We intend to use the net proceeds from the
offering, together with borrowings under the
amended credit facility, to repurchase all of
our outstanding 11 1/4% Senior Subordinated
Notes. See "Use of Proceeds."
Dividend policy.............................. We do not anticipate paying any cash
dividends in the foreseeable future. Any
future determination to pay dividends will be
at the discretion of our board of directors
and will be dependent upon existing
conditions such as our financial condition,
results of operations, contractual
restrictions, capital requirements, business
prospects and other factors our board of
directors deems relevant.
Proposed New York Stock Exchange symbol...... GPP
</TABLE>
The number of shares of our common stock to be outstanding after the
offering listed above does not take into account 1,644,345 shares of our common
stock that may be issuable upon exercise of outstanding options granted as of
March 31, 1999 under our stock option plan.
8
<PAGE>
SUMMARY FINANCIAL DATA
The following table presents summary historical and pro forma financial data
of our company. Prior to July 10, 1998, we operated as the Portable Products
Division of Generac Corporation. In 1996, Generac Corporation began to
separately identify the assets and liabilities specific to its portable products
business, which enabled the preparation of separate financial statements for the
year ended December 31, 1996. We made estimates and allocations in preparing
these separate financial statements. From January 1997 to July 9, 1998, the
Portable Products Division reported financial information separately from
Generac Corporation.
The data presented in the following table are derived from "Unaudited Pro
Forma Consolidated Financial Information" and the consolidated financial
statements and related notes which are included elsewhere in this prospectus.
You should read those sections for a further explanation of the financial data
summarized here.
The summary unaudited "Acquisition Pro Forma" consolidated financial data
give effect to:
- the July 2, 1998 issuance and sale of our 11 1/4% Senior Subordinated
Notes and borrowings under the credit facility, and
- our July 9, 1998 acquisition of the Portable Products Division of Generac
Corporation,
as if these events had occurred on January 1, 1998.
The summary unaudited "Offering Pro Forma" consolidated financial data
reflect the Acquisition Pro Forma adjusted to reflect the offering of common
stock and borrowings under our amended credit facility and the application of
the estimated net proceeds and these borrowings as described under "Use of
Proceeds."
Prior to July 10, 1998, our taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders elected
to be treated as an S Corporation for federal and state income tax purposes.
Accordingly, no provision for income taxes is included in our financial
statements for periods prior to July 10, 1998. We have been subject to state and
federal income taxes since July 10, 1998.
9
<PAGE>
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------------
ACQUISITION OFFERING PRO
FOR THE YEAR COMPANY PRO FORMA FORMA
--------------- --------------- ---------------
ENDED JULY 10, 1998 FOR THE YEAR FOR THE YEAR
DECEMBER 31, JANUARY 1, 1998 THROUGH ENDED ENDED
-------------------- THROUGH DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 JULY 9, 1998 1998 1998 1998
--------- --------- ----------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales.................. $ 122.6 $ 178.0 $ 139.6 $ 136.9 $ 276.4 $ 276.4
Gross profit............... 27.3 46.9 35.0 38.6 73.8 73.8
Selling and service
expense.................. 13.9 21.7 16.6 16.9 33.6 33.6
General and administrative
expense.................. 4.4 4.2 2.4 2.9 5.3 5.3
Intangible asset
amortization............. -- -- -- 2.5 5.3 5.3
--------- --------- ------ ------ ------ ------
Income from operations..... 9.0 21.0 16.0 16.3 29.6 29.6
Interest expense........... 2.2 2.1 1.4 9.7 20.0 10.1
Deferred financing cost
amortization............. -- -- -- .4 .8 .6
Other (income) expense..... -- .2 .1 (.2) (.1) (.1)
Income taxes............... -- -- -- 2.2 3.1 6.6
--------- --------- ------ ------ ------ ------
Net income................. $ 6.8 $ 18.7 $ 14.5 $ 4.2 $ 5.8 $ 12.4
--------- --------- ------ ------ ------ ------
--------- --------- ------ ------ ------ ------
Earnings Per Share:
Basic earnings per common
share.................... $ .40 $ .55
Basic weighted average
common shares outstanding
(in thousands)........... 10,625 10,625
Diluted earnings per common
share.................... $ .39 $ .55
Diluted weighted average
common shares outstanding
(in thousands)........... 10,725 10,676
<CAPTION>
PREDECESSOR COMPANY
------------- -------------
FOR THE THREE MONTHS
ENDED
MARCH 31,
----------------------------
1998 1999
------------- -------------
<S> <C> <C>
(UNAUDITED)
<S> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales.................. $ 59.5 $ 92.9
Gross profit............... 15.1 24.1
Selling and service
expense.................. 7.0 11.2
General and administrative
expense.................. 1.0 2.0
Intangible asset
amortization............. -- 1.3
------ ------
Income from operations..... 7.1 9.6
Interest expense........... .5 5.1
Deferred financing cost
amortization............. -- .2
Other (income) expense..... -- --
Income taxes............... -- 1.5
------ ------
Net income................. $ 6.6 $ 2.8
------ ------
------ ------
Earnings Per Share:
Basic earnings per common
share.................... $ .27
Basic weighted average
common shares outstanding
(in thousands)........... 10,625
Diluted earnings per common
share.................... $ .26
Diluted weighted average
common shares outstanding
(in thousands)........... 10,860
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH
31, 1999
(UNAUDITED)
-----------
<S> <C> <C>
ACTUAL
-----------
<CAPTION>
(IN
MILLIONS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................................................................... $ 77.0
Total assets............................................................................................ 370.2
Total debt, including current portion................................................................... 214.7
Stockholders' equity.................................................................................... 105.2
<CAPTION>
<S> <C>
OFFERING PRO
FORMA
---------------
<S> <C>
BALANCE SHEET DATA:
Working capital......................................................................................... $ 88.6
Total assets............................................................................................ 377.0
Total debt, including current portion................................................................... 134.7
Stockholders' equity.................................................................................... 192.8
</TABLE>
10
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER EACH OF THE FOLLOWING RISKS AND ALL OF THE
OTHER INFORMATION SET FORTH IN THIS PROSPECTUS BEFORE DECIDING TO INVEST IN
SHARES OF OUR COMMON STOCK. THE RISKS DESCRIBED BELOW ARE NOT THE ONLY ONES THAT
WE FACE. ADDITIONAL RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE
TO BE IMMATERIAL MAY ALSO ADVERSELY AFFECT OUR BUSINESS. OUR BUSINESS, FINANCIAL
CONDITION OR RESULTS OF OPERATIONS COULD BE MATERIALLY ADVERSELY AFFECTED BY ANY
OF THE RISKS DESCRIBED BELOW. IN THAT CASE, THE TRADING PRICE OF OUR COMMON
STOCK COULD DECLINE, AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING
THE RISKS FACED BY US DESCRIBED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
RISK FACTORS RELATING TO OUR BUSINESS
WE HAVE A LIMITED HISTORY OF INDEPENDENT OPERATIONS AND WE CANNOT PREDICT
WHETHER WE WILL BE AS SUCCESSFUL AS AN INDEPENDENT COMPANY
We began independent operations in July 1998 when a group of investors led
by Beacon purchased our business and assets. Prior to that date we operated our
business as the Portable Products Division of Generac Corporation. Therefore, we
have only a limited history of operating as an independent company and we cannot
offer you assurance from prior experience that our future operating results will
be as good as our historical results.
OUR OPERATING RESULTS MAY SUFFER IF WE CANNOT OBTAIN A SUFFICIENT SUPPLY OF
THE GENERAC ENGINE OR IF WE LOSE THE EXCLUSIVE RIGHT TO USE THE GENERAC ENGINE
IN OUR PRODUCTS
We have used the Generac overhead valve industrial engine in our higher
performance products since 1992. In 1998, 32% of our sales were attributable to
products that incorporated the Generac engine. At the time we purchased the
Portable Products Division of Generac Corporation, we entered into an engine
supply agreement with Generac Corporation. This agreement provides that Generac
Corporation will supply us with the Generac engine on an exclusive basis for use
in portable generators and pressure washers as long as we make minimum annual
purchases of the engines until 2007. Although we believe the terms of the engine
supply agreement are fair and reasonable, we cannot assure you that the engine
supply agreement will adequately cover our future engine requirements. On the
one hand, Generac Corporation may not be able to supply all the engines we may
require, and on the other, the annual minimum purchases required to maintain our
exclusive rights to the Generac engine may be more engines than we need in any
given year. Our inability to obtain all of the engines we need or our purchase
of more engines than we need in order to maintain our exclusive right to the
engine could adversely affect our financial performance. While this agreement is
not a "take or pay" contract, which would require us to pay for certain minimum
annual purchases whether or not we took delivery of the engines, our purchases
in any year of fewer engines than the annual minimum purchase exclusivity
threshold would allow Generac Corporation to supply the Generac engine to our
competitors, which could also adversely affect our financial performance. Please
read the section entitled "Business--Agreements with Generac Corporation--Engine
Supply and Non-Compete Agreements" later in this prospectus for additional
information.
OUR OPERATING RESULTS MAY SUFFER IF WE CANNOT OBTAIN A SUFFICIENT SUPPLY OF
ENGINES FROM OUR OTHER SUPPLIERS
We also use Briggs & Stratton and Tecumseh Products gasoline engines as
components of some of our products. A failure by either of these suppliers to
satisfy our orders could adversely affect our business.
11
<PAGE>
OUR OPERATING RESULTS DEPEND ON OUR RELATIONSHIP WITH OUR TWO LARGEST
CUSTOMERS
In 1998, Home Depot accounted for approximately 37% of our total sales and
Sears accounted for approximately 27% of our total sales. We do not have
contractual agreements with either of these customers for the supply of our
products. Our customers, including these two largest customers, place orders for
our products on an as-needed basis. As a result, we are particularly dependent
upon a continuing flow of new orders from these large, high volume customers,
and our future growth depends in part on their ability to increase the volume of
our products they sell. The loss of any of these customers or a significant
decrease in the volume of products supplied to any of these customers would have
a material adverse affect on our financial performance.
ANY DISRUPTION IN OUR MANUFACTURING FACILITIES COULD ADVERSELY AFFECT US
We produce substantially all of our products for North America in our
manufacturing facility located in Jefferson, Wisconsin. We produce substantially
all of the products required for our European operations at our manufacturing
facility located in Cheshire, England. Our manufacturing processes are highly
complex and require sophisticated and costly equipment. As a result, any
prolonged interruption in the operations of either of our manufacturing
facilities could result in delays or cancellations of shipments. A number of
factors could cause interruptions, including equipment failures, labor
difficulties or damage to a facility due to natural disasters or otherwise. We
cannot assure you that alternative qualified capacity would be available on a
timely basis or at all. Interruptions could result in a loss of customers and
could adversely affect our financial performance.
OUR FUTURE GROWTH COULD BE SLOWED IF WE ARE UNABLE TO COMPLETE THE EXPANSION
OF OUR MANUFACTURING CAPACITY AS SCHEDULED
As a result of the recent growth of our business, our manufacturing facility
in Jefferson, Wisconsin is currently operating at capacity with respect to
portable generators. Therefore, our future growth is dependent upon our
successful and timely expansion of this manufacturing facility. We have recently
added approximately 72,000 square feet to this facility, which brings the total
to 250,000 square feet. We expect to have manufacturing equipment installed by
the end of the second quarter of 1999 and to be fully operational by the end of
the third quarter of 1999. The successful completion of this facility expansion
is dependent upon a number of factors, including: timely delivery of materials
and equipment, the availability of labor and the hiring and training of new
personnel. If we are unable to complete the expansion of our manufacturing
facility on a timely basis, we may not be able to achieve our planned growth or
sustain our financial performance.
WE MAY NOT BE ABLE TO EFFECTIVELY MANAGE OUR FUTURE GROWTH
Over the past three years, our sales have experienced strong growth and we
have significantly expanded our operations. We are currently in the process of
expanding our operations and we expect that further expansion will be required
to realize our growth strategy. This rapid growth places a significant demand on
our management, operational, financial and other resources. In order to manage
our growth effectively, we must implement and improve our operational systems,
procedures and controls. In this regard, we are currently in the process of
installing a new enterprise resource planning system which will integrate
manufacturing, resource planning and financial accounting. If we are
unsuccessful or experience delays in implementing our new systems, our business
may be adversely affected. We cannot guarantee that we will be able to manage
our growth effectively or that we will be able to grow in the future at the same
rate we have in the past.
WE MAY BE UNABLE TO SUCCESSFULLY DEVELOP NEW PRODUCTS AND UNTIL 2007 WE MAY
BE RESTRICTED BY OUR AGREEMENTS WITH GENERAC CORPORATION FROM MARKETING CERTAIN
NEW PRODUCTS
Part of our strategy is to increase our sales through the development of new
products and product innovations. We cannot assure you that we will be able to
develop, market and distribute new products that
12
<PAGE>
will enjoy market acceptance. In addition, we are subject to agreements with
Generac Corporation under which we agreed not to, prior to 2007, manufacture or
market products of a type manufactured and sold by Generac Corporation's
industrial division at the time of the acquisition. Also, we may not incorporate
the Generac engine in our new products without Generac Corporation's approval.
Please see "Business-- Agreements with Generac Corporation--Engine Supply and
Non-Compete Agreements" for additional information. The failure to develop new
products that gain market acceptance could have an adverse impact on our growth
and materially adversely affect us.
OUR PERFORMANCE DEPENDS ON THE STRENGTH OF THE RETAIL ECONOMY
Since we only have two major product lines, both of which we sell through
retailers, our performance and our growth are particularly dependent upon the
strength of the U.S. retail economy. Weakness in consumer confidence and in
sales at retail outlets, including the financial weakness or bankruptcy of
retail outlets, especially the major home center chains, mass merchandisers and
wholesale clubs, can be expected to adversely impact our future financial
results.
WE FACE SIGNIFICANT COMPETITION
We operate in a highly competitive environment with numerous domestic and
foreign competitors which are financially strong and capable of competing
effectively with us in the marketplace. The introduction of new products or
other activities by our competitors could limit our growth, reduce our market
share and harm our financial performance. In the manufacture and sale of
portable generators, we compete primarily with Honda Engine Company and Coleman
Powermate, a division of The Coleman Company, Inc. Honda has significantly
greater financial and operating resources and name recognition than we do. In
the manufacture and sale of pressure washers, we compete primarily with
DeVilbiss Air Power Company, a subsidiary of Falcon Building Products, Inc.,
and, to a lesser extent, with Alfred Karcher GmBH & Co. and Campbell Hausfeld,
an affiliate of Scott Fetzer Company. Some of our competitors may be willing to
reduce prices and accept lower margins to compete with us. Any of our
competitors may be more successful at developing new products and product
innovations. In addition, we compete with these competitors not only for
consumer acceptance but also to establish and maintain relationships with the
major home center chains, mass merchandisers, wholesale clubs and other
retailers, many of which distribute one or two of our competitors' products.
INCREASED SALES GROWTH OF PORTABLE GENERATORS DUE TO YEAR 2000 CONCERNS MAY
NOT BE SUSTAINABLE
We may experience an increase in our sales of portable generators as a
result of consumer concerns relating to Year 2000 power outages. We cannot
assure you that any sales growth attributable to Year 2000 consumer concerns
will be sustainable or that our sales will not decline in 2000 from 1999 levels.
In addition, we cannot assure you that we will not experience an increase in
returns of our products after January 1, 2000.
WE MAY FACE ADDITIONAL COSTS AND OTHER ADVERSE EFFECTS DUE TO YEAR 2000
COMPUTER PROBLEMS
Year 2000 issues exist when years in dates are recorded in computers using
two digits (rather than four) and are then used for arithmetic operations,
comparisons or sorting. The two digit year "00" may be recognized as 1900 rather
than 2000, which could cause our computer systems to perform inaccurate
computations. We have adopted a three phase approach of assessment, correction
and testing. We have completed the assessment phase relating to our internal
software, hardware and other operating systems and are currently in the
correction and testing phases. We are completing our assessment of the
non-information technology systems and the risk to the business from vendors and
other parties. Furthermore, we have completed the assessment of our products,
noting that the Year 2000 will not impact our products as the products do not
contain date sensitive sub-systems. Although we have not yet fully completed our
Year 2000 project, management estimates that approximately 40% of our
information sub-systems are currently Year 2000 compliant. Approximately 60% of
our systems are currently being modified or replaced, with all significant
systems targeted for Year 2000 compliance by September 1, 1999.
13
<PAGE>
You should be aware that Year 2000 issues relate not only to our systems, but
also to those used by our suppliers. We anticipate that system replacements and
modifications will resolve any Year 2000 issues that may exist with our systems
or our suppliers' systems. However, we cannot guarantee to you that such
replacements or modifications will be completed successfully or on time and, as
a result, any failure to complete such modification on time may materially harm
our financial and operating results. You should read the section "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000" later in this prospectus for additional information.
QUARTERLY FLUCTUATIONS IN OUR BUSINESS COULD AFFECT THE PRICE OF OUR COMMON
STOCK
Our revenues and operating results may vary from quarter to quarter. Such
variations are likely to be caused by certain factors that are outside our
control, including weather (in particular, storm activity), the seasonality of
pressure washer sales and the product mix of our sales. These quarterly
fluctuations may not match the expectations of securities analysts and
investors. This could cause the trading price of our common stock to fluctuate.
IF WE LOSE KEY PERSONNEL, OUR ABILITY TO MANAGE WILL BE WEAKENED
Our continued success is highly dependent upon the personal efforts and
abilities of our senior management, including Dorrance J. Noonan, Jr., our
President and Chief Executive Officer, Gary J. Lato, our Chief Financial
Officer, James H. Deneffe, our Senior Vice President of Sales, Wesley C.
Sodemann, our Vice President of Engineering and Jay C. Sugar, our Vice President
of Operations. We do not have employment contracts with any of these officers
and the loss of any one of them could have an adverse impact on our business.
INCREASES IN RAW MATERIAL OR COMPONENT COSTS WOULD HAVE AN ADVERSE EFFECT ON
OUR FINANCIAL PERFORMANCE
A significant portion of the cost of goods manufactured by us is the cost of
raw materials and components. The future success of our purchasing may be
affected by many factors beyond our control, such as commodity pricing generally
and higher prices for the specific materials that we require. Although there are
numerous suppliers available for the materials and components we need, any
unanticipated change in suppliers could be disruptive and costly to us.
WE MAY INCUR MATERIAL PRODUCT WARRANTY COSTS
Generally we provide a one-year warranty on portable generators and on
pressure washers. While costs associated with providing warranties for our
products have not been material to our financial results in the past, we cannot
assure you that such costs will not be material in the future.
WE WILL CONTINUE TO HAVE SUBSTANTIAL DEBT AFTER THE OFFERING WHICH COULD
ADVERSELY AFFECT US
After this offering, we expect to have approximately $134.7 million of debt
outstanding. The fact that we have a significant amount of debt has important
consequences to you as a stockholder. The material risks include the following:
- We may be unable to obtain additional funds needed for working capital,
capital expenditures and general corporate purposes.
- A portion of our cash flow from operations is dedicated to debt service,
which reduces the amount of cash we have available for other purposes.
- Our ability to adjust to changing market conditions and our ability to
withstand competition may be hampered by the amount of debt we owe. We are
more vulnerable in a market downturn or a recession than our competitors
with less debt.
14
<PAGE>
WE MAY NOT REPURCHASE ALL OF OUR 11 1/4% SENIOR SUBORDINATED NOTES
We intend to commence a tender offer for all of our $110.0 million principal
amount 11 1/4% Senior Subordinated Notes. It is impossible for us to predict the
exact aggregate principal amount of notes that may be tendered in the tender
offer and therefore we may purchase less than all of the outstanding notes. In
addition, if for any reason the tender offer is not completed and no notes are
repurchased pursuant to the tender offer, we intend to use the net proceeds from
this offering to redeem $38.5 million principal amount of these notes and the
remainder of the net proceeds to reduce the amounts outstanding under the term
loans under our credit facility. In either case, our interest expense will be
higher, and our net income lower, than if we had repurchased all of the notes.
See "Unaudited Pro Forma Consolidated Financial Information" for additional
information.
INTANGIBLES REPRESENT A SUBSTANTIAL PERCENTAGE OF OUR ASSETS, THE
AMORTIZATION OF WHICH WILL ADVERSELY AFFECT OUR EARNINGS
At March 31, 1999, our balance sheet reflected $210.1 million of intangible
assets, a substantial portion of our $370.2 million of total assets at such
date. The intangible assets consist of goodwill and other identifiable
intangibles relating to our recent acquisition of the Portable Products Division
of Generac Corporation. Amortization of these intangibles will have a negative
impact on earnings. In addition, we continuously evaluate whether events and
circumstances have occurred that indicate the remaining balance of intangible
assets may not be recoverable. When factors indicate that assets should be
evaluated for possible impairment, we may be required to reduce the carrying
value of our intangible assets, which could have a material adverse effect on
our results during the periods in which such a reduction is recognized. There
can be no assurance that we will not be required to write down intangible assets
in future periods.
RISK FACTORS RELATING TO THE CONTROL OF GENERAC PORTABLE PRODUCTS
THE BEACON GROUP III--FOCUS VALUE FUND, L.P., WHICH CONTROLS APPROXIMATELY
% OF OUR VOTING POWER, MAY HAVE INTERESTS WHICH ARE ADVERSE TO YOURS
You should be aware that Beacon will control a total of approximately
% of our voting stock immediately following the completion of this
offering, or approximately % if the underwriters exercise their
over-allotment option in full. As a result, Beacon will have substantial
influence over the outcome of actions requiring the approval of our
stockholders, including elections of our board of directors. Beacon may make
decisions which are adverse to your interests.
OUR CHARTER AND BYLAW PROVISIONS AND DELAWARE LAW MAY MAKE A TAKEOVER OF
GENERAC PORTABLE PRODUCTS MORE DIFFICULT, WHICH COULD ADVERSELY AFFECT THE PRICE
OF OUR COMMON STOCK
Our certificate of incorporation and bylaws contain provisions that may make
the acquisition of control of our company more difficult, including provisions:
- authorizing the issuance of preferred stock, the terms of which may be
determined at the sole discretion of the board of directors,
- establishing advance notice requirements for the nomination for election,
and removal of, directors and for proposing matters that can be acted on
by stockholders at meetings, and
- prohibiting stockholders from acting by written consent without a meeting.
In addition, Delaware corporate law contains provisions that could
discourage, delay or prevent a change in control, which could adversely affect
the price of our common stock.
15
<PAGE>
RISK FACTORS RELATING TO SECURITIES MARKETS
OUR STOCK PRICE MAY FLUCTUATE SIGNIFICANTLY AFTER THE OFFERING AND YOU COULD
LOSE ALL OR PART OF YOUR INVESTMENT AS A RESULT
Prior to this offering, there has been no public market for our common
stock. Although we intend to list our common stock on the New York Stock
Exchange, an active public market may not develop or may not be sustained after
this offering. Investors may not be able to sell our common stock should they
desire to do so. The initial public offering price will be determined by
negotiations among representatives of the underwriters, the selling stockholders
and us based upon several factors and may not be indicative of the market price
for our common stock after the offering. The trading price of our common stock
could be subject to wide fluctuations in response to a number of factors,
including:
- changes in our operating results,
- differences between our actual financial and operating results, and those
expected by investors and securities analysts,
- changes in financial estimates or recommendations by securities analysts,
and
- conditions or trends in the engine-powered tools market.
In addition, the stock market has from time to time experienced extreme
price and volume fluctuations, which often have been unrelated to the operating
performance of particular companies. These broad market fluctuations may
adversely affect the market price of our common stock.
FUTURE SALES BY EXISTING STOCKHOLDERS COULD CAUSE THE PRICE OF OUR COMMON
STOCK TO DECLINE
Sales of a substantial number of shares of our common stock in the public
market following this offering could adversely affect the market price for our
common stock or impair our ability to raise capital through an offering of
equity securities. The number of shares of common stock available for sale in
the public market is limited by legal and contractual restrictions. The holders
of shares of common stock have agreed not to sell their shares for a
period of 180 days after the date of this prospectus without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters. As a
result of these legal and contractual restrictions, based on shares outstanding
and options granted as of March 31, 1999, the following shares of common stock
will be eligible for future sale:
- no shares other than the shares offered in this offering may be
sold immediately after the completion of this offering, and
- additional shares may be sold upon the expiration of the 180-day
lock-up period.
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit the
shares reserved for issuance under our stock option plan to be sold in the
public market.
In addition, upon expiration of the 180-day period referred to above,
holders of approximately shares of common stock will be entitled to
require us to register their shares under the securities laws to permit the sale
of their shares in the public market. If these holders, by exercising these
"registration rights," cause a large number of shares to be registered and sold
in the public market, the market price for our common stock could decline. See
"Description of Capital Stock--Registration Rights" and "Shares Eligible for
Future Sale."
16
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus constitute
forward-looking statements. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by such forward-looking statements. Such factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," or "continue" or the negative
of such terms or other comparable terminology.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy and completeness of such
statements. We are under no duty to update any of the forward-looking statements
after the date of this prospectus.
17
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds of approximately $101.0 million from this
offering at an assumed initial public offering price of $ per share. Net
proceeds are computed by deducting the underwriting discount and our estimated
offering expenses of $1.3 million from the total public offering price.
We intend to use all of the net proceeds from this offering, together with
borrowings under the amended credit facility, to repurchase all $110.0 million
principal amount of our 11 1/4% Senior Subordinated Notes due 2006. We intend to
commence a tender offer for all of our outstanding notes. If for any reason the
tender offer is not completed, we intend to use the net proceeds from this
offering to redeem $38.5 million principal amount of these notes and the
remainder of the net proceeds to reduce the amounts outstanding under the term
loans under our credit facility.
The proceeds from the sale of these notes and the borrowings under the term
loans were used to fund, in part, the acquisition of the Portable Products
Division of Generac Corporation. See "Description of Certain Indebtedness" for
additional information about the terms of this indebtedness.
DIVIDEND POLICY
We have never paid any dividends on our common stock, and the board of
directors currently intends to retain all earnings for use in our business. Our
amended credit facility contains covenants restricting the payment of dividends.
Any future payment of dividends will depend upon our results of operations,
financial condition, cash requirements and other factors deemed relevant by the
board of directors.
18
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of Generac
Portable Products as of March 31, 1999: (1) on an historical basis and (2) as
adjusted to give effect to the offering of common stock and borrowings under our
amended credit facility and the application of the estimated net proceeds from
this offering and these borrowings as described under "Use of Proceeds." The pro
forma capitalization amounts presented below are adjusted for (a) the issuance
and sale of shares of common stock by Generac Portable Products at an assumed
initial public offering price of $ , the midpoint of the range set forth on
the cover page of this prospectus, after deducting underwriting discounts and
commissions and estimated offering expenses, (b) borrowings under the amended
credit facility, and (c) the anticipated use of net proceeds from these
transactions to repurchase all of our 11 1/4% Senior Subordinated Notes due
2006, as if such issuances, borrowings and repurchases had occurred on March 31,
1999.
The pro forma retained earnings balance is adjusted for a non-cash
extraordinary expense of $5.1 million for the write-off of previously
capitalized debt issuance costs and a cash extraordinary expense of $15.5
million for prepayment costs assumed to have been paid in connection with the
repurchase of all of the outstanding notes. Such extraordinary expenses are
reflected as a decrease of pro forma retained earnings, net of a pro forma tax
benefit of $7.2 million.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
-----------------------
<S> <C> <C>
ACTUAL PRO FORMA
---------- -----------
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
LONG-TERM DEBT, INCLUDING CURRENT PORTION:
Revolving credit facility............................................................... $ 19,000 $ 19,000
Term loans.............................................................................. 83,450 113,450
11 1/4% Senior Subordinated Notes due 2006.............................................. 110,000 --
Capital lease obligations............................................................... 2,265 2,265
---------- -----------
Total long-term debt.................................................................. 214,715 134,715
---------- -----------
STOCKHOLDERS' EQUITY:
Common stock and additional paid-in capital............................................. 110,000 211,000
Retained earnings (accumulated deficit)................................................. 7,027 (6,347)
Accumulated other comprehensive loss.................................................... (179) (179)
Excess of purchase price over book value of net assets acquired from entities partially
under common control.................................................................. (11,658) (11,658)
---------- -----------
Total stockholders' equity............................................................ 105,190 192,816
---------- -----------
Total capitalization.................................................................. $ 319,905 $ 327,531
---------- -----------
---------- -----------
</TABLE>
If the tender offer for the notes is not completed, we intend to use the net
proceeds from this offering to redeem $38.5 million principal amount of notes
and to repay $58.2 million of term loans. In this case, on a pro forma basis,
$25.3 million would be outstanding under the term loans, $71.5 million would be
outstanding under the notes and retained earnings would be $2.5 million.
19
<PAGE>
DILUTION
The net tangible book value of Generac Portable Products as of March 31,
1999 was approximately $(98.1) million, or $(9.23) per share of common stock.
Net tangible book value per share is determined by dividing our total net
tangible book value, which is total tangible assets less our total liabilities,
by the number of shares of our common stock outstanding. After giving effect to
the sale of shares of common stock in this offering (at an assumed
initial public offering price of $ , the midpoint of the range set forth on
the cover page of this prospectus) and the application of the estimated net
proceeds as described under "Use of Proceeds," our adjusted net tangible book
value as of March 31, 1999 would have been approximately $ million or $ per
share. This represents an immediate increase in net tangible book value to
existing stockholders of $ per share and an immediate dilution to new investors
of $ per share. The following table illustrates this per share dilution as of
March 31, 1999:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share......................... $ (9.23)
Increase per share attributable to new investors.......... $
---------
Net tangible book value per share after this offering.......
---------
Dilution per share to new investors......................... $
---------
---------
</TABLE>
The following table summarizes, as of March 31, 1999, the differences
between the number of shares of common stock, the total consideration paid and
the average price per share paid by existing stockholders and by the investors,
before deducting the underwriting discount and estimated offering expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- --------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
Existing stockholders.............% $% $
New investors.....................
--------- --------- ---------- --------- -----------
Total............................. 100.0% $ 100.0%
--------- --------- ---------- ---------
--------- --------- ---------- ---------
</TABLE>
If the underwriters exercise their over-allotment option in full, sales of
shares of common stock by the selling stockholders in this offering will reduce
the number of shares of common stock held by existing stockholders to
or approximately % of the total number of shares of common stock
outstanding after this offering, and the number of shares held by new public
investors will be or approximately % ( shares, or
approximately %, if the underwriters exercise their over-allotment option in
full) of the total number of shares of common stock outstanding after this
offering.
As of March 31, 1999, there were options outstanding to purchase a total of
1,644,345 shares of our common stock, with a weighted average exercise price of
$10.93 per share. To the extent that the outstanding options, or any options
issued in the future, are exercised, there will be further dilution to new
investors.
20
<PAGE>
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The Unaudited Pro Forma Consolidated Financial Information of Generac
Portable Products for the year ended December 31, 1998 labeled "Acquisition Pro
Forma" was prepared to reflect:
- the offer and sale of the 11 1/4% Senior Subordinated Notes and borrowings
under the credit facility, and
- the acquisition of the Portable Products Division of Generac Corporation,
as if these events had occurred on January 1, 1998 using the purchase method of
accounting.
The Unaudited Pro Forma Consolidated Financial Information of Generac
Portable Products for the year ended December 31, 1998 labeled "Offering Pro
Forma" presents the Acquisition Pro Forma information adjusted to reflect the
offering of common stock and borrowings under our amended credit facility and
the application of the estimated net proceeds of the offering and these
borrowings as described under "Use of Proceeds." The Unaudited Pro Forma
Consolidated Financial Information as of and for the three months ended March
31, 1999 reflects the offering of common stock and the application of the
estimated net proceeds of the offering as described under "Use of Proceeds."
The Unaudited Pro Forma Consolidated Financial Information may not be
indicative of what our operating results or financial position would have been
if the transactions described above had occurred as of and for the dates and
periods presented. In addition, our results for the three months ended March 31,
1999 are not necessarily indicative of results that may be expected for the
entire year.
The pro forma adjustments as described in the Notes to Unaudited Pro Forma
Consolidated Financial Information are based on available information and upon
assumptions that management believes are reasonable. The Unaudited Pro Forma
Consolidated Financial Information should be read in conjunction with the
financial statements and the related notes and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" appearing later in
this prospectus.
21
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 1999
<TABLE>
<CAPTION>
OFFERING
HISTORICAL ADJUSTMENTS(A) PRO FORMA
---------- ------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS)
ASSETS
Current Assets:
Cash and cash equivalents............................................... $ 1,407 $ 4,401(a) $ 5,808
Accounts receivable (less allowance of $263)............................ 70,899 -- 70,899
Inventories............................................................. 58,955 -- 58,955
Deferred income taxes................................................... 139 6,409(b) 6,548
Prepaid expenses and other current assets............................... 1,004 -- 1,004
---------- ------------- -----------
Total current assets.................................................. 132,404 10,810 143,214
Property, plant and equipment, net........................................ 20,659 -- 20,659
Intangible assets, net.................................................... 210,065 -- 210,065
Deferred financing costs.................................................. 6,808 (3,976)(c) 2,832
Other..................................................................... 262 -- 262
---------- ------------- -----------
Total assets.......................................................... $ 370,198 $ 6,834 $ 377,032
---------- ------------- -----------
---------- ------------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt....................................... $ 8,381 $ -- $ 8,381
Trade accounts payable.................................................. 32,199 -- 32,199
Accrued employee compensation, benefits and payroll withholdings........ 1,666 -- 1,666
Other accrued liabilities............................................... 13,156 (792)(b) 12,364
---------- ------------- -----------
Total current liabilities............................................. 55,402 (792) 54,610
Long-term debt obligations................................................ 206,334 (80,000)(d) 126,334
Other long-term obligations............................................... 1,011 -- 1,011
Deferred income taxes..................................................... 2,261 -- 2,261
Stockholders' Equity:
Common stock............................................................ 106 -- 106
Additional paid-in capital.............................................. 109,894 101,000(a) 210,894
Retained earnings (accumulated deficit)................................. 7,027 (13,374)(e) (6,347)
Accumulated other comprehensive loss.................................... (179) -- (179)
Excess of purchase price over book value of net assets acquired from
entities partially under common control............................... (11,658) -- (11,658)
---------- ------------- -----------
Total stockholders' equity............................................ 105,190 87,626 192,816
---------- ------------- -----------
Total liabilities and stockholders' equity............................ $ 370,198 $ 6,834 $ 377,032
---------- ------------- -----------
---------- ------------- -----------
</TABLE>
See notes to unaudited pro forma financial information.
22
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
(a) Adjusted for (i) the issuance and sale of shares of common stock by Generac
Portable Products (assuming net proceeds of $101,000) and (ii) borrowings
under the amended credit facility, and the anticipated use of net proceeds
from such transactions to repurchase all of the outstanding 11 1/4% Senior
Subordinated Notes as if such transactions had occurred as of March 31,
1999. If the tender offer for the 11 1/4% Senior Subordinated Notes is not
completed, we intend to use the net proceeds from this offering to redeem
$38,500 principal amount of the 11 1/4% Senior Subordinated Notes at a
redemption price of 111.25% of their principal amount and to repay $58,169
of term loans under our credit facility. For additional information, see
"Capitalization."
(b) Reflects the decrease in accrued income taxes and the increase in deferred
tax assets associated with the extraordinary expense of $20,575 assumed to
be recognized in connection with the repurchase of the 11 1/4% Senior
Subordinated Notes.
(c) Reflects the write-off of $5,060 of previously capitalized deferred
financing costs associated with the 11 1/4% Senior Subordinated Notes and
the capitalization of $1,084 of additional costs estimated to be incurred in
connection with the amendment of the credit facility.
(d) Reflects borrowings of $30,000 under the amended credit facility and the
repurchase of all $110,000 principal amount of our 11 1/4% Senior
Subordinated Notes.
(e) The pro forma retained earnings balance is adjusted for a non-cash
extraordinary expense of $5,060 for previously capitalized debt issuance
costs and a cash extraordinary expense of $15,515 for prepayment costs
assumed to have been paid in connection with the repurchase of all of the
outstanding 11 1/4% Senior Subordinated Notes. Such extraordinary expenses
are reflected as a decrease of pro forma retained earnings, net of a pro
forma tax benefit of $7,201.
23
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
OFFERING
HISTORICAL ADJUSTMENTS(G) PRO FORMA
----------- -------------- -----------
<S> <C> <C> <C>
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
Net sales................................................................. $ 92,887 $ -- $ 92,887
Cost of goods sold........................................................ 68,730 -- 68,730
----------- ------- -----------
Gross profit.............................................................. 24,157 24,157
----------- ------- -----------
Operating expenses:
Selling and service expense............................................. 11,152 -- 11,152
General and administrative expense...................................... 2,001 -- 2,001
Intangible asset amortization........................................... 1,341 -- 1,341
----------- ------- -----------
Total operating expenses................................................ 14,494 -- 14,494
----------- ------- -----------
Income from operations.................................................... 9,663 -- 9,663
----------- ------- -----------
Other expense:
Interest expense........................................................ 5,096 (2,537)(h) 2,559
Deferred financing cost amortization.................................... 213 (73)(i) 140
Other................................................................... 5 -- 5
----------- ------- -----------
5,314 (2,610) 2,704
----------- ------- -----------
Income before income taxes................................................ 4,349 2,610 6,959
Provision for income taxes................................................ 1,524 914(f) 2,438
----------- ------- -----------
Net income before extraordinary item(j)................................... $ 2,825 $ 1,696 $ 4,521
----------- ------- -----------
----------- ------- -----------
Earnings per share before extraordinary item:
Basic................................................................... $ 0.27
Diluted................................................................. $ 0.26
Weighted average shares outstanding(k):
Basic................................................................... 10,625
Diluted................................................................. 10,860
</TABLE>
See notes to unaudited pro forma consolidated financial information.
24
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PREDECESSOR
JANUARY 1 JULY 10
THROUGH JULY THROUGH
9, DECEMBER 31,
1998 1998
-------------- ------------ ACQUISITION ACQUISITION OFFERING OFFERING
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA ADJUSTMENTS(G) PRO FORMA
-------------- ------------ ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net sales......................... $ 139,551 $ 136,862 $ -- $ 276,413 $ -- $ 276,413
Cost of goods sold................ 104,537 98,245 (162)(a) 202,620 -- 202,620
-------------- ------------ ----------- ----------- -------------- -----------
Gross profit...................... 35,014 38,617 162 73,793 -- 73,793
-------------- ------------ ----------- ----------- -------------- -----------
Operating expenses:
Selling and service expense..... 16,624 16,935 -- 33,559 -- 33,559
General and administrative
expense....................... 2,380 2,865 -- 5,245 -- 5,245
Intangible asset amortization... -- 2,531 2,813(b) 5,344 -- 5,344
-------------- ------------ ----------- ----------- -------------- -----------
Total operating expenses........ 19,004 22,331 2,813 44,148 -- 44,148
-------------- ------------ ----------- ----------- -------------- -----------
Income from operations............ 16,010 16,286 (2,651) 29,645 -- 29,645
-------------- ------------ ----------- ----------- -------------- -----------
Other (income) expense:
Interest expense................ 1,409 9,674 10,314(c) 19,988 (9,895)(h) 10,093
(1,409)(d)
Deferred financing cost
amortization.................. -- 401 424(e) 825 (271)(i) 554
Other........................... 108 (171) -- (63) -- (63)
-------------- ------------ ----------- ----------- -------------- -----------
1,517 9,904 9,329 20,750 (10,166) 10,584
-------------- ------------ ----------- ----------- -------------- -----------
Income before income taxes........ 14,493 6,382 (11,980) 8,895 10,166 19,061
Provision for income taxes........ -- 2,180 880(f) 3,060 3,558(f) 6,618
-------------- ------------ ----------- ----------- -------------- -----------
Net income before extraordinary
item(j)......................... $ 14,493 $ 4,202 ($ 12,860) $ 5,835 $ 6,608 $ 12,443
-------------- ------------ ----------- ----------- -------------- -----------
-------------- ------------ ----------- ----------- -------------- -----------
Earnings per share before
extraordinary item:
Basic........................... $ .40 $ .55
Diluted......................... $ .39 $ .55
Weighted average shares
outstanding(k):
Basic........................... 10,625 10,625
Diluted......................... 10,725 10,676
</TABLE>
See notes to unaudited pro forma consolidated financial information.
25
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
The acquisition of the Portable Products Division of Generac Corporation was
accounted for under the purchase method of accounting. The unaudited pro forma
consolidated results of operations were determined based on the fair value of
the assets acquired and liabilities assumed and associated amortization of
goodwill and other acquired intangibles. Prior to July 9, 1998, certain costs
and expenses were allocated to Generac Portable Products from Generac
Corporation. Management believes that the allocation of these costs and expenses
approximate the equivalent costs expected to be incurred on a stand alone basis.
(a) Reflects the effect on cost of sales of the recognition of a capital lease
obligation as part of the acquisition arising from certain equipment leases:
<TABLE>
<S> <C>
Actual lease expense incurred........................................ $ (336)
Amortization of assets under capital lease obligations............... 174
---------
$ (162)
---------
---------
</TABLE>
(b) Reflects the amortization of goodwill of $213,738 over a 40 year period and
the non-compete agreement of $100 and trademarks and patents of $100 over a
10 year period. Goodwill was calculated as the purchase price of $306,865
(including acquisition costs of $1,385) less the fair value of net assets
acquired and liabilities assumed of $81,469 and less the excess of purchase
price over book value of net assets acquired from entities partially under
common control of $11,658. Other intangible assets are comprised of patents,
trademarks and a non-compete agreement with Generac Corporation which have a
remaining life and/or contractual term of approximately 10 years.
(c) Interest expense reflects the following:
<TABLE>
<S> <C>
Credit Facility.................................................... $ 3,754
11 1/4% Senior Subordinated Notes.................................. 6,462
Interest on capitalized leases..................................... 98
---------
$ 10,314
---------
---------
</TABLE>
Borrowings under the credit facility bear interest at the eurodollar rate,
plus an applicable percentage, as defined. For purposes of the pro forma
interest expense adjustment, the eurodollar rate is estimated to be 5.76%
for the period January 1 through July 9, 1998. The rate approximates the
average eurodollar rate during the period. A 1/8% variance in eurodollar
rates for the credit facility would change assumed interest expense by
approximately $106. A commitment fee of .5% per annum is charged on the
unused portion of the credit facility.
(d) Reflects the elimination of historical interest expense allocated from
Generac Corporation.
(e) The deferred financing costs are amortized using the effective interest rate
and straight line methods over the term of the associated debt as follows:
<TABLE>
<S> <C>
Credit Facility...................................................... $ 201
11 1/4% Senior Subordinated Notes.................................... 223
---------
$ 424
---------
---------
</TABLE>
26
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS)
(f) Reflects adjustments for income tax expense to provide taxes on pro forma
offering adjustments at a pro forma effective tax rate of 35% and to adjust
the Acquisition Pro Forma tax provision based upon the pro forma annual
effective tax rate. Historically, Generac Portable Products's taxable income
was included in Generac Corporation's taxable income. Generac Corporation
and its stockholders elected to be treated as an S Corporation for federal
and state income tax purposes. Accordingly, no provision for income taxes is
included in the historical financial statements prior to July 9, 1998.
(g) Adjusted for (1) the issuance and sale of shares of common stock by
Generac Portable Products at an assumed initial public offering price of
$ , the midpoint of the range set forth on the cover page of this
prospectus (assuming net proceeds of $101,000) and (2) borrowings under the
amended credit facility, and (3) the anticipated use of net proceeds from
such transactions to repurchase all of the outstanding 11 1/4% Senior
Subordinated Notes as if such transactions had occurred at the beginning of
the periods presented. We intend to commence a tender offer for all of our
outstanding 11 1/4% Senior Subordinated Notes. It is impossible for us to
predict the exact aggregate principal amount of the 11 1/4% Senior
Subordinated Notes that may be tendered in the tender offer. If for any
reason the tender offer is not completed, we intend to use the net proceeds
from this offering to redeem $38,500 principal amount of the 11 1/4% Senior
Subordinated Notes at a redemption price of 111.25% of their principal
amount and to repay $58,169 of the term loans under our credit facility.
(h) Represents the adjustment of interest expense, as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
------------------- -----------------
<S> <C> <C>
Estimated interest expense on new borrowings under
the amended credit facility........................ $ 598 $ 2,480
Elimination of interest on the 11 1/4% Senior
Subordinated Notes................................. (3,135) (12,375)
------- -------
Net change....................................... $ (2,537) $ (9,895)
------- -------
------- -------
</TABLE>
The actual level of our interest expense is dependent on several factors,
including the overall level of interest rates and the actual amount of the
11 1/4% Senior Subordinated Notes repurchased, and other indebtedness
repaid, by us.
Borrowings under the amended credit facility bear interest at the eurodollar
rate, plus an applicable percentage, as defined. For purposes of the
offering adjustments, the eurodollar rate is estimated to be 5.6% and 5.3%
for the year ended December 31, 1998 and for the three months ended March
31, 1999, respectively. The rate approximates the average eurodollar rate
during such periods. A 1/8% variance in eurodollar rates would change annual
interest expense by approximately $38. A commitment fee of .5% per annum is
charged on the unused portion of the credit facility.
If we do not complete the tender offer for the 11 1/4% Senior Subordinated
Notes but instead redeem $38,500 principal amount of the 11 1/4% Senior
Subordinated Notes at a redemption price of 111.25% of their principal
amount and repay $58,169 of term loans, the pro forma interest expense would
be $10,945 for the year ended December 31, 1998 and $2,879 for the three
months ended March 31, 1999. For every $10,000 reduction in principal amount
of the 11 1/4% Senior Subordinated Notes repurchased and increase in term
loans repaid, interest expense on an annualized basis for the year ended
27
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED PRO FORMA
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
(IN THOUSANDS)
December 31, 1998 will be higher than that reflected in the pro forma
statement of income by approximately $300.
(i) Represents the adjustment of deferred financing cost amortization, as
follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED YEAR ENDED
MARCH 31, 1999 DECEMBER 31, 1998
--------------------- -------------------
<S> <C> <C>
Amortization of additional deferred financing
costs.............................................. $ 39 $ 155
Elimination of amortization of deferred financing
costs related to the 11 1/4% Senior Subordinated
Notes.............................................. (112) (426)
--- -----
Net change....................................... $ (73) $ (271)
--- -----
--- -----
</TABLE>
(j) The pro forma statements of operations do not reflect non-cash extraordinary
expense of $5,375 and $5,060 for the write-off of previously capitalized
debt issuance costs for the year ended December 31, 1998 and for the three
months ended March 31, 1999, respectively, and a cash extraordinary expense
of $15,515 during both periods for prepayment costs assumed to have been
paid in connection with repurchase of all of the outstanding 11 1/4% Senior
Subordinated Notes. The extraordinary expense is assumed to be recorded net
of a tax benefit of approximately $7,312 and $7,201 during the year ended
December 31, 1998 and the three months ended March 31, 1999, respectively.
The basic and diluted per share amounts of this extraordinary item for the
pro forma periods would be and , respectively, for the year
ended December 31, 1998 and and , respectively, for the three
months ended March 31, 1999. If the tender offer for the 11 1/4% Senior
Subordinated Notes is not completed and we instead redeem $38,500 in
principal amount of the 11 1/4% Senior Subordinated Notes and repay $58,169
of term loans, the non-cash extraordinary expense would be $2,675, the cash
extraordinary expense would be $4,331 and the tax benefit would be $2,452
for the year ended December 31, 1998.
(k) The average shares outstanding and per share amounts give effect to Generac
Portable Products's 1,250-for-1 stock split effective as of May 20, 1999.
28
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
Our selected historical financial information for July 10, 1998 through
December 31, 1998 and for the three months ended March 31, 1999 was derived
from, and should be read in conjunction with, our historical financial
statements, including the related notes, appearing elsewhere in this prospectus.
The selected historical financial information of our predecessor from January 1,
1998 through July 9, 1998, for the three months ended March 31, 1998 and for
each of the years in the two year period ended December 31, 1997 were derived
from, and should be read in conjunction with, the audited historical financial
statements of Generac Corporation's Portable Products Division, including the
related notes, appearing elsewhere in this prospectus. The selected historical
financial information for the years ended December 31, 1995 and 1994 has been
derived from our predecessor's unaudited financial statements and includes, in
the opinion of management, all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the data for such periods. The pro
forma financial information for the year ended December 31, 1998 was derived
from and should be read in conjunction with the "Unaudited Pro Forma
Consolidated Financial Information" appearing elsewhere in this prospectus. The
following table should also be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" appearing
elsewhere in this prospectus.
29
<PAGE>
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
--------------------------------------------------------------------- ---------------
JULY 10, 1998
FOR THE YEAR ENDED DECEMBER 31, JANUARY 1, 1998 THROUGH
-------------------------------------------------- THROUGH DECEMBER 31,
1994(A) 1995 (A) 1996 1997 JULY 9, 1998 1998
------------- ------------- --------- --------- ----------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales................... $ 72.3 $ 104.8 $ 122.6 $ 178.0 $ 139.6 $ 136.9
Gross profit................ N/A N/A 27.3 46.9 35.0 38.6
Selling and service
expense................... N/A N/A 13.9 21.7 16.6 16.9
General and administrative
expense................... N/A N/A 4.4 4.2 2.4 2.9
Intangible asset
amortization.............. N/A N/A -- -- -- 2.5
Direct expenses (b)......... 69.1 98.5
------ ------ --------- --------- ------ ------
Income from operations...... N/A N/A 9.0 21.0 16.0 16.3
Interest expense............ N/A N/A 2.2 2.1 1.4 9.7
Deferred financing cost
amortization.............. N/A N/A -- -- -- .4
Other (income) expense...... N/A N/A -- .2 .1 (.2)
Income taxes (c)............ N/A N/A -- -- -- 2.2
Excess of revenues over
direct expenses (b)....... $ 3.2 $ 6.3
------ ------ --------- --------- ------ ------
Net income.................. N/A N/A $ 6.8 $ 18.7 $ 14.5 $ 4.2
------ ------ --------- --------- ------ ------
------ ------ --------- --------- ------ ------
Basic earnings per common
share..................... $ .40
Basic weighted average
common shares
outstanding............... 10.6
Diluted earnings per common
share..................... $ .39
Diluted weighted average
common shares
outstanding............... 10.7
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. N/A N/A $ 29.3 $ 40.5 $ 68.5 $ 57.5
Total assets................ N/A N/A 53.1 65.3 105.8 332.0
Divisional assets (d)....... N/A $ 57.4
Total debt, including
current portion........... N/A N/A -- -- -- 197.8
Stockholders' equity (e).... N/A N/A 41.6 52.8 81.9 103.3
OTHER FINANCIAL DATA:
EBITDA (f).................. N/A N/A $ 10.5 $ 22.3 $ 16.7 $ 20.0
Depreciation and
amortization.............. $ .9 $ 1.0 1.5 1.5 .8 3.9
Interest expense............ N/A N/A 2.2 2.1 1.4 9.7
Capital expenditures........ 5.9 4.0 2.3 1.4 1.6 3.8
CASH FLOW DATA:
Net cash provided by (used
in) operating
activities................ N/A N/A $ 17.3 $ 8.2 $ (13.6) $ 16.2
Net cash provided by (used
in) investing
activities................ N/A N/A (2.3) (1.4) (1.6) (3.8)
Net cash provided by (used
in) financing
activities................ N/A N/A (14.2) (6.8) 14.8 (11.5)
<CAPTION>
OFFERING PREDECESSOR COMPANY
PRO FORMA ------------- -------------
---------------
FOR THE THREE MONTHS ENDED
FOR THE YEAR
ENDED DECEMBER MARCH 31,
31, ----------------------------
1998 1998 1999
--------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF INCOME DATA:
Net sales................... $ 276.4 $ 59.5 $ 92.9
Gross profit................ 73.8 15.1 24.1
Selling and service
expense................... 33.6 7.0 11.2
General and administrative
expense................... 5.3 1.0 2.0
Intangible asset
amortization.............. 5.3 -- 1.3
Direct expenses (b).........
------ ------ ------
Income from operations...... 29.6 7.1 9.6
Interest expense............ 10.1 .5 5.1
Deferred financing cost
amortization.............. .6 -- .2
Other (income) expense...... (.1) -- --
Income taxes (c)............ 6.6 -- 1.5
Excess of revenues over
direct expenses (b).......
------ ------ ------
Net income.................. $ 12.4 $ 6.6 $ 2.8
------ ------ ------
------ ------ ------
Basic earnings per common
share..................... $ .27
Basic weighted average
common shares
outstanding............... 10.6
Diluted earnings per common
share..................... $ .26
Diluted weighted average
common shares
outstanding............... 10.9
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital............. $ 58.3 $ 77.0
Total assets................ 91.2 370.2
Divisional assets (d).......
Total debt, including
current portion........... -- 214.7
Stockholders' equity (e).... 71.0 105.2
OTHER FINANCIAL DATA:
EBITDA (f).................. $ 7.4 $ 11.6
Depreciation and
amortization.............. $ 7.9 .3 2.2
Interest expense............ 10.1 .5 5.1
Capital expenditures........ 5.4 .5 1.9
CASH FLOW DATA:
Net cash provided by (used
in) operating
activities................ $ (11.1) $ (15.1)
Net cash provided by (used
in) investing
activities................ (.5) (1.9)
Net cash provided by (used
in) financing
activities................ 11.7 16.9
</TABLE>
NOTES TO SELECTED FINANCIAL DATA
(a) During 1995, a dedicated manufacturing facility was completed to accommodate
the portable products business. In connection with its move to this new
facility, Generac Corporation began to separately identify the assets and
liabilities specific to its portable products business which enabled the
preparation of carve out financial statements as of and for the year ended
December 31, 1996, on a basis that includes certain estimates and
allocations that, in the opinion of management, are considered to be
reasonable. Prior to 1996, all financial information of our predecessor was
commingled with that of Generac Corporation and, therefore, Generac Portable
Products's selected data as of and for the years ended December 31, 1995 and
1994 are limited and certain historical financial data are not available.
(b) Direct expenses are those expenses that are directly related to the
revenue-producing activities of the Portable Products Division of Generac
Corporation.
30
<PAGE>
(c) Historically, our predecessor's taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders
elected to be treated as an S Corporation for federal and certain state
income tax purposes. Accordingly, no provision for income taxes is included
in our predecessor's financial statements. Generac Portable Products has
been subject to state and federal income taxes since July 9, 1998.
(d) Divisional assets include property, plant and equipment, cash, accounts
receivable and inventories.
(e) Stockholders' equity represents business unit investment for all predecessor
periods shown and represents common stock, paid-in-capital, retained
earnings, accumulated other comprehensive income and excess of purchase
price over book value of net assets acquired from entities partially under
common control for periods subsequent to the acquisition of the Portable
Products Division of Generac Corporation.
(f) EBITDA represents earnings before interest, taxes, depreciation and
amortization. EBITDA is a widely recognized financial indicator of a
company's ability to service or incur debt. EBITDA is not a measure of
operating performance computed in accordance with generally accepted
accounting principles and should not be considered as a substitute for
operating performance computed in accordance with generally accepted
accounting principles or as a substitute for operating income, net income,
cash flows from operations, or other statements of income or cash flow data
prepared in conformity with generally accepted accounting principles, or as
a measure of profitability or liquidity. In addition, EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA may not
be indicative of the historical operating results of Generac Portable
Products or our predecessor, nor is it meant to be predictive of future
results of operations or cash flows. See also the statement of cash flows
contained within the historical financial statements included elsewhere in
this document.
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SHOULD BE READ IN CONJUNCTION WITH OUR FINANCIAL STATEMENTS, THE
NOTES TO OUR FINANCIAL STATEMENTS, AND THE OTHER FINANCIAL INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS. THE FOLLOWING DISCUSSION INCLUDES FORWARD-LOOKING
STATEMENTS THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. SEE "RISK FACTORS."
REFERENCES TO "GENERAC PORTABLE PRODUCTS" MEANS GENERAC PORTABLE PRODUCTS, INC.
AND ITS SUBSIDIARIES ON A CONSOLIDATED BASIS AND, AS THE CONTEXT REQUIRES,
GENERAC PORTABLE PRODUCTS'S PREDECESSOR. OUR "PREDECESSOR" REFERS TO THE
PORTABLE PRODUCTS DIVISION OF GENERAC CORPORATION.
OVERVIEW
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. In 1998, we generated
$276.4 million in net sales, $29.6 million in pro forma operating income and
$37.0 million in pro forma EBITDA. In 1998, domestic sales of portable
generators represented 52.7% of net sales and domestic sales of pressure washers
represented 36.5% of net sales. We have experienced strong growth from 1996
through 1998 (pro forma), with net sales increasing at a compounded annual
growth rate of 50%, operating income increasing at a rate of 81% and EBITDA
increasing at a rate of 88%.
The table below sets forth our results of operations for the periods
indicated. Included in the table is a presentation of EBITDA which represents
earnings before interest, taxes, depreciation and amortization. EBITDA is a
widely recognized financial indicator of a company's ability to service or incur
debt. EBITDA is not a measure of operating performance computed in accordance
with generally accepted accounting principles and should not be considered as a
substitute for operating performance computed in accordance with generally
accepted accounting principles or as a substitute for operating income, net
income, cash flows from operations, or other statement of operations or cash
flow data prepared in accordance with generally accepted accounting principles,
or as a measure of profitability or liquidity. In addition, EBITDA may not be
comparable to similarly titled measures of other companies. EBITDA may not be
indicative of our historical operating results or our predecessor's, nor is it
meant to be predictive of future results of operations or cash flows. See also
the statement of cash flows contained within the historical financial statements
included elsewhere in this document.
<TABLE>
<CAPTION>
ACQUISITION
PREDECESSOR PRO FORMA
------------------------------------------------------ --------------------------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 % OF SALES 1997 % OF SALES 1998 % OF SALES
------------- ----------- ------------- ----------- ------------- -----------
<CAPTION>
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Net sales.................................. $ 122.6 100.0% $ 178.0 100.0% $ 276.4 100.0%
Gross profit............................... 27.3 22.3 46.9 26.3 73.8 26.7
Operating expenses
Selling and service...................... 13.9 11.3 21.7 12.2 33.6 12.2
General and administrative............... 4.4 3.6 4.2 2.3 5.3 1.9
Intangible asset amortization............ -- -- -- -- 5.3 1.9
------ ----- ------ ----- ------ -----
Total operating expenses................... 18.3 14.9 25.9 14.5 44.2 16.0
Operating income........................... 9.0 7.4 21.0 11.8 29.6 10.7
Net income................................. 6.8 5.5 18.7 10.5 5.8 2.1
EBITDA..................................... 10.5 8.6 22.3 12.5 37.0 13.4
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
ACQUISITION
PREDECESSOR PRO FORMA
-------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
JANUARY 1,
SIX MONTHS SIX MONTHS 1998 SIX MONTHS
ENDED ENDED THROUGH ENDED
JUNE 30, % OF DECEMBER % OF JULY 9, % OF DECEMBER
1997 SALES 31, 1997 SALES 1998 SALES 31, 1997
------------- ----- ------------- ----- ----------- ----- ---------------
<CAPTION>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $ 98.8 100.0% $ 79.2 100.0% $ 139.6 100.0% $ 79.2
Gross profit.................. 24.4 24.7 22.5 28.4 35.0 25.1 22.6
Operating expenses:
Selling and service......... $ 10.8 11.0% $ 10.9 13.7% $ 16.6 11.9% $ 10.9
General and
administrative............ 2.0 2.0 2.2 2.8 2.4 1.7 2.2
Intangible asset
amortization.............. -- -- -- -- -- -- 2.7
----- ----- ----- ----- ----------- ----- -----
Total operating expenses...... 12.8 13.0 13.1 16.5 19.0 13.6 15.8
Operating income.............. 11.6 11.7 9.4 11.9 16.0 11.5 6.8
Net income.................... 10.4 10.5 8.3 10.5 14.5 10.4 (2.4)
EBITDA........................ 12.2 12.3 10.1 12.8 16.7 12.0 10.3
<CAPTION>
COMPANY PREDECESSOR COMPANY
---------------------------- -------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
THREE THREE
JULY 10, 1998 MONTHS MONTHS
THROUGH ENDED ENDED
% OF DECEMBER 31, % OF MARCH 31, % OF MARCH 31, % OF
SALES 1998 SALES 1998 SALES 1999 SALES
----- --------------- ----- ------------- ----- ------------- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... 100.0% $ 136.9 100.0% $ 59.5 100.0% $ 92.9 100.0%
Gross profit.................. 28.5 38.6 28.2 15.1 25.4 24.1 25.9
Operating expenses:
Selling and service......... 13.7% $ 16.9 12.4% $ 7.0 11.8% $ 11.2 12.0%
General and
administrative............ 2.8 2.9 2.1 1.0 1.7 2.0 2.2
Intangible asset
amortization.............. 3.4 2.5 1.8 -- -- 1.3 1.4
----- ------ ----- ----- ----- ----- -----
Total operating expenses...... 19.9 22.3 16.3 8.0 13.5 14.5 15.6
Operating income.............. 8.6 16.3 11.9 7.1 11.9 9.6 10.3
Net income.................... (3.0) 4.2 3.1 6.6 11.1 2.8 3.0
EBITDA........................ 13.0 20.0 14.6 7.4 12.4 11.6 12.5
</TABLE>
We sell our portable generators, pressure washers and other products
primarily to home center chains, mass merchants and warehouse clubs as well as
to independent dealers. Our three largest customers, Home Depot, Sears and
Costco, accounted for approximately 74% of our sales for 1998 and 1997. Our
international sales represented approximately 8% of our total sales in 1998.
Cost of sales consists of the cost of engines and raw materials and costs to
manufacture and package our products. These costs may vary based on the volume
of production for any given period. Historically, physical inventories have been
taken during the fourth quarter to supplement our count procedures during the
year. As a result, cost of sales and gross margins may be affected by
adjustments recorded after physical inventories to reflect variances between
actual and estimated costs. Operating expenses consist of costs incurred to sell
and distribute our products, including volume, promotional and other sales
incentives, shipping, commissions and warranty costs. These costs are impacted
by sales volume as other sales and service support costs, including personnel
and training, research and development costs and general and administrative
costs are usually not impacted by incremental volume changes in the short run.
Our business dates back to 1959, when we were part of Generac Corporation.
In 1997, we became a separately identifiable division of Generac Corporation
with separate financial reporting. The financial statements for 1996 present our
results of operations and cash flows separated from those of Generac
Corporation, based on estimates and allocations made by management. Generac
Portable Products, Inc. was formed on April 29, 1998 as a Delaware corporation.
The primary business activity of Generac Portable Products, Inc. consists of its
indirect ownership of 100% of the limited liability company interests in Generac
Portable Products, LLC, a Delaware limited liability company.
On July 9, 1998, Generac Portable Products, LLC acquired the production,
marketing, sales, engineering, research and development (and in the U.K., Spain
and Germany, importation) and administrative operations of Generac Corporation's
Portable Products Division located at its facilities in Wisconsin, England,
Spain and Germany. The purchase price was $314.2 million in cash, including $8.7
million in fees and expenses, after post-closing adjustments estimated to total
$1.0 million. This was funded primarily through the issuance of $110.0 million
of 11 1/4% Senior Subordinated Notes, borrowings of $94.2 million under a new
bank credit facility and the issuance of $110.0 million of common stock of
Generac Portable Products, Inc., constituting 100% of the outstanding Generac
Portable Products, Inc. common stock, to Beacon, members of management and other
investors.
As a result of purchase accounting in connection with the acquisition,
goodwill of approximately $214 million was recorded, which is being amortized on
a straight-line basis over a period of 40 years. In addition, since the
acquisition, our net income has been affected by an increase in interest expense
as a result of our borrowings in connection with the acquisition, including the
sale of our notes. We intend to apply the net proceeds of this offering,
together with borrowings under an amended credit facility, to repurchase all of
our notes. As a result, an extraordinary expense net of a tax benefit of
approximately $13.4 million will be recorded in the period in which the
repurchase of our notes occurs. If we do not
33
<PAGE>
complete the repurchase of all of our notes, but instead redeem $38.5 million
principal amount of our notes at a redemption price of 111.25% of their
principal amount and repay $58.2 million of term loans, the extraordinary
expense net of a tax benefit will be approximately $4.6 million.
The discussion of our results for the year ended December 31, 1998 combines
the results of the predecessor for the period from January 1, 1998 through July
9, 1998 with our results for the period from July 10, 1998 through December 31,
1998. As a result of the use of purchase accounting for the acquisition, our
results since July 10, 1998 reflect increased goodwill and intangible asset
amortization. In addition, borrowings incurred in connection with the
acquisition have increased interest expense since July 10, 1998. Accordingly,
our results are not comparable with those of our predecessor in all material
respects.
Prior to July 10, 1998, our taxable income was included in Generac
Corporation's taxable income. Generac Corporation and its stockholders elected
to be treated as an S Corporation for federal and state income tax purposes.
Accordingly, no provision for income taxes is included in our financial
statements for periods prior to July 10, 1998. We have been subject to state and
federal income taxes since July 10, 1998.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 (NEW BASIS) COMPARED TO THREE MONTHS ENDED
MARCH 31, 1998 (PREDECESSOR BASIS)
NET SALES. Net sales increased $33.4 million, or 56.1%, to $92.9 million
for the three months ended March 31, 1999 from $59.5 million for the three
months ended March 31, 1998.
Domestic sales of portable generators increased $22.7 million, or 80.5%, to
$50.9 million for the three months ended March 31, 1999 from $28.2 million for
the three months ended March 31, 1998. This increase was reflective of our
customers' continued strong demand following storm activity in 1998.
Additionally, a portion of the increased demand may relate to consumer concerns
relating to possible Year 2000 power outages.
Domestic sales of pressure washers increased $10.2 million, or 43.4%, to
$33.7 million for the three months ended March 31, 1999 from $23.5 million for
the three months ended March 31, 1998. This increase was reflective of expanded
pressure washer product offerings by Sears.
International and other sales increased $.5 million, or 6.4%, to $8.3
million for the three months ended March 31, 1999 from $7.8 million for the
three months ended March 31, 1998. This increase was reflective of increased
sales of service parts and accessories to support both main product categories.
GROSS PROFIT. Gross profit increased $9.0 million, or 59.6%, to $24.1
million for the three months ended March 31, 1999 from $15.1 million for the
three months ended March 31, 1998. This increase was reflective of increased
overall sales as described above and improved gross profit margins due to a
greater mix of higher margin generators, partially offset by higher costs
incurred for certain engines. Gross profit margin increased slightly to 25.9%
for the three months ended March 31, 1999 from 25.4% for the three months ended
March 31, 1998.
OPERATING EXPENSES. Operating expenses increased $6.5 million, or 81.3%, to
$14.5 million for the three months ended March 31, 1999 from $8.0 million for
the three months ended March 31, 1998.
Selling and service expenses increased $4.2 million, or 60.0%, to $11.2
million for the three months ended March 31, 1999 from $7.0 million for the
three months ended March 31, 1998. This increase was directly attributable to an
increase in selling and distribution costs that are impacted by sales volume and
increases in sales force personnel, promotional expenses for new pressure washer
product offerings, and incentives for sales into home centers in Germany.
Selling and service expenses increased to 12.0% of net sales for the three
months ended March 31, 1999 from 11.8% for the three months ended March 31,
1998.
34
<PAGE>
General and administrative expenses increased $1.0 million, or 100.0%, to
$2.0 million for the three months ended March 31, 1999 from $1.0 million for the
three months ended March 31, 1998. This increase was reflective of increases in
personnel to support research and development initiatives, improve the
management information system infrastructure and support certain finance,
accounting and human resource functions which had previously been shared with
Generac Corporation. Additionally, during 1999 we incurred training costs
related to our new business software implementation. General and administrative
expenses increased to 2.2% of net sales for the three months ended March 31,
1999 from 1.7% for the three months ended March 31, 1998.
During the three months ended March 31, 1999, Generac Portable Products
recognized $1.3 million in intangible asset amortization, resulting from the
effects of the acquisition of the Portable Products Division of Generac
Corporation. No amortization expense was recognized during the three months
ended March 31, 1998.
NET INCOME. Net income decreased $3.8 million, or 57.6%, to $2.8 million
for the three months ended March 31, 1999 from $6.6 million for the three months
ended March 31, 1998. This decrease in net income was primarily due to increases
in certain expenses resulting from the effects of the acquisition of the
Portable Products Division of Generac Corporation, including an increase in
interest expense of $4.6 million, intangible asset and deferred financing cost
amortization totaling $1.5 million and a provision for income tax of $1.5
million. The decrease was partially offset by an increase in operating income,
net of intangible asset amortization, of $3.8 million, resulting primarily from
the increase in sales volume. As a percentage of sales, net income decreased to
3.0% for the three months ended March 31, 1999 from 11.1% for the three months
ended March 31, 1998.
EBITDA. EBITDA increased $4.2 million, or 56.8%, to $11.6 million for the
three months ended March 31, 1999 from $7.4 million for the three months ended
March 31, 1998. This increase was due to the increased sales volume and improved
gross margins as described above. As a percentage of sales, EBITDA increased
slightly to 12.5% for the three months ended March 31, 1999 from 12.4% for the
three months ended March 31, 1998.
YEAR ENDED DECEMBER 31, 1998 (PRO FORMA) COMPARED TO YEAR ENDED DECEMBER 31,
1997 (PREDECESSOR BASIS)
NET SALES. Net sales increased $98.4 million, or 55.3%, to $276.4 million
for 1998 pro forma from $178.0 million for 1997.
Domestic sales of portable generators increased $55.5 million, or 61.5%, to
$145.8 million for 1998 pro forma from $90.3 million for 1997. This increase was
reflective of store growth for existing customers and strong overall consumer
demand due to winter and summer storm activity.
Domestic sales of pressure washers increased $31.6 million, or 45.6%, to
$100.9 million for 1998 pro forma from $69.3 million for 1997. This increase was
reflective of store growth for existing customers and expanded pressure washer
product offerings to Home Depot.
International and other sales increased $11.3 million, or 61.4%, to $29.7
million for 1998 pro forma from $18.4 million for 1997. This increase was
primarily due to increased penetration into European home center accounts.
GROSS PROFIT. Gross profit increased $26.9 million, or 57.4%, to $73.8
million for 1998 pro forma from $46.9 million for 1997. This increase was
primarily due to increased sales volume as described above and improved gross
margins. Gross profit margin increased to 26.7% in 1998 pro forma from 26.3% in
1997 as a result of the improved mix of higher margin generator sales and
improved gross margins for international sales offset in part by lower margin
pressure washer sales.
35
<PAGE>
OPERATING EXPENSES. Operating expenses increased $18.3 million, or 70.7%,
to $44.2 million for 1998 pro forma from $25.9 million for 1997.
Selling and service expenses increased $11.9 million, or 54.8%, to $33.6
million for 1998 pro forma from $21.7 million for 1997. This increase was
attributable to increased sales activity as described above combined with
increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets, and increased sales
distribution costs into German home centers. The higher volume, promotional and
other sales incentives which were incurred for home centers were offset by
improved coverage of selling and service support costs; accordingly, as a
percentage of sales, selling and service expenses remained consistent at 12.2%
for 1998 pro forma and 1997.
General and administrative expenses increased $1.1 million, or 26.2%, to
$5.3 million for 1998 pro forma from $4.2 million for 1997. This increase was
required to support the increased sales volume and related production activity.
General and administrative expenses decreased to 1.9% of net sales for 1998 pro
forma from 2.3% for 1997.
During 1998 pro forma, Generac Portable Products recognized $5.3 million in
goodwill and other intangible asset amortization, resulting from the effects of
the acquisition of the Portable Products Division of Generac Corporation. No
amortization expense was recognized during 1997.
NET INCOME. Net income decreased $12.9 million, or 69.0%, to $5.8 million
for 1998 pro forma from $18.7 million for 1997. This decrease in net income was
primarily due to increases in certain expenses resulting from effects of the
acquisition of the Portable Products Division of Generac Corporation including
interest expense; amortization of goodwill, deferred financing costs and other
intangibles assets; and provision for income taxes. These expenses decreased
1998 pro forma net income by an additional $27.1 million (9.8% as a percentage
of sales--a $17.9 million increase in interest expense, a $6.1 million increase
in intangible assets and deferred amortization and a $3.1 million increase in
income tax expense) as compared to 1997. As a percentage of sales, net income
decreased to 2.1% in 1998 pro forma from 10.5% in 1997.
EBITDA. EBITDA increased $14.7 million, or 65.9%, to $37.0 million in 1998
pro forma from $22.3 million for 1997. This increase was primarily due to
increased sales volume and improved gross margins as described above. As a
percentage of sales, EBITDA increased to 13.4% in 1998 pro forma from 12.5% in
1997.
JULY 10, 1998 THROUGH DECEMBER 31, 1998 (NEW BASIS) COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1997 (PRO FORMA)
NET SALES. Net sales increased $57.7 million, or 72.9%, to $136.9 million
for the period July 10, 1998 through December 31, 1998 from $79.2 million for
the pro forma six months ended December 31, 1997.
Domestic sales of portable generators increased $37.5 million, or 75.5%, to
$87.2 million for the period July 10, 1998 through December 31, 1998 from $49.7
million for the pro forma six months ended December 31, 1997. This increase was
primarily due to strong demand from existing customers resulting from summer
storm activity and general increased consumer awareness of the availability,
utility and economic feasibility of the product.
Domestic sales of pressure washers increased $15.6 million, or 75.0%, to
$36.4 million for the period July 10, 1998 through December 31, 1998 from $20.8
million for the pro forma six months ended December 31, 1997. This increase was
reflective of store growth for existing customers and expanded pressure washer
product offerings to Home Depot.
International and other sales increased $4.6 million, or 52.9%, to $13.3
million for the period July 10, 1998 through December 31, 1998 from $.7 million
for the pro forma six months ended December 31, 1997. This increase was
primarily due to increased penetration into European home center accounts.
36
<PAGE>
GROSS PROFIT. Gross profit increased $16.0 million, or 70.8%, to $38.6
million for the period July 10, 1998 through December 31, 1998 from $22.6
million for the pro forma six months ended December 31, 1997. This increase was
primarily due to increased sales volume as described above. Gross profit margin
decreased slightly to 28.2% for the period July 10, 1998 through December 31,
1998 from 28.5% for the pro forma six months ended December 31, 1997 as a result
of reduced gross margins on international sales due to heavy promotional pricing
into German home centers.
OPERATING EXPENSES. Operating expenses increased $6.5 million, or 41.1%, to
$22.3 million for the period July 10, 1998 through December 31, 1998 from $15.8
million for the pro forma six months ended December 31, 1997.
Selling and service expenses increased $6.0 million, or 55.0%, to $16.9
million for the period July 10, 1998 through December 31, 1998 from $10.9
million for the pro forma six months ended December 31, 1997. This increase was
attributable to increased sales volume as described above. This increase was
primarily a result of increased selling and distribution expenses related to the
shift of domestic sales distribution into national home center markets, and
increased sales distribution costs into German home centers. The higher volume,
promotional and other sales incentives which were incurred for home centers were
offset by improved coverage of selling and service support costs; accordingly,
as a percentage of sales, selling and service expenses decreased to 12.4% of net
sales for the period July 10, 1998 through December 31, 1998 from 13.7% for the
pro forma six months ended December 31, 1997.
General and administrative expenses increased $.7 million, or 31.8%, to $2.9
million for the period July 10, 1998 through December 31, 1998 from $2.2 million
for the pro forma six months ended December 31, 1997. This increase was required
to support the increased sales volume described above, and to support certain
finance, accounting and human resource functions which had previously been
shared with Generac Corporation. General and administrative expenses decreased
to 2.1% of net sales for the period July 10, 1998 through December 31, 1998 from
2.8% for the pro forma six months ended December 31, 1997.
NET INCOME. Net income increased $6.6 million for the period July 10, 1998
through December 31, 1998 to $4.2 million from a $2.4 million net loss for the
pro forma six months ended December 31, 1997. This increase was primarily due to
the availability of operating earnings from the increased sales volume to cover
certain fixed charges including interest expense; amortization of goodwill,
deferred financing costs, and other intangibles; and other operating expenses.
As a percentage of sales, net income increased to 3.1% for the period July 10,
1998 through December 31, 1998 from a net loss of 3.0% for the pro forma six
months ended December 31, 1997.
EBITDA. EBITDA increased $9.7 million or 94.2% to $20.0 million for the
period July 10, 1998 through December 31, 1998 from $10.3 million for the pro
forma six months ended December 31, 1997. This increase was due to the increased
sales volume and improved coverage of fixed operating expenses as described
above. As a percentage of sales, EBITDA increased to 14.6% for the period July
10, 1998 through December 31, 1998 from 13.0% for the pro forma six months ended
December 31, 1997.
JULY 10, 1998 THROUGH DECEMBER 31, 1998 (NEW BASIS) COMPARED TO SIX MONTHS
ENDED DECEMBER 31, 1997 (PREDECESSOR)
NET SALES. Net sales increased $57.7 million, or 72.9%, to $136.9 million
for the period July 10, 1998 through December 31, 1998 from $79.2 million for
the six months ended December 31, 1997.
Domestic sales of portable generators increased $37.5 million, or 75.5%, to
$87.2 million for the period July 10, 1998 through December 31, 1998 from $49.7
million for the six months ended December 31, 1997. This increase was primarily
due to strong demand from existing customers resulting from summer storm
activity and general increased consumer awareness of the availability, utility
and economic feasibility of the product.
37
<PAGE>
Domestic sales of pressure washers increased $15.6 million, or 75.0%, to
$36.4 million for the period
July 10, 1998 through December 31, 1998 from $20.8 million for the six months
ended December 31, 1997. This increase was reflective of store growth for
existing customers and expanded pressure washer product offerings to Home Depot.
International and other sales increased $4.6 million, or 52.9%, to $13.3
million for the period July 10, 1998 through December 31, 1998 from $.7 million
for the six months ended December 31, 1997. This increase was primarily due to
increased penetration into European home center accounts.
GROSS PROFIT. Gross profit increased $16.1 million, or 71.6%, to $38.6
million for the period July 10, 1998 through December 31, 1998 from $22.5
million for the six months ended December 31, 1997. This increase was primarily
due to increased sales volume as described above. Gross profit margin decreased
slightly to 28.2% for the period July 10, 1998 through December 31, 1998 from
28.4% for the six months ended December 31, 1997 as a result of reduced gross
margins on international sales due to heavy promotional pricing into German home
centers.
OPERATING EXPENSES. Operating expenses increased $9.2 million, or 70.2%, to
$22.3 million for the period July 10, 1998 through December 31, 1998 from $13.1
million for the six months ended December 31, 1997.
Selling and service expenses increased $6.0 million, or 55.0%, to $16.9
million for the period July 10, 1998 through December 31, 1998 from $10.9
million for the six months ended December 31, 1997. This increase was
attributable to increased sales volume as described above. This increase was
primarily a result of increased selling and distribution expenses related to the
shift of domestic sales distribution into national home center markets, and
increased sales distribution costs into German home centers. The higher volume,
promotional and other sales incentives which were incurred for home centers were
offset by improved coverage of selling and service support costs; accordingly,
as a percentage of sales, selling and service expenses decreased to 12.4% of net
sales for the period July 10, 1998 though December 31, 1998 from 13.7% for the
six months ended December 31, 1997.
General and administrative expenses increased $.7 million, or 31.8%, to $2.9
million for the period July 10, 1998 though December 31, 1998 from $2.2 million
for the six months ended December 31, 1997. This increase was required to
support the increased sales volume described above, and to support certain
finance, accounting and human resource functions which had previously been
shared with Generac Corporation. General and administrative expenses decreased
to 2.1% of net sales for the period July 10, 1998 through December 31, 1998 from
2.8% for the six months ended December 31, 1997.
During the period July 10, 1998 through December 31, 1998, Generac Portable
Products recognized $2.5 million in goodwill and other intangible asset
amortization, resulting from the effects of the acquisition of the Portable
Products Division of Generac Corporation. No amortization expense was recognized
during the six months ended December 31, 1997.
NET INCOME. Net income decreased $4.1 million for the period July 10, 1998
through December 31, 1998 to $4.2 million from $8.3 million for the six months
ended December 31, 1997. This decrease in net income was primarily due to
increases in certain expenses resulting from the effects of the acquisition of
the Portable Products Division of Generac Corporation, including an increase in
interest expense of $8.6 million, intangible asset and deferred financing cost
amortization totaling $2.9 million and a provision for income tax of $2.2
million. The decrease was partially offset by an increase in operating income,
excluding intangible asset amortization, of $9.4 million, resulting primarily
from the increase in sales volume and improved coverage of fixed operating
expenses as described above. As a percentage of sales, net income decreased to
3.1% for the period July 10, 1998 through December 31, 1998 from 10.5% for the
six months ended December 31, 1997.
38
<PAGE>
EBITDA. EBITDA increased $9.9 million or 98.0% to $20.0 million for the
period July 10, 1998 through December 31, 1998 from $10.1 million for the six
months ended December 31, 1997. This increase was due to the increased sales
volume and improved coverage of fixed operating expenses as described above. As
a percentage of sales, EBITDA increased to 14.6% for the period July 10, 1998
through December 31, 1998 from 12.8% for the six months ended December 31, 1997.
JANUARY 1, 1998 THROUGH JULY 9, 1998 (PREDECESSOR BASIS) COMPARED TO SIX
MONTHS ENDED JUNE 30, 1997 (PREDECESSOR BASIS)
NET SALES. Net sales increased $40.8 million, or 41.3%, to $139.6 million
for the period January 1, 1998 through July 9, 1998 from $98.8 million for the
six months ended June 30, 1997.
Domestic sales of portable generators increased $18.0 million, or 44.3%, to
$58.6 million for the period January 1, 1998 through July 9, 1998 from $40.6
million for the six months ended June 30, 1997. This increase was primarily due
to product placements into new home center accounts and strong sales to
customers located in the northeastern United States and Canada following the
winter 1998 ice storm and subsequent prolonged power outages.
Domestic sales of pressure washers increased $16.0 million, or 33.0%, to
$64.5 million for the period January 1, 1998 through July 9, 1998 from $48.5
million for the six months ended June 30, 1997. This increase was primarily due
to product placements into new home center accounts and the expansion of
pressure washer offerings to Home Depot.
International and other sales increased $6.8 million, or 70.1%, to $16.5
million for the period January 1, 1998 through July 9, 1998 from $9.7 million
for the six months ended June 30, 1997. This increase was primarily due to
increased penetration into German home center accounts and increased sales
experienced in the parts and accessories market.
GROSS PROFIT. Gross profit increased $10.6 million, or 43.4%, to $35.0
million for the period January 1, 1998 through July 9, 1998, from $24.4 million
for the six months ended June 30, 1997. This increase was primarily due to
increased sales volume as described above and improved gross margins. Gross
profit margin increased to 25.1% for the period January 1, 1998 through July 9,
1998, from 24.7% for the six months ended June 30, 1997, as a result of the
improved mix of higher margin generator sales versus lower margin pressure
washer sales.
OPERATING EXPENSES. Operating expenses increased $6.2 million, or 48.4%, to
$19.0 million for the period January 1, 1998 through July 9, 1998, from $12.8
million for the six months ended June 30, 1997.
Selling and service expenses increased $5.8 million, or 53.7%, to $16.6
million for the period January 1, 1998 through July 9, 1998 from $10.8 million
for the six months ended June 30, 1997. This increase was attributable to
increased sales volume as described above. This increase was primarily a result
of increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets. Home centers typically
command higher volume, promotional and other sales incentives. Selling and
service expenses increased to 11.9% of net sales for the period January 1, 1998
through July 9, 1998 from 11.0% for the six months ended June 30, 1997.
General and administrative expenses increased $.4 million, or 20.0%, to $2.4
million for the period January 1, 1998 through July 9, 1998 from $2.0 million
for the six months ended June 30, 1997. This increase was required to support
the increased sales volume described above. General and administrative expenses
decreased to 1.7% of net sales for the period January 1, 1998 through July 9,
1998 from 2.0% for the six months ended June 30, 1997.
NET INCOME. Net income increased $4.1 million, or 39.4%, to $14.5 million
for the period January 1, 1998 through July 9, 1998, from $10.4 million for the
six months ended June 30, 1997. This increase was primarily due to increased
sales volume and improved gross margins, offset by increased operating
39
<PAGE>
expenses as described above. As a percentage of sales, net income decreased to
10.4% for the period January 1, 1998 through July 9, 1998, from 10.5% for the
six months ended June 30, 1997.
EBITDA. EBITDA increased $4.5 million, or 36.9%, to $16.7 million for the
period January 1, 1998 through July 9, 1998, from $12.2 million for the six
months ended June 30, 1997. This increase was primarily due to increased sales
volume and improved gross margins, offset by increased operating expenses as
described above. As a percentage of sales, EBITDA decreased to 12.0% for the
period January 1, 1998 through July 9, 1998, from 12.3% for the six months ended
June 30, 1997.
YEAR ENDED DECEMBER 31, 1997 (PREDECESSOR BASIS) COMPARED TO THE YEAR ENDED
DECEMBER 31, 1996 (PREDECESSOR BASIS)
NET SALES. Net sales increased $55.4 million, or 45.2%, to $178.0 million
for 1997 from $122.6 million for 1996.
Domestic sales of portable generators increased $27.7 million, or 44.2%, to
$90.3 million for 1997 from $62.6 million for 1996. This increase was primarily
due to increased sales volume of higher value overhead valve industrial engine
driven generators into Home Depot.
Domestic sales of domestic pressure washers increased $26.2 million, or
60.8%, to $69.3 million for 1997 from $43.1 million for 1996. This increase was
primarily due to the improved sales to Sears and expansion of product offerings
into other home center accounts.
Sales of portable generators to international markets and other items
increased $1.5 million, or 8.9%, to $18.4 million for 1997 from $16.9 million
for 1996.
GROSS PROFIT. Gross profit increased $19.6 million, or 71.8%, to $46.9
million for 1997 from $27.3 million for 1996. This increase was primarily due to
increased sales volume as described above and improved gross margins. Gross
profit margin increased to 26.3% in 1997 from 22.3% in 1996 as a result of the
migration into higher margin portable generator products, improved mix of sales
distribution, continued product cost reductions for both generator and pressure
washer product lines, and overall product cost improvements due to
diversification of worldwide supply arrangements.
OPERATING EXPENSES. Operating expenses increased $7.6 million, or 41.5%, to
$25.9 million for 1997 from $18.3 million for 1996.
Selling and service expenses increased $7.8 million, or 56.1%, to $21.7
million for 1997 from $13.9 for 1996. This increase was attributable to
increased sales volume as described above. This increase was primarily a result
of increased selling and distribution expenses related to the shift of domestic
sales distribution into national home center markets. Home centers typically
command higher volume, promotional and other sales incentives. In addition, $2.8
million in incremental warranty costs were incurred related to the launch of new
pressure washer products. Selling and service expenses increased to 12.2% of net
sales for 1997 from 11.3% for 1996.
General and administrative expenses decreased $.2 million, or 4.5%, to $4.2
million for 1997 from $4.4 million for 1996. This decrease is attributable to a
$.8 million decrease in research and development costs due to the development of
the pressure washer pump in 1996. This decrease was partially offset by an
increase in general and administrative expenses required to support the
increased sales volume described above. General and administrative expenses
decreased to 2.3% of net sales for 1997 from 3.6% for 1996.
NET INCOME. Net income increased $11.9 million, or 175.0%, to $18.7 million
for 1997 from $6.8 million for 1996. This increase was primarily due to
increased sales volume and improved gross margins as described above. As a
percentage of sales, net income increased to 10.5% in 1997 from 5.5% in 1996.
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EBITDA. EBITDA increased $11.8 million, or 112.4%, to $22.3 million in 1997
from $10.5 million in 1996. This increase was primarily due to increased sales
volume and improved gross margins as described above. As a percentage of sales,
EBITDA increased to 12.5% in 1997 from 8.6% in 1996.
LIQUIDITY AND CAPITAL RESOURCES
Our predecessor historically met its working capital needs and capital
expenditure requirements through a combination of operating cash flow and
availability under a revolving credit agreement maintained by, and industrial
revenue bonds supported by, Generac Corporation.
Since the acquisition of the Portable Products Division of Generac
Corporation, our principal sources of liquidity have been cash flow generated
from operations and the $30.0 million revolving credit portion of our credit
facility. See "Description of Certain Indebtedness--The Amended Credit Facility"
later in this Prospectus. Our principal uses of liquidity are debt service
requirements, capital expenditures and working capital.
We incurred substantial indebtedness in connection with the acquisition of
the Portable Products Division of Generac Corporation. Following this
acquisition, we had approximately $209.2 million of combined indebtedness
outstanding. After the offering, we will have approximately $134.7 million of
combined indebtedness outstanding. See "Use of Proceeds." Our ability to make
scheduled payments of principal, to pay the interest on our indebtedness, or to
fund planned capital expenditures, will depend upon our future performance,
which in turn is subject to general economic, financial, competitive and other
factors that are beyond our control. Based upon the current level of operations
and anticipated growth, we believe that future cash flow from operations,
together with available borrowings under our credit facility, will be adequate
to meet our anticipated requirements for capital expenditures, working capital,
interest payments and scheduled principal payments through the expiration of our
revolving credit agreement in 2003. There can be no assurance, however, that our
business will continue to generate sufficient cash flow from operations in the
future to service its debt and make necessary capital expenditures after
satisfying certain liabilities arising in the ordinary course of business. If we
are unable to generate sufficient cash flow, we may be required to delay
necessary capital expenditures, refinance all or a portion of our existing debt,
to sell assets or to obtain additional financing. There can be no assurance that
any such refinancing would be available or that any such sales of assets or
additional financing could be obtained. See "Risk Factors--We Will Continue to
Have Substantial Debt After the Offering Which Could Adversely Affect Us" and
"--We May Not Repurchase All of Our 11 1/4% Senior Subordinated Notes."
Cash provided by operating activities totaled $16.2 million for the period
July 10, 1998 through December 31, 1998 and cash used for operating activities
totaled $13.6 million for the period January 1, 1998 through July 9, 1998. This
increase in cash generated from operations during the second half of 1998
resulted primarily from seasonal factors related to sales of pressure washers in
which our level of receivables is typically highest during the second quarter of
the year as compared to other quarters. Cash provided by operating activities
totaled $8.2 million for the year ended December 31, 1997 as compared to $17.3
million for the year ended December 31, 1996. This decrease in cash generated
from operating activities was primarily a result of a reduction in inventory
during 1996 and the subsequent build-up of inventory during 1997 to support
increased sales activity.
Our capital expenditures were $5.4 million, $1.4 million and $2.3 million in
1998, 1997, and 1996, respectively. The 1998 capital expenditures related
primarily to plant expansions at our facilities, production machinery and
equipment and software. In an economic downturn, we believe we will be able to
adjust the amount spent on capital expenditures without compromising the base
requirements of our operations. We expect to spend approximately $12.0 million
in 1999 for various capital projects, including increased capacity through plant
expansion, cost improvement and quality enhancement initiatives, administrative
offices expansion, and updating management information systems. We spent
approximately
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$1.9 million, $1.7 million and $2.5 million in 1998, 1997 and 1996,
respectively, on research and development.
SEASONALITY
Sales of certain of our products are subject to seasonal variation. Due to
seasonal and regional weather factors, sales of pressure washers and related
working capital requirements are typically higher during the second quarter than
at other times of the year. The residential and commercial construction markets
are sensitive to cyclical changes in the economy.
RAW MATERIAL COSTS AND INFLATION
The rate of inflation over recent years has been relatively low and has not
had a significant effect on our results of operations. Approximately 43% to 47%
of our cost of goods sold relate to small gasoline engines which have not been
subject to material price fluctuations. We purchase steel, copper, paperboard,
and plastics from various suppliers. While all such materials are available from
numerous independent suppliers, commodity raw materials are subject to price
fluctuations.
YEAR 2000
Many currently installed computer systems and software products use two
digits rather than four to define the applicable year. Date-sensitive software
using two-digit years may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in systems failures or miscalculations
causing disruptions of our operations. We are continuing a process of making all
necessary software changes to ensure that we do not experience any loss of
critical business functionality due to the Year 2000 issue. We have adopted and
are implementing a three phase approach of assessment, correction and testing.
The scope of the project includes all internal software, hardware, operating
systems, non-information technology systems, products and assessment of risk to
the business from vendors and other parties' Year 2000 issues. We have completed
the assessment phase relating to our internal software, hardware and other
operating systems and are currently in the correction and testing phases. We are
completing our assessment of the non-information technology systems and the risk
to the business from vendors and other parties. We believe that this formal
assessment (including prioritization by business risk), correction (including
conversions to new software), and testing of necessary changes will minimize the
business risk of Year 2000 from internal systems.
Although we have not yet fully completed our Year 2000 project, management
estimates that approximately 40% of our information sub-systems are currently
Year 2000 ready. The balance of our systems are currently being modified or
replaced, with all significant systems targeted for Year 2000 readiness by
September 1, 1999. The need for contingency plans will be evaluated as this
target date approaches. In most instances, we have replaced, or are in the
process of replacing, older software with new programs and systems, rather than
modifying existing systems solely to become Year 2000 ready. In this regard, we
are currently in the process of installing a new enterprise resource planning
system, which will be Year 2000 compliant. Replacing these systems results in a
significant upgrade in systems and capabilities, as well as providing the
ability to properly interpret Year 2000 data. Although the timing of the system
replacements is influenced by the Year 2000, in most instances these systems
would have been replaced in the normal course of business.
We are currently unable to predict the extent to which Year 2000 issues will
affect vendors with which we do a material amount of business, or the extent to
which we would be vulnerable to the failure of any of these vendors to convert
their systems on a timely basis. We could face a material financial risk if our
customers or suppliers are unable to complete critical Year 2000 readiness
efforts in a timely manner. We are continuing to work with our customers and
suppliers to evaluate our Year 2000 readiness, identify material risks, and
develop solutions so that all critical processes needed to conduct our business
are Year
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2000 ready. As part of the evaluation of the Year 2000 readiness of our
customers and suppliers, we have requested that our customers and suppliers
complete a Year 2000 questionnaire which has facilitated our assessment of the
Year 2000 readiness of relevant third parties. Although we believe that customer
and supplier representations have been made in good faith, there is no assurance
that such representations would be legally binding. In addition, our exposure to
these external risks is partially mitigated by the size and sophistication of
our primary customers, as well as by the diversity of our suppliers and
geographic locations.
We have spent approximately $.9 million during 1998 to upgrade and replace
our systems to ensure Year 2000 readiness. We estimate we will incur additional
costs of approximately $1.8 million to upgrade and replace our systems, the
majority of which will be incurred in fiscal 1999. We believe we are
appropriately reducing the risks of not being Year 2000 compliant through the
identification and remediation process described above. During 1999, we will
continue to evaluate the need for contingency planning as it relates to the
readiness for each business related software and hardware item.
We may experience an increase in our sales of portable generators as a
result of consumer concerns relating to Year 2000 power outages. We cannot
assure you that any sales growth attributable to Year 2000 consumer concerns
will be sustainable or that our sales will not decline in 2000 from 1999 levels.
In addition, we cannot assure you that we will not experience an increase in
returns of our products after January 1, 2000.
EURO CONVERSION
On January 1, 1999, member countries of the European Monetary Union (EMU)
began a three-year transition from their national currencies to a new common
currency, the "Euro". In the first phase, the permanent rates of exchange
between the members' national currencies and the Euro were established and
monetary, capital, foreign exchange, and interbank markets were converted to the
Euro. National currencies will continue to exist as legal tender and may
continue to be used in commercial transactions. By January 2002, Euro currency
will be issued and by July 2002, the respective national currencies will be
withdrawn. We have operations in member countries of the EMU and, accordingly,
have established action plans that are continuing to be implemented to address
the Euro's impact on information systems, currency exchange rate risk, taxation,
contracts, competition and pricing. Based on its current assessment, management
believes that the costs of the Euro conversion will not have a material impact
on our operations, cash flows or financial condition.
FUTURE ACCOUNTING CHANGES
The Financial Accounting Standards Board has issued SFAS No. 133 "Accounting
for Derivative Instruments and Hedging Activities" which is effective for
periods beginning after June 15, 2000. Due to our current limited use of
derivative instruments, the adoption of this statement is not expected to have a
material effect on our financial condition or results of operations.
RISK MANAGEMENT
We are exposed to market risk from changes in interest rates and, to a
lesser extent, foreign exchange rates and commodities. To reduce such risks, we
selectively use financial instruments. All hedging transactions are authorized
and executed pursuant to clearly defined policies and procedures, which strictly
prohibit the use of financial instruments for trading purposes. A discussion of
our accounting policies for derivative financial instruments is included in the
summary of Significant Accounting Policies in Note 2 to the Consolidated
Financial Statements included herein.
We use interest rate swaps to modify our exposure to interest rate
movements. Net interest payments or receipts from interest rate swaps are
recorded as adjustments to interest expense in the consolidated statement of
income on a current basis. Our earnings exposure related to adverse movements in
interest
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rates is primarily derived from outstanding floating rate debt instruments that
are indexed to Eurodollar money rates. A 10% increase/decrease in the average
cost of 7.84% at December 31, 1998 of our debt under our bank credit facility
would result in an increase/decrease in annual pre-tax interest expense of
approximately $356,000 after giving effect to an outstanding interest rate swap.
A 10% increase/decrease in Eurodollar rates would not have a material effect on
the fair value of the interest rate swap as compared to its fair value at
December 31, 1998.
We have manufacturing, sales and distribution facilities throughout Europe
and source raw materials from around the world. Accordingly, we make investments
and enter into transactions denominated in various foreign currencies. We are
primarily exposed to fluctuations in various European currencies. Due to the
relative stability of these currencies, management has not deemed it necessary
to currently pursue a foreign currency hedging strategy. We do not believe that
our foreign currency exposure is material.
Our exposure to commodity price changes relates to certain manufacturing
operations that utilize raw commodities. We manage our exposure to changes in
those prices primarily through our procurement and sales practices. This
exposure is not material to Generac Portable Products.
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BUSINESS
GENERAL
We are a leading designer, manufacturer and marketer of engine-powered tools
for use in both consumer and commercial applications. Our two principal product
lines are portable generators and pressure washers. We estimate that in 1998, as
measured by net sales, Generac Portable Products was:
- the largest U.S. manufacturer of portable generators, with an overall
domestic market share of approximately 29%, and
- the second largest U.S. manufacturer of consumer pressure washers, with an
overall domestic market share of approximately 33%.
Over the past three years, our net sales have grown at a compounded annual
rate of approximately 38%, increasing from $104.8 million in 1995 to $276.4
million in 1998. In both our product categories, we offer one of the broadest
lines of innovative products across all major price points. Our products are
well represented in multiple channels of retail distribution, including the
leading home center chains, mass merchants and warehouse clubs, as well as
independent dealers. We have been the major supplier of portable generators to
Sears, marketed under the Craftsman-Registered Trademark- and
Companion-Registered Trademark- labels, since 1961. We have been the largest
supplier to Sears of consumer pressure washers, marketed under the
Craftsman-Registered Trademark- label, since Sears established itself in that
category in 1994. We are also a core supplier of portable generators and
consumer pressure washers, both marketed under the Generac-Registered Trademark-
label, to Home Depot, the largest and one of the fastest growing retail home
center chains in the United States. We have recently established a supply
relationship with Lowe's, the second largest retail home center chain in the
United States, to supply them with a full line of portable generators.
We believe that our strength in each product category is the result of our
engineering and manufacturing capabilities which emphasize delivering superior
customer value through innovation in product development and focus on product
quality. The strength of our product offerings has enabled us to take advantage
of the strong growth in the engine-powered tools market as well as of favorable
demographic trends. In addition to manufacturing portable generators and
pressure washers, we also manufacture core components for these products,
including alternators and pressure washer pumps. We believe that this strategic
vertical integration enables us to enjoy significant cost advantages over
competitors who source these components from third party suppliers. In addition,
we have been successful in improving manufacturing flexibility and operating
profitability through the strategic integration of our manufacturing processes,
the streamlining of our production processes and the standardization of our
components. We have long-standing customer relationships and effectively utilize
our nationwide service network to build and support our consumer base. These
strengths have enabled us to service our increasingly sophisticated and
demanding customers.
In 1959 Robert Kern founded Generac Corporation, the former parent of
Generac Portable Products, Inc. and an integrated manufacturer of engines and
generators. The first products manufactured by Generac Corporation were
alternators and vehicle-mounted generators, and it began manufacturing the
Generac GN overhead valve industrial engine in 1992. Generac Corporation
(presently known as Generac Power Systems, Inc.) continues to manufacture its
proprietary engine and also manufactures generators for industrial prime power
applications, industrial and residential stand-by power applications, and
recreational vehicle applications. In July 1998, The Beacon Group III--Focus
Value Fund, L.P., certain members of management and certain other investors,
including Robert Kern, acquired the Portable Products Division of Generac
Corporation for a purchase price of $305.5 million. We have exclusive supply
rights until 2007 to Generac Corporation's current family of engines for use in
portable generators and pressure washers. The same dedicated management team
that built the Portable Products Division of Generac Corporation into a leader
in the portable engine-powered tools industry continues to lead our company.
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COMPETITIVE STRENGTHS
We attribute our success to the following competitive strengths:
LEADING MARKET POSITIONS. We are a market leader in our industry, with an
overall domestic market share of approximately 29% in portable generators and
approximately 33% in consumer pressure washers in 1998, based on management
estimates. We believe we were the largest U.S. supplier of portable generators
and the second largest U.S. supplier of consumer pressure washers in 1998, as
measured by net sales. In addition, we are a major supplier for many of the
leading retail home centers, mass merchants and warehouse clubs. We believe that
our broad and innovative product offerings, our commitment to quality, our
reputation for customer service, and our ability to anticipate customer needs
and create growth opportunities have enabled us to achieve both revenue and
earnings growth and our leading market positions.
WELL-ESTABLISHED AND GROWING DISTRIBUTION CHANNELS. For over 35 years, our
portable generators have been sold under the Craftsman-Registered Trademark-
label through Sears' mall-based stores and, more recently, through Sears'
growing chain of freestanding hardware and dealer stores. Over the last five
years, we have continued to expand the distribution of our products marketed
under the Generac-Registered Trademark- name to other leading retailers,
including B.J.'s Wholesale Club, Costco, HomeBase, Home Depot, Lowe's and
Tru-Serv Incorporated (the buying cooperative for True Value hardware stores).
Our products are well represented in retail home centers, mass merchants,
warehouse clubs and hardware stores as well as through our independent dealer
network. We believe that our distribution strategy increases our market
penetration, as we can sell our products into the same geographic market under
different brand names and through different distribution channels. In addition,
since 1995, we have significantly increased our sales to Home Depot, the largest
and one of the fastest growing home center chains in the U.S. We believe that
our strong strategic relationships with leading retailers, such as Sears, Home
Depot and Lowe's, will facilitate continued market share gains as these chains
grow and as hardware channels of distribution continue to consolidate. In
addition, as is the case with our major U.S.-based customers, we expect our
expanding relationships with such leading European retailers as B&Q (U.K.), Der
Praktiker (Germany), Bauhaus (Germany), BRICO (Belgium), Continente (Spain),
Carrefour (France) and Jumbo (Switzerland) to expedite our European sales growth
as these retailers expand throughout Europe.
INNOVATIVE DESIGN AND ENGINEERING EXPERTISE. We attribute much of our
success to our innovative design and engineering expertise. Our product design
efforts are focused on anticipating trends in consumer preferences and on
designing our products to incorporate these preferences with the ultimate goal
of enhancing the utility of our products for the consumer market. Our portable
generators and pressure washers are highly engineered, durable, precision
manufactured products. We have capitalized on our design and engineering
capabilities by deciding to design and manufacture selected key components, such
as our alternator and pressure washer pumps. As a manufacturer of certain
strategic components, we believe that we are better able to control product
quality and therefore offer a superior finished product. We believe our
strategic vertical integration provides us with significant advantages, such as
shorter lead times, lower costs and inventory levels and greater manufacturing
flexibility, which differentiates us from many of our competitors who source
these components from third-party suppliers. In addition, we believe our
engineering and design expertise is readily extendible to new engine-powered
product categories as well.
LOW COST MANUFACTURING OPERATIONS AND COMPONENTS. We believe that our low
cost operations are attributable to our strategic vertical integration and
increased levels of standardization in our manufacturing processes resulting
primarily from the common design and use of standard components across all
product lines. This commonality and our efficient manufacturing processes enable
us to realize savings through reduced inventory levels, greater leverage with
suppliers and improved production flexibility. In 1995, we built our current
facility in Jefferson, Wisconsin, and expanded it in 1997. This facility
incorporates state-of-the-art manufacturing technology and processes and was
custom designed to manufacture both of our major product lines, while allowing
us the flexibility to transfer production
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resources from one product line to another on an efficient and timely basis as
and when demand dictates. We are currently in the process of further expanding
capacity in our Jefferson facility which we expect to complete in the third
quarter of 1999. We believe that we are one of the more vertically integrated
manufacturers of portable generators and consumer pressure washers in the U.S.,
and therefore are more cost-efficient and better able to respond to customer
demands than our competitors. As a result of our highly integrated manufacturing
process, we have increased our total annual production of units from
approximately 120,000 in 1995 to over 675,000 in 1998, a compounded annual
growth rate of 78%.
Our low cost structure is further enhanced by our effective sourcing
strategies based on worldwide supply relationships and low cost components,
including critical items such as gasoline engines manufactured by Briggs &
Stratton and Tecumseh Products, as well as exclusive access to lower cost
engines manufactured by Generac Corporation.
ESTABLISHED BRAND NAME AND REPUTATION. The Generac brand name has a 40-year
heritage in the engine-powered tools industry. We established our leading brand
name primarily by providing high-quality, innovative, reliable products as well
as a high level of customer service and product support. We are a key supplier
to leading home center chains, and have reinforced our reputation with these
chains by tailoring our product offerings and product features to suit their
desire for differentiated product lines.
SUPERIOR CUSTOMER SERVICE AND COMMITMENT TO QUALITY. We support our strong
relationships with retailers through our "program sales approach" which provides
innovative sales and marketing programs to educate end-users and increase
retailers' effectiveness in selling our full line of products. To this end, we
have developed comprehensive category management services, which include
merchandising and providing informational materials, sales associate training
and product support. To ensure after-sale support, we differentiate ourselves by
maintaining a competitive independent dealer network, consisting of over 3,000
outdoor power equipment and service dealers. We believe that we have the most
comprehensive dealer-service network in our industry. We believe that the
independent dealer network serves as a strong incentive for home center and
other retailers to allocate shelf space to our products and reduces end-user
returns. In addition, we maintain strict quality inspection procedures
throughout the manufacturing process. These procedures, which include the
testing of each unit prior to shipment, enable us to ensure consistent quality.
As evidence of our strong position with our customers and our ability to provide
reliable, high quality products, we have been selected as a core supplier of
portable generators and pressure washers to Home Depot, and are the largest
supplier of portable generators and pressure washers to Sears.
EXPERIENCED AND COMMITTED MANAGEMENT TEAM WITH SIGNIFICANT EQUITY
INCENTIVE. We continue to be led by the same dedicated management team from the
Portable Products Division of Generac Corporation that built us into an industry
leader. Our management team has over 100 years of collective experience in the
engine-powered tools industry. Our management team has successfully managed our
rapid revenue and earnings growth through the maintenance of high quality
standards, continuous product innovation and commitment to customer service. Our
senior managers have a substantial financial interest in our continued success
through their direct investment in our common stock and participation in our
stock option program.
BUSINESS STRATEGY
We seek to take advantage of our competitive strengths by pursuing the
following business strategies:
GROWING MARKET SHARE THROUGH ALLIANCES WITH STRONG, FAST-GROWING
RETAILERS. We believe that our strong strategic relationships with Sears, Home
Depot and other leading retailers will position us to gain market share as these
chains grow. For example, Sears and Home Depot together plan to have
approximately 3,500 stores by the year 2002, up from approximately 2,300 in
1998. In addition, these leading retailers are continuing to develop a variety
of store formats to broaden their customer reach. At the same time, many of
these home center retailers are actively expanding beyond the traditional
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do-it-yourself market and into the commercial contractor markets. We intend to
develop products to support these retailers' commercial needs. We believe that
we have the potential to add important new accounts and, upon the completion of
the planned expansion of our Jefferson facility, will have the capacity to add
important new accounts and meet expected demand.
EXPANDING THROUGH STRATEGICALLY MANAGED PRODUCT LINES. Our strategy is to
develop a continuous stream of innovative products that deliver the highest
quality and best overall value in the industry. A driving force behind our
growth in both product categories and our expansion of gross margins is our
ability to develop and deliver new products at entry-level price points and to
then successfully migrate end-users to more sophisticated products with unique
features that are designed around our proprietary components. Our strategy has
been attractive to leading retailers who use this "good, better, best"
merchandising strategy. By offering one of the broadest selections of portable
generators and pressure washers supported by comprehensive sales associate
training, field merchandising support and informative point-of-purchase displays
and packaging, we have become a major supplier to our key customers such as Home
Depot and Sears.
CONTINUING PRODUCT INNOVATION AND DIVERSIFICATION INTO NEW AND RELATED
PRODUCTS. High level engineering capabilities, a dedicated research and
development group and efficient manufacturing operations provide us with
significant resources for continued product innovations as well as new product
development. Our product development program for the portable generator product
line includes:
- mobile back-up power generators,
- manual and automatic transfer switches for home use,
- computer controlled generators, and
- generators for recreational use.
Our product development program for the pressure washer product line
includes:
- a new Dial-A-Cleaner-TM- cleaning system, which allows the user to easily
alternate between multiple cleaning solutions,
- a new commercial line of gasoline engine-powered pressure washers,
- an expanded line of accessories, and
- a pump family for products with higher operating pressures and greater
water flow rates.
We also have new product categories under development. Our research and
development group is continually developing and field-testing various products,
which may be introduced in the future.
CONTINUING COST REDUCTIONS AND PRODUCTIVITY IMPROVEMENTS. We believe that
we can maintain our position as a low cost, high-quality manufacturer by
continuing to take advantage of further opportunities, when appropriate, to
strategically integrate and manufacture components. We manufacture our core
components in the U.S. but have the flexibility to outsource manufacturing
worldwide when such outsourcing can be done efficiently. Our decision to
manufacture selected core components, including pressure washer pumps and
alternators, is an example of our "buy versus make" strategy. This analysis
takes into consideration our technical and manufacturing capabilities as well as
costs and investments in tooling and machinery. Our successful execution of this
strategy enables us to lower costs, better control product quality, shorten
supply lead times, maintain lower inventory levels and achieve greater overall
manufacturing flexibility. We seek to continue to improve operating
profitability and maintain a high standard of product quality by focusing on
reducing costs and developing performance-enhancing product features. In
addition, we seek to continually improve productivity and profitability through
focused industrial engineering efforts and the standardization of components.
PURSUING INTERNATIONAL MARKET OPPORTUNITIES. We offer our portable
generators throughout Europe and have been successful in building long-term
customer relationships with leading retailers such as B&Q (U.K.), Der Praktiker
(Germany), Bauhaus (Germany), BRICO (Belgium), Continente (Spain), Carrefour
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(France) and Jumbo (Switzerland). Our strategy is to accelerate European sales
growth over the next five years by taking advantage of our product line breadth
and brand name recognition to gain shelf space and placements in new and
existing European markets. We expect our European sales growth to come from
continuing to improve our relationships with home center retailers by adding
other product categories including pressure washers and accessories,
engine-driven pumps, engine driven welders and compressors. We believe that, as
the major U.S.-based home center chains expand internationally, there will be a
growing need for their relationship suppliers, such as our company, to establish
a direct presence overseas. We plan to use our U.K. manufacturing base to
support our marketing efforts in Europe, thus realizing enhanced operating
leverage at that facility. We also have the ability to manufacture products for
sale to the U.S. market if demand warrants it.
INDUSTRY OVERVIEW
We compete primarily in the portable generator and pressure washer product
lines of the engine-powered tools industry. We estimate that the U.S. portable
generator market was $492 million in 1998 and that it has grown at a 16%
compounded annual rate from $230 million since 1993. We believe that this market
will continue to grow at a 16% compounded annual rate to reach approximately
$900 million in 2002. In 1998, the U.S. portable generator market consisted of
approximately ten manufacturers, ranging from small regional producers to large
manufacturers with nationwide distribution capabilities. Our research indicates
that sales of the four largest manufacturers accounted for approximately 85% of
the total market in 1998.
We estimate that the U.S. consumer pressure washer market was $300 million
in 1998 and has grown at a 43% compounded annual rate from $50 million since
1993. We believe that this market will grow at a 15% compounded annual rate to
reach approximately $527 million in 2002. In addition, the U.S. commercial
pressure washer market was approximately $120 million in 1998. In 1998, the
total U.S. pressure washer market consisted of approximately ten manufacturers,
ranging from small regional producers to large manufacturers with nationwide
distribution capabilities. While the commercial pressure washer market is still
highly fragmented, the consumer market is consolidating. Our research indicates
that sales of the four largest manufacturers accounted for an estimated 80% of
this market in 1998.
Growth in the portable generator and consumer pressure washer markets is
driven by:
- increasing consumer awareness of product uses,
- momentum of national retailers,
- improving affordability and performance, and
- favorable demographic trends.
INCREASING CONSUMER AWARENESS OF PRODUCT USES. Historically, applications
for portable generators have included running power tools and other appliances
at residential as well as remote construction sites, and providing electrical
power in connection with the use of recreational vehicles and at camping sites.
In recent years, the demand by homeowners for alternative, or back-up, power
sources has driven the growth in the portable generator market. We believe that
this demand has increased in part due to the trend toward utility deregulation,
which has increased the threat of power supply interruptions, and by increasing
requirements of homeowners for back-up power and home security. Although we
believe that storms and other natural disasters heighten consumer awareness of
the benefits of auxiliary or back-up power, our consumer research indicates that
generator sales are not highly seasonal and that natural disasters do not have
an immediate effect on our sales. Our consumer research suggests that one of the
primary reasons for portable generator purchases is in anticipation of power
outages, and we believe that the demand for back-up power will continue to be a
primary factor in the growth of the overall market.
Pressure washers have been used in commercial applications for over 50
years. In recent years, the consumer pressure washer market has evolved, driven
by increased awareness of the utility and the ease of use of the products.
Consumer applications include car and boat washing, patio, deck and driveway
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cleaning, and pre-treating exterior surfaces prior to painting. Common
commercial applications include stripping paint, removing graffiti, farm and
agricultural uses, automotive uses, and factory and warehouse applications.
Consumer demand for pressure washers reflects the considerable increase in home
ownership, real estate values, boat and recreational vehicle ownership and
consumers' desire to preserve the value of, and enhance the appearance of, these
investments. Pressure washers also have a strong appeal to homeowners faced with
increasing demands on their time. The use of pressure washers has evolved from a
primarily commercial application to a residential use. A driving force behind
this has been the "enjoyment" factor: households have purchased the product
because of its convenience and ease of use, and for its ability to make labor
intensive tasks easier.
MOMENTUM OF NATIONAL RETAILERS. In recent years, the emergence of home
center chains and warehouse clubs has enhanced the market and distribution
infrastructure for engine-powered tools, including portable generators and
consumer pressure washers. Independent dealers, commercial and industrial supply
houses and lawn and garden outlets were the historical channels of distribution
for portable generators. These channels were fragmented, and retailers assumed
many costs associated with these products, such as freight, inventory and
handling and in-store product support, which were passed on to consumers by way
of higher prices. In 1994, Sears was the first retailer to offer an effectively
merchandised and well-balanced assortment of consumer pressure washers for
consumer applications. Other leading home center chains and mass merchandisers
began offering consumer pressure washers shortly thereafter, and contributed to
the rapid development of the consumer market. These retailers have required
their portable generator and consumer pressure washer suppliers to provide
broader product lines, continually improve quality, price and product
performance, offer continuous product innovation, and assist in the development
of marketing and merchandising efforts. As a result, these home center chains,
mass merchandisers and warehouse clubs have been instrumental in creating the
consumer awareness and interest which is driving sales of both portable
generators and consumer pressure washers. As these retailers continue to
implement their aggressive expansion plans, portable generator and consumer
pressure washer suppliers will continue to benefit from this growth. In
addition, we believe that the demands upon these suppliers from the home center
chains will lead to further industry consolidation and provide further
advantages to the larger and more established suppliers.
IMPROVING AFFORDABILITY AND PERFORMANCE. Improved affordability combined
with enhanced performance have led to increased demand for portable generators
and pressure washers. Improvements in customer value in portable generators and
pressure washers can be attributed to significant strides in the design,
engineering and manufacturing cost of overhead valve industrial engines and lawn
mower-type gasoline engines. We believe that the most significant enhancement to
customer value has been the development of the overhead valve Generac engine, a
highly engineered product that established new industry standards for the
highest power-to-weight ratio, the lowest noise level and the longest operating
life. In 1998, portable generators equipped with overhead valve industrial
engines represented approximately 30% of the total portable generator market, up
from less than approximately 6% of the market in 1993. By the year 2002, we
believe that approximately 40% of the portable generators sold in the U.S. will
be powered by overhead valve industrial engines.
Gasoline engine-powered pressure washers offer a significant step-up in
cleaning power, durability, engine life and safety features at only a modest
premium to the opening price point of a basic electric pressure washer. The
axial cam pump, introduced in 1994, significantly lowered the manufacturing cost
of a pressure washer in addition to improving quality and overall customer
satisfaction. The shift to axial cam pumps from crank shaft pumps allowed the
use of high-volume, low-cost vertical shaft engines. This innovation has not
only reduced retail prices but has also made this product more convenient to
use, adding to continued growth in the consumer market.
FAVORABLE DEMOGRAPHIC TRENDS. Our consumer research indicates that
approximately 60% of portable generator purchasers are over 45 years old and
approximately 75% are homeowners. According to U.S. census estimates, this
segment of the population is expected to grow by approximately 25% over the next
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six years. This expanding middle-aged segment of the population has historically
been the dominant purchaser of our products. In addition, the U.S. census
projects that there will be over three million new homeowners over the next five
years. We believe these trends clearly indicate that a strong and rapidly
growing consumer base exists for products in our industry.
PRODUCTS
We primarily produce portable generators and pressure washers built around
commercially available lawn mower-type engines and the Generac engine. We
believe that the Generac engine is technically superior to all competitive
engines. This technical superiority is based on its unique lubrication system as
well as on its overall design, which facilitates a more efficient airflow that
allows for a significantly cooler operating temperature and, consequently, a
longer engine life. The Generac engine, to which we have exclusive access for
our portable generators and pressure washers, offers several value-added
features to home, recreational and commercial end-users. Unlike engines
available to our competitors, which offer an operating life of approximately
400-700 hours in side valve configuration and up to 1,000 hours in overhead
valve configuration, the Generac engine has a life expectancy of up to
approximately 3,000 hours. Overhead valve engines with comparable horse power
tend to sell at a premium relative to the Generac engine. This has enabled us to
gain market share by offering a superior value to consumers and a differentiated
product to retailers.
PORTABLE GENERATORS
We believe that we manufacture and market the broadest line of portable
generator products in the industry. Our product offering ranges from
premium-priced models, incorporating advanced operating features and performance
characteristics built around the Generac engine, to value-priced products built
around conventional commercially available lawnmower-type engines. Our generator
line of approximately 25 models ranges from the most basic model of 2,500 watts,
sold at a retail price of approximately $399, to more sophisticated models of
10,000 watts, with enhanced features attractive to the consumer and commercial
markets, sold at a retail price of approximately $1,999.
Our competitive position in the portable generator category is the result of
our state-of-the-art product design and engineering capabilities. Our entire
product line incorporates various value-added features such as low oil shutdown
and high efficiency mufflers that help reduce noise levels. Many of our premium
Generac engine-powered generators are equipped with voltage regulators which
provide superior voltage control and surge capacity for starting large
electrical loads. The Generac engine-powered units also feature lighter weight
for portability, compact size, reduced maintenance and lower fuel consumption.
An electric start is available on certain models and the commercial units
incorporate an idle control device which further reduces noise, greatly extends
engine operating life and additionally reduces fuel consumption. Large fuel
tanks for longer operating times are standard with these units.
The increasing success of the portable generator has been enhanced by our
strategy for growing the existing market and level of sales:
- ADAPT PRODUCTS TO CONSUMER DEMANDS. By drawing on the results of our
consumer research surveys, and further understanding the needs of the
consumer, we have been able to improve the design of our products to best
accommodate consumer demands. Through such techniques as seeking completed
warranty card surveys, employing field personnel and utilizing a toll-free
help line, we have determined that the customer is interested in "extras"
such as extended run-time, higher kilowatts and improved price value. In
response, we have designed and introduced such features as an 8-gallon
fuel tank, a 7,500 watt generator, and a 2,000 watt compact generator.
- SOURCE COMPONENTS AT LOWEST POSSIBLE COST. We have consistently maintained
a strategy of procuring components at the lowest possible cost. For
example, we are able to purchase lawnmower-type/ residential-type quality
engines at similar prices to our competitors and are able to purchase the
Generac engine exclusively at a significant price advantage to technically
similar engines.
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- MAXIMIZE PRICE VALUE POSITIONING. We have been able to offer the consumer
a product at a low cost without compromising quality. For example, we sell
the Generac 4000XL at a price of $699, whereas Honda sells an equivalent
model for $1,299 and does not offer any additional features or
accessories.
- "PROGRAM SELL" A FULL PRODUCT LINE. We have been extremely successful with
our strategy of program selling our full line of products, or "good,
better, best" merchandising, and this has been most effective with
customers with whom we are gradually building a relationship. We began our
relationship with Home Depot in 1994 by selling a limited number of
generators in two of their regions, with limited point-of-purchase
support. As this relationship has expanded to become one of our largest
accounts, we have added a greater variety of generators to a greater
number of regions with an increasing amount of consumer support at the
point-of-purchase. As a result, our sales to Home Depot increased tenfold
from 1995 to 1998.
- DEVELOP A PIPELINE OF NEW PRODUCTS. Part of our growth strategy is to
develop a continuous stream of innovative products that deliver the
highest quality and best overall value in the industry. High level
engineering capabilities and efficient manufacturing operations provide us
with significant resources for continued product innovations as well as
new product development. By having a continuous supply of new designs, we
believe that we are able to stay ahead of our competition while also
satisfying the consumer's desire for improvement.
PRESSURE WASHERS
We believe that we manufacture and market the broadest line of pressure
washer products in the industry. Our product offering ranges from premium-priced
models, incorporating advanced operating features and performance
characteristics built around the Generac engine, to value-priced products built
around conventional commercially available lawnmower-type engines. Our pressure
washer line of approximately 25 models ranges from the most basic electric model
of 1,300 pounds per square inch, sold at a retail price of $179, to more
sophisticated models with the Generac engine of 3,500 pounds per square inch,
sold at a retail price of $1,299. Our engine-driven pressure washers incorporate
various value added features such as thermal overload devices, which prevent
overheating and resulting failures, and an exclusive unloading circuit which
makes starting easier. Our electric pressure washer product line offers reduced
noise levels, a long operating life and an automatic start-stop feature that
protects against damage from overheating or running dry.
Our competitive position in the pressure washer category is also the result
of our state-of-the-art product design and engineering capabilities. Our
proprietary pump, based on different combinations of interchangeable components,
promotes greater manufacturing flexibility and a faster response to evolving
end-user needs. Our company-designed and -manufactured family of pressure washer
pumps provides us with a high quality and cost-effective product, which has
enabled us to effectively differentiate ourselves from the competition and to
provide unique product values to our customers.
Our market for pressure washers has also increased primarily through a
highly successful growth strategy by which we:
- INCORPORATE INSIGHTS FROM CONSUMER RESEARCH. Similar to the strategy for
the portable generator, the use of warranty card surveys, field personnel
and a toll-free help line has allowed us to better understand the
consumers' needs. Through these tactics, we determined that the customer
was interested in features such as more user-friendly designs, greater
cleaning power and more storage space. In response, we have introduced
user-friendly designs such as the Dial-A-Cleaner-TM- cleaning system,
cost-effective pump design changes resulting in higher cleaning power and
components reconfigured for additional storage space. In addition, we have
included a "how to" video in every pressure washer box.
- EXPLOIT PUMP QUALITY, DELIVERY AND COST ADVANTAGE. We believe our
technical expertise in pressure washer pumps provides us with a
significant advantage over our competitors. By incorporating
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common designs and standardizing components, we are able to provide a
family of pumps with increasingly high pressure and flow outputs and
longer lives while maintaining an attractive cost structure. Our
company-designed and -manufactured pumps enable us to significantly
shorten our supply lead times, thereby reducing inventory and increasing
manufacturing flexibility.
- OUTPERFORM THE COMPETITION. We have been extremely successful with our
sales strategy of program selling our full line of products, or "good,
better, best" merchandising, a high level of commitment to the industry
and undivided customer focus. We believe that this level of commitment is
unmatched by any of our competitors and has been highly successful in
increasing our customer base.
NEW AND RELATED PRODUCTS
All of our new product initiatives are based on our core manufacturing and
marketing strengths. In the portable generator market, we plan to leverage our
exclusive access to the Generac engine to introduce high value models at
competitive price points. For example, our product development program for the
portable generator product line includes mobile back-up power generators and
generators for recreational use. Our long-term product strategy also includes
the introduction of computer controlled generators, which we believe will be
part of the norm in the next generation of generators, new products such as
manual and automatic transfer switches for home use and a full line of easy to
use back-up home security packages, and innovations such as higher kilowatt
output equipment for light commercial units.
In the pressure washer category, we recently introduced our first product
designed specifically for the commercial market. This commercial product has
been designed around the same Generac engine used in our portable generators,
providing longer life for trouble-free power compared to competitive offerings.
We believe that as the large home center chains focus increasingly on the
commercial contractor and home construction markets, our established position in
these channels, as well as in various catalogs directed at contractors, should
enable us to participate successfully in this segment. We estimate that the
market for these products was approximately $120 million in 1998. Our product
development program for the pressure washer product line includes a new cleaning
system, a new commercial line of gasoline-powered pressure washers, an expanded
line of accessories, and a pump family for products with higher pounds per
square inch ratings.
Superior design and engineering capabilities and low-cost manufacturing
operations provide us with a significant resource for developing new product
categories. We have identified several new product and business opportunities in
which we can provide added value to end-users and attractive profit margins to
retailers. These include an engine-driven welder, an engine-driven air
compressor and an engine-driven water pump. Our research and development group
is developing and field-testing various products.
ILLUSTRATIVE RELATIONSHIPS
SEARS. Sears is one of the leading retailers in the U.S., with
approximately 1,925 stores currently, and plans to open approximately 570
additional stores by the year 2002. We have been the major supplier of portable
generators to Sears since 1961. Our portable generators at Sears are marketed
under the Craftsman-Registered Trademark- and Companion-Registered Trademark-
labels. We are the largest supplier to Sears of pressure washers, marketed under
the Craftsman-Registered Trademark- label, since Sears established itself in the
consumer pressure washer category in 1994. Our level of retail sophistication
and know-how has been enhanced by our 38-year relationship with Sears. We have
benefitted from the development of exclusive product offerings under the
Craftsman-Registered Trademark- label, high levels of in-store sales support,
well-coordinated merchandising and promotional campaigns and access to Sears'
nationwide service network. In both the portable generator and pressure washer
categories, we have collaborated with Sears to create high-impact in-store
displays that provide both an assortment of products and informative
point-of-purchase materials to help guide end-users in their purchasing
decision. We also offer to Sears other value-added, in-store services such as
sales associate training and product support. We believe that our relationship
with Sears and our ability to affect merchandise presentation at the
point-of-purchase, particularly visual merchandising and packaging, has
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had a strong impact on Sears' portable generator and pressure washer sales and
profitability. We continue to increase our sales through Sears' expanding
hardware distribution channels including its new local hardware stores, dealer
stores and Orchard Supply, a chain of home center stores in California recently
acquired by Sears.
Our longstanding relationship with Sears is typified by our most recent
collaborative effort, which has resulted in the successful introduction of an
exclusive cleaning system family of pressure washer products marketed under the
Dial-A-Cleaner-TM- label.
HOME DEPOT. Home Depot is the largest and one of the fastest growing retail
home center chains in the U.S., with approximately 800 stores currently, and
plans to open approximately 800 additional stores by the year 2002. We are a
"core supplier" to Home Depot of portable generators and pressure washers, both
marketed under the Generac-Registered Trademark- label. A core supplier is one
that has the ability to supply certain minimum dollar levels of a product
category with retail sales in excess of $100 million. In 1995, we sold three
generator models in three of Home Depot's seven regions and no pressure washer
models. Currently, we sell six generator models and two pressure washer models
in all eight of Home Depot's regions. Home Depot has positioned itself as a
leading provider of value in the home center industry. Our broad product line
and program sales approach of providing innovative sales and marketing programs
to educate end-users and increase retailers' effectiveness in selling our full
line of products are highly compatible with Home Depot's "good, better, best"
merchandising strategy. As a result, our sales to Home Depot increased tenfold
from 1995 to 1998.
LOWE'S. We have recently established a supply relationship with Lowe's, the
second largest retail home center chain in the U.S., with approximately 500
stores currently, and plans to continue to aggressively open new stores in the
future. We currently provide Lowe's with a full line of portable generators with
the potential for further penetration in both the portable generator and
pressure washer markets by the year 2000 and beyond. Lowe's caters to the
do-it-yourself market as well as the commercial business customer. As Lowe's has
been successful at positioning itself as a leading provider of increased quality
and effectively merchandised products, it is ideally suited to be a key partner
in our future.
DISTRIBUTION AND MARKETING
Our three largest customers are Home Depot, Sears and Costco, which combined
accounted for approximately 74% of sales in 1998. We also sell to other consumer
home centers and warehouse clubs, as well as outdoor power equipment dealers. In
addition to traditional retail distribution, we offer our products through
national catalog companies such as Northern Hydraulic, Sears Power Tool catalog
and our own "special-order" service.
Over the past five years, we have expanded the distribution of our products,
marketed under the Generac-Registered Trademark- name, to home centers and
warehouse clubs. Drawing from our 38 years of experience with Sears, we offer to
our customers a total category management approach, including value-added,
in-store services such as merchandising, informational materials, sales
associate training and product support. We believe that our ability to affect
merchandise presentation at the point-of-purchase, particularly visual
merchandising and packaging, has had a strong impact on retailers' portable
generator and pressure washer sales and profitability. Major U.S. retail
customers now include B.J.'s Wholesale Club, Costco, HomeBase, Home Depot,
Lowe's, Sears and Tru-Serv Incorporated (the buying cooperative of True Value
hardware stores). We also have successful relationships with leading European
retailers, such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus (Germany), BRICO
(Belgium), Continente (Spain), Carrefour (France) and Jumbo (Switzerland).
Our marketing group directs product development, pricing strategy, consumer
promotion, advertising and package design. We use consumer advertising,
primarily newspaper inserts, to increase awareness of our products and to build
recognition for the Generac brand name. We employ a two-tiered sales force to
sell our products through mass merchants, home centers and independent dealer
channels. Product managers are responsible for developing sales programs
tailored to retailer-specific needs in the home
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center and warehouse club channels. Territory sales managers are responsible for
establishing relationships with new independent dealers, training sales
associates at a store level, and managing and reducing product returns.
Territory sales managers also serve as the primary interface between our
manufacturing operation and our independent dealer network.
We have assembled a comprehensive after-sales service network in North
America for generators and pressure washers comprised of (1) approximately 3,000
dealers, (2) 11 independently owned master parts distributors and (3) a
company-owned fleet of mobile service training vehicles. In today's retail
environment, most independent dealers do not generate the traffic to be
competitive with mass merchants, home centers or warehouse clubs. Nevertheless,
we have made a strategic decision to maintain the viability of the independent
dealer network for the express purpose of providing after-sales service
capability to support our product. We have positioned ourselves not only to
respond to short-term warranty needs but to maintain service capability
throughout the life of the product as well. Many of the master part distributors
have their own sales force, which effectively broadens the availability of our
products and spare parts.
PRODUCT TECHNOLOGY AND DEVELOPMENT
Our ability to serve both retailers and end-users is effectively driven by
the strength of our engineering and product development capabilities,
particularly in alternator design. In 1959, we were the first to exploit a new
technology to completely redesign the alternator, thereby fundamentally
improving the manufacturing economics and performance characteristics of
portable generators. Similar performance improvements have been associated with
the Generac engine and the computer-controlled generator. Our engineers have
assisted in the design of the first V Twin Vanguard engine for Briggs & Stratton
and were instrumental in assisting with the establishment of the joint venture
company of Dihatsu Briggs & Stratton in Japan, which is the manufacturer of the
Vanguard engine.
In the pressure washer category, we have leveraged our engineering strength
to turn areas of potential vulnerability into competitive advantages. For
example, to reduce our dependence on inflexible and often unpredictable overseas
suppliers of highly engineered pressure water pumps, we design and manufacture
our own pressure washer pump. This pump is based on an axial cam design,
resulting in increased responsiveness to market demands and avoiding the costly
air freight expenses incurred in the past.
Our ability to successfully commercialize technical innovations is a core
competency and is expected to continue to contribute to revenue and profit
growth. Today's retail environment demands a continuous flow of new,
value-enhanced offerings to maintain product placements and shelf space
allocations. We have new product categories under development, and our research
and development group is developing and field-testing various products. See
"--Products--New and Related Products."
INTERNATIONAL SALES AND DISTRIBUTION
We have been successful in building long-term customer relationships with
leading European retailers, such as B&Q (U.K.), Der Praktiker (Germany), Bauhaus
(Germany), BRICO (Belgium), Continente (Spain), Carrefour (France) and Jumbo
(Switzerland). To support our growing European generator business, local sales
offices have been established in Manchester, England, Cologne, Germany and
Barcelona, Spain. To service our European customer base more effectively, we
design and assemble our European products in our Cheshire, England facility.
This facility imports alternators, engines and pumps and other components and
assembles portable generators to meet local product requirements and quality
assurance regulations.
Our international operations have contributed approximately 8% of total net
sales for 1998. We plan to focus on international expansion as a key part of our
strategy. Our growth strategy for international operations is to take advantage
of our broad channels of distribution by adding other product categories, such
as generators in a higher output range, engine driven pumps, engine driven
welders, compressors, electric and gasoline pressure washers and an expanded
line of accessories. As we build the Generac name
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in new markets, we can also implement initiatives such as the reduction of low
priced "promotional" based sales, price increases in Germany, and the
manufacturing of products for the U.S. market, which were not as feasible when
our international operations were in a preliminary stage of growth. See
"--Business Strategy--Pursuing International Market Opportunities."
COMPETITION
The U.S. engine-powered tools industry has experienced significant
consolidation over the last 10 to 15 years. The number of competitors in its
product categories has decreased from approximately 20 in 1985 to approximately
ten today, of which only four companies have national distribution capabilities.
We experience substantial competition from these competitors, but we believe
that we are a market leader in each of our core products. In the manufacture and
sale of portable generators, we compete primarily with Coleman Powermate, a
division of The Coleman Company, Inc. and Honda. In the manufacture and sale of
pressure washers, we compete primarily with DeVilbiss Air Power Company, a
subsidiary of Falcon Building Products, Inc., and, to a lesser extent, with
Alfred Karcher GmBH & Co. and Campbell Hausfeld, an affiliate of Scott Fetzer
Company. In general, we compete on the basis of quality, breadth of product
line, product features and price.
MANUFACTURING
We believe that we are one of the more vertically-integrated manufacturers
of portable generators and pressure washers in the U.S. We believe that our
commitment to manufacturing and technological excellence are important to remain
competitive from both a price and product offering perspective.
We operate a state-of-the-art manufacturing facility in Jefferson,
Wisconsin. Completed in January 1995, the original 120,000-square foot facility
was expanded by 57,500 square feet in January 1997. We have recently added
approximately 72,000 square feet to this facility, which brings the total to
250,000 square feet. We expect to have the equipment in place in the second
quarter of 1999 and to complete the expansion of manufacturing capacity in the
third quarter of 1999.
The Jefferson plant incorporates facilities for blow molding of plastic
tanks, robotic welding of cradles, powder coat painting of metal components,
machining, a complete rotor and stator production line, which represents the
latest alternator winding technology available, with an automated varnishing
system, high-volume assembly lines for one to 12 kilowatt portable generators
and 1,300 pounds per square inch to 3,500 pounds per square inch pressure
washers, and on-line testing, packaging and warehousing facilities.
We also own and operate a manufacturing facility in Cheshire, England, which
was built in 1990 and recently expanded from approximately 18,000 square feet to
approximately 45,000 square feet.
AGREEMENTS WITH GENERAC CORPORATION
The following is a brief description of the material provisions of each of
the agreements we have with Generac Corporation. We entered into each of these
agreements at the time we purchased the Portable Products Division from Generac
Corporation.
ENGINE SUPPLY AND NON-COMPETE AGREEMENTS. We are parties to an engine
supply agreement and a non-compete agreement, each with Generac Corporation. We
have used the Generac GN overhead valve industrial engine in certain of our
products since 1992. In 1998, approximately 32% of our sales were attributable
to products that incorporated the Generac engine. While the engine supply
agreement is not a "take or pay" contract, which would require us to pay for
certain minimum annual purchases whether or not we took delivery of the engines,
it provides that Generac Corporation will supply us with certain models of the
Generac engine for use in our pressure washers and consumer portable generators
on an exclusive basis as long as we make minimum annual purchases of Generac
engines. We exceeded the annual minimum purchase exclusivity threshold by
approximately 40% in 1998 and anticipate purchasing approximately twice the
exclusivity threshold in 1999. The engine supply agreement also gives us the
right
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to increase the number of engines purchased based on our forecast requirements.
The initial term of the engine supply agreement is until 2007, with provision
for three year renewals, subject to certain conditions. We also purchase engines
from Briggs & Stratton, Tecumeseh Products and Honda.
Under our non-compete agreement with Generac Corporation, which expires in
2007, Generac Corporation agreed not to manufacture or sell products of a type
made by the Portable Products Division at the time the agreement was entered
into in May 1998, including consumer portable generators, pressure washers and
welders. At the same time, we agreed not to manufacture or sell products of a
type made by Generac Corporation's industrial division at the time the agreement
was entered into, including certain types of generator applications and related
equipment. Also, under our engine supply agreement we must obtain approval from
Generac before we can incorporate the Generac engine into any products of a type
not currently being made by us. Please read "Risk Factors--Our Operating Results
May Suffer if We Cannot Obtain a Sufficient Supply of the Generac Engine or if
We Lose the Exclusive Right to Use the Generac Engine in Our Products" and "--We
May Be Unable to Successfully Develop New Products and Until 2007 We May Be
Restricted by Our Agreements with Generac Corporation from Marketing Certain New
Products" for a discussion of certain risks associated with the terms of these
agreements.
PARTS SUPPLY AGREEMENT. The parts supply agreement provides for the
purchase of certain components manufactured by Generac Corporation that are used
in our products. This agreement allows us to buy these components, primarily
stator assemblies and rotors, from time to time according to Generac
Corporation's established specifications for the components. The number of
components to be sold depends on our estimated requirements for components for
the next four quarters. Generac Corporation is under no obligation to
manufacture or sell more components than are listed in those forecasts. This
agreement has an initial term of three years, with an automatic one-year renewal
period.
GENERATOR SUPPLY AGREEMENT. The generator supply agreement provides for the
purchase of generators manufactured by Generac Corporation. The number of
generators to be sold depends on our estimated requirements for generators for
the next four quarters. Generac Corporation is under no obligation to
manufacture or sell more generators than are listed in those forecasts. This
agreement has an initial term of one year, with automatic one-year renewal
periods.
TRADEMARK LICENSE AGREEMENT. Under the trademark license agreement, Generac
Corporation has granted us a limited exclusive right to use the trademark
"GENERAC PORTABLE PRODUCTS" on our products, packaging and printed materials in
any part of the world where Generac Corporation possesses the right to the
trademark. Generac Corporation also granted us a limited exclusive right to use
the trademark as part of the name of entities under which we conduct our
business of manufacturing, marketing and selling portable consumer portable
generators, pressure washers and engine-driven welders, but not in connection
with any other goods or services. This license will continue in perpetuity
unless a breach occurs, as described in the agreement.
PATENT LICENSE AGREEMENT. Under the patent license agreement, Generac
Corporation has granted us an exclusive right and paid-up license to exercise
the patent rights in the manufacture and sale of pressure washers, portable
consumer generators and portable engine-driven welders. The agreement also
grants us the right to sublicense the patent rights for those uses during the
term of the agreement. This agreement will remain in effect until the expiration
of the last of the patents to expire, or until terminated under the provisions
of the agreement.
EMPLOYEES
As of March 31, 1999, we had 1,136 employees, the majority of whom were
involved in production and distribution, with the balance engaged in technical,
administration, sales and clerical work. Of these 1,136 employees, 410 were
temporary and 1,086 were employed in the United States and 50 in Europe.
Although all of our production employees are covered by a collective bargaining
agreement, none of our employees
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are currently unionized. The collective bargaining agreement expires in October
1999, and we expect to negotiate and renew it when it expires. We believe that
our relationship with our employees is good.
ENVIRONMENTAL MATTERS
Our operations are subject to foreign, federal, state and local laws and
regulations governing, among other things, emissions to air, discharge to
waters, the generation, handling, storage, transportation, treatment and
disposal of waste and other materials and health and safety matters. Many of
these laws and regulations provide for substantial fines and criminal sanctions
for violations. The operation of manufacturing plants entails risks in these
areas and there can be no assurance that we will not incur material costs or
liabilities in the future. In addition, potentially significant expenditures
could be required to comply with changes to environmental, health and safety
laws, regulations or requirements that may be adopted or imposed in the future.
LEGAL PROCEEDINGS
We are involved from time to time in litigation arising out of our business
operations. Most of such litigation involves claims for personal injury,
property damage, breach of contract, claims involving employee relations and
certain administrative proceedings. We believe such claims do not involve a risk
of material loss to our company.
PROPERTIES
We currently own and operate an approximately 250,000 square foot
manufacturing and warehouse facility in Jefferson, Wisconsin and an
approximately 45,000 square foot manufacturing facility in Cheshire, England. We
believe that our manufacturing plants are generally well-maintained, in good
condition and, upon completion of the expansion, are adequate to meet our
present needs. In addition, we have sales offices in Manchester, England,
Cologne, Germany and Barcelona, Spain, and warehousing facilities in Jefferson,
Sullivan and Waukesha, Wisconsin, all of which are leased. We do not believe
that we will have any difficulty renewing any real property lease or finding
alternative sites, if necessary.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age and position of each of the
directors and executive officers of Generac Portable Products.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ---------------------------------------------------------------------------
<S> <C> <C>
Dorrance J. Noonan, Jr........ 46 President, Chief Executive Officer and Director of Generac Portable
Products, LLC; Director of Generac Portable Products, Inc.
Gary J. Lato.................. 39 Chief Financial Officer and Secretary of Generac Portable Products, LLC
James H. Deneffe.............. 54 Senior Vice President--Sales of Generac Portable Products, LLC
Wesley C. Sodemann............ 55 Vice President of Engineering of Generac Portable Products, LLC
Jay C. Sugar.................. 38 Vice President of Operations of Generac Portable Products, LLC
J. David Bramhill............. 43 Vice President of International Operations of Generac Portable Products,
LLC
Robert M. Saeger.............. 53 Vice President of Planning of Generac Portable Products, LLC
Timothy J. Lemont............. 45 Vice President of Marketing of Generac Portable Products, LLC
R. Eugene Cartledge(1)(2)..... 69 Chairman of the Board of Generac Portable Products, Inc.
Eric R. Wilkinson(1).......... 43 President and Director of Generac Portable Products, Inc.
Richard A. Aube............... 30 Secretary and Treasurer of Generac Portable Products, Inc.; Director of
Generac Portable Products, LLC
Thomas A. Commes.............. 56 Director of Generac Portable Products, Inc.
Robert D. Kern(1)(2).......... 72 Director of Generac Portable Products, Inc.
Thomas G. Mendell............. 51 Director of Generac Portable Products, Inc.
R. Ralph Parks(1)(2).......... 55 Director of Generac Portable Products, Inc.
Richard A. Van Deuren(2)...... 69 Director of Generac Portable Products, Inc.
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
DORRANCE J. NOONAN, JR., President, Chief Executive Officer and Director of
Generac Portable Products, LLC and, since our formation in 1998, Director of
Generac Portable Products, Inc., served in various management positions with
Generac Corporation from 1990 to 1998, most recently as Chief Operating Officer
from 1997 to 1998. Prior to joining Generac Corporation, Mr. Noonan was Manager
of Sales and Marketing at Artcraft Industries from 1988 to 1990, a registered
securities broker at Prudential-Bache Securities from 1985 to 1988, and Manager
of International Sales and Marketing at the Perfex Division of McQuay-Perfex
from 1981 to 1985.
GARY J. LATO, Chief Financial Officer and Secretary of Generac Portable
Products, LLC, joined Generac Corporation in 1991, serving as Director of
Finance in 1991 and as Vice President--Finance from
59
<PAGE>
1992 to 1998. Prior to joining Generac Corporation, Mr. Lato held various
positions, including most recently as Senior Audit Manager, at Price Waterhouse
from 1981 to 1991.
JAMES H. DENEFFE, Senior Vice President--Sales of Generac Portable Products,
LLC, held that position at Generac Corporation from 1996 to 1998. Mr. Deneffe
has been with Generac Corporation since 1978, serving as Vice
President--Consumer Products Sales and Marketing from 1982 to 1995 and as Group
Sales Manager from 1978 to 1981.
WESLEY C. SODEMANN, Vice President of Engineering of Generac Portable
Products, LLC, held that position at Generac Corporation from 1996 to 1998. Mr.
Sodemann also served as Chief Engineer of Generac Corporation from 1979 to 1996
and as Associate Engineer from 1965 to 1979.
JAY C. SUGAR, Vice President of Operations of Generac Portable Products,
LLC, held that position at Generac Corporation from 1996 to 1998. Mr. Sugar also
served as Manufacturing Manager of Generac Corporation from 1993 to 1996 and as
Manager of Production and Inventory Control in 1993. Prior to joining Generac
Corporation, Mr. Sugar held various positions at Cadence Design Systems--ASI
Division (1990 to 1992), Data General Corporation (1987 to 1990) and General
Dynamics (1982 to 1985).
J. DAVID BRAMHILL, Vice President of International Operations of Generac
Portable Products, LLC, has held that position since 1997 and served as European
Operations Manager for Generac Corporation from 1992 to 1996. Prior to joining
Generac Portable Products, Mr. Bramhill served in various management and
engineering positions at Heulins Manufacturing, Crewe, Cheshire, England (1991
to 1992) and Rolls-Royce Motor Car Company, Ltd. and Rolls-Royce Aerospace,
Crewe, Cheshire, England (1972 to 1991).
ROBERT M. SAEGER, Vice President of Planning of Generac Portable Products,
LLC, has held that position since 1998. From 1997 to 1998, Mr. Saeger served as
Director of Accounting/Controller with Generac Corporation and also served as
Director of Accounting and Financial Control from 1990 to 1996,
as Accounting Manager from 1983 to 1990 and as Assistant Controller from 1976 to
1983.
TIMOTHY J. LEMONT, Vice President of Marketing of Generac Portable Products,
LLC, joined Generac Portable Products in 1999. Prior to this he was with
Harnischfeger Industries, Inc. from 1985 to 1999, most recently as Vice
President of Business Development for the P&H Mining Equipment Division. In
addition, Mr. Lemont held various positions, including most recently as Senior
Tax Manager at Price Waterhouse in Milwaukee, Wisconsin from 1980 through 1985.
R. EUGENE CARTLEDGE, Chairman of the Board of Generac Portable Products,
Inc. since 1998, was Chairman of the Board and Chief Executive Officer of Union
Camp Corp. from 1986 until his retirement in June 1994. Mr. Cartledge is a
director of Blount, Inc., Chase Brass Industries, Inc., Delta Airlines
Incorporated, Sunoco, Inc., Union Camp Corp. and UCAR International Inc.
ERIC R. WILKINSON, President and Director of Generac Portable Products, Inc.
since our formation in 1998, has been with The Beacon Group, LLC (an affiliate
of The Beacon Group, LP) since 1994, most recently as a managing director. Prior
to joining The Beacon Group, LLC, Mr. Wilkinson was a partner of Apax Partners &
Cie SA, a European private equity firm, from 1989 to 1994 and a partner of Bain
& Company, a strategy consulting firm, from 1983 to 1989. Mr. Wilkinson is a
director of Doctors Health Systems, Intek Information Inc., The Identity Group,
OnCare Inc., National Century Financial Enterprises, Inc., International
Components Corporation and EyeWeb, Inc.
RICHARD A. AUBE, Secretary and Treasurer of Generac Portable Products, Inc.
and Director of Generac Portable Products, LLC, has been with The Beacon Group,
LLC since 1993, most recently as Director. Prior to joining The Beacon Group,
LLC, Mr. Aube was a financial analyst in the Natural Resources Group of Morgan
Stanley & Co. Incorporated. Mr. Aube is a director of Vessels Energy, Inc.
THOMAS A. COMMES, Director of Generac Portable Products, Inc. since 1999,
has been the President, Chief Operating Officer and director of The
Sherwin-Williams Company from 1986 until his retirement in 1999. Mr. Commes is
also a director of KeyCorp, Applied Industrial Technologies, Inc., Pioneer
Standard
60
<PAGE>
Electronics Inc. and Pella Corporation and is a trustee of The Cleveland Clinic
Foundation and Vocational Guidance Services.
ROBERT D. KERN, Director of Generac Portable Products, Inc. since our
formation in 1998, has been Chairman and Chief Executive Officer of Generac
Corporation since its founding in 1959.
THOMAS G. MENDELL, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a managing director of The Beacon Group, LLC since
1994. Prior to joining The Beacon Group, LLC, Mr. Mendell was a partner of
Goldman, Sachs & Co. where he was employed for nineteen years and served as a
member of the firm's Investment Committee and head of GS Capital. Mr. Mendell is
a director of Doctors Health Systems, Hollywood Theaters, Inc., Coherent
Network, Inc., The Identity Group and OnCare Inc.
R. RALPH PARKS, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a limited partner of The Beacon Group, LP since
1998. Prior to joining The Beacon Group, LP, Mr. Parks was a partner of Goldman,
Sachs & Co. where he was employed for 14 years and held several positions
including head of its Investment Banking Services for Europe and Canada.
RICHARD A. VAN DEUREN, Director of Generac Portable Products, Inc. since our
formation in 1998, has been a partner in the law firm of Reinhart, Boerner, Van
Deuren, Norris & Rieselbach, s.c., Attorneys at Law since 1962. Mr. Van Deuren
is a director of Allen Edmonds Corporation, Allrubber Products & Supply Co.,
Arandell Corporation, Ataco Steel Products Corporation, F.W. Busch Corp.,
Campbell, Newman, Pottinger & Associates, Inc., Construction Forms, Inc., Energy
Ventures, Ltd., Foran Spice Company, Inc., Generac Corporation, Marshall W.
Nelson & Associates, Inc., MSI General Corporation, UNICO, INC., Valuation
Research Corporation and Waukee Engineering Company, Inc.
Directors of each of Generac Portable Products, Inc. and Generac Portable
Products, LLC will hold office until his or her successor has been elected and
qualified. Officers of Generac Portable Products, Inc. will be elected by the
board of directors at the annual meeting of stockholders and will serve at the
discretion of the board. Officers of Generac Portable Products, LLC will be
appointed by the board of directors and will serve at the discretion of the
board.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding the compensation paid
during our last completed fiscal year to the Chief Executive Officer and each of
our other four most highly compensated executive officers as of December 31,
1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------- COMPENSATION
OTHER AWARDS
ANNUAL SECURITIES
NAME AND COMPEN- UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) BONUS($) SATION($) OPTIONS (#)
- ------------------------------------------------------ --------- --------- ----------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr................................ 1998 136,500 26,340 -- --
Chief Executive Officer
Gary J. Lato.......................................... 1998 131,250 25,500 -- --
Chief Financial Officer
James H. Deneffe...................................... 1998 131,250 25,500 -- --
Senior Vice President--Sales
Wesley C. Sodemann.................................... 1998 101,923 24,000 47,500 --
Vice President--Engineering
Jay C. Sugar.......................................... 1998 101,923 19,000 47,500 --
Vice President--Operations
<CAPTION>
ALL OTHER
NAME AND COMPEN-
PRINCIPAL POSITION SATION($)(1)
- ------------------------------------------------------ -----------
<S> <C>
Dorrance J. Noonan, Jr................................ 5,287
Chief Executive Officer
Gary J. Lato.......................................... 3,127
Chief Financial Officer
James H. Deneffe...................................... 11,737
Senior Vice President--Sales
Wesley C. Sodemann.................................... 8,758
Vice President--Engineering
Jay C. Sugar.......................................... 1,882
Vice President--Operations
</TABLE>
- ------------------------
(1) All other compensation includes the value of deferred compensation
agreements maintained with the officers of Generac Portable Products, LLC.
62
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the grants of
options made under our stock option plan during fiscal 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------ POTENTIAL REALIZABLE VALUE
NUMBER OF AT ASSUMED ANNUAL RATES OF
SECURITIES PERCENT OF TOTAL STOCK PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE OR FOR OPTION TERM(1)
OPTIONS TO EMPLOYEES BASE PRICE EXPIRATION --------------------------
NAME GRANTED (#) IN FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- -------------------------------- ----------- ----------------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr. ........ 316,220 23.8% $ 10.35 7/8/08 $ 2,062,090 $ 5,236,889
Gary J. Lato.................... 252,976 19.0% 10.35 7/8/08 1,649,672 4,189,511
James H. Deneffe................ 126,488 9.5% 10.35 7/8/08 824,836 2,094,755
Wesley C. Sodemann.............. 126,488 9.5% 10.35 7/8/08 824,836 2,094,755
Jay C. Sugar.................... 126,488 9.5% 10.35 7/8/08 824,836 2,094,755
</TABLE>
- ------------------------
(1) These gains are based on arbitrary compounded rates of growth of stock
prices mandated by the Securities and Exchange Commission of 5% and 10% per
year from the date the option was granted over the full option term. These
rates do not represent our estimate or projection of future prices of
Generac Portable Products, Inc. Common Stock. There is no assurance that the
values that may be realized by any executive officer upon exercise of his
options will be at or near the value estimated in the foregoing table.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the executive
officers named in the Summary Compensation Table concerning the options granted
during fiscal 1998. To date, no such options have been exercised.
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS
SHARES OPTIONS AT FY-END AT FY-END (1)
ACQUIRED ON VALUE ------------------------------ ---------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE
- ------------------------------- --------------- --------------- --------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Dorrance J. Noonan, Jr. ....... -- -- -- 316,220 0
Gary J. Lato................... -- -- -- 252,976 0
James H. Deneffe............... -- -- -- 126,488 0
Wesley C. Sodemann............. -- -- -- 126,488 0
Jay C. Sugar................... -- -- -- 126,488 0
<CAPTION>
NAME UNEXERCISABLE
- ------------------------------- -----------------
<S> <C>
Dorrance J. Noonan, Jr. ....... 0
Gary J. Lato................... 0
James H. Deneffe............... 0
Wesley C. Sodemann............. 0
Jay C. Sugar................... 0
</TABLE>
- ------------------------
(1) Assumes the fair market value of the shares underlying the options is the
same as the exercise price ($10.35 per share) payable for such shares.
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<PAGE>
DIRECTORS' COMPENSATION
Directors of Generac Portable Products do not receive director's fees or
attendance fees. Directors are reimbursed for their reasonable expenses incurred
in connection with attending meetings and performing their duties as directors.
Outside directors are eligible to receive options to purchase Generac Portable
Products, Inc. common stock pursuant to our stock option plan. See "--Stock
Option Plan." Options to purchase 252,975 shares of Generac Portable Products,
Inc. common stock were granted to certain directors during 1998.
BENEFIT PLANS
In connection with the acquisition of the Portable Products Division of
Generac Corporation, we established two non-contributory defined benefit plans
covering substantially all employees: bargaining/ hourly and
non-bargaining/salaried groups. Participants begin vesting after three years of
service and fully vest after seven years of service. The benefits paid under the
salaried plan are based upon years of service and the participant's defined
final monthly compensation. Benefits paid under the hourly plan are based on a
unit amount at the date of termination multiplied by the participants' credited
service. The plans provide for a continuation of participant's years of service
credited with Generac Corporation.
In connection with this acquisition, we also established 401(k) employee
retirement savings plans for the benefit of its employees. We pay all
administrative costs of the plans but make no contributions. There are unfunded
deferred compensation plans for certain key employees.
STOCK OPTION PLAN
In order to attract, retain and motivate selected employees, officers and
directors and to encourage such persons to devote their best efforts to the
business and financial success of Generac Portable Products, we have adopted the
Generac Portable Products, Inc. stock option plan. Under the stock option plan,
stock options to acquire up to 2,023,810 shares, or approximately 16.0% on a
fully diluted basis, of Generac Portable Products, Inc. common stock, in the
aggregate, may be granted under a time-vesting formula at an exercise price
equal to the fair market value of the Generac Portable Products, Inc. common
stock at the date of grant. On July 9, 1998, 1,454,613 options, or approximately
11.5% on a fully diluted basis (assuming the grant of all options), were granted
at an exercise price of $10.35 per share to certain members of management and
certain directors.
The stock option plan is administered by Generac Portable Products, Inc.'s
board of directors. The board of directors will designate which of our employees
shall be eligible to receive awards under the stock option plan, and the amount,
timing and other terms and conditions applicable to such awards. As of December
31, 1998, approximately 4.5% of the outstanding shares of such stock were
reserved for future grants. Options are exercisable in accordance with the terms
established by the board of directors.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information as of March 31, 1999,
with respect to the beneficial ownership of Generac Portable Products, Inc.'s
common stock by (1) each person who beneficially owns more than 5% of such
shares; (2) each selling stockholder; (3) each of our directors; (4) each of the
executive officers named in the Summary Compensation Table; and (5) all
executive officers and directors of Generac Portable Products as a group. Unless
otherwise indicated, the address for each of our officers and directors is c/o
Generac Portable Products, Inc., 1 Generac Way, Jefferson, Wisconsin 53549.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO NUMBER OF OWNED AFTER
OFFERING(1) SHARES OFFERING(1)
----------------------- BEING ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED(8) NUMBER PERCENT
- ------------------------------------------------------------ ---------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
5% HOLDERS:
The Beacon Group III--Focus Value Fund, L.P.(2)(7)........ 5,872,727 55.3%
California Public Employees' Retirement System(3)(7)...... 2,414,773 22.7%
Capital d'Amerique CDPQ Inc.(4)(7)........................ 714,773 6.7%
DIRECTORS:
R. Eugene Cartledge(5)(7)................................. 57,955 *
Thomas A. Commes.......................................... -- --
Robert D. Kern(7)......................................... 96,591 *
Thomas G. Mendell......................................... 5,872,727(6) 55.3%
R. Ralph Parks............................................ -- --
Richard A. Van Deuren(7).................................. 9,659 *
Eric R. Wilkinson......................................... 5,872,727(6) 55.3%
OFFICERS:
Dorrance J. Noonan, Jr.................................... 96,591 *
Gary J. Lato.............................................. 96,591 *
James H. Deneffe.......................................... 96,591 *
Wesley C. Sodemann........................................ 2,415 *
Jay C. Sugar.............................................. 2,415 *
All directors and executive officers as a group
(15 individuals)(7)..................................... 463,637 4.4%
OTHER SELLING STOCKHOLDERS:
BT Capital Investors, L.P................................. 482,955 4.5%
Task Holdings Limited..................................... 386,363 3.6%
Squam Lake Investors III, L.P............................. 92,728 *
Sunapee Securities, Inc................................... 3,864 *
Hamilton Lane Private Equity Partners, L.P................ 61,035 *
Hamilton Lane Equity Fund PLC............................. 132,148 1.2%
</TABLE>
- ------------------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
SEC. In computing the number of shares beneficially owned by a person and
the percentage ownership of that person, shares of common stock subject
to options or warrants held by that person that are currently exercisable
or will become exercisable within 60 days are deemed outstanding, while
such shares are not deemed outstanding for purposes of computing the
percentage ownership of any other person. Unless otherwise indicated in
the footnotes below, the persons and the entities named in
65
<PAGE>
the table have sole voting and investment power with respect to all
shares beneficially owned, subject to community property laws where
applicable.
(2) The address of The Beacon Group III--Focus Value Fund, L.P. is 399 Park
Avenue, New York, New York 10022.
(3) The address of California Public Employees' Retirement System is Lincoln
Plaza--400 P Street, P.O. Box 942707, Sacramento, California 94229.
(4) The address of Capital d'Amerique CDPQ Inc. is 1981, Avenue McGill
College, 9th Floor, Montreal, Quebec H3A3C7.
(5) 28,977 shares are owned by the Cartledge Family Limited Partnership, of
which Messr. Cartledge is the .
(6) Messrs. Wilkinson and Mendell may be deemed to share beneficial
ownership of shares of common stock owned of record by The Beacon Group
III--Focus Value Fund, L.P. by virtue of their status as partners of The
Beacon Group, an affiliate of the general partner of The Beacon Group
III--Focus Value Fund, L.P. Messrs. Wilkinson and Mendell disclaim
beneficial ownership of the shares of common stock owned by The Beacon
Group III--Focus Value Fund, L.P. The business address of Messrs.
Wilkinson and Mendell is c/o The Beacon Group III--Focus Value Fund,
L.P., 399 Park Avenue, New York, New York 10022.
(7) Does not include 5,872,727 shares as to which Messrs. Wilkinson and
Mendell may be deemed to have beneficial ownership by virtue of their
indirect control of The Beacon Group III--Focus Value Fund, L.P. See
"Management--Directors and Executive Officers."
(8) As part of the underwriters' over-allotment option, each of the Beacon
Group III--Focus Value Fund, L.P., California Public Employees'
Retirement System, Capital d'Amerique CDPQ Inc., BT Capital Investors,
L.P., Squam Lake Investors III, L.P., Sunapee Securities, Inc., Hamilton
Lane Private Equity Partners, L.P., Hamilton Lane Private Equity Fund,
PLC and non-executive directors Messrs. Cartledge, Kern and Van Deuren
have agreed to sell up to an aggregate shares of common stock on a
pro rata basis to the underwriters for the purpose of covering
over-allotments at the public offering price set forth on the cover page
of this prospectus, less underwriting discounts and commissions. If the
underwriters' over-allotment option is exercised in full, after the
offering, The Beacon Group III--Focus Value Fund, L.P. will beneficially
own shares or % of the common stock, California Public Employees'
Retirement System will beneficially own shares or % of the common
stock, Capital d'Amerique CDPQ Inc. will beneficially own shares or
% of the common stock, BT Capital Investors, L.P. will own shares
or % of the common stock, Task Holdings Limited will beneficially own
shares or % of the common stock, Squam Lake Investors III, L.P.
will beneficially own shares or % of the common stock, Sunapee
Securities, Inc. will beneficially own shares or % of the common
stock, Hamilton Lane Private Equity Partners, L.P. will beneficially own
shares or % of the common stock, Hamilton Lane Private Equity
Fund, PLC will own shares or % of the common stock, Messr.
Cartledge will own shares or % of the common stock, Messr. Kern
will own shares or % of the common stock and Messr. Van Deuren
will own shares or % of the common stock.
66
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
PRINCIPAL STOCKHOLDERS' AGREEMENT
We are party to a stockholders' agreement with The Beacon Group III--Focus
Value Fund, L.P., and certain other of our stockholders which was entered into
for the purposes, among others, of establishing the composition of our board of
directors and limiting the manner and terms by which the common stock owned by
the stockholders may be transferred. The provisions of the stockholders'
agreement, except for the registration rights described below, generally
terminate upon the occurrence of a registered underwritten public offering of
common stock having an aggregate offering price of at least $100 million. The
following summary of the material terms of the stockholders' agreement is not
intended to be exhaustive and is qualified in its entirety by reference to the
provisions of the stockholders' agreement.
ELECTION OF DIRECTORS. Until the occurrence of a public offering as
described above or at the time Beacon ceases to hold 25% or more of the
outstanding shares of common stock, each stockholder has agreed to vote all of
its shares so that:
- at least four members of the board are designated by Beacon;
- our chief executive officer is a member of the board;
- the removal from the board, with or without cause, of any Beacon-
designated director is only at Beacon's written request; and
- in the event that any Beacon-designated director for any reason ceases to
serve as a member of the board during his or her term of office, the
resulting vacancy is filled by an individual designated by Beacon.
RESTRICTIONS ON TRANSFER OF SHARES. Each minority stockholder has agreed
that it will not sell or transfer any interest in any of their shares except
pursuant to a public sale or as otherwise permitted or required in accordance
with the terms of the stockholders' agreement.
FIRST OFFER RIGHT. If a minority stockholder desires to sell any of its
shares other than to a permitted transferee or pursuant to a public sale, then
we have the right to elect to purchase all, but not less than all, of the
offered shares on substantially the same terms and conditions as the proposed
sale. We may elect to assign our right to purchase the offered shares to the
non-selling stockholders on a pro rata basis. In the event we make an assignment
and any non-selling stockholder fails to elect to participate in the selling
stockholder's sale of shares, the participating stockholders each have the right
to purchase such non-participating stockholder's pro rata share of the
unsubscribed portion of offered shares.
If we or, in the event we make an assignment, the non-selling stockholders
do not elect to purchase all of the offered shares, the selling stockholder is
free to sell the offered shares to any person other than us at a price no less
than and upon terms and conditions no more favorable than the price, terms and
conditions set forth in the selling stockholder's notice to us and each other
stockholder.
TAG-ALONG RIGHTS. In the event of a sale of its shares by a minority
stockholder to a third party purchaser, each non-selling minority stockholder
has the right to participate in the proposed sale of shares in an amount up to
such non-selling stockholder's pro rata share of shares, on the same terms and
conditions as the proposed sale.
If Beacon desires to sell any of its shares other than to a permitted
transferee or pursuant to a public sale, each non-selling stockholder has the
right to participate in the sale by Beacon of its shares, in a percentage of
such non-selling stockholder's shares equal to the same percentage of Beacon's
shares being sold by Beacon, at the same price, on the same terms and conditions
as the proposed sale.
To the extent any of the non-selling stockholders exercises its tag-along
rights, the number of shares proposed to be sold by Beacon or the selling
stockholder, as the case may be, will be correspondingly reduced. If any
non-selling stockholder fails to elect to participate in Beacon's or the selling
stockholder's
67
<PAGE>
sale, Beacon or the selling stockholder, as the case may be, will give notice of
such failure to the remaining non-selling stockholders who did so elect. Each
participating stockholder shall have the right to sell its pro rata share of the
unsubscribed portion of shares proposed to be sold.
LIMITATION ON CERTAIN ACTIONS BY GENERAC PORTABLE PRODUCTS, INC. Without
the prior affirmative vote of the stockholders who hold at least a majority of
the outstanding common stock, we have agreed not to:
- adopt or effect any plan of sale, merger, consolidation, dissolution,
reorganization or recapitalization;
- offer for sale or sell all or substantially all of our assets;
- amend or restate our certificate of incorporation or our bylaws other than
in conformity with the stockholders' agreement;
- redeem any shares of our capital stock other than pursuant to the
stockholders' agreement or on a pro rata basis among all stockholders; or
- change the type of business activities in which we are engaged.
SALE OF GENERAC/COME-ALONG RIGHT. Each stockholder has agreed, if the board
and the stockholders holding at least a majority of the outstanding shares
approve a sale of us, to vote for such sale and to take all actions, at our
expense, reasonably requested by us in order to consummate such sale.
PARTICIPATION/PREEMPTIVE RIGHTS. We have agreed to grant to each
stockholder the right to purchase all or any part of such stockholder's
proportionate percentage of any future eligible offering.
REGISTRATION RIGHTS. Beacon and certain other of our stockholders are
entitled, under the stockholders' agreement, to certain rights with respect to
the registration of their shares of common stock under the Securities Act of
1933 following an initial public offering of our common stock. These
registration rights do not terminate upon the occurrence of a registered
underwritten public offering of common stock having an aggregate offering price
of at least $100 million. Please see "Description of Capital Stock--Registration
Rights" for additional information.
EMPLOYEES STOCKHOLDERS' AGREEMENT
Employees who own our stock are also subject to an employee stockholders'
agreement. This agreement restricts their right to transfer their stock except
with the written consent of Beacon or otherwise in compliance with the terms of
the agreement. In addition, under certain conditions, this agreement will
require them to sell a pro rata portion of their stock in a transaction in which
Beacon is selling its stock. This agreement also provides the employees with
tag-along rights if Beacon sells its stock and provides us the right to purchase
stock held by terminated employees or employees that have filed for personal
bankruptcy or have been declared insolvent.
AGREEMENTS WITH GENERAC CORPORATION
We are currently party to several agreements with Generac Corporation which
we entered into at the time we purchased the Portable Products Division of
Generac Corporation. Robert D. Kern, one of our directors, is the Chairman and
Chief Executive Officer of Generac Corporation. For more information regarding
the these agreements, please read "Business--Agreements with Generac
Corporation--Engine Supply and Non-Compete Agreements" in this prospectus.
68
<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
THE AMENDED CREDIT FACILITY
Generac Portable Products, LLC, our operating company, has entered into a
credit facility with a group of lenders and Bankers Trust Company, as
administrative agent and arranger, providing for up to $115.0 million of loans.
On , 1999 (the "Amendment Date"), the credit facility was amended to
provide for up to $155.0 million of loans. After amendment, the credit facility
consists of (1) a $45.0 million senior secured term loan facility (the "A Term
Loan Facility"), (2) a $40.0 million senior secured term loan facility (the "B
Term Loan Facility"), (3) a $30.0 million senior secured term loan facility (the
"C Term Loan Facility" and together with the A Term Loan Facility and the B Term
Loan Facility the "Term Loan Facilities"), and (4) a $40.0 million senior
secured revolving credit facility. The revolving credit facility will have a
letter of credit sublimit of $5.0 million.
USE OF PROCEEDS; MATURITY. Proceeds of the A Term Loan Facility and the B
Term Loan Facility were used to fund, in part, Generac Portable Products, LLC's
acquisition of the Portable Products Division of Generac Corporation and pay the
related fees and expenses. Proceeds of the C Term Loan Facility will be used to
finance, in part, the repurchase of our 11 1/4% Senior Subordinated Notes, and
to pay the fees and expenses owing in connection with such redemption. Proceeds
of the revolving credit facility will be used for general corporate and working
capital purposes. The $45.0 million term loan facility will mature on December
31, 2003. The $40.0 million term loan facility will mature on June 30, 2005. The
$30.0 million term loan facility will mature on June 30, 2006. The $45.0 million
term loan facility provides for amortization of $2.5 million in the first year,
$6.25 million in the second year, $7.5 million in the third year, $10.0 million
in the fourth year, $12.5 million in the fifth year and $6.25 million in the
sixth year. The $40.0 million term loan facility provides for amortization of $2
million in the first five years and amortization of $19 million in each of the
sixth and seventh years. The $30.0 million term loan facility provides for
amortization of $1.8 million in the first six years following the Amendment Date
and amortization of $28.2 million in the seventh year following the Amendment
Date. The revolving credit facility will mature on December 31, 2003.
PREPAYMENT; REDUCTION OF COMMITMENTS. Borrowings under the credit facility
are required to be prepaid, subject to certain exceptions, from:
- 100% of the net proceeds of asset sales by our operating company and its
subsidiaries (subject to exceptions for reinvestment of certain asset sale
proceeds and certain DE MINIMIS exceptions),
- 100% of the net proceeds from certain issuances of debt obligations by us
and our subsidiaries,
- 100% of the first $50.0 million and 75% of the balance, if any, of net
proceeds from issuances of equity by us and our subsidiaries,
- certain percentages of annual excess cash flow, and
- 100% of the net proceeds from certain insurance recovery events of us and
our subsidiaries.
Voluntary prepayments are generally permitted without premium or penalty. In
the case of voluntary prepayment of eurodollar borrowings other than on the last
day of the relevant interest period, however, the lenders' costs must be
reimbursed. Voluntary prepayments under the term loan facilities will be
allocated among those facilities on a pro rata basis. The amounts so allocated
will be applied to reduce future scheduled amortization payments on a pro rata
basis.
INTEREST. The interest rates under the $45.0 million term loan facility and
the revolving credit facility are based, at the option of our operating company,
on either a eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per
annum. The interest rate under the $40.0 million term loan facility is based, at
the option of our operating company, on a eurodollar rate plus 2.75% or a base
rate plus 1.75%. The interest rate under the $30.0 million term loan facility is
based, at the option of our operating company, on a
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<PAGE>
eurodollar rate plus 2.50% or a base rate plus 1.50%. A commitment fee of 0.50%
per annum will be charged on the unused portion of the credit facility. The
interest rate margins and commitment fees will be reduced in the event of
reductions in our consolidated debt to EBITDA ratio.
COLLATERAL AND GUARANTEES. The credit facility is guaranteed by General
Portable Products, GPPW, Inc., all of Generac Portable Products, LLC's existing
and future domestic subsidiaries and, upon the occurrence of certain events,
GPPD, Inc. Subject to certain exceptions, the credit facility is secured by a
first priority lien on substantially all of the properties and assets of the
company, our operating company, each direct or indirect subsidiary of our
operating company, GPPW, Inc. and, upon the occurrence of certain events, GPPD,
Inc. GPPW, Inc. and GPPD, Inc. are wholly owned subsidiaries of our company.
COVENANTS. The credit facility contains covenants restricting the ability
of our operating company and its subsidiaries to, among others:
- incur additional debt,
- engage in mergers, acquisitions and asset sales,
- engage in sale-leaseback transactions,
- declare dividends and make other restricted payments,
- prepay, redeem or purchase debt or amend existing debt agreements,
- engage in transactions with affiliates,
- make investments,
- incur liens, and
- make capital expenditures.
FINANCIAL COVENANTS. We are required to comply with financial covenants
with respect to (a) a maximum leverage ratio, (b) a minimum interest coverage
ratio and (c) a minimum EBITDA test (as defined in the credit facility
agreement). The leverage ratio, which is the ratio of indebtedness to EBITDA on
a consolidated basis, was required under the credit facility to be no more than
6.7 to 1 at March 31, 1999. At such date, our actual leverage ratio was 5.22 to
1. The interest coverage ratio, which is the ratio of EBITDA to interest expense
on a consolidated basis, was required under the credit facility to be no less
than 1.55 to 1 at March 31, 1999. At such date, our actual interest coverage
ratio was 2.04 to 1. EBITDA, which was required under the credit facility to be
at least $31.0 million at March 31, 1999, was actually $41.1 million at that
date.
EVENTS OF DEFAULT. Events of default under the credit facility include:
- our operating company's failure to pay principal when due or interest
after a grace period,
- material breach of any covenant, representation or warranty contained in
the loan documents,
- customary cross-default and cross-acceleration provisions,
- certain events of bankruptcy, insolvency or dissolution of Generac
Portable Products, Inc. or its subsidiaries,
- certain judgments against Generac Portable Products, Inc. and its
subsidiaries or their assets,
- the actual or asserted invalidity of security documents or guarantees of
Generac Portable Products, Inc., our operating company or its
subsidiaries, and
- a change in control of Generac Portable Products, Inc. or our operating
company.
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The preceding discussion of the material provisions of the credit facility
is not intended to be exhaustive and is qualified in its entirety by reference
to the provisions of the credit facility.
THE 11 1/4% SENIOR SUBORDINATED NOTES
On July 2, 1998, Generac Portable Products, LLC and GPPW, Inc. issued $110
million of their 11 1/4% Senior Subordinated Notes due 2006, which are
guaranteed by Generac Portable Products, Inc. Interest on the notes is payable
semi-annually on January 1 and July 1. We intend to make an offer to repurchase
all of the outstanding notes with the net proceeds from this offering together
with borrowings under the amended credit facility. In connection with the tender
offer, we will seek to eliminate most of the covenants in the indenture relating
to these notes.
The indenture contains covenants that, among other things, limit our ability
and the ability of our subsidiaries to incur indebtedness, pay dividends, prepay
subordinated indebtedness, repurchase capital stock, engage in transactions with
stockholders and affiliates, create liens, sell assets and engage in mergers and
consolidations. If the tender offer is not completed we will remain subject to
these covenants.
The notes are redeemable, at our option, in whole or in part, at any time on
or after July 1, 2002 and prior to maturity, upon not less than 30 nor more than
60 days' prior notice, at a redemption price of 107.625% of the principal amount
of the notes at maturity, plus accrued and unpaid interest, declining to 100% of
the principal amount of the notes, plus accrued and unpaid interest.
In addition, at any time prior to July 1, 2001, we may redeem up to 35% of
the principal amount of the notes with the proceeds of one or more public equity
offerings, as a whole or in part, at a redemption price of 111.25% of the
principal amount of the notes, plus accrued and unpaid interest.
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DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
Our authorized capital stock consists of 30,000,000 shares of common stock,
with a $0.01 par value per share. As of March 31, 1999, there were 10,625,000
shares of common stock outstanding, which were held by 18 stockholders of
record. On May 20, 1999, our certificate of incorporation was amended to
increase the authorized capital stock of Generac Portable Products to 30,000,000
shares of common stock and a 1,250 for 1 stock split occured which increased the
number of shares of 8,500 shares of common stock issued and outstanding to
10,625,000 shares.
The holders of common stock are generally entitled to one vote for each
share held of record on all matters to be voted upon by the stockholders. There
are no cumulative voting rights. The holders of common stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time by
the board of directors out of funds legally available for that purpose. In the
event of a liquidation, dissolution or winding up of Generac Portable Products,
Inc., the holders of common stock are entitled to share ratably in all assets
remaining after payment of liabilities. The common stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions applicable to the common stock.
PREFERRED STOCK
Our board of directors is authorized to issue 2,000,000 shares of preferred
stock in one or more series and to fix the price, rights, preferences,
privileges and restrictions of such preferred stock, including dividend rights,
dividend rates, conversion rights, voting rights, terms of redemption,
redemption prices, liquidation preferences and the number of shares constituting
a series or the designation of such series, without any further vote or action
by our stockholders. The issuance of preferred stock could have the effect of
delaying, deferring or making more difficult a change in control of Generac
Portable Products and may adversely affect the market price of the common stock
and the voting and other rights of the holders of common stock. 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 and it could decrease the amount of earnings and assets available for
distribution to the holders of common stock. We have no current plans to issue
any shares of preferred stock, and no such shares are currently outstanding.
REGISTRATION RIGHTS
Beacon and certain other stockholders are entitled to certain rights with
respect to the registration of their shares of common stock under the Securities
Act of 1933 following this offering. These rights are provided under the terms
of a stockholders' agreement between us and these holders of registrable
securities. Beacon may require that we use our best efforts to register its
registrable securities for public resale, provided that the anticipated offering
price would exceed $25 million. We must bear all the registration expenses for
two of the registrations that Beacon is entitled to. The other holders of
registrable securities may require that we use our best efforts to register
their registrable securities for public resale on Form S-3, provided that the
expected offering price would exceed $10 million. We must bear all the
registration expenses for all of the Form S-3 registrations that are not
underwritten and for three of the Form S-3 registrations that are underwritten.
If we register any of our common stock for our own account, the holders of
registrable securities are entitled to include their shares of common stock in
the registration, subject to the ability of the underwriters to limit the number
of shares included in the offering, and we must bear all registration expenses.
ANTI-TAKEOVER EFFECTS OF CERTAIN PROVISIONS OF CERTIFICATE OF INCORPORATION,
BYLAWS AND DELAWARE LAW
THE DELAWARE BUSINESS COMBINATION ACT. We are a Delaware corporation and
are subject to Section 203 of the Delaware General Corporation Law, an
anti-takeover law. In general, Section 203
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prohibits a publicly held Delaware corporation from engaging in a business
combination with a holder of 15% or more of the corporation's common stock for a
period of three years following the date the person became a 15% stockholder,
unless the business combination or the transaction in which the person became
the 15% stockholder is approved in a prescribed manner. Generally, a business
combination includes a merger, asset or stock sale or other transaction
resulting in a financial benefit to the 15% stockholder. The existence of this
provision would be expected to have an anti-takeover effect with respect to
transactions not approved in advance by the board of directors, including
discouraging attempts that might result in a premium over the market price for
the shares of common stock held by the stockholders.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS. Our certificate of
incorporation authorizes our board of directors to establish one or more series
of undesignated preferred stock, the terms of which can be determined by our
board of directors at the time of issuance. Our certificate of incorporation
also provides that all stockholder action must be effected at a duly called
meeting of stockholders and not by a consent in writing. Furthermore, our
certificate of incorporation provides that our board of directors may amend our
bylaws without stockholder consent. Our certificate of incorporation also allows
our board of directors to issue rights to stockholders with provisions that
limit our ability to redeem such issued securities. In addition, our bylaws do
not permit our stockholders to call a special meeting of stockholders; only our
chairman, president or board of directors may do so. Our bylaws also require
that stockholders give advance notice to our secretary of any nominations for
director or other business to be brought by stockholders at any stockholders
meeting. Finally, the bylaws and certificate of incorporation allow stockholders
to remove directors only for cause and only at stockholders' meetings. These
certificate of incorporation and bylaw provisions could discourage potential
acquisition proposals and could delay or prevent a change in control of Generac
Portable Products or our management.
TRANSFER AGENT AND REGISTRAR
Our transfer agent and registrar is BankBoston, N.A.
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of common stock in the public market after this
offering, or the possibility of such sales occurring, could adversely affect the
prevailing market price and our ability to raise capital in the future.
Upon the completion of this offering, Generac Portable Products, Inc. will
have outstanding shares of common stock. Of these shares, the
shares of common stock sold in this offering will be freely tradeable
without restriction. The remaining shares were issued and sold in private
transactions and are eligible for public sale only if registered under the
Securities Act of 1933 or sold in accordance with Rule 144 under the Securities
Act of 1933.
Generac Portable Products, Beacon, the selling stockholders and all of our
executive officers and directors have entered into lock-up agreements. The
lock-up agreements require that the locked-up person not dispose of any shares
of common stock owned by them for a period of 180 days after the date of this
prospectus without the prior written consent of the underwriters. After the
expiration of the lock-up agreements, such persons will be entitled to dispose
of the common stock that they hold subject to the provisions of applicable
securities laws.
Our executive officers and directors are generally permitted to sell common
stock in accordance with Rule 144. In general, under Rule 144, a person who has
beneficially owned shares for at least one year is entitled to sell in broker
transactions or to market makers, within any three-month period, a certain
number of shares. This number may not exceed the greater of:
- one percent of the then outstanding shares of common stock, or
- the average weekly trading volume of the common stock during the four
calendar weeks preceding the required filing of the Form 144 with respect
to such sale.
Under Rule 144, however, a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale, and who has held the
shares proposed to be sold for a minimum of two years is free to sell such
shares without having to comply with the volume, manner-of-sale, volume
limitation or notice provisions under Rule 144.
Shortly after the completion of this offering, we intend to file a
registration statement under the federal securities laws to permit the 2,023,810
shares reserved for issuance under our stock option plan to be sold in the
public market.
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UNDERWRITERS
Under the terms and subject to the conditions contained in the underwriting
agreement dated the date of this prospectus, the underwriters named below, for
whom Morgan Stanley & Co. Incorporated, BT Alex. Brown Incorporated and Salomon
Smith Barney Inc. are acting as representatives, have severally agreed to
purchase, and we have severally agreed to sell to them shares of common
stock. The number of shares of common stock that each underwriter has agreed to
purchase is set forth opposite its name below:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Morgan Stanley & Co. Incorporated..........................................
BT Alex. Brown Incorporated................................................
Salomon Smith Barney Inc...................................................
-----------------
Total......................................................................
-----------------
-----------------
</TABLE>
The underwriters are offering the shares subject to their acceptance of the
shares from us and subject to prior sale. The underwriting agreement provides
that the obligations of the several underwriters to pay for and accept delivery
of the shares of our common stock offered hereby are subject to the approval of
certain legal matters by their counsel and to certain other conditions. The
underwriters are obligated to purchase all of the shares of our common stock,
except those covered by the underwriters' over-allotment option described below,
if any are purchased.
The underwriters initially 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. The underwriters may also offer the shares to securities dealers at
a price that represents a concession not in excess of $ a share under the
public offering price. Any underwriter may allow and dealers may reallow, a
concession not in excess of $ a share to other underwriters or to securities
dealers. After the initial offering of the shares, the offering price and other
selling terms may from time to time be changed by the representatives.
The selling stockholders have granted to the underwriters an option,
exercisable for 30 days from the date of this prospectus, to purchase up to an
aggregate of additional shares at the public offering price set forth
on the cover page of this prospectus, less underwriting discounts and
commissions. The underwriters may exercise this option solely for the purpose of
covering over-allotments, if any, made in connection with the offering of the
shares offered pursuant to this prospectus. To the extent this option is
exercised, each underwriter will become obligated, subject to specified
conditions, to purchase about the same percentage of additional shares as the
number set forth next to the underwriter's name in the preceding table bears to
the total number of shares set forth next to the names of all underwriters in
the preceding table. If the underwriters' option is exercised in full, the total
price to public for this offering would be $ , the total underwriters'
discounts and commissions would be $ and total proceeds to would be
$ .
The underwriters have informed us that each principal underwriter in this
offering may, subject to the approval of Morgan Stanley & Co. Incorporated, sell
to discretionary accounts over which the principal underwriter exercises
discretionary authority. The underwriters have further informed us that they
estimate that these sales will not exceed in the aggregate five percent of the
total number of shares offered by them.
We have applied for listing of our common stock on the NYSE under the symbol
"GPP", subject to official notice of issuance. The underwriters intend to sell
shares of the common stock to a minimum of 2,000 beneficial owners in lots of
100 or more so as to meet the distribution requirements of such listing.
At our request, the underwriters will reserve up to shares to be sold
in the offering and offered hereby for sale, at the initial public offering
price, to directors, officers and employees and others,
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generally in the United States. This directed share program will be administered
by . The number of shares available for sale to the general public will
be reduced to the extent these individuals purchase the reserved shares. Any
reserved shares which are not so purchased will be offered by the underwriters
to the general public on the same basis as the other shares offered in this
prospectus.
Generac Portable Products, Inc., Beacon, the selling stockholders and all of
our directors and executive officers have agreed that, without the prior written
consent of Morgan Stanley & Co. Incorporated on behalf of the underwriters, we
will not, during the period ending 180 days after the date of this prospectus:
- offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right
or warrant purchase, lend, or otherwise transfer or dispose of, directly
or indirectly, any shares of common stock or any securities convertible
into or exercisable for common stock, or
- enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the
common stock,
whether any transaction described above is to be settled by delivery of shares
of common stock or other securities, in cash or otherwise.
The restrictions described in the previous paragraph do not apply to:
- the sale of the shares to the underwriters,
- the issuance by us of shares of common stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date
of this prospectus of which the underwriters have been advised in writing,
- the granting of stock options and/or restricted stock units pursuant to
our existing employee benefit plans, PROVIDED that such options do not
become exercisable and such units do not vest during such 180-day period,
- transactions by any person other than Generac Portable Products, Inc. and
its subsidiaries relating to shares of common stock or other securities
acquired in open market or other transactions after the completion of the
offering.
In order to facilitate the offering, the underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
shares of common stock. Specifically, the underwriters may agree to sell (or
allot) more shares than the shares of our common stock we have agreed to
sell to them. This over-allotment would create a short position in our common
stock for the underwriters' account. To cover any over-allotments or to
stabilize the price of the common stock, the underwriters may bid for, and
purchase, shares of common stock in the open market. Finally, the underwriting
syndicate may reclaim selling concessions allowed to an underwriter or dealer
for distributing the common stock in the offering, if the syndicate repurchases
previously distributed shares of common stock in transactions to cover syndicate
short positions, in stabilization transactions or otherwise. The underwriters
have reserved the right to reclaim selling concessions in order to encourage
underwriters and dealers to distribute the common stock for investment, rather
than for short-term profit taking. Increasing the proportion of the offering
held for investment may reduce the supply of common stock available for
short-term trading. Any of these activities may stabilize or maintain the market
price of the common stock above independent market levels. The underwriters are
not required to engage in these activities, and may end any of these activities,
and may end any of these activities at any time.
From time to time, certain of the underwriters have provided, and may
continue to provide, financial advisory and commercial banking services to
Generac Portable Products, Inc. and Beacon.
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In this regard, BT Alex. Brown acted as placement agent in connection with
our issuance of the 11 1/4% Senior Subordinated Notes and will act as our
financial advisor in connection with our tender offer for these notes. In
addition, BT Capital Investors, L.P., an affiliate of BT Alex. Brown, currently
owns approximately 482,945 shares or 4.5% of our common stock and, if the
underwriters' over-allotment option is exercised in full, will sell
shares of common stock in this offering. See "Principal and Selling
Stockholders." In addition, Bankers Trust Company, an affiliate of BT Alex.
Brown, is a lender under our credit facility and may receive more than 10% of
the net proceeds of this offering if amounts are repaid under our credit
facility. See "Use of Proceeds." Under the provisions of Rule 2710 of the
Conduct Rules of the National Association of Securities Dealers, when an NASD
member participates in a public offering of a company's securities where more
than 10% of the net offering proceeds are intended to be paid to such member or
associated or affiliated persons of such member, the public offering price of
the securities can be no higher than that recommended by the "qualified
independent underwriter," as that term is defined in Rule 2720 of the Conduct
Rules. In accordance with these requirements, Morgan Stanley & Co. Incorporated
has agreed to serve as a "qualified independent underwriter" and has conducted
due diligence and will recommend a maximum price for the shares of common stock.
Generac Portable Products, Inc., the selling stockholders and the
underwriters have agreed to indemnify each other against a variety of
liabilities, including liabilities under the Securities Act of 1933.
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiations
among Generac Portable Products, Inc., the selling stockholders and the
representatives. Among the factors to be considered in determining the initial
public offering price will be our record of operations, our current financial
position and future prospects, sales, earnings and certain of our other
financial and operating information in recent periods, and the price-earnings
ratios, price-sales ratios, market prices of securities and certain financial
and operating information of companies engaged in activities similar to ours.
The estimated initial public offering price range set forth on the cover page of
this prospectus is subject to change as a result of market conditions and other
factors.
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EXPERTS
The financial statements of Generac Portable Products, Inc. as of July 9,
1998 and December 31, 1998 and for the period July 10, 1998 through December 31,
1998 included in this Prospectus have been so included in reliance on the report
of PricewaterhouseCoopers LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
The financial statements of the Portable Products Division, a Business Unit
of Generac Corporation, as of and for each of the two years in the period ended
December 31, 1997, the three months ended March 31, 1998 and for the period
January 1, 1998 through July 9, 1998 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 the registration statement and
have been so included in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
Generac Portable Products, Inc. by King & Spalding, New York, New York. Certain
legal matters in connection with this offering will be passed upon for the
underwriters by Davis Polk & Wardwell, New York, New York.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement on Form S-4 with the SEC with respect
to the 11 1/4% Senior Subordinated Notes due 2006. As a result of the filing of
that registration statement with the SEC, we will be required to file annual,
quarterly and special reports, proxy statements and other information with the
SEC. You may read and copy any document we file with the SEC, including that
registration statement, at the SEC's public reference room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005. Please call the SEC at 1-800-SEC-0330
for further information on the SEC's public reference room. You may also request
copies of such documents, upon payment of a duplicating fee, by writing to the
SEC at 450 Fifth Street, N.W., Washington, D.C. 20549 or obtain copies of such
documents over the Internet at the SEC's website at http://www.sec.gov.
We intend to furnish our stockholders with annual reports containing audited
financial statements and quarterly reports containing unaudited interim
financial information for the first three quarters of each fiscal year.
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. As allowed by SEC rules, this prospectus does not contain
all of the information included in that registration statement. Our descriptions
in this prospectus concerning the contents of any contract, agreement or
document are not necessarily complete. For those contracts, agreements or
documents that we filed as exhibits to that registration statement, you should
read the exhibit for a more complete understanding of the document or subject
matter involved.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GENERAC PORTABLE PRODUCTS, INC.
Unaudited Interim Financial Statements:
Consolidated Balance Sheet as of March 31, 1999.......................................................... F-2
Consolidated Statement of Income for the Three Months Ended March 31, 1999............................... F-3
Consolidated Statement of Cash Flows for the Three Months Ended March 31, 1999........................... F-4
Notes to Unaudited Consolidated Financial Statements..................................................... F-5
Audited Financial Statements:
Report of Independent Accountants........................................................................ F-8
Consolidated Balance Sheets as of December 31, 1998 and July 9, 1998..................................... F-9
Consolidated Statement of Income for the period July 10, 1998 through December 31, 1998.................. F-10
Consolidated Statement of Changes in Stockholders' Equity for the period July 10, 1998 through December
31, 1998............................................................................................... F-11
Consolidated Statement of Cash Flows for the period July 10, 1998 through December 31, 1998.............. F-12
Notes to Consolidated Financial Statements............................................................... F-13
FINANCIAL STATEMENTS OF PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION
Report of Independent Auditors............................................................................. F-26
Balance Sheets as of July 9, 1998, March 31, 1998 and December 31, 1997 and 1996........................... F-27
Statements of Income for the Six Months and Nine Days Ended July 9, 1998, the Three Months Ended March 31,
1998 and the Years Ended December 31, 1997 and 1996...................................................... F-28
Statements of Cash Flows for the Six Months and Nine Days Ended July 9, 1998, the Three Months Ended March
31, 1998 and the Years Ended December 31, 1997 and 1996.................................................. F-29
Notes to Financial Statements.............................................................................. F-30
</TABLE>
F-1
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEET
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
MARCH 31,
1999
-----------
<S> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents.......................................................................... $ 1,407
Accounts receivable (less allowance of $263)....................................................... 70,899
Inventories........................................................................................ 58,955
Deferred income taxes.............................................................................. 139
Prepaid expenses and other current assets.......................................................... 1,004
-----------
Total current assets........................................................................... 132,404
Property, plant and equipment, net................................................................... 20,659
Intangible assets, net............................................................................... 210,065
Deferred financing costs............................................................................. 6,808
Other................................................................................................ 262
-----------
Total assets................................................................................... $ 370,198
-----------
-----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................................................. $ 8,381
Trade accounts payable............................................................................. 32,199
Accrued employee compensation, benefits and payroll withholdings................................... 1,666
Other accrued liabilities.......................................................................... 13,156
-----------
Total current liabilities...................................................................... 55,402
Long-term debt obligations........................................................................... 206,334
Other long-term obligations.......................................................................... 1,011
Deferred income taxes................................................................................ 2,261
Commitments and contingencies (Note 4)
Stockholders' Equity:
Common stock, $.01 par value, 30,000 shares authorized; 10,625 shares issued and outstanding....... 106
Additional paid-in capital......................................................................... 109,894
Retained earnings.................................................................................. 7,027
Accumulated other comprehensive loss............................................................... (179)
Excess of purchase price over book value of net assets acquired from entities partially under
common control................................................................................... (11,658)
-----------
Total stockholders' equity..................................................................... 105,190
-----------
Total liabilities and stockholders' equity..................................................... $ 370,198
-----------
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1999
--------------
<S> <C>
(UNAUDITED)
Net sales..................................................................... $ 92,887
Cost of sales................................................................. 68,730
-------
Gross profit............................................................ 24,157
Operating expenses:
Selling and service......................................................... 11,152
General and administrative.................................................. 2,001
Intangible asset amortization............................................... 1,341
-------
Income from operations.................................................. 9,663
Other expense:
Interest expense............................................................ 5,096
Deferred financing cost amortization........................................ 213
Other expense, net.......................................................... 5
-------
Income before income taxes.............................................. 4,349
Provision for income taxes.................................................... 1,524
-------
Net income.............................................................. $ 2,825
-------
-------
Earnings per share:
Basic....................................................................... $ 0.27
-------
-------
Diluted..................................................................... $ 0.26
-------
-------
Weighted average shares outstanding:
Basic....................................................................... 10,625
-------
-------
Diluted..................................................................... 10,860
-------
-------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
MARCH 31, 1999
--------------
<S> <C>
(UNAUDITED)
Operating activities:
Net income...................................................................................... $ 2,825
Adjustments to reconcile net income to cash used for operating activities:
Depreciation.................................................................................. 584
Amortization.................................................................................. 1,554
Deferred income taxes......................................................................... 756
Increase (decrease) in cash due to changes in:
Accounts receivable......................................................................... (26,534)
Inventories................................................................................. (12,933)
Other assets................................................................................ (138)
Trade accounts payable...................................................................... 19,550
Accrued liabilities......................................................................... (753)
--------------
Net cash used for operating activities...................................................... (15,089)
--------------
Investing activities:
Capital expenditures............................................................................ (1,885)
--------------
Net cash used for investing activities...................................................... (1,885)
--------------
Financing activities:
Net borrowings under revolving loan facility.................................................... 18,400
Payments on other long-term debt obligations.................................................... (1,468)
Payment of deferred financing costs............................................................. (35)
--------------
Net cash provided by financing activities................................................... 16,897
--------------
Effect of exchange rate changes on cash........................................................... (44)
--------------
Net decrease in cash and cash equivalents......................................................... (121)
Cash and cash equivalents:
Beginning of period............................................................................. 1,528
--------------
End of period................................................................................... $ 1,407
--------------
--------------
Supplemental cash flow information:
Cash paid for interest.......................................................................... $ 7,874
--------------
--------------
Cash paid for taxes............................................................................. $ 790
--------------
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. BASIS OF PRESENTATION
Generac Portable Products, Inc. ("Generac Portable Products" or the
"Company"), with domestic operations located in Jefferson, Wisconsin and branch
operations in the United Kingdom and Germany, is a leader in the design,
manufacture and sale of portable generators and pressure washers for use in both
industrial and residential applications. Generac Portable Products sells
primarily to large home center retailers throughout the United States, Canada
and Europe.
These financial statements have been prepared by Generac Portable Products
pursuant to the rules and regulations of the Securities and Exchange Commission
(the "SEC") and, in the opinion of Generac Portable Products, include all
adjustments (all of which are normal and recurring in nature) necessary to
present fairly the financial position, results of operations and cash flows of
Generac Portable Products for the interim period presented. These financial
statements include the accounts of Generac Portable Products' wholly-owned
subsidiaries, and all significant intercompany transactions have been
eliminated. Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed and omitted pursuant to such rules and
regulations. These unaudited consolidated financial statements should be read in
conjunction with Generac Portable Products' financial statements for the period
July 10, 1998 through December 31, 1998, and Generac Portable Products'
unaudited pro forma consolidated financial information included elsewhere in
this prospectus.
The following is a reconciliation of the average shares outstanding,
adjusted to reflect the company's May 20, 1999 stock split (see Note 7), used to
compute basic and diluted earnings per share:
<TABLE>
<CAPTION>
(IN
THOUSANDS)
-------------
<S> <C>
Basic EPS....................................................................... 10,625
Dilutive effect of stock options................................................ 235
------
Diluted EPS..................................................................... 10,860
------
------
</TABLE>
2. INVENTORIES
Inventories at March 31, 1999 consist of the following:
<TABLE>
<S> <C>
Raw materials and sub-assemblies................................... $ 35,142
Finished goods..................................................... 23,813
---------
$ 58,955
---------
---------
</TABLE>
3. INCOME TAXES
Generac Portable Products recorded an income tax provision by estimating the
annual effective income tax rate and applied that rate to pretax income. The
effective income tax rate for Generac Portable Products varies from the Federal
statutory tax rate due to state income taxes and other non-deductible expenses.
F-5
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
4. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In the normal course of business Generac Portable Products is involved in
certain legal actions and claims. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on
Generac Portable Products' financial position, results of operations or cash
flows.
In connection with the purchase by Generac Portable Products, LLC of
substantially all of the assets of the Portable Products Division (the
"Predecessor") of Generac Corporation on July 9, 1998 (the "Acquisition"),
Generac Portable Products entered into an OEM engine supply agreement with
Generac Corporation, to supply it with the engine used in certain of Generac
Portable Products' pressure washers and consumer portable generators. The engine
supply agreement allows for Generac Portable Products to make minimum purchases
of engines from Generac Corporation in each of the next nine years and gives
Generac Portable Products the right to increase the amount purchased based upon
forecasted requirements. This agreement is an exclusive arrangement related to
such products subject to the minimum purchase requirements. As Generac Portable
Products maintains relationships with other major engine suppliers, management
believes that the minimum purchase quantities and unit prices under this
agreement will not have an adverse effect on Generac Portable Products.
Management also considers the provisions of the engine supply agreement to
reflect arms-length terms. For the period ended March 31, 1999, Generac Portable
Products purchased products approximating $11.5 million under this agreement. In
addition, Generac Portable Products also purchased other components from Generac
Corporation approximating $5.6 million for the period ended March 31, 1999.
Included in accounts payable are amounts due to Generac Corporation of
approximately $6.8 million at March 31, 1999.
In connection with the issuance by Generac Portable Products, LLC and GPPW,
Inc. ("GPPW") of $110 million of 11.25% Senior Subordinated Notes due June 30,
2006 (the "Notes"), Generac Portable Products entered into a registration rights
agreement pursuant to which Generac Portable Products agreed that it would use
its best efforts to file a registration statement with the SEC for the purpose
of exchanging the existing notes for new notes registered under the Securities
Act. Under the registration rights agreement, Generac Portable Products is
subject to liquidated damages in the form of additional interest at the rate of
0.50% per annum if certain deadlines are not met in connection with this filing.
The anticipated impact of the additional interest is not expected to be
material.
5. COMPREHENSIVE INCOME
Total comprehensive income totaled $1,923 for the three months ended March
31, 1999. Total comprehensive income is comprised of net income of $2,825 and
accumulated other comprehensive loss of $902. The accumulated other
comprehensive loss is comprised entirely of foreign currency translation
adjustments.
6. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
In connection with the Acquisition, Generac Portable Products, LLC and GPPW
co-issued the Notes. While Generac Portable Products, LLC and GPPW are jointly
and severally liable for the obligations under the Notes, GPPW does not conduct
any operations, or have any assets of any kind other than its investment in
Generac Portable Products, LLC. The following unaudited condensed supplemental
consolidating financial information as of March 31, 1999 and for the three
months ended March 31, 1999,
F-6
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
6. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
(CONTINUED)
reflects the investments of Generac Portable Products, GPPW and GPPD, Inc.
("GPPD") in Generac Portable Products, LLC using the equity method. Generac
Portable Products, GPPW and GPPD are dependent upon Generac Portable Products,
LLC for cash flows to fund their income tax liabilities arising from their
respective investments. GPPW and GPPD are wholly-owned subsidiaries of Generac
Portable Products, and GPPW and GPPD hold a 5% and 95% ownership interest in
Generac Portable Products, LLC, respectively.
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............. $ -- $ 7 $ 132 $ 132,265 $ $ 132,404
Investment in affiliates... 116,058 5,988 113,774 -- (235,820) --
Noncurrent assets.......... -- -- -- 237,794 -- 237,794
-------- --------- ---------- -------- ------------ ------------
Total assets......... $ 116,058 $ 5,995 $ 113,906 $ 370,059 $ (235,820) $ 370,198
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
Current liabilities........ -- $ 40 $ 752 $ 54,610 $ -- $ 55,402
Long-term debt............. -- -- -- 206,334 -- 206,334
Other long-term
obligations.............. -- 113 2,148 1,011 -- 3,272
Stockholders' equity....... 116,058 5,842 111,006 108,104 (235,820) 105,190
-------- --------- ---------- -------- ------------ ------------
$ 116,058 $ 5,995 $ 113,906 $ 370,059 $ (235,820) $ 370,198
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ -- $ -- $ 92,887 $ -- $ 92,887
Gross profit............... -- -- -- 24,157 -- 24,157
Operating expenses......... -- -- -- 14,494 -- 14,494
-------- --------- ---------- -------- ------------ ------------
Operating income........... -- -- -- 9,663 -- 9,663
Interest expense........... -- -- -- 5,096 -- 5,096
Other expense, net......... -- -- -- 218 -- 218
Equity in earnings of
affiliates............... 2,825 217 4,132 -- (7,174) --
-------- --------- ---------- -------- ------------ ------------
Income before income
taxes.................... 2,825 217 4,132 4,349 (7,174) 4,349
Provision for income
taxes.................... -- 76 1,448 -- -- 1,524
-------- --------- ---------- -------- ------------ ------------
Net income................. $ 2,825 $ 141 $ 2,684 $ 4,349 $ (7,174) $ 2,825
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
7. STOCK SPLIT
On May 20, 1999, the company effected a 1,250 for one common stock split.
All share and per share information in these consolidated financial statements
have been retroactively adjusted to reflect this stock split.
F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Generac Portable Products, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Generac Portable Products, Inc. and its subsidiaries at December 31, 1998 and
July 9, 1998, and the results of their operations and their cash flows for the
period July 10, 1998 through December 31, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Generac Portable Products' management; our responsibility is
to express an opinion on these financial statements based on our audit. We
conducted our audit of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Milwaukee, Wisconsin
February 22, 1999, except as to the EARNINGS PER SHARE
section of Note 2, and Note 10, which are as of
May 20, 1999
F-8
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................................ $ 1,528 $ 599
Accounts receivable (less allowances of $242 and $225, respectively)................. 44,695 51,028
Inventories.......................................................................... 46,651 42,663
Deferred income taxes................................................................ 139 --
Prepaid expenses and other current assets............................................ 898 429
------------ ----------
Total current assets............................................................. 93,911 94,719
Property, plant and equipment, net..................................................... 19,437 16,633
Intangible assets, net................................................................. 211,407 213,938
Deferred financing costs............................................................... 6,985 7,309
Other.................................................................................. 262 --
------------ ----------
Total assets..................................................................... $ 332,002 $ 332,599
------------ ----------
------------ ----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.................................................... $ 7,922 $ 3,372
Trade accounts payable............................................................... 12,839 14,904
Accrued employee compensation, benefits and payroll withholdings..................... 1,185 1,063
Other accrued liabilities............................................................ 14,424 8,070
------------ ----------
Total current liabilities........................................................ 36,370 27,409
Long-term debt obligations............................................................. 189,861 205,853
Other long-term obligations............................................................ 999 995
Deferred income taxes.................................................................. 1,505 --
Commitments and contingencies (Note 13)
Stockholders' Equity:
Common stock, $.01 par value, 30,000 shares authorized; 10,625 shares issued and
outstanding........................................................................ 106 106
Additional paid-in capital........................................................... 109,894 109,894
Retained earnings.................................................................... 4,202 --
Accumulated other comprehensive income............................................... 723 --
Excess of purchase price over book value of net assets acquired from entities
partially under common control..................................................... (11,658) (11,658)
------------ ----------
Total stockholders' equity....................................................... 103,267 98,342
------------ ----------
Total liabilities and stockholders' equity....................................... $ 332,002 $ 332,599
------------ ----------
------------ ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-9
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF INCOME
(AMOUNTS IN 000'S EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 10, 1998
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Net sales...................................................................................... $ 136,862
Cost of sales.................................................................................. 98,245
--------
Gross profit............................................................................. 38,617
Operating expenses:
Selling and service.......................................................................... 16,935
General and administrative................................................................... 2,865
Intangible asset amortization................................................................ 2,531
--------
Income from operations................................................................... 16,286
Other expense (income):
Interest expense............................................................................. 9,674
Deferred financing cost amortization......................................................... 401
Other income, net............................................................................ (171)
--------
Income before income taxes............................................................... 6,382
Provision for income taxes..................................................................... 2,180
--------
Net income............................................................................... $ 4,202
--------
--------
Earnings per share:
Basic........................................................................................ $ 0.40
--------
--------
Diluted...................................................................................... $ 0.39
--------
--------
Weighted average shares outstanding:
Basic........................................................................................ $ 10,625
--------
--------
Diluted...................................................................................... $ 10,725
--------
--------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-10
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE PERIOD JULY 10, 1998 THROUGH DECEMBER 31, 1998
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------- PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT CAPITAL EARNINGS INCOME OTHER (A) TOTAL
--------- --------- ---------- ----------- ----------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at July 9, 1998.................. 10,625 $ 106 $ 109,894 $ -- $ -- $ (11,658) $ 98,342
Comprehensive income:
Net income............................. -- -- -- 4,202 -- -- 4,202
Translation adjustments.................. -- -- -- -- 723 -- 723
--------- --------- ---------- ----------- ----- ---------- ----------
Total comprehensive income............... -- -- -- 4,202 723 -- 4,925
--------- --------- ---------- ----------- ----- ---------- ----------
Balance at December 31, 1998............. 10,625 $ 106 $ 109,894 $ 4,202 $ 723 $ (11,658) $ 103,267
--------- --------- ---------- ----------- ----- ---------- ----------
--------- --------- ---------- ----------- ----- ---------- ----------
</TABLE>
- ------------------------
(A) Amount represents the excess of the purchase price paid in connection with
the Acquisition over the book value of net assets acquired not recognized as
a result of certain continuing shareholder interests.
The accompanying notes are an integral part of these financial statements.
F-11
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(AMOUNTS IN 000'S)
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 10, 1998
THROUGH
DECEMBER 31, 1998
-----------------
<S> <C>
Operating activities:
Net income................................................................................... $ 4,202
Adjustments to reconcile net income to cash provided by operating activities:
Depreciation............................................................................... 1,022
Amortization............................................................................... 2,932
Deferred income taxes...................................................................... 1,366
Increase (decrease) in cash due to changes in:
Accounts receivable...................................................................... 6,696
Inventories.............................................................................. (3,627)
Other assets............................................................................. (726)
Trade accounts payable................................................................... (2,106)
Accrued liabilities...................................................................... 6,454
-------
Net cash provided by operating activities.............................................. 16,213
-------
Investing activities:
Capital expenditures......................................................................... (3,814)
Proceeds from sale of property, plant and equipment.......................................... 34
-------
Net cash used for investing activities................................................. (3,780)
-------
Financing activities:
Net payments under revolving loan facility................................................... (11,008)
Payments on other long-term debt obligations................................................. (434)
Payment of deferred financing costs.......................................................... (77)
-------
Net cash used for financing activities................................................. (11,519)
-------
Effect of exchange rate changes on cash........................................................ 15
-------
Net increase in cash and cash equivalents...................................................... 929
Cash and cash equivalents:
Beginning of period.......................................................................... 599
-------
End of period................................................................................ $ 1,528
-------
-------
Supplemental cash flow information:
Cash paid for interest....................................................................... $ 2,260
-------
-------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-12
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
1. FORMATION OF GENERAC PORTABLE PRODUCTS AND NATURE OF BUSINESS
Generac Portable Products, Inc. ("Generac Portable Products" or the
"company"), a Delaware corporation, was formed on April 29, 1998 by an investor
group organized by The Beacon Group III-- Focus Value Fund L.P. for the purpose
of acquiring, through its indirect wholly-owned limited liability company,
Generac Portable Products, LLC, net assets of the Portable Products Division of
Generac Corporation. The primary business activity of Generac Portable Products
consists of its indirect ownership of 100% of the limited liability company
interests in Generac Portable Products, LLC, a Delaware limited liability
company (the "Operating Company"), through two wholly-owned subsidiaries: GPPW,
Inc. a Wisconsin corporation ("GPPW"), and GPPD, Inc. a Delaware corporation
("GPPD"). GPPW and GPPD hold, respectively, 5% and 95% limited liability company
interests in Generac Portable Products, LLC. Generac Portable Products had no
operations during the period April 29, 1998 through July 8, 1998; its only
business activity involved the issuance of $110 million of common stock to
finance a portion of the purchase price discussed below.
On July 9, 1998, Generac Portable Products caused Generac Portable Products,
LLC to purchase substantially all of the assets, and assume certain of the
liabilities, of the Portable Products Division (the "Predecessor") of Generac
Corporation (the "Acquisition"). The aggregate consideration paid for the net
assets of the Predecessor was approximately $330 million, which includes cash
acquired of $.6 million, direct acquisition costs of $1.4 million and assumed
liabilities of $23.9 million. The purchase price paid for the Predecessor was
subject to a post-closing adjustment based on net working capital at July 9,
1998, as defined. Generac Portable Products has recorded a receivable of $1.0
million at December 31, 1998 relating to this adjustment.
The Acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price has been allocated to
identifiable assets acquired and liabilities assumed based upon their estimated
fair values, subject to certain limitations (see Note 2), with the excess
purchase price recorded as goodwill. Goodwill of approximately $214 million has
been recorded as a result of the Acquisition.
The following table sets forth the pro forma information for Generac
Portable Products as if the Acquisition had occurred on January 1, 1998. This
information is unaudited and does not purport to represent actual sales or net
income had the Acquisition actually occurred on January 1, 1998.
<TABLE>
<CAPTION>
PRO FORMA INFORMATION
FOR THE YEAR ENDED
DECEMBER 31, 1998
---------------------
<S> <C>
Net sales.............................................................. $ 276,413
Net income............................................................. 5,835
Earnings per share:
Basic................................................................ $ 0.55
Diluted.............................................................. $ 0.55
</TABLE>
In addition to the issuance of common stock by Generac Portable Products,
the purchase price was financed through the issuance of Senior Subordinated
Notes of $110 million and borrowings of $96.6 million under a $115 million bank
credit facility (see Note 7).
Generac Portable Products, with domestic operations located in Jefferson,
Wisconsin and branch operations in the United Kingdom and Germany, is a leader
in the design, manufacture and sale of portable generators and pressure washers
for use in both industrial and residential applications.
F-13
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES: Generac Portable Products prepares its financial
statements in conformity with generally accepted accounting principles, which
require management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent assets and
liabilities at the date of the financial statements, and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
PRINCIPLES OF CONSOLIDATION: Generac Portable Products' consolidated
financial statements include the accounts of its wholly-owned subsidiaries. All
significant intercompany transactions and balances have been eliminated.
BASIS OF ACCOUNTING: Pursuant to the Financial Accounting Standards Board's
Emerging Issues Task Force Issue No. 88-16, "Basis in Leveraged Buyout
Transactions," Generac Portable Products has limited its accounting basis
resulting from the Acquisition as a result of certain shareholders which also
held an interest in the Predecessor through ownership interests in Generac
Corporation. Such limitation was based upon the lesser of each continuing
shareholder's interest in Generac Portable Products or the Predecessor, and the
Predecessor's historical book value at July 9, 1998. The difference between the
continuing shareholders' basis in the Predecessor and their proportionate equity
in the book value of the Predecessor was not material. The difference between
the total consideration paid in connection with the Acquisition and the
accounting basis recognized is reported as a separate component of stockholders'
equity.
CASH AND CASH EQUIVALENTS: Generac Portable Products considers all
investments with a maturity of three months or less at the date of purchase to
be cash equivalents.
INVENTORIES: Inventories are stated at the lower of cost (first-in,
first-out method) or market (replacement cost or estimated net realizable
value).
RESEARCH AND DEVELOPMENT COSTS: Generac Portable Products has an ongoing
program of new product development and existing product enhancement through
redesign of existing products and the addition of new models. Costs related to
these programs are expensed as incurred and totaled $1,011 for the period ended
December 31, 1998. Costs related to manufacturing start-up activities for new
products are included in cost of sales as incurred.
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment is recorded at
cost and includes equipment under leases which have been capitalized.
Maintenance and repair costs are charged to expense as incurred. Gains and
losses on disposition of property, plant and equipment are reflected in income.
Depreciation of property, plant and equipment are recorded using principally the
straight-line method for financial reporting purposes over the estimated useful
lives of the assets or terms of related leases as follows:
<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Land improvements...................................................................... 20
Buildings.............................................................................. 40
Machinery and equipment................................................................ 7-10
Dies and tools......................................................................... 3-5
Office equipment....................................................................... 5-10
Vehicles............................................................................... 3-4
</TABLE>
F-14
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTANGIBLE ASSETS: Goodwill, representing the recognized portion of the
cost of the Acquisition in excess of the fair values assigned to identifiable
net assets acquired, is being amortized on a straight-line basis over 40 years.
The non-compete agreement and patents and trademarks are being amortized on a
straight-line basis over 10 years. Generac Portable Products assesses the
carrying value of goodwill and other intangibles at each balance sheet date.
Consistent with Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", such assessments include, as appropriate, a comparison of (a)
the estimated future nondiscounted cash flows anticipated to be generated during
the remaining amortization period to (b) the net carrying value of the asset.
Impairment assessments of goodwill made in accordance with SFAS No. 121 are made
in connection with an analysis of related long-lived assets acquired in the
Acquisition when events or changes in circumstances indicate the carrying amount
of either asset may not be recoverable. Generac Portable Products recognizes
impairment losses resulting from diminution in value, if any, on a current basis
based upon estimated fair value of the related assets.
DEFERRED FINANCING COSTS: Expenses associated with the issuance of debt
instruments are capitalized and are being amortized over the terms of the
respective financing arrangement using the effective interest rate and
straight-line methods over periods ranging from 5 to 8 years.
INTEREST RATE SWAPS: To limit the effect of increases in interest rates,
Generac Portable Products has entered into an interest rate swap arrangement.
The differential between the contract floating and fixed rates is accrued each
period and recorded as an adjustment of interest expense.
PRODUCT WARRANTIES: Generac Portable Products provides that warranted
products are merchantable and free of defects in workmanship and material
generally for a period of one year. Warranty reserves are provided as charges to
operations under selling and service expense for estimated normal warranty costs
and, if applicable, for any significant problems known to exist on products
sold. Warranty expense totaled $1,989 for the period ended December 31, 1998.
INCOME TAXES: Deferred income tax assets and liabilities are determined
based upon the difference between the financial statement and tax bases of
assets and liabilities, as measured by enacted tax rates which will be in effect
when these differences are expected to reverse. Deferred income tax expense is
the result of changes in the deferred tax assets and liabilities. A valuation
allowance is provided when it is considered more likely than not that some
portion or all of recorded deferred income tax assets will not be realized.
FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying amounts reported in the
consolidated balance sheets for cash and cash equivalents, accounts receivable,
accounts payable, and short-term borrowings approximate fair value due to the
short-term maturity of these financial instruments. The amounts reported for
borrowings under the bank credit facility approximate fair value since the
underlying instruments bear interest at a variable rate that reprices
frequently. The fair value of Generac Portable Products' Senior Subordinated
Notes at December 31, 1998 is estimated based upon the average yield on similar
debt instruments as of such date. The fair value of the interest rate swap
arrangement is the amount at which it could be settled, based on a quote
obtained from the respective financial institution (see Note 7).
F-15
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
REVENUE RECOGNITION: Net sales and costs of sales are recognized as the
related products are shipped. Provisions for estimated sales returns and sales
incentives are recorded in the period in which the sales are recognized.
FOREIGN CURRENCY TRANSLATION: The translation of the assets and liabilities
of Generac Portable Products' international branch operations into U.S. dollars
is performed for balance sheet accounts using current exchange rates in effect
at the balance sheet date and for revenue and expense accounts using an average
exchange rate during the period. The gains or (losses) resulting from such
translation are reflected as translation adjustments in accumulated other
comprehensive income.
EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income by the weighted average shares outstanding during the period. Diluted
earnings per share is computed by dividing net income by the weighted average
shares outstanding during the period as increased for the dilutive effect of
outstanding stock options. The adjustment to weighted average shares outstanding
is computed by determining the number of additional common shares that would
have been outstanding if stock options were exercised and the related proceeds
from such exercise were used to acquire shares of common stock at the average
market price during the period.
The following is a reconciliation of the average shares outstanding,
adjusted to reflect the company's May 20, 1999 1,250 for one common stock split,
used to compute basic and diluted earnings per share. There is no earnings
impact from the assumed conversion of the outstanding stock options.
<TABLE>
<CAPTION>
(IN
THOUSANDS)
<S> <C>
Basic EPS................................................................................ 10,625
Dilutive effect of stock options......................................................... 100
-------------
Diluted EPS.............................................................................. 10,725
-------------
-------------
</TABLE>
FUTURE ACCOUNTING CHANGES: The Financial Accounting Standards Board has
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities" which is effective for periods beginning after June 15, 2000. Due to
Generac Portable Products' current limited use of derivative instruments, the
adoption of this statement is not expected to have a material effect on Generac
Portable Products' financial condition or results of operations.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Raw materials and sub-assemblies..................................... $ 27,721 $ 26,423
Finished goods....................................................... 18,930 16,240
------------ ---------
$ 46,651 $ 42,663
------------ ---------
------------ ---------
</TABLE>
Work-in-process is not a significant separate component of inventories and is
included in the raw materials and sub-assemblies component.
F-16
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Land and land improvements........................................... $ 980 $ 972
Buildings............................................................ 5,940 5,781
Machinery and equipment.............................................. 8,056 7,179
Dies and tools....................................................... 2,742 2,266
Office equipment..................................................... 1,357 377
Vehicles............................................................. 56 58
------------ ---------
19,131 16,633
Accumulated depreciation............................................. (1,023) --
------------ ---------
18,108 16,633
Construction in progress............................................. 1,329 --
------------ ---------
$ 19,437 $ 16,633
------------ ---------
------------ ---------
</TABLE>
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
Goodwill........................................................... $ 213,738 $ 213,738
Trademarks and patents............................................. 100 100
Noncompete agreement............................................... 100 100
------------ ----------
213,938 213,938
Accumulated amortization........................................... (2,531) --
------------ ----------
$ 211,407 $ 213,938
------------ ----------
------------ ----------
</TABLE>
6. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ---------
<S> <C> <C>
Sales incentives...................................................... $ 4,430 $ 6,236
Product warranty...................................................... 1,229 1,020
Accrued interest...................................................... 7,414 --
Other................................................................. 1,351 814
------------ ---------
$ 14,424 $ 8,070
------------ ---------
------------ ---------
</TABLE>
F-17
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
7. LONG-TERM DEBT OBLIGATIONS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JULY 9,
1998 1998
------------ ----------
<S> <C> <C>
Bank credit facility............................................... $ 85,400 $ 96,608
Senior subordinated notes.......................................... 110,000 110,000
Capital lease obligations.......................................... 2,383 2,617
------------ ----------
197,783 209,225
Less: current portion.............................................. (7,922) (3,372)
------------ ----------
$ 189,861 $ 205,853
------------ ----------
------------ ----------
</TABLE>
In connection with the Acquisition, Generac Portable Products entered into a
$115 million bank credit facility (the "Senior Secured Credit Facility"). The
Senior Secured Credit Facility provides for maximum borrowings under two term
loans of $45 million ("A Term Loan") and $40 million ("B Term Loan"),
respectively, with balances outstanding at December 31, 1998 of $45 million and
$39.8 million, respectively. The Senior Secured Credit Facility also provides
for maximum borrowings of $30 million, less the amount outstanding under letters
of credit, under revolving loan arrangements due December 31, 2003, with a
balance outstanding at December 31, 1998 of $600. The A Term Loan Facility will
mature 5 1/2 years from July 9, 1998. The B Term Loan Facility will mature seven
years from July 9, 1998. The A Term Loan Facility will provide for amortization
of $2.5 million in the first year, $6.25 million in the second year, $7.5
million in the third year, $10.0 million in the fourth year, $12.5 million in
the fifth year and $6.25 million in the sixth year. The B Term Loan Facility
will provide for nominal annual amortization in the first five years and
amortization of $19 million in each of the sixth and seventh years.
Additionally, Generac Portable Products is also required to make an annual
principal payment equal to its excess cash flow, as defined. The required excess
cash flow payment for the period ended December 31, 1998 is approximately $2.1
million and will be applied to reduce the scheduled repayments under both the A
and B Term Loan Facilities described above, on a pro rata basis. The interest
rates under the A Term Loan Facility and the revolving loan portion of the
facility will be based, at the option of Generac Portable Products, LLC, on
either a Eurodollar rate plus 2.25% per annum or a base rate plus 1.25% per
annum, subject to a pricing grid that will provide for reductions in the
applicable interest rate margins based on Generac Portable Products'
consolidated debt to earnings before interest, income taxes, depreciation and
amortization ("EBITDA") ratio. The interest rate under the B Term Loan Facility
is based, at the option of Generac Portable Products, LLC, on a Eurodollar rate
plus 2.75% or a base rate plus 1.75%, subject to a pricing grid that will
provide for reductions in the applicable interest rate margins based on Generac
Portable Products' consolidated debt to EBITDA ratio. The weighted average
interest rate for the term loans as of December 31, 1998 was 7.84%. Borrowings
under the revolving loans bear interest at the Prime Rate plus 1.25% (9% at
December 31, 1998). A commitment fee of 0.50% per annum will be charged on the
unused revolving loan portion of the Senior Secured Credit Facility, subject to
a pricing grid that will provide for reductions in the applicable commitment fee
margin based on Generac Portable Products' consolidated debt to EBITDA ratio.
Substantially all of Generac Portable Products' assets are pledged as collateral
under the Senior Secured Credit Facility.
Effective October 15, 1998, Generac Portable Products entered into an
interest rate swap agreement with a major financial institution to reduce the
impact of changes in interest rates on its floating rate
F-18
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
7. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
long-term debt. The notional amount of this agreement was $40 million at
December 31, 1998. Interest expense has been adjusted for the net amount payable
under this agreement. The effect of this agreement on Generac Portable Products'
interest expense for the period ended December 31, 1998 was not significant. The
fair value of the interest rate swap agreement was $903 at December 31, 1998,
which is the amount Generac Portable Products would have paid to settle the
instrument at such date. Generac Portable Products is exposed to credit loss in
the event of non-performance by the financial institution, however, management
does not anticipate such non-performance.
Also on July 9, 1998, Generac Portable Products, LLC and GPPW issued $110
million of 11.25% Senior Subordinated Notes due June 30, 2006, (the "Notes") to
BT Alex. Brown, Incorporated (the "Initial Purchaser"). The Initial Purchaser
subsequently resold the Notes to qualified institutional buyers pursuant to Rule
144A of the Securities Exchange Act and to a limited number of institutional
accredited investors that agreed to comply with certain transfer restrictions
and other conditions. The estimated fair value of the Notes at December 31, 1998
approximates par.
The Notes are redeemable, at Generac Portable Products' option, in whole at
any time or in part from time to time, on and after July 1, 2002, upon not less
than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on July 1 of the year set forth below, plus,
in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- -------------------------------------------------------------------------------------- -----------
<S> <C>
2002.................................................................................. 107.625%
2003.................................................................................. 104.750%
2004.................................................................................. 102.875%
2005 and thereafter................................................................... 100.000%
</TABLE>
At any time, or from time to time, on or prior to July 1, 2001, Generac
Portable Products may, at its option, use the net cash proceeds of one or more
Public Equity Offerings, as defined, to redeem the Notes at a redemption price
equal to 111.25% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; PROVIDED that at least 65%
of the principal amount of Notes originally issued remains outstanding
immediately after any such redemption.
The Senior Secured Credit Facility and the indenture governing the Notes
contain a number of covenants that, among other things, restrict the ability of
Generac Portable Products to dispose of assets, repay other indebtedness, incur
additional indebtedness, pay dividends, prepay subordinated indebtedness
(including, in the case of the Senior Secured Credit Facility, the Notes), incur
liens, make capital expenditures and make certain investments or acquisitions,
engage in mergers or consolidations, engage in certain transactions with
affiliates and otherwise restrict the activities of Generac Portable Products.
In addition, under the Senior Secured Credit Facility, Generac Portable
Products, LLC will be required to satisfy specified financial ratios and tests,
including a minimum level of earnings before interest, income taxes,
depreciation and amortization.
Capital lease obligations relate to Generac Portable Products' obligations
on leases for industrial equipment. These obligations are due in monthly
installments including principal and interest at a rate of 8.6% and mature
November 30, 2002.
F-19
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
7. LONG-TERM DEBT OBLIGATIONS (CONTINUED)
The aggregate scheduled maturities of long-term debt and capital lease
obligations in subsequent years are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 7,922
2000.............................................................. 8,228
2001.............................................................. 8,275
2002.............................................................. 13,358
2003.............................................................. 22,231
Thereafter........................................................ 137,769
---------
$ 197,783
---------
---------
</TABLE>
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
In connection with the Acquisition, Generac Portable Products established
noncontributory defined benefit pension plans (salaried and hourly) covering
substantially all of its employees. The unfunded benefit obligation assumed as
of the Acquisition date totaled $678. Benefits under the salaried plan are based
upon years of service and the participants' defined final average monthly
compensation. Benefits under the hourly plan are based on a unit amount at the
date of termination multiplied by the participants' credited service. The plans
provide for a continuation of participants' years of service as credited with
Generac Corporation. Generac Portable Products' funding policy is to contribute
amounts that equal or exceed the minimum requirements of the Employee Retirement
Income Security Act of 1974 (ERISA). As of December 31, 1998 and July 9, 1998,
no assets have been contributed to the plans. Net pension expense for the period
ended December 31, 1998 is comprised of the following components:
<TABLE>
<S> <C>
Service cost.......................................................... $ 48
Interest cost on projected benefit obligation......................... 24
---
$ 72
---
---
</TABLE>
The following table summarizes those items comprising the change in the
benefit obligation for the period ended December 31, 1998:
<TABLE>
<S> <C>
Unfunded benefit obligation assumed as of July 9, 1998............... $ 678
Service cost......................................................... 48
Interest cost........................................................ 24
---------
Benefit obligation as of December 31, 1998........................... $ 750
---------
---------
</TABLE>
The assumptions used in developing the pension information as of December
31, 1998 and July 9, 1998 were as follows:
<TABLE>
<S> <C> <C>
Discount rate................................................... 7.00%
Return on plan assets........................................... 8.00%
Rate of compensation increase................................... 4.50%
</TABLE>
F-20
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS (CONTINUED)
In connection with the Acquisition, Generac Portable Products established
deferred compensation plans for certain key employees and at December 31, 1998
and July 9, 1998, approximately $340 and $317, respectively, was included in
other long-term obligations related to such plans. Deferred compensation expense
charged to operations was $23 for the period ended December 31, 1998.
In connection with the Acquisition, Generac Portable Products established a
qualified 401(k) profit sharing plan covering substantially all full-time
employees. No contributions were made to the plan for the period ended December
31, 1998.
9. INCOME TAXES
The provision for income taxes for the period ended December 31, 1998
consists of the following:
<TABLE>
<S> <C>
Current:
Federal........................................................... $ 781
State............................................................. 33
---------
Total current................................................... 814
Deferred:
Federal and state................................................. 1,366
---------
Total provision for income taxes................................ $ 2,180
---------
---------
</TABLE>
The following reconciles the U.S. federal statutory income tax rate with
Generac Portable Products' effective tax rate for the period ended December 31,
1998:
<TABLE>
<S> <C>
U.S. federal statutory income tax rate................................ 34.0%
State income taxes, net of federal benefit............................ 1.0
Nondeductible expenses and other...................................... (.8)
---
34.2%
---
---
</TABLE>
F-21
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
9. INCOME TAXES (CONTINUED)
Deferred income taxes reflected in the balance sheet consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Deferred tax assets:
Inventories and receivables................................................... $ 267
Accrued warranty.............................................................. 76
------------
343
------------
Deferred tax liabilities:
Intangible assets............................................................. (1,512)
Sales incentives.............................................................. (161)
Other......................................................................... (36)
------------
(1,709)
------------
Total net deferred tax liability................................................ $ (1,366)
------------
------------
</TABLE>
10. STOCKHOLDERS' EQUITY
In connection with the initial capitalization of Generac Portable Products,
The Beacon Group III-- Focus Value Fund, L.P., management of Generac Portable
Products and certain other investors purchased an aggregate of $110 million of
common stock, par value of $.01 per share, constituting 100% of Generac Portable
Products' outstanding common stock. Upon consummation of the Acquisition, The
Beacon Group III--Focus Value Fund, L.P. and the other stockholders of Generac
Portable Products, and Generac Portable Products, entered into a Stockholders'
Agreement which includes certain transfer restrictions, voting agreements and
registration rights. Employees who own stock of Generac Portable Products are
also subject to agreements that restrict their right to transfer their stock
and, under certain conditions, require them to sell a pro rata portion of their
stock in a transaction in which The Beacon Group III-- Focus Value Fund, L.P. is
selling its stock. Generac Portable Products is not obligated to purchase this
stock.
Effective July 9, 1998, Generac Portable Products' board of directors
approved the Generac Portable Products, Inc. Stock Option Plan which provides
for the granting of stock options as an incentive to certain key employees.
Under this Plan, stock options to acquire up to 2,023,810 shares of common
stock, in the aggregate, may be granted under a time-vesting formula at an
exercise price equal to the fair market value of the common stock at the date of
grant. The options become exercisable in equal increments beginning on the first
anniversary of the grant date over a five-year period and expire ten years
subsequent to the grant date. On July 9, 1998, 1,454,613 options were granted at
an exercise price of $10.35 per share to certain members of management and
Generac Portable Products' board of directors. The options have a remaining
contractual life of 9.5 years. No options were granted or forfeited subsequent
to the initial grant. The fair value of the options at the date of grant was
$3.47 per option. The fair value was estimated using the minimum value method in
accordance with SFAS No. 123, "Accounting for Stock-Based Compensation",
assuming an expected option life of 7 years and a risk-free interest rate of 6%.
Generac Portable Products applies Accounting Principles Board Opinion No. 25
and related interpretations in accounting for its stock option plan.
Accordingly, no compensation expense has been
F-22
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
10. STOCKHOLDERS' EQUITY (CONTINUED)
recognized in the statement of income. If compensation cost had been determined
in accordance with SFAS No. 123, net income would have decreased approximately
$351 during the period ended December 31, 1998 and basic and diluted earnings
per share amounts on a pro forma basis would have been $0.36 and $0.36,
respectively, as compared to reported basic and diluted per share amounts of
$0.40 and $0.39, respectively.
On May 20, 1999, the company effected a 1,250 for one common stock split.
All share and per share information in these consolidated financial statements
have been retroactively adjusted to reflect this stock split.
11. LEASES
Generac Portable Products leases certain manufacturing equipment, computer
equipment and vehicles under operating leases with lease terms ranging up to 3
years. Additionally, in connection with the Acquisition, Generac Portable
Products entered into a capital lease arrangement with Generac Corporation for
certain manufacturing equipment. Property, plant and equipment at December 31,
1998 includes $2,451 for equipment under capital leases, which is net of $165 in
accumulated depreciation. Following is a summary of future minimum payments
under capitalized leases and operating leases that have initial or remaining
non-cancelable lease terms in excess of one year at December 31, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
----------- ---------
<S> <C> <C>
1999..................................................................... $ 348 $ 673
2000..................................................................... 208 673
2001..................................................................... 147 673
2002..................................................................... -- 830
----- ---------
$ 703 2,849
-----
-----
Less amount representing interest........................................ (466)
---------
Present value of minimum lease payments.................................. $ 2,383
---------
---------
</TABLE>
Total rent expense recognized by Generac Portable Products for the period
ended December 31, 1998 is $142.
12. SEGMENT INFORMATION
Generac Portable Products is a leader in the design, manufacture and sale of
portable generators and pressure washers. Engineering, manufacturing, marketing
and administrative resources are generally not product specific and Generac
Portable Products evaluates operating performance based upon the combined
results of these product lines.
F-23
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
12. SEGMENT INFORMATION (CONTINUED)
Information regarding Generac Portable Products' geographic areas is
summarized below:
<TABLE>
<CAPTION>
UNITED
STATES EUROPE CONSOLIDATED
---------- --------- ------------
<S> <C> <C> <C>
Net sales to unaffiliated customers...................... $ 126,740 $ 10,122 $ 136,862
Long-lived assets........................................ 235,341 2,574 237,915
</TABLE>
Generac Portable Products sells primarily to large home center retailers.
Three customers accounted for approximately 74% of net sales for the period
ended December 31, 1998. All three customers individually comprise more than 10%
of Generac Portable Products' net sales. Included in accounts receivable at
December 31, 1998 and July 9, 1998 are amounts due from these three customers
aggregating $29,862 and $34,998, respectively.
13. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS
In the normal course of business Generac Portable Products is involved in
certain legal actions and claims. It is the opinion of management that such
litigation and claims will be resolved without material adverse effect on
Generac Portable Products' financial position, results of operations or cash
flows.
In connection with the Acquisition, Generac Portable Products entered into
an OEM engine supply agreement with Generac Corporation, to supply it with the
engine used in certain of Generac Portable Products' pressure washers and
consumer portable generators. The engine supply agreement allows for Generac
Portable Products to make minimum purchases of engines from Generac Corporation
in each of the next nine years and gives Generac Portable Products the right to
increase the amount purchased based upon forecasted requirements. This agreement
is an exclusive arrangement related to such products subject to the minimum
purchase requirements. As Generac Portable Products maintains relationships with
other major engine suppliers, management believes that the minimum purchase
quantities and unit prices under this agreement will not have an adverse effect
on Generac Portable Products. Management also considers the provisions of the
engine supply agreement to reflect arms-length terms. For the period ended
December 31, 1998, Generac Portable Products purchased product approximating
$14.4 million under this agreement. In addition, Generac Portable Products also
purchased other components from Generac Corporation approximating $6.5 million
for the period ended December 31, 1998. Included in accounts payable are amounts
due to Generac Corporation of approximately $4.7 million at December 31, 1998.
In connection with the issuance of the Senior Subordinated Notes, Generac
Portable Products entered into a registration rights agreement pursuant to which
Generac Portable Products agreed that it would use its best efforts to file a
registration statement with the Securities and Exchange Commission for the
purpose of exchanging the existing notes for new notes registered under the
Securities Act. Under the registration rights agreement, Generac Portable
Products is subject to liquidated damages in the form of additional interest at
the rate of .50% per annum if certain deadlines are not met in connection with
this filing. The anticipated impact of the additional interest is not expected
to be material.
F-24
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS UNLESS INDICATED)
14. SEPARATE FINANCIAL INFORMATION OF CO-ISSUERS AND GUARANTOR OF THE NOTES
In connection with the Acquisition, Generac Portable Products, LLC and GPPW
co-issued the Notes, and while Generac Portable Products, LLC and GPPW are
jointly and severally liable for the obligations under the Notes, GPPW does not
conduct any operations, or have any assets of any kind other than its investment
in Generac Portable Products, LLC. Generac Portable Products has provided a full
and unconditional guarantee of the Notes. However, because Generac Portable
Products has no operating activities independent of Generac Portable Products,
LLC, Generac Portable Products' consolidated financial statements are
essentially the same as those of Generac Portable Products, LLC. The following
condensed supplemental consolidating financial information reflects the
investments of Generac Portable Products, GPPW and GPPD in Generac Portable
Products, LLC using the equity method. Generac Portable Products, GPPW and GPPD
are dependent upon Generac Portable Products, LLC for cash flows to fund their
income tax liabilities arising from their respective investments. GPPW and GPPD
are wholly-owned subsidiaries of Generac Portable Products, and GPPW and GPPD
hold a 5% and 95% ownership interest in Generac Portable Products, LLC,
respectively.
<TABLE>
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC. GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Current assets............. $ -- $ 7 $ 132 $ 93,772 $ -- $ 93,911
Investment in affiliates... 114,925 5,856 111,249 -- (232,030) --
Noncurrent assets.......... -- -- -- 238,091 -- 238,091
-------- --------- ---------- -------- ------------ ------------
Total assets........... $ 114,925 $ 5,863 $ 111,381 $ 331,863 $ (232,030) $ 332,002
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
Current liabilities........ $ -- $ 41 $ 773 $ 35,556 $ -- $ 36,370
Long-term debt............. -- -- -- 189,861 -- 189,861
Other long-term
obligations.............. -- 75 1,430 999 -- 2,504
Stockholders' equity....... 114,925 5,747 109,178 105,447 (232,030) 103,267
-------- --------- ---------- -------- ------------ ------------
$ 114,925 $ 5,863 $ 111,381 $ 331,863 $ (232,030) $ 332,002
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
<CAPTION>
GENERAC PORTABLE GENERAC PORTABLE
PRODUCTS, INC., GPPW GPPD PRODUCTS, LLC ELIMINATIONS CONSOLIDATED
---------------- --------- ---------- ---------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Net sales.................. $ -- $ -- $ -- $ 136,862 $ -- $ 136,862
Gross profit............... -- -- -- 38,617 -- 38,617
Operating expenses......... -- -- -- 22,331 -- 22,331
-------- --------- ---------- -------- ------------ ------------
Operating income........... -- -- -- 16,286 -- 16,286
Interest expense........... -- -- -- 10,075 -- 10,075
Other income, net.......... -- -- -- (171) -- (171)
Equity in earnings of
affiliates............... 4,202 319 6,063 -- (10,584) --
-------- --------- ---------- -------- ------------ ------------
Income before income
taxes.................... 4,202 319 6,063 6,382 (10,584) 6,382
Provision for income
taxes.................... -- 109 2,071 -- -- 2,180
-------- --------- ---------- -------- ------------ ------------
Net income................. $ 4,202 $ 210 $ 3,992 $ 6,382 $ (10,584) $ 4,202
-------- --------- ---------- -------- ------------ ------------
-------- --------- ---------- -------- ------------ ------------
</TABLE>
F-25
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
of Generac Corporation:
We have audited the accompanying balance sheets of the Portable Products
Division, a Business Unit ("Business Unit") of Generac Corporation ("Company"),
as of July 9, 1998, March 31, 1998, December 31, 1997 and 1996, and the related
statements of income and cash flows for the six months and nine days ended July
9, 1998, the three months ended March 31, 1998, and the years ended December 31,
1997 and 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared from the separate
records maintained by the Business Unit and may not necessarily be indicative of
the conditions that would have existed or the results of operations if the
Business Unit had been operated as an unaffiliated company. Portions of certain
income and expenses represent allocations made from Generac Corporation of items
applicable to the Company as a whole.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Portable Products Division, a Business
Unit of Generac Corporation, at July 9, 1998, March 31, 1998, December 31, 1997
and 1996, and the results of its operations and its cash flows for the six
months and nine days ended July 9, 1998, the three months ended March 31, 1998,
and the years ended December 31, 1997 and 1996 in conformity with generally
accepted accounting principles.
Deloitte & Touche LLP
Milwaukee, Wisconsin
January 29, 1999
F-26
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents......................................... $ 599 $ 1,132 $ 1,065 $ 1,122
Accounts receivable............................................... 48,528 40,076 18,766 14,263
Inventories....................................................... 42,839 36,972 33,023 24,707
Prepaid expenses.................................................. 429 311 206 630
---------- ----------- --------- ---------
Total current assets............................................ 92,395 78,491 53,060 40,722
PROPERTY, PLANT AND EQUIPMENT:
At cost:
Land and land improvements........................................ 972 951 943 942
Building.......................................................... 5,781 5,419 5,210 5,226
Machinery and equipment........................................... 6,708 6,532 5,511 5,295
Dies and tools.................................................... 4,552 3,517 4,404 3,375
Vehicles.......................................................... 265 241 227 215
Office equipment.................................................. 668 569 536 449
---------- ----------- --------- ---------
18,946 17,229 16,831 15,502
Less accumulated depreciation....................................... 5,577 4,542 4,591 3,145
---------- ----------- --------- ---------
13,369 12,687 12,240 12,357
---------- ----------- --------- ---------
TOTAL............................................................... $ 105,764 $ 91,178 $ 65,300 $ 53,079
---------- ----------- --------- ---------
---------- ----------- --------- ---------
LIABILITIES AND BUSINESS UNIT INVESTMENT
CURRENT LIABILITIES:
Trade accounts payable............................................ $ 14,904 14,475 $ 6,998 $ 6,961
Accrued employee compensation, benefits and payroll
withholdings.................................................... 1,245 1,072 1,020 427
Other accrued liabilities......................................... 7,705 4,624 4,519 4,055
---------- ----------- --------- ---------
Total current liabilities....................................... 23,854 20,171 12,537 11,443
COMMITMENTS AND CONTINGENCIES
(Notes 9 and 12)
BUSINESS UNIT INVESTMENT............................................ 81,910 71,007 52,763 41,636
---------- ----------- --------- ---------
TOTAL............................................................... $ 105,764 $ 91,178 $ 65,300 $ 53,079
---------- ----------- --------- ---------
---------- ----------- --------- ---------
</TABLE>
See notes to financial statements.
F-27
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
STATEMENTS OF INCOME (IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS FOR THE THREE DECEMBER 31,
AND NINE DAYS MONTHS ENDED ----------------------
ENDED JULY 9, 1998 MARCH 31, 1998 1997 1996
------------------ -------------- ---------- ----------
<S> <C> <C> <C> <C>
NET SALES............................................ $ 139,551 $ 59,555 $ 178,014 $ 122,550
COST OF SALES........................................ 104,537 44,422 131,095 95,246
-------- ------- ---------- ----------
Gross profit....................................... 35,014 15,133 46,919 27,304
-------- ------- ---------- ----------
EXPENSES
Selling and service................................ 16,624 7,006 21,729 13,860
General and administrative......................... 2,380 1,050 4,161 4,435
-------- ------- ---------- ----------
Total expenses................................... 19,004 8,056 25,890 18,295
-------- ------- ---------- ----------
INCOME FROM OPERATIONS............................... 16,010 7,077 21,029 9,009
OTHER EXPENSES
Interest expense................................... 1,409 488 2,100 2,237
Foreign currency................................... 108 (6) 186 15
-------- ------- ---------- ----------
Total other expense.............................. 1,517 482 2,286 2,252
-------- ------- ---------- ----------
NET INCOME........................................... $ 14,493 $ 6,595 $ 18,743 $ 6,757
-------- ------- ---------- ----------
-------- ------- ---------- ----------
COMPREHENSIVE INCOME
Net income......................................... $ 14,493 $ 6,595 $ 18,743 $ 6,757
Translation adjustments............................ (535) (351) (832) 521
-------- ------- ---------- ----------
Total comprehensive income....................... $ 13,958 $ 6,244 $ 17,911 $ 7,278
-------- ------- ---------- ----------
-------- ------- ---------- ----------
</TABLE>
See notes to financial statements.
F-28
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
STATEMENTS OF CASH FLOWS (IN 000'S)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE SIX MONTHS FOR THE THREE DECEMBER 31,
AND NINE DAYS MONTHS ENDED --------------------
ENDED JULY 9, 1998 MARCH 31, 1998 1997 1996
------------------ -------------- --------- ---------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................................ $ 14,493 $ 6,595 $ 18,743 $ 6,757
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Depreciation........................................ 796 358 1,466 1,498
(Increase) decrease in assets:
Accounts receivable............................... (29,943) (21,471) (4,753) (2,533)
Inventories....................................... (10,054) (4,092) (8,696) 9,661
Prepaid expenses.................................. (224) (94) 276 (533)
Increase in liabilities:
Accounts payable.................................. 7,936 7,421 95 866
Accrued liabilities............................... 3,428 152 1,084 1,581
------- ------- --------- ---------
Net cash (used in) provided by operating
activities.................................... (13,568) (11,131) 8,215 17,297
INVESTING ACTIVITIES--Capital expenditures.............. (1,553) (479) (1,413) (2,272)
FINANCING ACTIVITIES--Increase (decrease) in business
unit investment, net.................................. 14,787 11,700 (6,784) (14,157)
EFFECT OF EXCHANGE RATE CHANGES ON CASH................. (132) (23) (75) 11
------- ------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.... (466) 67 (57) 879
CASH AND CASH EQUIVALENTS:
Beginning of Period................................... 1,065 1,065 1,122 243
------- ------- --------- ---------
End of Period......................................... $ 599 $ 1,132 $ 1,065 $ 1,122
------- ------- --------- ---------
------- ------- --------- ---------
</TABLE>
See notes to financial statements.
F-29
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements include the accounts of the Portable
Products Division located in Jefferson, Wisconsin and its branches in the United
Kingdom and Germany, a Business Unit ("Business Unit") of Generac Corporation
("Generac"). The Business Unit designs and manufactures portable generators,
pressure washers and other engine-powered tools for the world market.
CASH EQUIVALENTS--The Business Unit considers all investments purchased with
a maturity of three months or less to be cash equivalents.
INVENTORIES--Inventories are stated at the lower of cost (first-in,
first-out method) or market (replacement cost or estimated net realizable
value).
REVENUE RECOGNITION--Net sales and costs of sales are recognized as the
related products are shipped. A provision for estimated sales returns is
recorded in the period in which the sales are recognized.
RESEARCH AND DEVELOPMENT COSTS--The Business Unit has an ongoing program of
new product development and existing product enhancement through redesign of
existing products and the addition of new models. Costs related to these
programs are expensed as incurred and totaled the following amounts for the
respective periods shown:
<TABLE>
<CAPTION>
(IN $000'S)
-----------
<S> <C>
For the six months and nine days ended July 9, 1998 $ 925
For the three months ended March 31, 1998 434
For the years ended December 31,
1997............................................................................ 1,743
1996............................................................................ 2,494
</TABLE>
DEPRECIATION--Costs of property, plant and equipment are depreciated using
the straight-line method over the estimated useful lives of the assets as
follows:
<TABLE>
<CAPTION>
YEARS
---------
<S> <C>
Land improvements................................................................... 20
Buildings........................................................................... 40
Machinery and equipment............................................................. 10
Dies and tools...................................................................... 3 to 5
Vehicles............................................................................ 4
Office equipment.................................................................... 5 to 10
</TABLE>
PRODUCT WARRANTIES--The Business Unit provides that warranted products are
merchantable and free of defects in workmanship and material generally for a
period of one year. Warranty reserves are provided as charges to operations
under selling and service expense for estimated normal warranty costs and, if
F-30
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
applicable, for any significant problems known to exist on products sold.
Warranty expense totaled the following amounts for the respective periods shown:
<TABLE>
<CAPTION>
(IN $000'S)
-----------
<S> <C>
For the six months and nine days ended July 9, 1998............................... $ 1,848
For the three months ended March 31, 1998......................................... 946
For the years ended December 31,
1997............................................................................ 5,305
1996............................................................................ 1,941
</TABLE>
FOREIGN CURRENCY TRANSLATION--The translation of the branch accounts into U.
S. dollars is performed for balance sheet accounts using current exchange rates
in effect at the balance sheet date and for revenue and expense accounts using
an average exchange rate during the period. The gains or (losses) resulting from
such translation are reflected as "cumulative translation adjustments" in
business unit investment. Such adjustments amounted to $(703,000) through July
9, 1998.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The Business Unit believes the carrying
amount of its financial instruments (cash and cash equivalents, accounts
receivable and accounts payable) is a reasonable estimate of the fair value of
these instruments.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
2. BUSINESS UNIT INVESTMENT
The Business Unit is an operating unit of Generac. The Business Unit
investment balance reflects opening net assets, accumulated earnings for the six
months and nine days ended July 9, 1998, for the three months ended March 31,
1998, and for the years ended December 31, 1997 and 1996, and various activities
between the Business Unit and Generac. Domestic cash management is centralized
at Generac and, as such, the Business Unit's cash funding requirements are met
by Generac.
The financial statements for the year ended December 31, 1996 present the
results of operations and cash flows of the carved out Portable Products
operations of Generac. Receivables, inventories, property, plant and equipment,
accounts payable, accrued liabilities, net sales, cost of sales, and selling
expenses were specifically identified for each operation. Liabilities related to
employee compensation were allocated to each operation based upon either
employee head count or payroll. Other expenses relating to service, research and
development, and general and administrative were allocated to each operation
based upon either specific activities or sales levels. Management believes the
allocations are reasonable. Beginning in 1997, the Business Unit operated as a
division of Generac with separate financial reporting.
F-31
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
2. BUSINESS UNIT INVESTMENT (CONTINUED)
The financial statements for the six months and nine days ended July 9,
1998, the three months ended March 31, 1998, and the year ended December 31,
1997 include allocations by Generac for certain operating and employee benefit
costs incurred on behalf of the Business Unit. These costs are allocated based
on estimates of time and services provided, specifically identifiable charges,
or relevant criteria that establish the Business Unit's pro rata charge of costs
common to all Generac operating units. Allocated support costs from Generac to
the Business Unit during the six months and nine days ended July 9, 1998, the
three months ended March 31, 1998 and the year ended December 31, 1997 included
manufacturing support of $125,000, $46,000 and $587,000, service support of
$11,000, $11,000 and $789,000, research and development support of $21,000,
$21,000 and $410,000, general and administrative support of $152,000, $72,000
and $280,000, and human resource and employee benefits support of $76,000,
$36,000 and $228,000, respectively.
Research and development expenses totaling $131,000, $52,000, $246,000 and
$235,000 were incurred by the Business Unit's United Kingdom branch during the
six months and nine days ended July 9, 1998, the three months ended March 31,
1998, and the years ended December 31, 1997 and 1996, respectively, on behalf of
Generac and charged to Generac.
The Business Unit and Generac supply each other with certain inventories.
Total inventories transferred during the six months and nine days ended July 9,
1998, the three months ended March 31, 1998, and the years ended December 31,
1997 and 1996 were $7,855,000, $7,426,000, $9,541,000 and $11,374,000,
respectively, from Generac to the Business Unit and $350,000, $339,000,
$1,330,000 and $0, respectively, from the Business Unit to Generac. Commencing
February 1, 1998, certain production was transferred from the Business Unit to
Generac. During the five months and nine days ended July 9, 1998 and the two
months ended March 31, 1998, the Business Unit purchased $12,223,000 and
$3,538,000, respectively, of inventories related to such transferred production.
At July 9 and March 31, 1998 such inventory represented approximately $2,673,000
and $2,165,000, respectively, including profit of approximately $508,000 and
$411,000, respectively. All other inventory is transferred at cost.
The Business Unit is also charged a portion of Generac's interest expense
based upon levels of Business Unit investment. This interest charge aggregated
$1,354,000, $508,000, $1,999,000 and $2,237,000 during the six months and nine
days ended July 9, 1998, the three months ended March 31, 1998, and the years
ended December 31, 1997 and 1996, respectively.
Management believes the allocations and activities between the Business Unit
and Generac are reasonable under the circumstances; however, they may not be
indicative of amounts that would be required to be incurred if the Business Unit
operated on a stand-alone basis.
F-32
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
2. BUSINESS UNIT INVESTMENT (CONTINUED)
The changes within the business unit investment for 1996, 1997 and the
periods ended March 31 and July 9, 1998 are as follows:
<TABLE>
<S> <C>
Balance at December 31, 1995....................................... $ 48,515
Net income....................................................... 6,757
Cumulative translation adjustments............................... 521
Activity with parent, net........................................ (14,157)
---------
Balance at December 31, 1996....................................... 41,636
Net income....................................................... 18,743
Cumulative translation adjustments............................... (832)
Activity with parent, net........................................ (6,784)
---------
Balance at December 31, 1997....................................... 52,763
Net income....................................................... 6,595
Cumulative translation adjustments............................... (351)
Activity with parent, net........................................ 12,000
---------
Balance at March 31, 1998.......................................... 71,007
Net income....................................................... 7,898
Cumulative translation adjustments............................... (184)
Activity with parent, net........................................ 3,189
---------
Balance at July 9, 1998............................................ $ 81,910
---------
---------
</TABLE>
3. S CORPORATION ELECTION
Generac and its Stockholders have elected for federal and certain state
income tax purposes to be treated as a S Corporation under provisions of the
Internal Revenue Code. Accordingly, Generac's taxable income is includable in
the individual tax returns of its Stockholders and no provision for income taxes
is included in the accompanying financial statements.
4. RECEIVABLES
Accounts receivable consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Accounts receivable.............................. $ 48,753 $ 40,262 $ 18,938 $ 14,414
Allowance for doubtful accounts.................. (225) (186) (172) (151)
--------- ----------- --------- ---------
$ 48,528 $ 40,076 $ 18,766 $ 14,263
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
F-33
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
4. RECEIVABLES (CONTINUED)
There are no accounts receivable having a due date more than one year after
the balance sheet date. The provision for doubtful accounts charged (credited)
to operations was as follows:
<TABLE>
<CAPTION>
(IN $000'S)
-------------
<S> <C>
For the six months and nine days ended July 9, 1998 $ 67
For the three months ended March 31, 1998 14
For the years ended December 31,
1997............................................................................ 21
1996............................................................................ (155)
</TABLE>
5. INVENTORIES
Inventories consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Raw materials and sub-assemblies................. $ 26,599 $ 22,902 $ 20,490 $ 15,377
Finished goods................................... 16,240 14,070 12,533 9,330
--------- ----------- --------- ---------
Total............................................ $ 42,839 $ 36,972 $ 33,023 $ 24,707
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
Work-in-process is not a significant separate component of inventories and
is included in the raw materials and sub-assemblies component.
6. PROPERTY, PLANT AND EQUIPMENT
In 1994, Generac entered into an Industrial Development Revenue Bond
agreement with the City of Jefferson, Wisconsin. The proceeds from these
Industrial Development Revenue Bonds, aggregating $7,200,000, were used to
construct and equip the Business Unit's manufacturing facility in Jefferson.
Property, plant and equipment with a net carrying amount of $8,999,000,
$8,762,000 and $8,644,000 at March 31, 1998, December 31, 1997 and 1996,
respectively, were pledged as collateral under a related letter of credit
agreement which was terminated in June 1998.
F-34
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31,
JULY 9, MARCH 31, --------------------
1998 1998 1997 1996
--------- ----------- --------- ---------
<S> <C> <C> <C> <C>
(IN 000'S)
Sales incentives..................................... $ 5,936 $ 2,791 $ 2,768 $ 2,843
Product warranty..................................... 1,020 1,029 987 659
Other................................................ 749 804 764 553
--------- ----------- --------- ---------
$ 7,705 $ 4,624 $ 4,519 $ 4,055
--------- ----------- --------- ---------
--------- ----------- --------- ---------
</TABLE>
8. EMPLOYEE RETIREMENT AND SAVINGS PLANS
Generac has noncontributory pension plans (salaried and hourly) covering
substantially all of its employees including the employees of the Business Unit.
The benefits under the salaried plan are based upon years of service and the
participants' defined final average monthly compensation. The benefits under the
hourly plan are based on a unit amount at the date of termination multiplied by
the participants' credited service. Generac's funding policy for these plans is
to contribute amounts at least equal to the minimum annual amount required by
applicable regulations. Total pension expense allocated to the Business Unit for
the six months and nine days ended July 9, 1998, the three months ended March
31, 1998 and the years ended December 31, 1997 and 1996 was $231,000, $108,000,
$293,000 and $255,000, respectively.
Generac maintains deferred compensation plans for key employees of the
Business Unit and at July 9, 1998, approximately $182,000 of deferred
compensation was included in accrued employee benefits. Deferred compensation
expense charged to operations was $18,000, $40,000 and $23,000, for the six
months and nine days ended July 9, 1998 and for the years ended December 31,
1997 and 1996, respectively. No such provision was made for the three months
ended March 31, 1998.
9. LEASE COMMITMENTS
Generac leases certain manufacturing equipment, computer equipment and
vehicles used in the Business Unit under operating leases for lease terms
ranging up to five years.
The aggregate minimum rental commitments at July 9, 1998 are as follows:
<TABLE>
<S> <C>
Five months and 22 days ended December 31, 1998................. $ 389,000
Years ended:
1999.......................................................... 746,000
2000.......................................................... 701,000
2001.......................................................... 674,000
2002.......................................................... 287,000
---------
$2,797,000
---------
---------
</TABLE>
F-35
<PAGE>
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998,
THREE MONTHS ENDED MARCH 31, 1998
AND YEARS ENDED DECEMBER 31, 1997 AND 1996 (CONTINUED)
9. LEASE COMMITMENTS (CONTINUED)
Total rent expense for the six months and nine days ended July 9, 1998, the
three months ended March 31, 1998 and the years ended December 31, 1997 and 1996
was approximately $476,000, $196,000, $462,000 and $100,000, respectively.
Certain manufacturing equipment with an original cost of $3,178,000 is
leased under a five-year master lease arrangement and accounts for $353,000,
$168,000 and $385,000 of total rental expense for the six months and nine days
ended July 9, 1998, the three months ended March 31, 1998 and for the year ended
December 31, 1997, respectively; $673,000 of future annual commitments through
2001; and all of the year 2002 commitments. At the end of the lease term,
Generac has the option to purchase the equipment at a purchase price equal to
the then fair market value which shall not be less than 15% nor more than 25% of
the original equipment cost.
10. MAJOR CUSTOMERS
Two customers accounted for approximately 69% of net sales for the six
months and nine days ended July 9, 1998, and included in accounts receivable at
July 9, 1998 are amounts due from these two customers aggregating $34,998,000.
Two customers accounted for approximately 67% of net sales for the three months
ended March 31, 1998, and included in accounts receivable at March 31, 1998 are
amounts due from these two customers aggregating $25,652,000. Three customers
accounted for approximately 74% of net sales for the year ended December 31,
1997, and included in accounts receivable at December 31, 1997 are amounts due
from these three customers aggregating $11,076,000. Two customers accounted for
approximately 56% of net sales for the year ended December 31, 1996, and
included in accounts receivable at December 31, 1996 are amounts due from these
two customers aggregating $6,608,000.
11. FOREIGN OPERATIONS
The Business Unit's European operations accounted for approximately 19%,
18%, 18% and 20% of the total Business Unit's assets as of July 9, 1998, March
31, 1998, December 31, 1997 and December 31, 1996, respectively. Sales for these
European operations accounted for approximately 8%, 8%, 8% and 10% of net sales
for the six months and nine days ended July 9, 1998, the three months ended
March 31, 1998 and for the years ended December 31, 1997 and 1996, respectively.
12. CONTINGENCIES
In the normal course of business the Business Unit is involved in certain
legal actions and claims. It is the opinion of management that such litigation
and claims will be resolved without material effect on the Business Unit's
financial position or results of operations.
13. SUBSEQUENT EVENT
On July 9, 1998, Generac completed the sale of substantially all of the
assets and the assumption of certain liabilities of the Business Unit to Generac
Portable Products, LLC (a company formed by The Beacon Group III--Focus Value
Fund, L.P.) for a net purchase price of approximately $305 million, including
expenses.
F-36
<PAGE>
[GENERAC LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, to be paid in connection with the sale
of the common stock being registered, all of which will be paid by the
registrant. All amounts are estimates except the registration fee, the NASD
filing fee and the NYSE filing fee.
<TABLE>
<S> <C>
Registration fee................................................ $ 35,167
NASD filing fee................................................. 13,150
NYSE listing fee................................................
Accounting fees and expenses....................................
Legal fees and expenses.........................................
Transfer agent fees.............................................
Printing and engraving expenses.................................
Miscellaneous expenses..........................................
---------
Total....................................................... $1,300,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law, as amended (the
"DGCL"), permits a Delaware corporation to indemnify officers, directors,
employees and agents for actions taken in good faith and in a manner they
reasonably believed to be in, or not opposed to, the best interests of the
corporation, and with respect to any criminal action, which they had no
reasonable cause to believe was unlawful. The DGCL provides that a corporation
may pay expenses (including attorneys' fees) incurred by an officer or director
in defending any civil, criminal, administrative or investigative action (upon
receipt of a written undertaking to reimburse the corporation if indemnification
is not appropriate), and must reimburse a successful defendant for expenses,
including attorneys' fees, actually and reasonably incurred, and permits a
corporation to purchase and maintain liability insurance for its directors and
officers. The DGCL provides that indemnification may be made for any claim,
issue or matter as to which a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals therefrom, to be liable to the
corporation, unless and only to the extent a court determines that the person is
entitled to indemnity for such expenses as the court deems proper.
Section 107(b)(7) of the DGCL permits a Delaware corporation to include a
provision in its certificate of incorporation eliminating or limiting the
personal liability of a director to the corporation or its stockholders for
monetary damages for a breach of the director's fiduciary duty as a director,
except for liability (a) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (b) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (c) under
Section 174 of the DGCL, which concerns unlawful payments of dividends, stock
purchases or redemptions or (d) for any transaction from which the director
derived an improper personal benefit.
The Registrant's Certificate of Incorporation provides that the directors of
the Registrant are entitled to the benefits of all limitations on the liability
of directors generally that are now or hereafter become available under the
DGCL. It also provides that any repeal or modification of this provision shall
be prospective only, and shall not affect, to the detriment or any director, any
limitation on the personal liability of a director of the Registrant existing at
the time of such repeal or modification. In addition, the Registrant's Bylaws
provide for indemnification to the fullest extent of the law.
II-1
<PAGE>
The form of underwriting agreement filed as an exhibit to this registration
statement provides for the indemnification of our directors and officers in
certain circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Not applicable
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER NUMBER DESCRIPTION OF EXHIBITS
- ----------- ----------- ----------------------------------------------------------------------------------------------
<C> <C> <S>
*1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of Generac Portable Products, Inc.
3.2 By-Laws of Generac Portable Products, Inc.
4.1 Stockholders' Agreement dated July 9, 1998 among Generac Portable Products, Inc., The Beacon
Group III--Focus Value Fund, L.P. and other stockholders.
4.2 Specimen of Common Stock Certificate.
5.1 Opinion of King & Spalding (including the consent of such counsel) regarding the legality of
the Common Stock.
10.1 OEM Engine Supply Agreement dated July 9, 1998 between Generac Corporation and Generac
Portable Products, Inc. (filed as Exhibit 10.1 to the Registration Statement on Form S-4, File
No. 333-73247, filed on April 20, 1999 and incorporated herein by reference).
10.2 Stock Option Plan.
10.3 Asset Purchase and Sale Agreement dated May 5, 1998 between GPPC, Inc. and Generac Corporation
10.4 Parts Supply Agreement dated July 9, 1998 between Generac Portable Products, Inc. and Generac
Corporation.
10.5 Generator Supply Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
10.6 Trademark License Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
10.7 Patent License Agreement dated July 9, 1998 between Generac Portable Products, Inc. and
Generac Corporation.
10.8 Assignment of Trademark Applications and Common Law Trademarks dated July 9, 1998 between
Generac Portable Products, Inc. and Generac Corporation
10.9 Assignment of Patents and Patent Applications dated July 9, 1998 between Generac Portable
Products, Inc. and Generac Corporation.
21.1 Subsidiaries.
23.1 Independent Auditors' Consent and Reports on Financial Statement Schedule of Deloitte & Touche
LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of King & Spalding (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page of this Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
II-2
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION OF SCHEDULE
- ---------- ------------------------------------------------------------------------------------------------------
<C> <S>
Report of PricewaterhouseCoopers LLP on Financial Statement Schedule.
Report on Schedule of Deloitte & Touche LLP (included in Exhibit 23.1 of this Registration Statement).
II Generac Portable Products, Inc. Schedule of Combined Valuation Accounts.
II Portable Products Division, a Business Unit of Generac Corporation Schedule of Combined Valuation
Accounts.
</TABLE>
ITEM 17. UNDERTAKINGS
The undersigned registrant (the "Registrant") hereby undertakes:
(1) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(2) That, for purposes of determining any liability under the Securities Act
of 1933, 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
497(h) under the Securities Act of 1933 shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(3) That, for the purpose of determining any liability under the Securities
Act of 1933, 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.
(4) That, insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, 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 of 1933 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, 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
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of New York, State of New
York, on May 21, 1999.
GENERAC PORTABLE PRODUCTS, INC.
By: /s/ ERIC R. WILKINSON
-----------------------------------------
Eric R. Wilkinson
PRESIDENT
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints ERIC R. WILKINSON, President of Generac Portable
Products, Inc., and RICHARD A. AUBE, Secretary and Treasurer of Generac Portable
Products, Inc., or either of them, and any agent for service named in this
Registration Statement and each of them, his true and lawful attorney-in-fact
and agent, with full power of substitution and resubstitution, for him and in
his name, place and stead, in any and all capacities, to sign any registration
statements filed pursuant to Rule 462(b) under the Securities Act of 1933 and
any and all amendments (including post-effective amendments) to this
Registration Statement, and to file the same, with all exhibits thereto, and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agents or any of them, their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities with Generac Portable Products, Inc. and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ERIC R. WILKINSON President and Director
- ------------------------------ May 21, 1999
Eric R. Wilkinson
/s/ RICHARD A. AUBE Secretary and Treasurer
- ------------------------------ May 21, 1999
Richard A. Aube
/s/ R. EUGENE CARTLEDGE Chairman of the Board
- ------------------------------ May 21, 1999
R. Eugene Cartledge
/s/ THOMAS A. COMMES Director
- ------------------------------ May 21, 1999
Thomas A. Commes
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ROBERT D. KERN Director
- ------------------------------ May 21, 1999
Robert D. Kern
/s/ THOMAS G. MENDELL Director
- ------------------------------ May 21, 1999
Thomas G. Mendell
/s/ DORRANCE J. NOONAN, JR. Director
- ------------------------------ May 21, 1999
Dorrance J. Noonan, Jr.
/s/ R. RALPH PARKS Director
- ------------------------------ May 21, 1999
R. Ralph Parks
/s/ RICHARD A. VAN DEUREN Director
- ------------------------------ May 21, 1999
Richard A. Van Deuren
</TABLE>
II-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of Generac Portable Products, Inc.
Our audit of the consolidated financial statements referred to in our report
dated February 22, 1999, except as to the EARNINGS PER SHARE section of Note 2,
and Note 10, which are as of May 20, 1999, appearing in Part I of this
Registration Statement on Form S-1 also included an audit of the accompanying
Financial Statement Schedule of Generac Portable Products, Inc. for the period
July 10, 1998 through December 31, 1998 included in Part II of this Registration
Statement on Form S-1. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
February 22, 1999
S-1
<PAGE>
SCHEDULE II
GENERAC PORTABLE PRODUCTS, INC.
SCHEDULE OF COMBINED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF CHARGES TO BALANCE AT END
PERIOD EXPENSE DEDUCTIONS OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
For the Period July 10, 1998 through December 31, 1998........ $ 225 $ 17 $ -- $ 242
<CAPTION>
BALANCE AT
BEGINNING OF CHARGES TO BALANCE AT END
PERIOD EXPENSE DEDUCTIONS OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
INVENTORY:
For the Period July 10, 1998 through December 31, 1998........ $ 500 $ 593 $ 319 $ 774
</TABLE>
S-2
<PAGE>
SCHEDULE II
PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
OF GENERAC CORPORATION
SCHEDULE OF COMBINED VALUATION ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
------------- ----------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE:
Year Ended:
December 31, 1996........................................... $ 444 $ (155) $ 138 $ 151
December 31, 1997........................................... 151 21 -- 172
Three Months Ended:
March 31, 1998.............................................. 172 14 -- 186
Six Months and Nine Days Ended:
July 9, 1998................................................ 172 67 14 225
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING CHARGES TO BALANCE AT
OF PERIOD EXPENSE DEDUCTIONS END OF PERIOD
------------- ------------- ------------- ---------------
($ IN 000'S)
<S> <C> <C> <C> <C>
INVENTORY:
Year Ended:
December 31, 1996........................................... $ 190 $ 331 $ 396 $ 125
December 31, 1997........................................... 125 781 556 350
Three Months Ended:
March 31, 1998.............................................. 350 248 98 500
Six Months and Nine Days Ended:
July 9, 1998................................................ 350 412 262 500
</TABLE>
S-3
<PAGE>
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
GENERAC PORTABLE PRODUCTS, INC.
FIRST: The name of the corporation (the "CORPORATION") is GENERAC
PORTABLE PRODUCTS, INC.
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Service Company, 1013 Centre Road, Wilmington,
County of New Castle, Delaware 19805. The name of the registered agent at such
address is Corporation Service Company.
THIRD: The purposes for which the Corporation is formed are to
engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law (the "DGCL") and to possess and
exercise all of the powers and privileges granted by such law and any other
law of Delaware.
FOURTH: The total number of shares of all classes of capital stock
which the Corporation shall have authority to issue is Thirty-Two Million
(32,000,000), of which Two Million (2,000,000) shares shall be Preferred
Stock, with a par value of one cent ($0.01) per share, and Thirty Million
(30,000,000) shares of Common Stock, with a par value of one cent ($0.01) per
share.
FIFTH: The Board of Directors is expressly authorized to provide for
the issue of all or any shares of the Preferred Stock, in one or more series,
and to fix for each such series such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights and such qualifications, limitations or
<PAGE>
restrictions thereof, as shall be stated and expressed in a resolution or
resolutions adopted by the Board of Directors providing for the issue of such
series (a "Preferred Stock Designation") and as may be permitted by the General
Corporation Law of the State of Delaware. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the voting power of all of the then outstanding shares of the
capital stock of the Corporation entitled to vote generally in the election of
directors (the "Voting Stock") voting together as a single class, without a
separate vote of the holders of the Preferred Stock, or any series thereof,
unless a vote of any such holders is required pursuant to any Preferred Stock
Designation.
SIXTH: Each outstanding share of Common Stock shall entitle the
holder thereof to one vote on each matter properly submitted to the
stockholders of the Corporation for their vote; PROVIDED, HOWEVER, that,
except as provided in Article FIFTH hereof and as otherwise required by law
or as otherwise provided in any Preferred Stock Designation, the holders of
Common Stock shall not be entitled to vote on any amendment to this Restated
Certificate of Incorporation (including any Preferred Stock Designation) that
relates solely to the terms of one or more outstanding series of Preferred
Stock if the holders of such affected series are entitled, either separately
or together as a class with the holders of one or more other such series, to
vote thereon pursuant to this Restated Certificate of Incorporation
(including any Preferred Stock Designation). Elections of Directors need not
be by ballot unless the bylaws of the Corporation provide otherwise.
SEVENTH: The Board of Directors shall have the power, without
stockholder action, to make bylaws for the Corporation and to amend, alter or
repeal the bylaws of the Corporation. This Article SEVENTH, and,
notwithstanding the foregoing sentence, Article VIII of the bylaws of the
Corporation shall not be altered, amended or repealed, and no provision
inconsistent therewith shall be adopted, without the affirmative vote of the
holders of at least 66 2/3% of the Voting Stock, voting together as a single
class.
EIGHTH: Any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation
2
<PAGE>
and may not be effected in lieu thereof by any consent in writing by such
stockholders. Advance notice of stockholder nominations for the election of
directors and of business to be brought at the request of a stockholder or
stockholders of the Corporation before any meeting of the stockholders of the
Corporation shall be given in the manner provided in the bylaws of the
Corporation. Special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board of Directors or the President or by
the Board of Directors acting pursuant to a resolution adopted by a majority
of the Whole Board. This Article EIGHTH shall not be altered, amended or
repealed, and no provision inconsistent herewith shall be adopted, without
the affirmative vote of the holders of at least 66 2/3% of the Voting Stock,
voting together as a single class. For purposes of this Article EIGHTH, the
term "WHOLE BOARD" shall mean the total number of authorized directors
whether or not there exist any vacancies in previously authorized
directorships.
NINTH: Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any directors, or the entire Board of
Directors, may be removed from office at a meeting of stockholders, but only
for cause and only by the affirmative vote of the holders of a majority of
the Voting Stock, voting together as a single class.
TENTH: The directors of the Corporation shall be entitled to the
benefits of all limitations on the liability of directors generally that are
now or hereafter become available under the DGCL. Without limiting the
generality of the foregoing, no director of the Corporation shall be liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for
any acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the DGCL
or (iv) for any transaction from which the director derived an improper
personal benefit. If the DGCL hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability
of a director of the Corporation, in addition to the limitation on liability
provided herein, shall be limited to the fullest extent permitted by such
amendment to the DGCL. Any repeal or modification of this Article TENTH shall
be prospective only, and shall not affect, to the detriment of any director,
any limitation on the personal liability of a director of the Corporation
existing at the time of such repeal or modification. All references in this
Article TENTH to a director shall also be deemed to refer to any such
director acting in his or her capacity as a Continuing Director (as such term
is defined in Article TWELFTH hereof).
3
<PAGE>
ELEVENTH: The Corporation may indemnify, to the fullest extent
permitted by applicable law in effect from time to time, any person, and the
estate and personal representative of any such person, against all liability
and expense (including attorney's fees) incurred by reason of the fact that
such person is or was a director, officer, fiduciary or agent of the
Corporation, or, is or was serving as a director, officer, fiduciary or agent
of any other individual, organization, committee or entity at the request of
the Corporation.
TWELFTH: The Board of Directors is expressly authorized to cause
the Corporation to issue rights pursuant to Section 157 of the DGCL and, in
that connection, to enter into any agreements necessary or convenient for
such issuance, and to enter into other agreements necessary and convenient to
the conduct of the business of the Corporation. Any such agreement may
include provisions limiting, in certain circumstances, the ability of the
Board of Directors of the Corporation to redeem the securities issued
pursuant thereto or to take other action thereunder or in connection
therewith unless there is a specified number or percentage of Continuing
Directors then in office. Pursuant to Section 141(a) of the DGCL, the
Continuing Directors shall have the power and authority to make all decisions
and determinations, and exercise or perform such other acts, that any such
agreement provides that such Continuing Directors shall make, exercise or
perform. For purposes of this Article TWELFTH and any such agreement, the
term, "CONTINUING DIRECTORS," shall mean (1) those directors who were members
of the Board of Directors of the Corporation at the time the Corporation
entered into such agreement and any director who subsequently becomes a
member of the Board of Directors, if such director's nomination for election
to the Board of Directors is recommended or approved by the majority vote of
the Continuing Directors then in office or (2) such members of the Board of
Directors designated in, or in the manner provided in, such agreement as
Continuing Directors.
4
<PAGE>
Exhibit 3.2
BY-LAWS OF
GENERAC PORTABLE PRODUCTS, INC.
ARTICLE I
STOCKHOLDERS
SECTION 1. The number of directors may be fixed from time to time by
resolution of the Board of Directors adopted by the affirmative vote of a
majority of the members of the entire Board of Directors, but shall consist of
not less than one (1) member. The first Board shall consist of six (6)
directors. The directors need not be stockholders. The directors shall be
elected at the annual meeting of the stockholders by a majority of the
stockholders then entitled to vote, except as provided in Section 2 of this
Article, and each director elected shall hold office until his or her
successor is elected and qualified; PROVIDED, HOWEVER, that unless otherwise
restricted by the Certificate of Incorporation or By-Laws, any director or
the entire Board of Directors may be removed, but only for cause, from the
Board of Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
SECTION 2. SPECIAL MEETINGS. Special meetings of the stockholders of
the Corporation shall be held on such date, at such time and at such place as
shall be designated from time to time by the Board of Directors and stated in
the notice of the meeting.
SECTION 3. NOTICE OF MEETINGS. Written notice of each meeting of
stockholders, stating the time and place of the meeting, and the purpose of any
special meeting, shall be mailed to each stockholder entitled to vote at or to
notice of, such meeting at the address shown on the books of the Corporation not
less than ten (10) nor more than sixty (60) days prior to such meeting unless
such stockholder waives notice of the meeting. If an agreement of merger or
consolidation or a sale, lease, exchange, or other disposition of all or
substantially all of the property and assets of the Corporation is to be
considered at any annual or special meeting, the written notice shall state the
purpose of such meeting and shall be given to each stockholder, whether or not
entitled to vote thereon, not less than twenty (20) days before such meeting.
Any stockholder may execute a waiver of notice, in person or by proxy, either
before or after any meeting, and shall be deemed to have waived notice if such
stockholder is present at such meeting in person or by proxy. Neither the
business transacted at, nor the purpose of, any meeting need be stated in the
waiver of notice of such meeting.
Notice of any meeting may be given by the President, the Secretary or
the person or persons calling such meeting. No notice need be given of the time
and place of reconvening of any adjourned meeting, if the time and place to
which the meeting is adjourned are announced at the adjourned meeting, unless
the adjournment is for more than thirty days.
<PAGE>
2
SECTION 4. LIST OF STOCKHOLDERS. The officer who has charge of the
stock ledger of the Corporation shall prepare and make, at least ten (10) days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, showing the
address of each stockholder and the number of shares registered in the name of
each stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place of
the meeting during the whole time thereof, and may be inspected by any
stockholder who is present. The stock ledger shall be the only evidence as to
who are (i) the stockholders entitled to examine the stock ledger, (ii) the
stockholders listed on the books of the Corporation or (iii) entitled to vote in
person or by proxy at any meeting of the stockholders.
SECTION 5. QUORUM; REQUIRED STOCKHOLDER VOTE. A quorum for the
transaction of business at any annual or special meeting of stockholders shall
exist when the holders of a majority of the outstanding shares entitled to vote
are represented either in person or by proxy at such meeting. If a quorum is
present, corporate action to be taken by stockholder vote, including the
election of directors, shall be authorized in the manner specified in the
Certificate of Incorporation of the Corporation, except as otherwise provided by
law. When a quorum is once present to organize a meeting, the stockholders
present may continue to do business at the meeting or at any adjournment thereof
notwithstanding withdrawal of enough stockholders to leave less than a quorum.
The holders of a majority of the voting shares represented at a meeting, whether
or not a quorum is present, may adjourn such meeting from time to time.
SECTION 6. PROXIES. A stockholder may vote either in person or by a
proxy which such stockholder has duly executed in writing. No proxy shall be
valid after three years from the date of its execution unless a longer period is
expressly provided in the proxy.
SECTION 7. ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the President,
or in the absence of the foregoing persons by a chairman designated by the Board
of Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
SECTION 8. RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or
<PAGE>
3
entitled to receive payment of any dividend or other distribution or allotment
of any rights, or entitled to exercise any rights in respect of any change,
conversion or exchange of stock or for any other lawful purpose, the Board of
Directors of the Corporation may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board of Directors, and which record date (i) in the case of the
determination of stockholders entitled to vote at any meeting of stockholders or
adjournment thereof, shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, and (ii) in the case of any other action,
shall not be more than sixty (60) days prior to such other action. If no record
date is fixed: (y) the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or, if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held, and (z) the record date for determining stockholders
for any other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER,
that the Board of Directors may fix a new record date for the adjourned meeting.
SECTION 9. NOTICE OF STOCKHOLDER BUSINESS. At any meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before the meeting. To be properly brought before a meeting, business
must be (i) specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, (ii) otherwise properly
brought before the meeting by or at the direction of the Board of Directors or
(iii) otherwise properly brought before the meeting by a stockholder. For
business to be properly brought before a meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than sixty (60) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
A stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the meeting (i) a brief description of the
business desired to be brought before the meeting and the reasons for conducting
such business at the meeting, (ii) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (iii) the class
and number of shares of the Corporation which are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in these By-Laws to the
<PAGE>
4
contrary, no business shall be conducted at any meeting except in accordance
with the procedures set forth in this Section 9. The Chairman of the meeting
shall, if the facts warrant, determine that business was not properly brought
before the meeting in accordance with the provisions of this Section 9, and if
he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
SECTION 10. NOTICE OF STOCKHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 10 shall
be eligible for election as directors. Nominations of persons for election to
the Board of Directors of the Corporation may be made at a meeting of
stockholders by or at the direction of the Board of Directors or by any
stockholder of the Corporation then entitled to vote for the election of
directors who complies with the notice procedures set forth in this Section 10.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered to
or mailed and received at the principal executive offices of the Corporation not
less than sixty (60) days nor more than ninety (90) days prior to the meeting;
PROVIDED, HOWEVER, that in the event that less than sixty (60) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder must be so received no later than the
close of business on the 10th day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made. Such
stockholder's notice shall set forth (A) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
the Corporation which are beneficially owned by such person and (iv) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of 1934,
as amended (the "SECURITIES EXCHANGE ACT") (including, without limitation, a
copy of such person's written consent to being named as a nominee and to serving
as a director if elected) and (B) as to the stockholder giving the notice, (i)
the name and address, as they appear on the Corporation's books, of such
stockholder and (ii) the series, class and number of shares of the Corporation
which are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible for election as a director of the
Corporation unless nominated in accordance with the procedures set forth in this
Section 10. The Chairman of the meeting shall, if the facts warrant, determine
that a nomination was not made in accordance with the procedure prescribed by
this Section 10, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
<PAGE>
5
Nothing in this Section 10 shall be construed to affect the requirements for
proxy statements of the Corporation under Regulation 14A of the Securities
Exchange Act.
ARTICLE II
DIRECTORS
SECTION 1. DIRECTORS. The number of directors may be fixed from time
to time by resolution of the Board of Directors adopted by the affirmative
vote of a majority of the members of the entire Board of Directors, but shall
consist of not less than one (1) member. The first Board shall consist of
six (6) directors. The directors need not be stockholders. The directors
shall be elected at the annual meeting of the stockholders by a majority of
the stockholders then entitled to vote, except as provided in Section 2 of
this Article, and each director elected shall hold office until his or her
successor is elected and qualified; PROVIDED, HOWEVER, that unless otherwise
restricted by the Certificate of Incorporation or By-Laws, any director or
the entire Board of Directors may be removed, but only for cause, from the
Board of Directors at any meeting of stockholders by a majority of the stock
represented and entitled to vote thereat.
SECTION 2. VACANCIES. Vacancies on the Board of Directors by reason of
death, resignation, retirement, disqualification, or otherwise, and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or by a sole remaining director. The directors so chosen
shall hold office until the next annual election of directors and until their
successors are duly elected and shall qualify, unless sooner displaced. If there
are no directors in office, then an election of directors may be held in the
manner provided by the Delaware General Corporation Law or any successor
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole Board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding then having the right to vote for such directors, summarily order an
election to be held to fill any such vacancies or newly created directorships,
or to replace the directors chosen by the directors then in office.
SECTION 3. MANAGEMENT. The property and business of the Corporation
shall be managed by or under the direction of its Board of Directors. In
addition to the powers and authorities by these By-Laws expressly conferred upon
them, the Board may exercise all such powers of the Corporation and do all such
lawful acts and things as are not by statute or by the Certificate of
Incorporation or by these By-Laws directed or required to be exercised or done
by the stockholders.
SECTION 4. MEETINGS OF THE BOARD; NOTICE OF MEETINGS; WAIVER OF NOTICE.
The annual meeting of the Board of Directors for the purpose of electing
officers and transacting such other business as may be brought before the
meeting shall be held each year immediately following the
<PAGE>
6
annual meeting of stockholders. The Board of Directors may by resolution provide
for the time and place of other regular meetings and no notice of such regular
meetings need be given. Special meetings of the Board of Directors may be called
by the President or by any two directors, unless the Board consists of one
director, in which case special meetings may be called by the sole director.
Written notice of the time and place of such meetings shall be given to each
director by first class mail or facsimile at least four (4) days before the
meeting or by telephone, telegraph, cablegram or in person at least two (2) days
before the meeting. Any director may execute a waiver of notice, either before
or after any meeting, and shall be deemed to have waived notice if he is present
at such meeting. Neither the business to be transacted at, nor the purpose of,
any meeting of the Board of Directors need be stated in the notice or waiver of
notice of such meeting. Any meeting may be held at any place within or without
the State of Delaware.
SECTION 5. QUORUM; VOTE REQUIREMENT. A majority of the authorized
number of directors shall constitute a quorum for the transaction of business at
any meeting. When a quorum is present, the vote of a majority of the votes
represented by directors present shall be the act of the Board of Directors,
unless a greater vote is required by law, by the Certificate of Incorporation or
by these By-Laws. In the absence of a quorum, a majority of the directors
present may adjourn any meeting from time to time until a quorum is present.
SECTION 6. ACTION OF BOARD WITHOUT MEETING. Any action required or
permitted to be taken at a meeting of the Board of Directors or any committee
thereof may be taken without a meeting if written consent, setting forth the
action so taken, is signed by all the directors or committee members and filed
with the minutes of proceedings of the Board of Directors or committee, as the
case may be. Such consent shall have the same force and effect as a unanimous
affirmative vote of the Board of Directors or committee, as the case may be.
SECTION 7. TELEPHONE CONFERENCE MEETINGS. Unless the Certificate of
Incorporation otherwise provides, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board or any committee by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 7 shall constitute presence in person at such meeting.
SECTION 8. COMMITTEES. The Board of Directors, by resolution adopted by
a majority of all of the directors, may designate such committees as it deems
necessary or desirable, each such committee to consist of one or more of the
directors of the Corporation. Vacancies in the membership of such committees
shall be filled by the Board of Directors at a regular or special meeting of the
Board of Directors. Any such committee may authorize the seal of the Corporation
<PAGE>
7
to be affixed to all papers which may require it and, to the extent provided in
the resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the Corporation; provided that no committee shall have the
authority of the Board of Directors in reference to (i) an amendment to the
Certificate of Incorporation (except that a committee may, to the extent
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in Section 151(a) of the
Delaware General Corporation Law fix any of the preferences or rights of such
shares relating to dividends, redemption, dissolution, any distribution of
assets of the Corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation), (ii) the adoption of an
agreement of merger or consolidation, (iii) the sale, lease or exchange or other
disposition of all or substantially all of the property and assets of the
Corporation, (iv) a voluntary dissolution of the Corporation or a revocation
thereof or (v) an amendment to the By-Laws of the Corporation; and, unless the
resolution or the Certificate of Incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger. Each
committee shall keep minutes of its proceedings and actions and shall report
regularly to the Board of Directors.
SECTION 9. COMPENSATION. Compensation for the directors shall be
determined by the Board of Directors; PROVIDED, that no officer of the
Corporation who is also a director shall receive any compensation which would
otherwise be payable to such person as a director. All directors, including a
director who is also an officer, shall be entitled to recover reasonable
out-of-pocket expenses relating to such person's serving as a director. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like compensation for attending committee meetings.
ARTICLE III
OFFICERS
SECTION 1. OFFICERS.
(a) The officers of the Corporation shall be chosen by the Board of
Directors and shall include a President and a Secretary. The Corporation may
also have at the discretion of the Board of Directors such other officers as are
desired, including a Chairman of the Board, one or more Vice Presidents, a
Treasurer, one or more Assistant Secretaries and Assistant Treasurers, and such
other officers as may be appointed in accordance with the provisions of
paragraph (c) of this
<PAGE>
8
Section 1. In the event there are two or more Vice Presidents, then one or more
may be designated as Executive Vice President, Senior Vice President, or other
similar or dissimilar title. At the time of the election of officers, the
directors may by resolution determine the order of their rank. Any number of
offices may be held by the same person, unless the Certificate of Incorporation
or these By-Laws otherwise provide. The office of Secretary and Treasurer may be
occupied by the same person.
(b) The Board of Directors, at its first meeting after each annual
meeting of stockholders, shall choose the officers of the Corporation.
(c) The Board of Directors may appoint such other officers and agents
as it shall deem necessary who shall hold their offices for such terms and shall
exercise such powers and perform such duties as shall be determined from time to
time by the Board.
(d) The salaries of all officers and agents of the Corporation shall be
fixed by the Board of Directors.
(e) The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer elected or
appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the Board of Directors. If the office of any
officer or officers becomes vacant for any reason, the vacancy shall be filled
by the Board of Directors.
SECTION 2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at all meetings of the Board of
Directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the Board of Directors or prescribed by these
By-Laws.
SECTION 3. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there be
such an officer, the President of the Corporation shall, subject to the control
of the Board of Directors, oversee the development of the Corporation's
business, including, without limitation, strategic planning, technological
application and product enhancements, and have control of the Corporation's
business and manage the officers of the Corporation. The President shall preside
at all meetings of the stockholders and, in the absence of the Chairman of the
Board, or if there be none, at all meetings of the Board of Directors. The
President shall be an ex-officio member of all committees and shall have the
general powers and duties of management usually vested in the office of
President of corporations,
<PAGE>
9
and shall have such other powers and duties as may be prescribed by the Board of
Directors or these By-Laws.
SECTION 4. VICE PRESIDENTS. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board of
Directors, or if not ranked, the Vice President designated by the Board of
Directors, shall perform all the duties of the President, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other duties as from time to time
may be prescribed for them, respectively, by the Board of Directors.
SECTION 5. SECRETARY AND ASSISTANT SECRETARY.
(a) The Secretary shall attend all sessions of the Board of Directors
and all meetings of the stockholders and record all votes and the minutes of all
proceedings in a book to be kept for that purpose; and shall perform like duties
for the standing committees when required by the Board of Directors. The
Secretary shall give, or cause to be given, notice of all meetings of the
stockholders and of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or these By-Laws. The Secretary
shall keep in safe custody the seal of the Corporation, and when authorized by
the Board, affix the same to any instrument requiring it, and when so affixed it
shall be attested by his signature or by the signature of an Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by such
officer's signature.
(b) The Assistant Secretary, or if there be more than one, the
Assistant Secretaries in the order determined by the Board of Directors, or if
there be no such determination, the Assistant Secretary designated by the Board
of Directors, shall, in the absence or disability of the Secretary, perform the
duties and exercise the powers of the Secretary and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
SECTION 6. TREASURER AND ASSISTANT TREASURER.
(a) The Treasurer shall have the custody of the corporate funds and
securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Corporation and shall deposit all
moneys, and other valuable effects in the name and to the credit of the
Corporation, in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all
<PAGE>
10
of the Treasurer's transactions undertaken as Treasurer and of the financial
condition of the Corporation. If required by the Board of Directors, the
Treasurer shall give the Corporation a bond, in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors, for the faithful
performance of the duties of such office and for the restoration to the
Corporation, in case of the Treasurer's death, resignation, retirement or
removal from office, of all books, papers, vouchers, money and other property of
whatever kind in the possession or under the Treasurer's control belonging to
the Corporation.
(b) The Assistant Treasurer, or if there shall be more than one, the
Assistant Treasurers in the order determined by the Board of Directors, or if
there be no such determination, the Assistant Treasurer designated by the Board
of Directors, shall, in the absence or disability of the Treasurer, perform the
duties and exercise the powers of the Treasurer and shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
ARTICLE IV
STOCK
SECTION 1. STOCK CERTIFICATES. The shares of stock of the Corporation
shall be represented by certificates or shall be uncertificated. Certificates
shall be in such form as may be approved by the Board of Directors, which
certificates shall be issued to stockholders of the Corporation in numerical
order from the stock book of the Corporation, and each of which shall bear the
name of the stockholder, the number of shares represented, and the date of
issue; and which shall be signed by the President or a Vice President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation; and which shall be sealed with the seal of the Corporation.
Within a reasonable time after the issuance or transfer of
uncertificated stock, the Corporation shall send to the registered owner thereof
a written notice containing the information required to be set forth or stated
on certificates pursuant to Section 151, 156, 202(a) or 218(a) of the Delaware
General Corporation Law or a statement that the Corporation will furnish without
charge to each stockholder who so requests the powers, designations, preferences
and relative participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
SECTION 2. TRANSFER OF STOCK. Shares of stock of the Corporation shall
be transferred only on the books of the Corporation upon surrender to the
Corporation of the certificate or certificates representing the shares to be
transferred accompanied by an assignment in writing of
<PAGE>
11
such shares properly executed by the stockholder of record or such stockholder's
duly authorized attorney-in-fact and with all taxes on the transfer having been
paid. The Corporation may refuse any requested transfer until furnished evidence
satisfactory to it that such transfer is proper. Upon the surrender of a
certificate for transfer of stock, such certificate shall at once be
conspicuously marked on its face "CANCELED" and filed with the permanent stock
records of the Corporation. Upon receipt of proper transfer instructions from
the registered owner of uncertificated shares such uncertificated shares shall
be canceled and issuance of new equivalent uncertificated shares or certificated
shares shall be made to the person entitled thereto and the transaction shall be
recorded upon the books of the Corporation. The Board of Directors may make such
additional rules concerning the issuance, transfer and registration of stock and
requirements regarding the establishment of lost, destroyed or wrongfully taken
stock certificates (including any requirement of an indemnity bond prior to
issuance of any replacement certificate) as it deems appropriate.
SECTION 3. REGISTERED STOCKHOLDERS. The Corporation may deem and treat
the holder of record of any stock as the absolute owner for all purposes and
shall not be required to take any notice of any right or claim of right of any
other person.
ARTICLE V
DEPOSITORIES, SIGNATURES AND SEAL
SECTION 1. DEPOSITORIES. All funds of the Corporation shall be
deposited in the name of the Corporation in such bank, banks, or other financial
institutions as the Board of Directors may from time to time designate and shall
be drawn out on checks, drafts or other orders signed on behalf of the
Corporation by such person or persons as the Board of Directors may from time to
time designate.
SECTION 2. CONTRACTS AND DEEDS. All contracts, deeds and other
instruments shall be signed on behalf of the Corporation by the President or by
such other officer, officers, agent or agents as the Board of Directors may from
time to time by resolution provide.
SECTION 3. SEAL. The seal of the Corporation shall be in such form as
the Board of Directors shall so prescribe:
If the seal is affixed to a document, the signature of the
Secretary or an Assistant Secretary shall attest the seal. The seal and
its attestation may be lithographed or otherwise printed on any
document and shall have, to the extent permitted by law, the same force
and effect as if it had been affixed and attested manually.
<PAGE>
12
ARTICLE VI
INDEMNIFICATION
SECTION 1. POWER OF INDEMNIFICATION. The Corporation shall have the
power to indemnify and hold harmless, to the fullest extent permitted by
applicable law as it presently exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment permits the
Corporation to provide broader indemnification rights than said law permitted
the Corporation to provide prior to such amendment), any person who was or is
made a party or is threatened to be made a party to or is otherwise involved in
any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "PROCEEDING"), by reason of the fact that he, or a
person for whom he is the legal representative, is or was an officer, employee
or agent of the Corporation or is or was serving at the request of the
Corporation as an officer, employee or agent of another corporation or of a
partnership, joint venture, trust, enterprise or non-profit entity, including
service with respect to employee benefit plans, against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts to be paid in settlement) reasonably incurred by such
person in connection therewith and such indemnification may be continued as to a
person who has ceased to be an officer, employee or agent of the Corporation (or
other entity) and shall inure to the benefit of his heirs, executors and
administrators.
SECTION 2. PREPAYMENT OF EXPENSES. The Corporation shall pay the
expenses incurred in defending any Proceeding in advance of its final
disposition; PROVIDED, HOWEVER, that, if the Delaware General Corporation Law
requires, the payment of such expenses incurred by a director or officer in his
or her capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in advance
of the final disposition of the Proceeding shall be made only upon delivery to
the Corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Article VI or
otherwise.
SECTION 3. PAYMENT OF INDEMNIFICATION. If a claim for indemnification
or payment of expenses under this Article VI is not paid in full by the
Corporation within ninety (90) days after a written claim therefor has been
received by the Corporation, the claimant may at any time thereafter file suit
against the Corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting such claim. In any such action the Corporation shall have the burden
of proving that the claimant was not entitled to the requested indemnification
or payment of expenses under applicable law.
<PAGE>
13
SECTION 4. INDEMNIFICATION NOT EXCLUSIVE. The right to indemnification
and the payment of expenses incurred in defending a Proceeding in advance of its
final disposition conferred in this Article VI shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the Certificate of Incorporation, these By-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 5. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any director or officer of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or loss
under the Delaware General Corporation Law.
SECTION 6. OTHER INDEMNIFICATION. The Corporation's obligation, if any,
to indemnify any person who was or is serving at its request as a director of
another corporation, partnership, joint venture, trust, enterprise or non-profit
entity shall be reduced by any amount such person may collect as indemnification
from such other corporation, partnership, joint venture, trust, enterprise or
non-profit enterprise.
SECTION 7. AMENDMENT OR REPEAL. Any repeal or modification of the
foregoing provisions of this Article VI shall not adversely affect any right or
protection hereunder of any person in respect of any act or omission occurring
prior to the time of such repeal or modification.
ARTICLE VII
DIVIDENDS
SECTION 1. PAYMENT OF DIVIDENDS. Subject to the provisions of the
Certificate of Incorporation relating thereto, if any, dividends may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash, in shares of the capital stock or in the
Corporation's bonds or its property, including the shares or bonds of other
corporations subject to any provisions of law and of the certificate of
incorporation.
SECTION 2. RESERVE FUND. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion, think
proper as a reserve fund to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
Corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
<PAGE>
14
ARTICLE VIII
AMENDMENT OF BY-LAWS
The Board of Directors shall have the power, without stockholder
action, to alter, amend or repeal the By-Laws or adopt new By-Laws, but any
By-Laws adopted by the Board of Directors may be altered, amended, or
repealed and new By-Laws adopted by the stockholders; PROVIDED, HOWEVER, that
this Article VIII shall not be altered, amended or repealed, and no provision
inconsistent herewith shall be adopted, without the affirmative vote of the
holders of at least 66 2/3% of the voting power of all of the then outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors, voting together as a single class. The stockholders may
prescribe that any By-Laws adopted by them shall not be altered, amended or
repealed by the Board of Directors.
<PAGE>
Exhibit 4.1
================================================================================
STOCKHOLDERS' AGREEMENT
BY AND AMONG
GENERAC PORTABLE PRODUCTS, INC.,
THE BEACON GROUP III - FOCUS VALUE FUND, L.P.,
AND
OTHER STOCKHOLDERS
-------------------------------
DATED AS OF JULY 9, 1998
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
1. General; Definitions.......................................................1
(a) General.......................................................1
(b) Definitions...................................................2
2. Board of Directors.........................................................5
(a) Composition...................................................5
(b) Expenses; Insurance...........................................6
(c) Certain Unfilled Vacancies....................................6
(d) Termination...................................................6
3. Conflicting Certificate or By-Law Provisions...............................7
4. Conflicting Agreements.....................................................7
5. Actions Consistent with Agreement..........................................7
6. Restrictions on Transfer of Stockholder Shares and Tag-along Rights........7
(a) Transfer of Stockholder Shares................................7
(b) First Offer Right.............................................7
(c) Tag-along Rights..............................................9
(d) Permitted Transferee.........................................10
(e) Termination of Restrictions..................................10
7. Management and Control....................................................11
(a) General......................................................11
(b) Limitation on Certain Actions by the Company.................11
(c) Periodic and Other Reports...................................11
(d) Termination of Restrictions..................................11
8. Sale of the Company/Come-along Right......................................11
(a) Approved Sales...............................................12
(b) Conditions...................................................12
(c) Requirements.................................................12
(d) Termination of Restrictions..................................12
9. Participation/Preemptive Rights...........................................12
(a) Grant of Rights..............................................12
(b) Termination of Rights........................................13
10. Demand Registration Rights................................................13
(a) Requests for Registration....................................13
(b) Long-Form Registrations......................................13
(c) Short-Form Registrations.....................................14
(d) Priority on Demand Registrations.............................14
(e) Restrictions on Demand Registrations.........................14
(f) Selection of Underwriters....................................14
11. Piggyback Registrations...................................................15
(a) Right to Piggyback...........................................15
(b) Piggyback Expenses...........................................15
i
<PAGE>
(c) Priority on Primary Registration.............................15
(d) Other Registrations..........................................15
12. Holdback/Lock-Up Agreements...............................................15
(a) Stockholder Restriction......................................15
(b) Company Restriction..........................................16
13. Registration Procedures...................................................16
14. Registration Expenses.....................................................18
(a) Definition...................................................18
(b) Counsel Expenses.............................................19
(c) Other Expenses...............................................19
15. Indemnification...........................................................19
(a) Company Indemnification......................................19
(b) Stockholder Obligations......................................19
(c) Procedure....................................................20
(d) Survival.....................................................20
16. Participation in Underwritten Registrations...............................20
17. Other Provisions Regarding Registration Rights............................20
(a) Restriction..................................................20
(b) No Obligation................................................21
(c) Reporting....................................................21
18. Legend....................................................................21
19. Insider Transactions......................................................21
20. Amendment and Waiver......................................................21
21. Severability..............................................................22
22. Entire Agreement..........................................................22
23. Successors and Assigns....................................................22
24. Counterparts..............................................................22
25. Remedies..................................................................22
26. Notices...................................................................23
27. Governing Law; Consent to Jurisdiction....................................23
28. Descriptive Headings......................................................23
ii
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GENERAC PORTABLE PRODUCTS, INC.
STOCKHOLDERS' AGREEMENT
This STOCKHOLDERS' AGREEMENT (this "Agreement"), is made as of July 9,
1998, by and among Generac Portable Products, Inc., a Delaware corporation (the
"COMPANY"), The Beacon Group III - Focus Value Fund, L.P., a Delaware limited
liability company ("BEACON"), and the other stockholders of the Company listed
on the signature pages hereof (the "OTHER STOCKHOLDERS") (Beacon, together with
the Other Stockholders, collectively, the "STOCKHOLDERS", and each individually,
a "STOCKHOLDER").
R E C I T A L S:
WHEREAS, pursuant to the Subscription Agreements, dated as of the date
hereof, by and between the Company and each of the Other Stockholders (as the
same may be amended from time to time, collectively, the "SUBSCRIPTION
AGREEMENTS"), the Other Stockholders' are, among other things, collectively
subscribing to purchase shares of the Common Stock, $0.01 par value, of the
Company (the "COMMON STOCK");
WHEREAS, as of the date hereof and upon the consummation of the
transactions contemplated by the Subscription Agreements pursuant to the terms
thereof, the Stockholders shall each own the number of shares of Common Stock
set forth opposite such Stockholder's name on Schedule I attached hereto; and
WHEREAS, the Company and the Stockholders desire to enter into this
Agreement for the purposes, among others, of (i) establishing the composition of
the Board of Directors of the Company (the "BOARD"), (ii) assuring continuity in
the management and ownership of the Company and (iii) limiting the manner and
terms by which the Common Stock and certain other equity securities of the
Company owned by the Stockholders may be transferred.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and undertakings of the parties hereto, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound, do hereby agree
as of the date hereof as follows:
1. GENERAL; DEFINITIONS
(a) GENERAL. References in this Agreement to "Sections" and
"Schedules" are to sections and schedules herein and hereto unless otherwise
indicated. Unless otherwise set forth herein, references in this Agreement to
any document, instrument or agreement (including, without limitation, this
Agreement) (i) shall include all exhibits, schedules, annexes and other
<PAGE>
attachments thereto, (ii) shall include all documents, instruments or agreements
issued or executed in replacement thereof and (iii) shall mean such document,
instrument or agreement, or replacement or predecessor thereto, as amended,
modified or supplemented from time to time in accordance with its terms and in
effect at any given time. Wherever from the context it appears appropriate, each
term stated in either the singular or plural shall include the singular and
plural.
(b) DEFINITIONS. Unless otherwise defined herein, capitalized
terms used in this Agreement shall have the meanings set forth in this Section
1(b).
"AFFILIATE" means, with respect to any Person, any Person
directly or indirectly controlling, controlled by, or under common
control with, such Person. For purposes of this definition, "control"
means the ownership, direct or indirect, of the power to direct or
cause the direction of the management and policies of a Person, whether
through the ownership or control of voting interests, by contract or
otherwise.
"APPROVED SALE" has the meaning set forth in Section 8(a).
"BEACON DIRECTOR" has the meaning set forth in Section
2(a)(ii).
"BOARD" has the meaning set forth in the fourth Recital.
"BYLAWS" has the meaning set forth in Section 2(c).
"CERTIFICATE" has the meaning set forth in Section 3.
"CHANGE IN CONTROL" means any sale or issuance or series of
related sales or issuances of the capital stock of the Company, or any
merger or consolidation involving the Company, immediately after which
any Person or group of Persons acting in concert (including officers
and directors of the Company) other than Beacon and/or any of its
Affiliates, holds the voting power to elect a majority of the Board or
holds beneficial ownership of a majority of the Company's issued and
outstanding voting capital stock.
"COMMON STOCK" has the meaning set forth in the first Recital.
"COMPANY ASSIGNMENT" has the meaning set forth in Section
6(b)(i).
"CONTROLLING INTEREST" has the meaning set forth in Section
7(b).
"DEMAND REGISTRATION" has the meaning set forth in Section
10(a).
"ELIGIBLE OFFERING" means an offer by the Company to sell to
investors (including, but not limited to, Stockholders) for cash shares
of Common Stock, or any security
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convertible into or exchangeable for, or carrying rights or options to
purchase, shares of Common Stock, as the case may be, other then an
offering of securities by the Company:
(i) in connection with any merger of, or acquisition by,
the Company;
(ii) registered under the Securities Act; or
(iii) pursuant to any employee benefit plan.
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934,
as amended from time to time.
"FIVE PERCENT OWNER" means any person that owns five percent
or more of all issued and outstanding Common Stock on a fully-diluted
basis.
"INDEPENDENT THIRD PARTY" means any Person that, immediately
prior to the contemplated transaction, is not a Five Percent Owner, is
not an Affiliate of any Five Percent Owner, is not the spouse or
descendant (by birth or adoption) of any Five Percent Owner and is not
a trust for the benefit of any Five Percent Owner and/or such other
Persons.
"IPO" means the initial Public Offering.
"ALIEN" means any mortgage, lien, pledge, claim, charge,
security interest, option, restriction of use or transfer, easement,
title defect or other adverse claim of ownership or use or encumbrance
of any kind (including, without limitation, any conditional or
installment sale or other title retention agreement), any lease in the
nature thereof or the filing of, or agreement to, give any financing
statement.
"LONG-FORM REGISTRATION" has the meaning set forth in Section
10(a).
"MINORITY STOCKHOLDER" means, at the time of any determination
thereof, any Stockholder that holds less than 50% of the Common Stock
held in the aggregate by all the Stockholders.
"NASD" means the National Association of Securities Dealers,
Inc.
"NASDAQ" means the National Association of Securities Dealers,
Inc. Automated Quotations System.
"NON-SELLING STOCKHOLDER" has the meaning set forth in Section
6(b)(i).
"OFFERED SHARES" has the meaning set forth in Section 6(b)(i).
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<PAGE>
"PARTICIPANTS" has the meaning set forth in Section 6(c).
"PERMITTED TRANSFEREE" means an Affiliate of a Stockholder.
"PERSON" means any individual, corporation, partnership, joint
venture, trust, association, unincorporated organization, other entity
or governmental body,
"PIGGYBACK REGISTRATION" has the meaning set forth in Section
11(a).
"PROPORTIONATE PERCENTAGE" means, with respect to any
Stockholder as of any date, the result (expressed as a percentage)
obtained by dividing (i) the number of shares of Common Stock held by
the Stockholder, by (ii) the number of shares of Common Stock then
issued and outstanding.
"PUBLIC OFFERING" means an offering by the Company to the
public of Common Stock.
"PUBLIC SALE" means any distribution of Stockholder Shares or
other equity securities of the Company or any securities convertible
into or exchangeable or exercisable for such securities to the public
pursuant to an offering registered under the Securities Act or to the
public through a broker, dealer or market maker pursuant to the
provisions of Rule 144 promulgated under the Securities Act (or any
rule promulgated to take the place of, or to have the same effect as,
Rule 144).
"PURCHASING STOCKHOLDER" has the meaning set forth in Section
6(b)(i).
"PUT" has the meaning set forth in Section 8(e).
"PUT NOTICE" has the meaning set forth in Section 8(e).
"QUALIFIED PUBLIC OFFERING" means the sale in an underwritten
Public Offering registered under the Securities Act of shares of Common
Stock having an aggregate offering price of at least $100 million.
"REDEMPTION PRICE" has the meaning set forth in Section 8(e).
"REGISTRABLE SECURITIES" means all shares of Stockholder
Shares held by any Stockholder, except those Stockholder Shares that,
after the Common Stock has been registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended, can be sold by such
Stockholder to the public in accordance with Rule 144(k) promulgated
under the Securities Act.
"REGISTRATION" has the meaning set forth in Section 10(a).
4
<PAGE>
"REGISTRATION EXPENSES" has the meaning set forth in Section
14(a).
"SALE OF THE COMPANY" means the sale to an Independent Third
Party or group of Independent Third Parties of (i) capital stock of the
Company possessing the voting power under normal circumstances to elect
a majority of the Board (whether by merger, consolidation or sale or
transfer of the Company's capital stock) or (ii) all or substantially
all of the Company's assets determined on a consolidated basis.
"SEC" means the U.S. Securities and Exchange Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as
amended from time to time.
"SELLING STOCKHOLDER" has the meaning set forth in Section
6(b)(i).
"SELLER's Notice" has the meaning set forth in Section
6(b)(i).
"SHORT-FORM REGISTRATION" has the meaning set forth in Section
10(a).
"STOCKHOLDER SHARES" means (i) Common Stock, (ii) any equity
securities of the Company issued directly or indirectly with respect to
Common Stock held by any Stockholder or transferee thereof by way of
stock dividend or stock split or in connection with a combination of
shares, recapitalization, merger, consolidation or other reorganization
and (iii) any other shares of any class or series of capital stock of
the Company held by a Stockholder or transferee thereof.
"SUBSCRIPTION AGREEMENT" has the meaning set forth in the
first Recital.
"THIRD-PARTY PURCHASE NOTICE" has the meaning set forth in
Section 6(b)(iii).
"THIRD-PARTY PURCHASER" has the meaning set forth in Section
6(b)(iii).
"TRANSFER" has the meaning set forth in Section 6(a).
2. BOARD OF DIRECTORS.
(a) COMPOSITION. From and after the date hereof and until the
provisions of this Section 2 cease to be effective, each Stockholder shall vote
all of such Stockholder's Stockholder Shares and any other voting security of
the Company over which such Stockholder has voting control and shall take, at
the Company's expense, all such actions within such Stockholder's control as may
be necessary to cause its Shares to be so voted (whether in such Stockholder's
capacity as a stockholder, director, member of the Board or a committee thereof,
officer of the Company or otherwise, and including, without limitation,
attendance at meetings in person or by
5
<PAGE>
proxy for purposes of obtaining a quorum and execution of written consents in
lieu of meetings), and the Company shall take all necessary and desirable
actions within its control (including, without limitation, calling special board
and stockholder meetings), so that:
(i) The number of directors comprising the Board shall be
seven (7);
(ii) At least four (4) members of the Board shall be
representatives designated by Beacon (the "BEACON DIRECTOR[S]");
(iii) The chief executive officer of the Company shall be a
member of the Board;
(iv) The removal from the Board (with or without cause) of
any Beacon Director shall be only at Beacon's written request, and
under no other circumstances;
(v) In the event that any representative designated under
this Section 2 to serve as a member of the Board by Beacon for any
reason ceases to serve as a member of the Board during such director's
term of office, the resulting vacancy on the Board shall be filled by
an individual designated by Beacon as provided hereunder, within 30
days following the creation of such vacancy; and
(vi) Beacon shall use all reasonable efforts to ensure
that none of its designees is engaged as an officer, director or
control person of a Person that is in competition with the Company and
that none of its designees possesses a pecuniary or similar interest in
any of the Company's business or assets (other than ownership of
Stockholder Shares) of such a pervasive nature as to hamper materially
such designee's ability to impartially take part in the Board's general
deliberations concerning the Company's business and prospects.
(b) EXPENSES; INSURANCE. The Company shall pay the reasonable
out-of-pocket expenses incurred by each member of the Board in connection with
attending the meetings of the Board and any committee thereof. So long as any
Beacon Director serves on the Board and for three years thereafter, the Company
shall maintain directors indemnity insurance coverage reasonably satisfactory to
Beacon.
(c) CERTAIN UNFILLED VACANCIES. If a vacancy on the Board subject
to Section 2(a)(v) remains unfilled for more than 30 days, the election of an
individual to such directorship shall be accomplished in accordance with the
Bylaws of the Company (the "BYLAWS") and applicable law.
(d) TERMINATION. The provisions of this Section 2 shall terminate
automatically and be of no further force and effect upon the occurrence of a
Qualified Public Offering or at the time Beacon and its Permitted Transferees in
the aggregate cease to hold twenty-five percent (25) or more of all issued and
outstanding shares of Common Stock.
6
<PAGE>
3. CONFLICTING CERTIFICATE OR BY-LAW PROVISIONS. No Stockholder
shall take any action that will cause the Certificate of Incorporation of the
Company (the "CERTIFICATE") and the Bylaws to be amended to conflict with the
provisions of this Agreement (including, without limitation, voting such
Stockholder's Stockholder Shares and any other voting security of the Company
over which such Stockholder has voting control to amend the Certificate and the
Bylaws). Notwithstanding the foregoing, to the extent the Certificate or the
Bylaws do at any time conflict with the provisions of this Agreement, this
Agreement, to the extent permitted by applicable law, shall prevail and be the
binding agreement among the Stockholders and the Company.
4. CONFLICTING AGREEMENTS. Each Stockholder hereby represents to
the other Stockholders and the Company that on the date hereof such Stockholder
has not granted a proxy and is not a party to any voting trust or other
agreement that is inconsistent with or conflicts with the provisions of this
Agreement. No Stockholder during the term hereof shall grant any proxy or become
party to any voting trust or other agreement that is inconsistent with or
conflicts with the provisions of this Agreement. No Stockholder shall act, for
any reason, as a member of a group or in concert or enter into any agreement or
arrangement with any other Person in connection with the acquisition,
disposition or voting of Stockholder Shares in any manner that is inconsistent
with the provisions of this Agreement.
5. ACTIONS CONSISTENT WITH AGREEMENT. Neither the Company nor any
Stockholder shall circumvent this Agreement by taking any action through an
Affiliate that would be prohibited under this Agreement if such action had been
taken by the Company or such Stockholder.
6. RESTRICTIONS ON TRANSFER OF STOCKHOLDER SHARES AND TAG-ALONG
RIGHTS.
(a) TRANSFER OF STOCKHOLDER SHARES. No Minority Stockholder shall
sell, transfer, assign, pledge, hypothecate or otherwise dispose of (a
"TRANSFER") any interest in any of such Minority Stockholder's Stockholder
Shares except pursuant to a Public Sale or the provisions of this Section 6 or
as otherwise permitted or required in accordance with the terms hereof.
(b) FIRST OFFER RIGHT. (i) If a Minority Stockholder desires to
sell any of such Minority Stockholder's Stockholder Shares (other than to a
Permitted Transferee in accordance with Section 6(d), pursuant to a Public Sale
or as otherwise permitted or required in accordance with the terms hereof), then
such Minority Stockholder (the "SELLING STOCKHOLDER") shall give a written
notice (the "SELLER's Notice") to the Company and each other Stockholder (the
"NON-SELLING STOCKHOLDERS") identifying the number and class(es) of Stockholder
Shares to be sold (the "OFFERED SHARES"), the proposed method of sale, and the
price and other material terms and conditions of such proposed sale. The Company
may elect to assign its right to purchase the Offered Shares to the Non-Selling
Stockholders on a pro rata basis (based on the number of Stockholder Shares held
by the Non-Selling Stockholders) within ten days following receipt of the
Seller's Notice from the Selling Stockholder (the "COMPANY ASSIGNMENT"). Within
30 days following receipt of the Seller's Notice from the Selling Stockholder,
the Company (or, in the event the Company Assignment is made, the Non-Selling
Stockholders), shall have the right to
7
<PAGE>
elect to purchase all (but not less than all) of the Offered Shares on
substantially the same terms and subject to substantially the same conditions as
those specified in the Seller's Notice, exercisable by delivery to the Selling
Stockholder of a written notice electing to purchase the Offered Shares. In the
event the Company Assignment is made and any Non-Selling Stockholder fails to
elect to participate in the Selling Shareholder's sale of Offered Shares
pursuant to this Section 6(a)(i), (A) at the end of such 30-day period the
Selling Stockholder shall give notice of such failure to the Non-Selling
Stockholders who did so elect (the "PURCHASING STOCKHOLDERS") and (B) the
Purchasing Stockholders each shall have ten days from the date such notice was
given to agree to purchase such Non-Selling Stockholder's pro rata share of the
unsubscribed portion of Offered Shares.
(ii) If the Company (or, in the event the Company
Assignment is made, the Purchasing Stockholders) elects to purchase all of the
Offered Shares, a closing shall be held on such date, occurring within 60 days
after the date on which the Company (or, in the event the Company Assignment is
made, the date on which the final Purchasing Stockholder) delivered notice of
purchase election to the Selling Stockholder pursuant to Section 6(b)(i)
(subject to extension to permit any applicable governmental reviews or to obtain
any necessary governmental approvals or to comply with applicable waiting
periods), as is designated by the Company (or, in the event the Company
Assignment is made, the Purchasing Stockholders) upon ten days' prior written
notice, which notice may be given contemporaneously with or subsequent to the
date on which such election has been made, or if such a date is not so
designated, on such sixtieth day (or the next succeeding business day, if such
sixtieth day is not a business day). The Selling Stockholder shall, not later
than the date set for such closing, deliver to the Company (or, in the event the
Company Assignment is made, the Purchasing Stockholders), and the Company (or,
in the event the Company Assignment is made, the Purchasing Stockholders) shall
accept, certificates for such Offered Shares (which Offered Shares shall be free
and clear of any Lien of any kind other than those Liens created by the Company
(or, in the event the Company Assignment is made, the Purchasing Stockholders)),
properly endorsed for transfer, or accompanied by properly executed instruments
of transfer, together with appropriate documentation of the corporate action
necessary to effect the transfer, including, without limitation, any requisite
transfer tax stamps or other evidence of payment of any applicable transfer
taxes or similar fees.
(iii) In the event that the Company (or, in the event the
Company Assignment is made, the Non-Selling Stockholders) does not elect to
purchase all of the Offered Shares in accordance with Section 6(b)(i), the
Selling Stockholder shall be free to sell the Offered Shares to any Person other
than the Company (the "THIRD-PARTY PURCHASER") at a price no less than and upon
terms and conditions no more favorable than the price, terms and conditions set
forth in the Seller's Notice. Such sale shall be consummated within 60 days
after the date on which the Company (or, in the event the Company Assignment is
made, the last of the Non-Selling Stockholders) declined to exercise the option
to purchase the Offered Shares in accordance with Section 6(a)(i); PROVIDED,
HOWEVER, that if the sale to the Third-party Purchaser is not consummated within
such 60-day period, the Selling Stockholder shall be required to offer such
Offered Shares to the Company and the Non-Selling Stockholders again in
accordance with this
8
<PAGE>
Section 6(b) and Section 6(c) before any disposition may occur. Notwithstanding
the foregoing, no sale to a Third-party Purchaser shall be effected earlier than
the 30th day following the delivery of a notice (the "THIRD-PARTY PURCHASE
NOTICE") by the Selling Stockholder to the Company and the Non-Selling
Stockholders setting forth the specific price, terms and conditions of the sale
to be consummated with the Third-party Purchaser.
(c) TAG-ALONG RIGHTS. (i) Notwithstanding any other provision
hereof, in addition to the rights stated in Section 6(b), in the event that the
Company, or, in the event the Company Assignment is made, the Non-Selling
Stockholders do not elect to purchase all of the Offered Shares in accordance
with Section 6(b)(i), each Non-Selling Stockholder that is a Minority
Stockholder shall have the right, exercisable upon written notice to the Selling
Stockholder within ten days after receipt of the Third-party Purchase Notice, to
participate in the proposed sale of Offered Shares under Section 6(b)(iii), in
an amount up to such Non-Selling Stockholder's pro rata share of Stockholder
Shares, on the same terms and subject to the same conditions set forth in the
Third-party Purchase Notice.
(ii) If Beacon desires to sell any of its Stockholder
Shares (other than to a Permitted Transferee in accordance with Section 6(d),
pursuant to a Public Sale or as otherwise permitted or required in accordance
with the terms hereof) to a Third-party Purchaser, then Beacon shall give a
Seller's Notice to the Non-Selling Stockholders identifying the Stockholder
Shares to be sold, the proposed method of sale, and the price and other material
terms and conditions of Beacon's proposed sale. Each Non-Selling Stockholder
shall have the right, exercisable upon written notice to Beacon within 10 days
after receipt of Beacon's Seller's Notice, to participate in the sale by Beacon
of its Stockholder Shares, in a percentage of such Non-Selling Stockholder's
Stockholder Shares equal to the same percentage of Beacon's Stockholder Shares
being sold by Beacon, at the same price, on the same terms and subject to the
same conditions as set forth in Beacon's Seller's Notice. If the sale by Beacon
and those Non-Selling Stockholders that elect to participate is not consummated
within 90 days following the delivery of Beacon's Seller's Notice, a
participating Non-Selling Stockholder shall be free to withdraw its Stockholder
Shares from the sale.
(iii) To the extent any of the Non-Selling Stockholders
exercises a tag-along right pursuant to Sections 6(c)(i) or 6(c)(ii), the number
of Stockholder Shares proposed to be sold by Beacon or the Selling Stockholder,
as the case may be, shall be correspondingly reduced. If any Non-Selling
Stockholder fails to elect to fully participate in Beacon's or the Selling
Stockholder's sale pursuant to this Section 6(c), Beacon or the Selling
Stockholder, as the case may be, shall give notice of such failure to the
remaining Non-Selling Stockholders who did so elect (the "PARTICIPANTS"). The
Participants each shall have 10 days from the date such notice was given to
agree to sell such Participant's pro rata share of the unsubscribed portion of
Stockholder Shares proposed to be sold.
(iv) Each Participant shall effect its participation in
the sale by delivering to an escrow agent mutually acceptable to the
Participants and the Selling Stockholder or Beacon, as
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<PAGE>
the case may be, no later than the expiration of such 10-day period
certificate(s) representing the number of Stockholder Shares that such
Participant elects to sell to a Third-party Purchaser, free and clear of any
Lien of any kind other than those Liens created by the Selling Stockholder or
Beacon, as the case may be, properly endorsed in blank for transfer, or
accompanied by properly executed instruments of transfer, together with
appropriate documentation of the corporate action necessary to effect the
transfer, including, without limitation, any requisite transfer tax stamps or
other evidence of payment of any applicable transfer taxes or similar fees.
(v) The stock certificates that the Participants deliver
to the Selling Stockholder or Beacon, as the case may be, pursuant to this
Section 6(c) shall be transferred to the Third-party Purchaser in consummation
of the sale of Stockholder Shares pursuant to the terms and conditions specified
in the Third-party Purchase Notice. In the event such sale is so consummated,
the Participants' stock certificates shall be transferred from such escrow agent
to such Third-party Purchaser and the Selling Stockholder or Beacon, as the case
may be, shall concurrently therewith remit to each Participant that portion of
the sale proceeds to which such Participant is entitled by reason of its
participation in such sale. To the extent that the Third-party Purchaser refuses
to purchase Stockholder Shares from any Participant exercising its tag-along
rights hereunder, the Selling Stockholder or Beacon, as the case may be, shall
not transfer to such Third-party Purchaser Stockholder Shares unless and until,
simultaneously with such sale, the Selling Stockholder or Beacon, as the case
may be, purchases such Participant's Stockholder Shares from such Participant.
In the event such a sale is not consummated within the time periods contemplated
by Section 6(b)(iii) or Section 6(c)(ii), whichever is applicable, the
Participants' stock certificates shall be returned to the Participants upon the
expiration thereof and the Selling Stockholder or Beacon, as the case may be,
shall not thereafter transfer any of its Stockholder Shares without first
complying with Section 6(b), if applicable, and this Section 6(c).
(d) PERMITTED TRANSFEREE. The provisions of Sections 6(a), 6(b)
and 6(c) shall not apply with respect to any Transfer of Stockholder Shares by
any Stockholder to any of its Permitted Transferees. Any such Transfer to such
Permitted Transferee shall not relieve the Stockholder of its obligations under
this Agreement with respect to the Stockholder Shares so Transferred. Such
Permitted Transferee shall reassign such Stockholder Shares to such Stockholder
if such Permitted Transferee is no longer an Affiliate of such Stockholder.
(e) TERMINATION OF RESTRICTIONS. The restrictions on the Transfer
of Stockholder Shares set forth in this Section 6 shall continue with respect to
each Stockholder Share until the date on which such Stockholder Share has been
transferred in a Public Sale or upon the consummation of a Qualified Public
Offering. Accordingly, prior to the consummation of a Qualified Public Offering,
notwithstanding any other provision hereof, no Transfer of any Stockholder
Shares (other than pursuant to a Public Sale) shall be permitted until the
proposed transferee of such Shareholder Shares shall have agreed in a written
agreement acceptable to the Company, prior to such Transfer, that such
transferee shall be bound by all the applicable terms and provisions hereof, and
shall have executed and delivered to the Company and each Non-Selling
Stockholder an originally executed counterpart of such agreement, which shall
become effective upon the
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subsequent consummation of such Transfer. Any attempt to Transfer any
Stockholder Shares in a manner that does not comply with this Agreement shall be
null and void, and neither the Company nor any transfer agent of such
Stockholder Shares shall be required to (and the Company shall not) give any
effect to such attempted Transfer on its records. The Company shall take all
actions that are necessary to cause such transfer agent not to give effect to
any such attempted Transfer. Each Stockholder shall take all actions that are
necessary to cause the Company and such transfer agent not to give effect to any
such attempted Transfer.
7. MANAGEMENT AND CONTROL.
(a) GENERAL. The business and affairs of the Company shall be
managed, controlled and operated in accordance with the Certificate, the By-laws
and this Agreement.
(b) LIMITATION ON CERTAIN ACTIONS BY THE COMPANY. Without the
prior affirmative vote of the Stockholders who hold a percentage of the issued
and outstanding Stockholder Shares equal to or greater than a majority of the
issued and outstanding Common Stock held at the time by all Stockholders (a
"CONTROLLING Interest"), the Company shall not:
(A) adopt or effect any plan of sale, merger, consolidation,
dissolution, reorganization or recapitalization of the Company;
(B) offer for sale or sell all or substantially all of the
assets of the Company;
(C) amend or restate the Certificate or the Bylaws otherwise
than in conformity with this Agreement;
(D) redeem any shares of capital stock of the Company other
than pursuant to Section 6 or on a pro rata basis among all
Stockholders; or
(E) change the type of business activities in which the
Company is engaged.
(c) PERIODIC AND OTHER REPORTS. The Company, at its expense. shall
cause to be delivered to each Stockholder such financial statements and reports
as Beacon may reasonably request from time to time.
(d) TERMINATION OF RESTRICTIONS. The rights and obligations
hereunder of the parties hereto set forth in this Section 7 shall terminate upon
the consummation of a Qualified Public Offering.
8. SALE OF THE COMPANY/COME-ALONG RIGHT.
(a) APPROVED SALES. If the Board and the Stockholders holding a
Controlling Interest in the Stockholder Shares approve a Sale of the Company
(the "APPROVED SALE") then each
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Stockholder shall vote for, consent to, and raise no objections against, such
Approved Sale. If the Approved Sale is structured as (i) a merger or
consolidation, each Stockholder shall waive any dissenters rights, appraisal
rights or similar rights in connection with such merger or consolidation or (ii)
a sale of stock, each Stockholder shall agree to sell all of such Shareholder's
Stockholder Shares and rights to acquire Stockholder Shares on the terms and
conditions approved by the Board and the Stockholders holding a Controlling
Interest. Each Stockholder shall take all actions, at the Company's expense,
reasonably requested by the Company in order to consummate the Approved Sale.
(b) CONDITIONS. The obligations of the Stockholders with respect
to the Approved Sale of the Company are subject to the satisfaction of the
following conditions: (i) upon the consummation of the Approved Sale, all
Stockholders holding a class of Stockholder Share shall receive the same form of
consideration and the same amount of consideration per Stockholder Share with
respect to such class of Stockholder Share; and (ii) if any Stockholder is given
an option as to the form and amount of consideration to be received with respect
to a class of Stockholder Shares held by such Stockholder, each Stockholder
holding such class shall be given the same option with respect to such class.
(c) REQUIREMENTS. Any Stockholder required by the provisions of
this Section 8 to transfer Stockholder Shares in connection with, or otherwise
to consent to, an Approved Sale shall not be required to make any
representations and warranties to any Person in connection with such Approved
Sale except as to (i) good title and the absence of Liens with respect to such
Stockholder's Stockholder Shares, if applicable, (ii) the corporate or other
existence of such Stockholder and (iii) the authority for, the validity and
binding effect of, and the absence of any conflicts under the charter documents,
if applicable, and material agreements of such Stockholder as to, any agreements
entered into by such Stockholder in connection with such Approved Sale. No
Stockholder shall be required to provide any indemnities in connection with such
Approved Sale except for indemnities in respect of damages resulting from a
breach of such representations and warranties.
(d) TERMINATION OF RESTRICTIONS. The rights and obligations
hereunder of the parties hereto set forth in Sections 8(a), 8(b) and 8(c) shall
terminate upon the consummation of a Qualified Public Offering.
9. PARTICIPATION/PREEMPTIVE RIGHTS.
(a) GRANT OF RIGHTS. The Company hereby grants to each Stockholder
the right to purchase such Stockholder's Proportionate Percentage of any future
Eligible Offering. The Company shall, before issuing any securities pursuant to
an Eligible Offering, give written notice thereof to each Stockholder. Such
notice shall specify the security or securities the Company proposes to issue
and the consideration that the Company intends to receive therefor. For a period
of 30 days following the date of such notice, each Stockholder shall be
entitled, by written notice to the Company, to elect to purchase all or any part
of such Proportionate Percentage of such
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Stockholder of the securities being sold in the Eligible Offering; PROVIDED,
HOWEVER, that if two or more securities shall be proposed to be sold as a "unit"
in an Eligible Offering, any such election must relate to such unit of
securities. If elections pursuant to this Section 9(a) shall not be made with
respect to any securities included in an Eligible Offering within such 30-day
period, then the Company may issue such securities to investors, but only for a
consideration payable in cash not less than, and otherwise on terms no more
favorable to the investors than, that set forth in such written notice of the
Company and only within 90 days after the end of such 30-day period. In the
event that any such offer is accepted by a Stockholder, such Stockholder shall
purchase from the Company for the consideration and on the terms set forth in
such written notice of the Company, the securities that such Stockholder shall
have elected to purchase.
(b) TERMINATION OF RIGHTS. The rights and obligations hereunder of
the parties hereto set forth in this Section 9 shall terminate upon the
consummation of a Qualified Public Offering.
10. DEMAND REGISTRATION RIGHTS.
(a) REQUESTS FOR REGISTRATION. At any time after the earlier of
the IPO or the fourth anniversary of the date of this Agreement, Beacon may
request registration under the Securities Act of all or part of its Registrable
Securities on Form S-1 or any similar long-form registration ("LONG-FORM
REGISTRATIONS"); PROVIDED that the expected offering price of such Registrable
Securities is in excess of $25,000,000. Notwithstanding the foregoing, if the
Company and the securities meet the eligibility requirements for such forms,
Stockholders holding Registrable Securities with an expected offering price in
excess of $10,000,000 may request registration under the Securities Act of all
or part of such Stockholder's Registrable Securities on Form S-3 or any
successor to such Form ("SHORT-FORM REGISTRATIONS", together with Long-Form
Registrations, collectively, "REGISTRATIONS". All Registrations requested
pursuant to this Section 10(a) are referred herein as "DEMAND REGISTRATIONS."
Each request for a Demand Registration shall specify the approximate number of
Registrable Securities requested to be registered and the expected per share
price range, if any, for such offering. Within ten days after receipt of any
such request, the Company shall give written notice of such requested
registration to all other holders of Registrable Securities and shall include in
such registration all Registrable Securities with respect to which the Company
has received written requests for inclusion therein within 15 days after the
delivery of such written notice of the Company.
(b) LONG-FORM REGISTRATIONS. The Company shall pay all
Registration Expenses for two of the Long-Form Registrations that Beacon is
entitled to request. A registration shall not count as one of the permitted
Long-Form Registrations until it has become effective, and no Long-Form
Registration shall count as one of the permitted Long-Form Registrations unless
Beacon is able to register and sell at least 75% of the Registrable Securities
requested to be included in such Registration; PROVIDED that in any event the
Company shall pay all Registration Expenses in connection with two Long-Form
Registrations that become effective and any other registrations initiated as a
Long-Form Registration prior to the effectiveness of the second Long-Form
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Registration that do not become effective as such. All Long-Form Registrations
shall be underwritten registrations.
(c) SHORT-FORM REGISTRATIONS. The Company shall pay all
Registration Expenses for all eligible Short-Form Registrations that are not
underwritten registrations and all Registration Expenses for three eligible
Short Form Registrations that is an underwritten registration.
(d) PRIORITY ON DEMAND REGISTRATIONS. The Company shall not
include in any Demand Registration any securities that are not Stockholder
Shares without the prior written consent of the Stockholders holding a majority
of the Stockholder Shares included in such registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Stockholder Shares
and, if permitted hereunder, other securities requested to be included in such
offering exceeds the number of Stockholder Shares and other securities, if any,
that can be sold in an orderly manner in such offering within a price range
acceptable to the Stockholders holding a majority of the Stockholder Shares
requesting registration, the Company shall include in such registration prior to
the inclusion of any securities that are not Stockholder Shares the number of
Stockholder Shares requested to be included that in the opinion of such
underwriters can be sold in an orderly manner within the price range of such
offering, pro rata among the respective holders thereof on the basis of the
amount of Stockholder Shares owned by each such holder.
(e) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not be
obligated to effect any Demand Registration within six months (i) after the
effective date of a previous underwritten registration of equity securities, or
(ii) if the managing underwriter, the SEC, the Securities Act or the form on
which the registration statement is to be filed, would require the conduct of an
audit other than the regular audit conducted by the Company at the end of its
fiscal year, in which case the filing may be delayed until the completion of
such regular audit (unless the Stockholder agrees to pay the expenses of the
Company in connection with such an audit other than such regular audit). The
Company may postpone for up to six months the filing or the effectiveness of a
registration statement for a Demand Registration if the Company notifies the
Stockholders that such Demand Registration would reasonably be expected to have
an adverse effect on any proposal or plan by the Company or any of its
subsidiaries; PROVIDED that in such event, the Stockholder initially requesting
such Demand Registration shall be entitled to withdraw such request and, if such
request is withdrawn, such Demand Registration shall not count as one of the
permitted Demand Registrations hereunder and the Company shall pay all
Registration Expenses in connection with such registration.
(f) SELECTION OF UNDERWRITERS. Stockholders holding a majority of
the Registrable Securities requesting registration pursuant to this Section 10
shall have the right to select the investment banker(s) and manager(s) to
administer the offering, subject to the approval of the Company, which shall not
be unreasonably withheld.
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11. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its securities under the Securities Act (other than pursuant to a Demand
Registration (with respect to which the provisions of Section 10 shall apply), a
transaction described under Rule 145 promulgated under the Securities Act or in
connection with a registration on Form S-8 or any successor form) and the
registration form to be used may be used for the registration of Registrable
Securities (a "PIGGYBACK REGISTRATION"), the Company shall give prompt written
notice to all Stockholders holding Registrable Securities of its intention to
effect such a registration and shall include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 15 days after the delivery of such written
notice of the Company.
(b) PIGGYBACK EXPENSES. The Registration Expenses of the
Stockholders holding Registrable Securities shall be paid by the Company in all
Piggyback Registrations.
(c) PRIORITY ON PRIMARY REGISTRATION. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriters advise the Company in writing that in their opinion the
number of securities requested to be included in such registration exceeds the
number that can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the
Registrable Securities requested to be included in such registration, pro rata
among the Stockholders holding such Registrable Securities on the basis of the
number of shares owned by each such Stockholder, and (iii) third, other
securities requested to be included in such registration.
(d) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 10 or pursuant to this Section 11, and if such previous registration has
not been withdrawn or abandoned, the Company shall not file or cause to be
effected any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-8 or any successor form), whether on its
own behalf or at the request of any holder or holders of such securities, until
a period of at least six months has elapsed from the effective date of such
previous registration.
12. HOLDBACK/LOCK-UP AGREEMENTS.
(a) STOCKHOLDER RESTRICTION. No Stockholder shall effect any
Public Sale during the 15-day period prior to, and for such period as the
managing underwriters of a registered Public Offering of securities of the
Company shall demand (with such period not to exceed 180 days) following, the
effective date of any registration statement (other than on Form S-8 or any
successor form), except as part of such underwritten registered Public Offering,
unless such managing underwriters otherwise agree. The Company shall provide
information to the
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Stockholders as to its reasonable expectation of the approximately date of
effectiveness of any registration statement.
(b) COMPANY RESTRICTION. The Company shall (i) not effect any
Public Sale during the seven days prior to, and during the 90-day period
beginning on, the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration (except as part of such underwritten
registration or pursuant to registrations on Form S-8 or any successor form),
unless the underwriters managing such registered Public Offering otherwise
agree, and (ii) use its best efforts to cause each holder of at least five
percent (on a fully diluted basis) of its Common Stock, or any securities
convertible into or exchangeable or exercisable for Common Stock, purchased from
the Company at any time after the date of this Agreement (other than in a
registered Public Offering) to agree not to effect any Public Sale during such
period (except as part of such underwritten registered Public Offering, if
otherwise permitted), unless the underwriters managing the registered Public
Offering otherwise agree.
13. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered pursuant
to this Agreement, the Company shall use its best efforts to effect the
registration and the sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and pursuant thereto the Company shall
as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company shall furnish to the counsel selected by the Stockholders holding a
majority of the Registrable Securities covered by such registration statement
copies of all such documents proposed to be filed, which documents shall be
subject to the review and consent of such counsel);
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a period
that terminates upon the earlier of (i) the sale of all shares covered by such
registration statement or (ii) nine months from the date such registration
statement is declared effective, and to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each Stockholder selling Registrable Securities
thereunder such number of copies of such registration statement, each amendment
and supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such
Stockholder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such Stockholder;
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(d) use its best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such jurisdictions as
any Stockholder reasonably requests and do any and all other acts and things
that may be reasonably necessary or advisable to enable such Stockholder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such Stockholder (provided that the Company shall not be required to
(i) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 13(d), (ii) subject itself
to taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction);
(e) notify each Stockholder selling such Registrable Securities,
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act, of the occurrence of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such Stockholder, the Company shall
prepare a supplement or amendment to such prospectus so that, as thereafter
delivered to the purchasers of such Registrable Securities, such prospectus
shall not contain an untrue statement of a material fact or omit to state any
fact necessary to make the statements therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and, if not so listed, to be listed on NASDAQ and, if listed on NASDAQ,
use its best efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11Aa2-1 under the Exchange Act or, failing
that, to secure NASDAQ authorization for such Registrable Securities and,
without limiting the generality of the foregoing, to arrange for at least two
market makers to register as such with respect to such Registrable Securities
with the NASD;
(g) provide a transfer agent, registrar and a CUSIP number for all
such Registrable Securities not later than the effective date of such
registration statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders of
a majority of the Registrable Securities being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Securities (including, without limitation, effecting a stock split
or a combination of shares);
(i) make available for inspection by any Stockholder selling
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such Stockholder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such Stockholder,
underwriter, attorney, accountant or agent in connection with such registration
statement, PROVIDED, HOWEVER, that any such records, documents,
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properties or information that are designated by the Company in writing as
confidential shall be kept confidential by such requesting Person unless
disclosure by such Person is required by court or administrative order;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to the Stockholders, as
soon as reasonably practicable, an earnings statement covering the period of at
least twelve months beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder;
(k) permit any Stockholder holding Registrable Securities that, in
such Stockholder's sole and exclusive judgment, might be deemed to be an
underwriter or a controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material furnished to the Company in writing that in the
reasonable judgment of such Stockholder and such Stockholder's counsel should be
included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification of
any Registrable Securities included in such a registration statement for sale in
any jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal or such order; and
(m) obtain a cold comfort letter from the Company's independent
public accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the Stockholders holding a
majority of the Registrable Securities being sold reasonably request.
14. REGISTRATION EXPENSES.
(a) DEFINITION. All expenses incident to the Company's
performance of, or compliance with, Sections 10 and 11, including, without
limitation, all registration and filing fees, fees and expenses of compliance
with securities or blue sky laws, printing expenses, messenger and delivery
expenses, and fees and disbursements of counsel for the Company and all
independent certified public accountants, underwriters (excluding discounts,
commissions, and transfer taxes) and other Persons retained by the Company (all
such expenses, "REGISTRATION EXPENSES"), shall be borne as provided in this
Agreement, except that the Company shall, in any event, pay its internal
expenses (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit or quarterly review, the expense of any liability insurance and
the expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are then
listed or on NASDAQ.
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(b) COUNSEL EXPENSES. In connection with each Demand
Registration covered by Sections 10(b) and (c) and each Piggyback Registration,
the Company shall reimburse the Stockholders holding Stockholder Shares covered
by such registration for the reasonable fees and disbursements of one counsel
chosen by the Stockholders holding a majority of the Stockholder Shares
initially requesting such registration.
(c) OTHER EXPENSES. To the extent Registration Expenses
are not required to be paid by the Company, each holder of securities included
in any registration hereunder shall pay those Registration Expenses allocable to
the registration of such holder's securities so included, and any Registration
Expenses not so allocable shall be borne by all sellers of securities included
in such registration in proportion to the aggregate selling price of the
securities to be so registered.
15. INDEMNIFICATION.
(a) COMPANY INDEMNIFICATION. In the event of any
registration of any securities of the Company pursuant to Section 10 or 11, the
Company shall indemnify, to the extent permitted by law, each participating
Stockholder, their officers and directors and each Person who controls such
Stockholder (within the meaning of the Securities Act), as applicable, against
all losses, claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are caused by or contained in any
information furnished in writing to the Company by such Stockholder expressly
for use therein or by such Stockholder's failure to deliver a copy of the
registration statement or prospectus or any amendments or supplements thereto
after the Company has furnished such Stockholder with a sufficient number of
copies of the same. In connection with an underwritten offering, the Company
shall indemnify such underwriters, their officers and directors and each Person
that controls such underwriters (within the meaning of the Securities Act) to
the same extent as provided above with respect to the indemnification of the
participating Stockholders.
(b) STOCKHOLDER OBLIGATIONS. In connection with any
registration statement in which a Stockholder holding Registrable Securities is
participating, each such Stockholder shall furnish to the Company in writing
such powers of attorney, custody agreements and letters of direction and other
information and affidavits concerning such Stockholder as the Company reasonably
requests for use in connection with any such registration statement or
prospectus and, to the extent permitted by law, shall, severally and not
jointly, indemnify the Company, its directors and officers and each Person that
controls the Company (within the meaning of the Securities Act) against any
losses, claims, damages, liabilities and expenses resulting from any untrue or
alleged untrue statement of material fact contained in the registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make
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the statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so furnished
in writing by such Stockholder expressly for use therein, provided that the
obligation to indemnify shall be individual to each such Stockholder and will be
limited to the net amount of proceeds received by such Stockholder from the sale
of Registrable Securities pursuant to such registration statement.
(c) PROCEDURE. Any party hereto entitled to
indemnification hereunder shall (i) give prompt written notice to the
indemnifying party of any claim with respect to which such indemnified party
seeks indemnification and (ii) unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist with respect to such claim, permit such indemnifying party to
assume the defense of such claim with counsel reasonably satisfactory to such
indemnified party. If such defense is assumed, such indemnifying party shall not
be subject to any liability for any settlement made by the indemnified party
without such indemnifying party's consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any such indemnified party a conflict of interest may exist between such
indemnified party and any other indemnified parties with respect to such claim.
(d) SURVIVAL. The indemnification provided for under this
Section 15 shall remain in full force and effect regardless of any investigation
made by or on behalf of the indemnified party or any officer, director or
controlling person of such indemnified party and shall survive the transfer of
securities.
16. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No party hereto
may participate in any registration hereunder that is underwritten unless such
party (i) agrees to sell such party's securities on the basis provided in any
underwriting arrangements approved by such Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements; PROVIDED that no
stockholder participating in any underwritten registration shall be required to
make any representations or warranties to the Company or the underwriters other
than representations and warranties regarding such Stockholder and such
Stockholder's intended method of distribution.
17. OTHER PROVISIONS REGARDING REGISTRATION RIGHTS.
(a) RESTRICTION. Except as provided in this Agreement and
until the consummation of a Qualified Public Offering, the Company shall not
grant to any Persons the right to request that the Company register any equity
securities of the Company, or any securities convertible or exchangeable into or
exercisable for such securities, PROVIDED, that the Company may grant rights to
other Persons to participate in Piggyback Registrations so long as such rights
are subordinate to the rights of the Stockholders with respect to such Piggyback
Registrations.
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(b) NO OBLIGATION. Notwithstanding anything to the
contrary in any previous agreement or security, the Company shall have no
obligations to any Stockholder with respect to the registration of any
Stockholder Shares, except as provided in this Agreement.
(c) REPORTING. The Company shall, when and as applicable,
use its best efforts to: (i) file in a timely manner all reports and other
document required to be filed by it under the Securities Act, the Exchange Act
and the rules and regulations promulgated thereunder necessary to permit sales
under Rule 144 promulgated under the Securities Act, and the Company shall take
such further reasonable action (not requiring the expenditure of any
out-of-pocket costs) to the extent required from time to time to enable
Stockholders to sell Stockholder Shares without registration under the
Securities Act within the limitations of the exemptions provided by (A) Rule 144
promulgated under the Securities Act or (B) any similar rule or regulation
hereafter adopted by the SEC and (ii) promptly furnish to each Stockholder a
copy of all such reports and documents. Upon the request of a Stockholder, the
Company shall deliver to such Stockholder a written statement as to whether it
has complied with such requirements.
18. LEGEND. Each certificate evidencing Stockholder Shares shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
THE SHARES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT
TO, AND TRANSFERABLE ONLY UPON COMPLIANCE WITH THE
PROVISIONS OF, (1) THE STOCKHOLDERS' AGREEMENT, DATED
AS OF JULY 9, 1998, BY AND AMONG GENERAC PORTABLE
PRODUCTS, INC. (THE "COMPANY"), THE BEACON GROUP III
- FOCUS VALUE FUND, L.P. AND THE OTHER STOCKHOLDERS
OF THE COMPANY REFERENCED THEREIN AND (2) THE
CERTIFICATE OF INCORPORATION OF THE COMPANY, A COPY
OF WHICH AGREEMENT AND CERTIFICATE IS ON FILE AT THE
REGISTERED OFFICE OF THE COMPANY LOCATED AT 1 GENERAC
WAY, JEFFERSON, WI 53549.
19. INSIDER TRANSACTIONS. Any transactions between the Company and
its officers, directors, Stockholders or their Affiliates, including, without
limitation, any sales of capital stock or assets of the Company to any such
Person, shall be on terms no less favorable to the Company than could be
obtained from unaffiliated third parties on an arm's length basis and shall
require the approval of a majority of disinterested members of the Board.
20. AMENDMENT AND WAIVER. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement that has
the effect of reducing the rights of the Company or any Stockholder or
increasing the obligations of the Company or any Stockholder shall be effective
against the Company or such Stockholder without the prior written consent of the
Company or such Stockholder. The failure of any party hereto to enforce any of
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the provisions of this Agreement shall in no way be construed as a waiver of
such provisions and shall not affect the right of such party thereafter to
enforce each and every provision of this Agreement in accordance with its terms.
21. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
22. ENTIRE AGREEMENT. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among
such parties, written or oral, that may have related to the subject matter
hereof in any way.
23. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Company and its successors and assigns and the Stockholders and any subsequent
holders of Stockholder Shares and the respective successors and assigns of each
of them, so long as they hold Stockholder Shares. Nothing expressed or implied
in this Agreement is intended to, or shall confer upon, any Person other than
the parties hereto and their respective successors and permitted assignees, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement. The Company shall not assign any rights, remedies, obligations or
liabilities hereunder without the unanimous written consent of the Stockholders.
24. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be an original and all of which taken together
shall constitute one and the same agreement.
25. REMEDIES. The Company and the Stockholders shall be entitled
to enforce their rights under this Agreement (including, but not limited to,
their respective right to recover damages by reason of any breach of any
provision of this Agreement) and to exercise all other rights existing in their
favor. The parties hereto hereby agree and acknowledge that money damages may
not be an adequate remedy for any breach of the provisions of this Agreement and
that the Company and the Stockholders may in its sole discretion apply to any
court of law or equity of competent jurisdiction for specific performance and/or
injunctive relief (without posting a bond or other security) in order to enforce
or prevent any violation of the provisions of this Agreement.
22
<PAGE>
26. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, or mailed first class (postage
prepaid) or sent by reputable overnight courier service (charges prepaid) to the
Company at the address set forth below and to a Stockholder at such address as
indicated by the Company's records, or at such address or to the attention of
such other Person as the recipient party has specified by prior written notice
to the sending party. Notices shall be deemed to have been given hereunder when
delivered personally, three business days after deposit in the U.S. mail and two
business days after deposit with a reputable overnight courier service. The
Company's address is:
Generac Portable Products, Inc.
1 Generac Way
Jefferson, WI 53549
27. GOVERNING LAW; CONSENT TO JURISDICTION. This Agreement shall
be governed by and interpreted in accordance with the laws of the State of
Delaware, without giving effect to any choice of law or conflict of law
provision or rule that would cause the application of the laws of any
jurisdiction other than the State of Delaware. The parties hereto consent to the
jurisdiction of the State and federal courts located in the State of Delaware.
28. DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of this
Agreement.
[Signatures On Next Page]
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers or representatives thereunto duly
authorized as of the date first above written.
GENERAC PORTABLE PRODUCTS, INC.
By: /s/ Richard A. Aube
-------------------------------------
Name: Richard A. Aube
Title: Secretary and Treasurer
THE BEACON GROUP III - FOCUS VALUE
FUND, L.P.
By Beacon Focus Value Investors, LLC
its General Partner
By Focus Value GP, Inc.
its sole member
By: /s/ Faith Rosenfeld
-------------------------------------
Name: Faith Rosenfeld
Title: Managing Director
BT CAPITAL INVESTORS, L.P.
By: /s/ Joseph F. Wood
-------------------------------------
Name: Joseph F. Wood
Title: Managing Director
CALIFORNIA PUBLIC EMPLOYEES'
RETIREMENT SYSTEM
By: /s/ David Maxwell
-------------------------------------
Name: David Maxwell
<PAGE>
SQUAM LAKE INVESTORS III, L.P.
By: /s/ Gary Wilkinson
-------------------------------------
Name: Gary Wilkinson
Title: Treasurer of GPI, Inc.,
general partner of stockholder
SUNAPEE SECURITIES, INC.
By: /s/ Gary Wilkinson
-------------------------------------
Name: Gary Wilkinson
Title: Treasurer
TASK HOLDINGS LIMITED
By: /s/ Guy R. Shutt
-------------------------------------
Name: Guy R. Shutt
Title: Vice President
HAMILTON LANE PRIVATE EQUITY
PARTNERS, LP
By HLSP Investment Management LLC
its General Partner
By: /s/ Mario L. Giannini
-------------------------------------
Name: Mario L. Giannini
Title: Managing Member
<PAGE>
HAMILTON LANE PRIVATE EQUITY
FUND, PLC
By HLSP Investment Management LLC
its General Partner
By: /s/ Mario L. Giannini
-------------------------------------
Name: Mario L. Giannini
Title: Managing Member
CARTLEDGE FAMILY LIMITED
PARTNERSHIP
By its General Partner
By: /s/ Eugene R.E. Cartledge
-------------------------------------
Name: Eugene R.E. Cartledge
CAPITAL D'AMERIQUE CDPQ INC.
By: /s/ Francois Joly
-------------------------------------
Name: Francois Joly
/s/ ROBERT D. KERN
----------------------------------------
ROBERT D. KERN
/s/ RICHARD A. VAN DEUREN
----------------------------------------
RICHARD A. VAN DEUREN
/s/ EUGENE R.E. CARTLEDGE
----------------------------------------
EUGENE R.E. CARTLEDGE
<PAGE>
SCHEDULE I
COMMON STOCK OWNERSHIP
<TABLE>
<CAPTION>
Number of Shares
of
Stockholder Common Stock
- ----------- ----------------
<S> <C>
The Beacon Group III - Focus
Value Fund, L.P. 5,470.909
Task Holdings Limited 309.091
California Public Employees'
Retirement System 1,931.818
BT Capital Investors, L.P. 386.364
Squam Lake Investors III, L.P. 74.182
Sunapee Securities, Inc. 3.091
Hamilton Lane Private Equity Partners, LP 48.828
Hamilton Lane Private Equity Fund, PLC 105.718
Cartledge Family Limited Partnership 23.182
Robert D. Kern 77.273
Richard A. Van Deuren 7.727
Eugene R.E. Cartledge 23.182
Capital d'Amerique CDPQ Inc. 571.818
</TABLE>
<PAGE>
COMMON STOCK COMMON STOCK
THIS CERTIFICATE IS TRANSFERABLE IN INCORPORATED UNDER THE LAWS
THE CITIES OF BOSTON OR NEW YORK OF THE STATE OF DELAWARE
[GRAPHIC OMITTED]
CUSIP 368740 10 6
SEE REVERSE
FOR CERTAIN DEFINITIONS
-----------------------
GENERAC
Portable Products, Inc.
-----------------------
GENERAC PORTABLE PRODUCTS, INC.
- --------------------------------------------------------------------------------
THIS IS TO CERTIFY THAT
IS THE OWNERS OF
- --------------------------------------------------------------------------------
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE, OF
GENERAC PORTABLE PRODUCTS, INC. TRANSFERABLE ON THE BOOKS OF THE CORPORATION BY
THE HOLDER HEREOF IN PERSON OR BY DULY AUTHORIZED ATTORNEY [ILLEGIBLE] OF THIS
CERTIFICATE [ILLEGIBLE]
DATED:
COUNTERSIGNED AND REGISTERED:
BANKBOSTON, N.A.
TRANSFER AGENT AND REGISTRAR
/s/ Richard A. Aube /s/ Eric R. Wilkinson
AUTHORIZED SIGNATURE SECRETARY AND TREASURER PRESIDENT
<PAGE>
GENERAC PORTABLE PRODUCTS, INC.
A statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights as established, from time to time, by the Amended and Restated
Certificate of Incorporation of the Corporation as amended from time to time and
by any certificate of determination, the number of shares constituting each
class and series, and the designations thereof, may be obtained by the holder
hereof upon request and without charge at the principal office of the
Corporation.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right
of survivorship and not as tenants
in common
UNIF GIFT MIN ACT - _________ Custodian _________
(Cost) [ILLEGIBLE]
under Uniform Gifts to Minors
Act _________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, ______________________ HEREBY SELL, ASSIGN AND TRANSFER ONTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE OF ASSIGNEE)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
_________________________________________________________________________ SHARES
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT
_______________________________________________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED _______________________
------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
SIGNATURE(S) GUARANTEED: ------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION [ILLEGIBLE])
PURSUANT TO S.E.C. RULE [ILLEGIBLE]
-------------------------------------------------
AMERICAN BANK NOTE COMPANY
680 BLAIR MILL ROAD
HORSHAM, PA 19044
(215) 657 - [ILLEGIBLE]
-------------------------------------------------
SALES: A. HOBBS: 404-525-1455
-------------------------------------------------
/NET/BANKNOTE/HOME 57 GENERAC H61791
-------------------------------------------------
-------------------------------------------------
PRODUCTION COORDINATOR: BELINDA BECK 212-630-2160
PROOF OF MAY 12, 1999
GENERAC PROTABLE PRODUCTS, INC.
H 61791 BACK
-------------------------------------------------
OPERATOR:
-------------------------------------------------
NEW
-------------------------------------------------
<PAGE>
Exhibit 5.1
May 21, 1999
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Registration of Common Stock
Ladies and Gentlemen:
We have acted as counsel for Generac Portable Products, Inc., a
Delaware corporation (the "Company"), in connection with the registration
pursuant to a registration statement on Form S-1 (the "Registration
Statement") filed on May 21, 1999 by the Company with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the "Act"),
of the offer and sale of shares of common stock, par value $0.01 per
share, of the Company (the "Common Stock"), to be sold by the Company to the
underwriters named in the Registration Statement pursuant to an underwriting
agreement, the form of which will be filed as an exhibit to the Registration
Statement (the "Underwriting Agreement").
In so acting, we have examined and relied upon the accuracy of
original, certified, conformed or photographic copies of such records,
agreements, certificates and other documents as we have deemed necessary or
appropriate to enable us to render the opinions set forth below. In all such
examination, we have assumed the genuineness of signatures on original documents
and the conformity to such original documents of all copies submitted to us as
certified, conformed or photographic copies and, as to certificates of public
officials, we have assumed the same to have been properly given and to be
accurate.
This opinion is limited in all respects to the laws of the State of
Delaware, and no opinion is expressed with respect to the laws of any other
jurisdiction or any effect that such laws may have on the opinions expressed
herein. This opinion is limited to the matters stated herein, and no opinion is
implied or may be inferred beyond the matters expressly stated herein.
Based upon the foregoing, we are of the opinion that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware; and
<PAGE>
(ii) The shares of Common Stock to be issued and sold by
the Company pursuant to the Underwriting Agreement are duly authorized
and, when the price per share has been established by the pricing
committee of the Board of Directors of the Company and the shares of
Common Stock are issued in accordance with the terms of the
Underwriting Agreement against payment therefor, will be validly
issued, fully paid and nonassessable.
This opinion is given as of the date hereof, and we assume no
obligation to update this opinion to reflect any fact or circumstance that may
hereafter come to our attention or any change in any law or regulation that may
hereafter occur.
We consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to us under the caption "Legal
Matters" in the prospectus that forms a part thereof. In giving such consent, we
do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
Sincerely,
/s/ King & Spalding
2
<PAGE>
Exhibit 10.2
GENERAC PORTABLE PRODUCTS COMPANY, INC.
1998 STOCK OPTION PLAN
1. PURPOSE.
The purpose of the Generac Portable Products Company, Inc.
1998 Stock Option Plan (the "PLAN") is to provide an incentive to certain
employees and non-employee directors of Generac Portable Products Company, Inc.,
a Delaware corporation (the "COMPANY"), by granting to such employees and
non-employee directors options to acquire common stock, $0.01 par value, of the
Company ("STOCK"), including (i) incentive stock options ("ISOS"), within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"CODE"), and (ii) options not constituting ISOs ("NQSOS").
2. EFFECTIVE DATE AND TERM OF THE PLAN.
The Plan is effective as of July 9, 1998 (the "EFFECTIVE
DATE"). Unless sooner terminated, the Plan shall continue in effect from the
Effective Date until the day before the tenth anniversary of the Effective Date
(the "TERMINATION DATE"). In no event shall an ISO or NQSO (collectively
"OPTIONS") be granted after the Termination Date. Options granted prior to the
Termination Date shall remain in effect until their exercise, surrender,
cancellation or expiration in accordance with their terms.
3. STOCK SUBJECT TO THE PLAN.
(a) Subject to adjustment as provided in Section 10
below, the aggregate number of shares of Stock ("SHARES") to be delivered upon
exercise of all Options granted under the Plan shall not exceed one thousand six
hundred nineteen and forty-eight one thousandths (1,619.048).
(b) If any Option granted under the Plan expires,
terminates or is canceled without having been exercised in full, the number of
Shares as to which the Option has not been exercised shall become available for
further grants under the Plan, except that if any Option is canceled on account
of the exercise of a related Option, the Shares represented by such canceled
Option shall no longer be available for issuance under the Plan.
(c) Upon exercise of an Option the Company may issue
authorized but unissued Shares, Shares held in its treasury, or both.
(d) Shares issued upon the exercise of an Option shall be
fully paid and nonassessable.
(e) Unless otherwise determined by the Committee, no
fractional share of Stock shall be issued or transferred upon exercise of an
Option under the Plan.
<PAGE>
4. ADMINISTRATION OF THE PLAN.
(a) COMMITTEE. The Plan shall be administered by a
Committee of the Board of Directors (the "COMMITTEE"). The Committee shall
initially consist of the entire Board. However, the Board may elect at any time
to provide that the Committee shall consist of not less than two members, each
of whom shall be a Director who is a "non-employee director" within the meaning
of Rule 16b-3(b)(3)(i) under the Securities Exchange Act of 1934. The Committee
shall be appointed by, and serve at the pleasure of, the Board of Directors.
(b) AUTHORITY. Subject to the specific limitations and
restrictions set forth in the Plan, the Committee shall have the authority: (i)
to grant ISOs to employees whom the Committee determines are key to the success
of the Company ("KEY EMPLOYEES"); (ii) to grant NQSOs to such employees and
non-employee directors as the Committee shall select (the grantee of an ISO or
NQSO being hereinafter referred to as an "OPTIONEE"); (iii) to make all
determinations necessary or desirable for the administration of the Plan
including, within any applicable limits specifically set out in the Plan, the
number of Shares that may be purchased under an Option, the price at which an
Option may be exercisable, and the period during which an Optionee must remain a
non-employee director or in the employ of the Company or a subsidiary of the
Company prior to the exercise of an Option; (iv) to construe the respective
Option agreements and the Plan; (v) to prescribe, amend and rescind rules and
regulations relating to the Plan; (vi) to determine the terms and provisions of
the respective Option agreements, which need not be identical, (vii) to correct
any defect, supply any omission or reconcile any inconsistency in the Plan or in
any Option granted under the Plan, in a manner that the Committee deems
necessary or desirable; (viii) to amend any Option granted under the Plan,
subject to the provisions of the Plan; (ix) to grant to Optionees in exchange
for their surrender of Options, new Options containing such other terms and
conditions as the Committee shall determine; and (x) to make other
determinations in the judgment of the Committee necessary or desirable for the
administration of the Plan. Any interpretation or decision of the Committee
shall be final and conclusive. Nothing in this Section 4(b) shall give the
Committee the right to increase the total number of Shares that may be purchased
on exercise of Options (except as provided in Section 10 below), to extend the
term of the Plan, or to extend the period during which an ISO is exercisable
beyond ten years from the date of grant thereof.
(c) LIABILITY/PROTECTION. No member of the Committee
shall be liable, in the absence of bad faith, for any act or omission with
respect to serving as a member of the Committee. Service as a member of the
Committee shall constitute service as a member of the Board of Directors, so
that members of the Committee shall be entitled to indemnification for their
service on the Committee to the full extent provided for service as members of
the Board of Directors.
2
<PAGE>
5. OPTION GRANTS.
(a) OPTION AGREEMENT. The Committee shall have sole
authority to grant Options under this Plan. Each Option granted under the Plan
shall be evidenced by a stock option agreement (the "OPTION Agreement"). The
Option Agreement shall be subject to the terms and conditions of the Plan and
may contain additional terms and conditions (which may vary from Optionee to
Optionee) not inconsistent with the Plan, as the Committee may deem necessary or
desirable. Appropriate officers of the Company are hereby authorized to execute
and deliver Option Agreements, and amendments thereto, in the name of the
Company.
(b) OPTION PRICE. The Option Price of each share of Stock
purchasable under an Option granted under the Plan shall be determined by the
Committee at the time the Option is granted, and shall be specified in the
Option Agreement. The Option Price shall not be less than (i) in the case of a
grant of an ISO to a Key Employee who, at the time of the grant, is not a Ten
Percent Shareholder, as defined below, one hundred percent (100%) of the fair
market value of a Share as determined on the date the Option is granted; (ii) in
the case of a grant of an ISO to a Key Employee who, at the time of grant, owns
stock representing more than ten percent of the total combined voting power of
all classes of stock of the Company or of any subsidiary (a "TEN PERCENT
SHAREHOLDER"), one hundred and ten percent (110%) of the fair market value of a
Share, as determined on the date the Option is granted; or (iii) in the case of
a NQSO, the price determined by the Committee. The fair market value of a share
of Stock for purposes of determining the Option Price shall be determined by the
Committee in accordance with any reasonable method of valuation consistent with
applicable requirements of Federal tax law, including, as applicable, the
provisions of Section 422(c)(8) of the Internal Revenue Code of 1986, as
amended. The Option Price shall be subject to adjustment in accordance with
Section 10 hereof.
(c) NUMBER OF SHARES OF STOCK. Each Option Agreement
shall specify the number of Shares which the Optionee may purchase. The
Committee shall have the authority to allow a form of payment other than cash to
the extent consistent with applicable requirements of Federal tax law.
(d) OPTION TERM. The Committee shall determine the length
of the Option term, except that no Option term shall extend for a period greater
than ten (10) years from the date of grant.
6. EXERCISE OF OPTIONS.
Subject to applicable law and the terms and conditions of the
Plan, an Option granted under the Plan shall be exercisable at such time, or
times, upon the occurrence of such event or events, for such period or periods,
in such amount or amounts, and upon the satisfaction of such terms and
conditions including, without limitation, terms and conditions relating to
notice of exercise, date the Option is deemed exercised, delivery and
transferability of Shares and
3
<PAGE>
withholding of taxes, as the Committee shall determine and specify in the Option
Agreement. The aggregate fair market value (determined at the time the Option is
granted), of the Stock with respect to which an ISO or ISOs granted to any Key
Employee are to become exercisable for the first time during any calendar year
(under the Plan and any other plan of the Company and its subsidiary
corporations) shall not exceed One Hundred Thousand Dollars ($100,000). The
application of the limitation set forth in the preceding sentence to any
individual Option shall be determined by the Committee subject to applicable
rules and regulations under Section 422 of the Code.
7. EXPIRATION OF OPTIONS.
The unexercised portion of any Option granted under the Plan
shall automatically and without notice expire at the time of the earliest to
occur of the following:
(a) the expiration of ten years from the date on which
the Option is granted, or such shorter term as may be specified in the Option
Agreement;
(b) the date of termination for Cause, as defined below,
of the Optionee's employment with the Company; or
(c) the expiration of the period specified in the Option
Agreement following any other termination of the Optionee's service on the Board
of Directors or employment with the Company.
Anything to the contrary notwithstanding, in the case of an ISO, such
Option shall by its terms not be exercisable after the expiration of ten years
(or, in the case of an Option granted to a Ten Percent Stockholder, five years)
from the date such Option is granted.
(d) For purposes of this Section 7, "Cause" shall mean
the Optionee's:
(i) indictment for, or plea of NOLO CONTENDERE
to, a felony or other crime involving intentional
enrichment of the Optionee at the expense of the
Company;
(ii) willful gross misconduct in the performance
of duties, or, following written notice from the
Board of Directors, repeated neglect of duties.
4
<PAGE>
8. NON-TRANSFERABILITY OF OPTIONS.
(a) No Option granted under the Plan shall be
transferable by an Optionee other than by will or the laws of descent or
distribution. During the lifetime of an Optionee, an Option shall be exercisable
only by the Optionee. Except as otherwise determined by the Committee, any
attempt to transfer, assign, pledge, hypothecate, or otherwise dispose of, or to
subject to execution, attachment or similar process, any Option other than as
permitted above shall be null and void and of no effect, and shall result in the
forfeiture of all rights as to such Option.
(b) The Company may require any person to whom an Option
is granted, as a condition of exercising such Option, to give written assurances
in substance and form satisfactory to the Company to the effect that such person
is acquiring the Common Stock subject to the Option for his or her own account
for investment and not with any present intention of selling or otherwise
distributing the same, and to such other effects as the Company deems necessary
or appropriate in order to comply with applicable Federal and state securities
laws.
(c) Notwithstanding any provision of the Plan or the
terms of any Option granted pursuant to the Plan, the Company shall not be
required to issue any Shares if such issue or transfer would, in the judgment of
the Committee, constitute a violation of any state or Federal law or the rules
or regulations of any governmental regulatory body or any securities exchange.
Each Option may be subject to the requirement that if, at any time, counsel to
the Company shall determine that the listing, registration or qualification of
the Shares subject to such Option upon any securities exchange or under any
state or Federal law, or the consent or approval of any governmental or
regulatory body, is necessary as a condition of, or in connection with, the
issuance or purchase of Shares thereunder, such Option may not be exercised, in
whole or in part, unless such listing, registration, qualification, consent or
approval shall have been effected or obtained on conditions acceptable to the
Board. Nothing herein shall be deemed to require the Company to apply for or to
obtain such listing, registration or qualification.
9. NO SPECIAL RIGHTS.
Until an Optionee has made payment of the Option Price, has
paid or has had satisfied any applicable withholding taxes, and has had issued
to him a certificate or certificates for the Shares so acquired, the Optionee
shall have no rights as a stockholder of the Company with respect to the Stock.
No Option granted under the Plan shall confer upon an Optionee any right to
continued employment with the Company or its subsidiaries, nor shall it
interfere in any way with the right of the Company or its subsidiaries to
terminate an Optionee's employment at any time.
5
<PAGE>
10. ADJUSTMENTS FOR CHANGE IN CAPITAL STRUCTURE AND SPECIAL
TRANSACTIONS.
(a) RECAPITALIZATION, ETC.
(i) "Change in Capitalization" means any
increase or reduction in the number of Shares, or any
change (including, but not limited to, a change in
value) in the Shares or exchange of Shares for a
different number or kind of shares or other
securities of the Company or another entity, by
reason of a reclassification, recapitalization,
merger, consolidation, reorganization, spin-off,
split-up, issuance of warrants or rights or
debentures, stock dividend, stock split or reverse
stock split, cash dividend, property dividend,
combination or exchange of shares, repurchase of
shares, change in corporate structure or other
similar transaction. In the event of a Change in
Capitalization, the Committee shall conclusively
determine the appropriate adjustments, if any, to (x)
the maximum number and class of Shares or other stock
or securities with respect to which Options may be
granted under the Plan and (y) the number and class
of Shares or other stock or securities which are
subject to outstanding Options granted under the Plan
and the exercise price therefor.
(ii) Any such adjustment in the Shares or other
stock or securities subject to outstanding ISOs
(including any adjustments in the exercise price)
shall be made in such manner as not to constitute a
modification as defined by Section 404(h)(3) of the
Code and only to the extent otherwise permitted by
Sections 422 and 424 of the Code.
(iii) If, by reason of a Change in Capitalization,
an Optionee shall be entitled to exercise an Option
with respect to new, additional or different shares
of stock or securities, such new, additional or
different shares shall thereupon be subject to the
Option prior to such Change in Capitalization.
(b) SPECIAL TRANSACTIONS. In the event of a merger,
consolidation or other form of reorganization of the Company with or into
another corporation (other than a merger, consolidation or other form of
reorganization in which the Company is the surviving corporation), a sale or
transfer of all or substantially all of the assets of the Company or a tender or
exchange offer made by any corporation, person or entity (other than an offer
made by the Company), the Committee, either before or after the merger,
consolidation or other form of reorganization, may take such action as it
determines in its sole discretion with respect to the number or kinds of Shares
subject to the Plan or any Option under the Plan. Such action by the Committee
may include (but shall not be limited to) the following:
(i) accelerating the full exercisability of an
Option during such period as the Committee shall
prescribe following the public announcement of
6
<PAGE>
such merger, consolidation, other form of
reorganization, sale or transfer of assets or tender
or exchange offer;
(ii) permitting an Optionee at any time during
such period as the Committee shall prescribe in
connection with such merger, consolidation, other
form of reorganization, sale or transfer of assets or
tender or exchange offer, to surrender his Option (or
any portion thereof), to the Company in exchange for
a cash payment in an amount and in a manner
determined by the Committee; or
(iii) requiring an Optionee, at any time in
connection with such merger, consolidation, other
form of reorganization, sale or transfer of assets or
tender or exchange offer, to surrender his Option (or
any portion thereof) to the Company (A) in exchange
for a cash payment as described in clause (ii) above,
or (B) in exchange for, and subject to shareholder
approval of, a substitute Option or other award
issued by the corporation surviving such merger,
consolidation or other form of reorganization (or an
affiliate of such corporation), or the corporation
acquiring such assets (or an affiliate of such
corporation), which the Committee, in its sole
discretion, determines to have a value substantially
equivalent to the value of the Option surrendered.
(c) EFFECT OF CERTAIN TRANSACTIONS.
Subject to Subsections (a) and (b) above, or as otherwise
provided in an Agreement or by the Committee, in the event of (x) the
liquidation or dissolution of the Company or (y) a merger or consolidation of
the Company (a "TRANSACTION"), the Plan and Options granted hereunder shall
continue in effect in accordance with their respective terms, except that
following a Transaction each Optionee shall be entitled to receive in respect of
each Share subject to any outstanding Option, upon exercise of such Option, the
same number and kind of stock, securities, cash, property or other consideration
that each holder of a Share was entitled to receive in the Transaction in
respect of a Share; PROVIDED, HOWEVER, that such stock, securities, cash,
property, or other consideration shall remain subject to all of the conditions
and restrictions which were applicable to the Options prior to such Transaction.
Notwithstanding the foregoing, subject to Subsections (a) and (b) above, the
Committee may, in the event of a merger, alternatively provide for the
cancellations of all outstanding Options, in which case each Optionee shall be
entitled to receive a cash payment in an amount equal to the excess, if any, of
(A) the fair market value on the date preceding the date of surrender, as
determined by the committee in good faith, of the Shares subject to the Option
or portion thereof surrendered over (B) the aggregate exercise price for such
Shares under the Option or portion thereof surrendered.
11. AMENDMENT, SUSPENSION OR TERMINATION OF THE PLAN.
7
<PAGE>
The Committee may, at any time, amend, suspend or terminate
any and all parts the Plan and any Option granted under the Plan in such
respects as the Committee shall deem necessary or desirable, except that no such
action may be taken which would impair the rights of any Optionee with respect
to any Option previously granted under the Plan without the Optionee's consent.
12. GOVERNING LAW.
The Plan shall be governed by the laws of the State of New
York without regard to the principles of conflict of laws. In case any one or
more of the provisions contained herein are for any reason deemed to be invalid,
illegal or unenforceable in any respect by a judicial body, such illegality,
invalidity or unenforceability shall not effect any other provision of this
Plan, and this Plan shall be construed as if such invalid, unenforceable or
illegal provision had never been contained herein.
13. REFERENCES.
In the event of an Optionee's death or a judicial
determination of his physical or mental incompetence, reference in the Plan to
the Optionee shall be deemed, where appropriate, to refer to his beneficiary or
his legal representative.
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IN WITNESS WHEREOF, the Company executes this Plan this ninth day of
July, 1998.
GENERAC PORTABLE PRODUCTS
COMPANY, INC.
BY: /s/ Eric R. Wilkinson
-----------------------------------
ITS: President
-----------------------------------
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Exhibit 10.3
ASSET PURCHASE AND SALE AGREEMENT
THIS ASSET PURCHASE AND SALE AGREEMENT is made and entered into this
5th day of May, 1998 by and between GPPC, INC., a Delaware corporation
("Purchaser"), and GENERAC CORPORATION, a Wisconsin corporation ("Seller").
RECITALS
Purchaser and Seller acknowledge the following:
A. Seller's Portable Products Division (the "Division") consists of
Seller's production, marketing, sales, engineering, research and development
(and in the UK, Spain and Germany, importation) and administration operations
located at its facilities in Jefferson, Wisconsin, Winsford, Cheshire, England,
Wabein, Germany and Tarragona, Spain.
B. The Division is engaged in the business of manufacturing, marketing,
importing and selling portable power generators, pressure washers and, in the
USA, portable welders (the "Business").
C. Seller desires to sell to Purchaser and Purchaser desires to
purchase and acquire from Seller substantially all of the assets of the Division
pursuant to the terms and conditions contained in this Agreement.
AGREEMENTS
In consideration of the recitals and mutual agreements which follow,
the parties agree as follows:
1. TRANSFER OF ASSETS. Subject to the terms and conditions of this
Agreement, Seller agrees to sell and deliver to Purchaser and Purchaser agrees
to purchase and accept from Seller all of Seller's right, title and interest in
and to all the assets set forth below, including, without limitation, all of
such assets as are located in the United Kingdom, Germany and Spain (the
"European Assets") (collectively, the "Purchased Assets"):
1.01 PERSONAL PROPERTY. All machinery, equipment,
specifications, tools, tooling (including tooling in process), jigs, patterns,
molds, fixtures, furniture, furnishings, spare parts and other personal property
of the Division accounted for on the Balance Sheet (as hereafter defined),
unless disposed of by Seller in the ordinary course of business generally
consistent with past practice prior to Closing, including, without limitation,
those listed on Schedule 1.01 (the "Personal Property").
1.02 REAL PROPERTY. All right, title and interest of Seller,
whether in fee, leasehold or any other interest, in and to the real estate,
buildings, fixtures and improvements accounted for on the Balance Sheet (as
hereafter defined), including, without limitation, those
<PAGE>
listed on Schedule 1.02 (the "Real Property").
1.03 VEHICLES. All automobiles, trucks, trailers, automotive
equipment and other owned vehicles of the Division accounted for on the Balance
Sheet, unless disposed of by Seller in the ordinary course of business generally
consistent with past practice prior to Closing, including, without limitation,
those listed on Schedule 1.03 (collectively, the "Vehicles").
1.04 INTANGIBLE ASSETS. All of Seller's right, title and
interest in and to the domestic and foreign patents, formulations, licenses
(whether as licensor or licensee), trade names, trade dress, trademarks, service
marks, copyrights, government approvals, permits and authorizations (and any
applications or registrations, pending or to be applied for, for any of the
foregoing) listed on Schedule 1.04 and the technical know-how, trade secrets,
confidential information and other similar intangible assets used primarily in
the conduct of the Business and operations of the Division and the goodwill
associated with the foregoing (collectively, the "Intangible Assets").
1.05 LEASES. All leases of real estate, equipment and other
tangible personal property of the Division listed on Schedule 1.05
(collectively, the "Leases").
1.06 CONTRACTS. All contracts and commitments with customers,
suppliers or others, all sales and purchase orders, noncompetition, employment
and consulting agreements, license agreements, sales representative agreements,
dealer and distributorship agreements, and all other contracts and commitments,
entered into by or on behalf of Seller with respect to the Division on or before
the Closing Date in the ordinary course of business generally consistent with
past practice, whether or not listed on Schedule 1.06 (collectively, the
"Contracts").
1.07 PREPAID ASSETS. All prepaid rent, utilities, deposits and
other prepaid items with respect to the Division accounted for on the Balance
Sheet, unless changed in the ordinary course of business generally consistent
with past practice prior to Closing, including, without limitation, those listed
on Schedule 1.07 (collectively, the "Prepaid Assets").
1.08 RECORDS AND DOCUMENTS. Subject to section 2.02, all
records, computer software and documents, books, supplier, dealer and customer
lists, credit information and correspondence, operating data, work orders, audit
information and correspondence, drawings, blueprints, copies of financial
information and all other records and documents used primarily in the conduct of
the Business and operations of the Division or related to property leased by
Seller and being assigned to Purchaser hereunder (collectively, the
"Documents").
1.09 NOTES AND ACCOUNTS RECEIVABLE. All notes, drafts and
trade and other accounts receivable of the Division accounted for on the Balance
Sheet, including, without limitation, those listed on Schedule 1.09
(collectively, the "Receivables") other than Receivables collected or adjusted
between the Balance Sheet Date and the Closing Date.
1.10 INVENTORY. All inventories of raw materials,
work-in-process, finished goods, spare parts, supplies and related packaging
materials of the Division, including, without
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limitation, those listed on Schedule 1.10 (collectively, the "Inventory") other
than Inventory sold or disposed of in the ordinary course of business generally
consistent with past practices between the Balance Sheet Date and the Closing
Date.
1.11 LICENSES AND PERMITS. Subject to section 14.04, all of
Seller's rights in all government licenses, permits and authorizations (and any
applications for any of the foregoing) applicable to the Division listed on
Schedule 1.11 (collectively, the "Licenses and Permits").
1.12 CLAIMS. All causes of action, judgments, claims, demands,
charges and complaints relating to the Purchased Assets and Assumed Liabilities
(as defined in section 3).
1.13 CASH AND CASH EQUIVALENTS. All cash and cash equivalents
that are accounted for on a balance sheet of Seller prepared as of the Closing
Date (the "Closing Date Balance Sheet") in a manner consistent with the Balance
Sheet, including, without limitation, all cash held on the Closing Date in bank
account number 118615 at Farmers & Merchants Bank, Jefferson, Wisconsin.
1.14 CLOSING DATE BALANCE SHEET ASSETS. All assets described
in section 1.01 through 1.13 above that are accounted for on the Closing Date
Balance Sheet.
2. ASSETS EXCLUDED FROM SALE. Notwithstanding other contrary provisions
of this Agreement, there shall be excluded from this transfer the following
assets of Seller (collectively, the "Excluded Assets"):
2.01 The insurance policies listed on Schedule 2.01 and
prepaid insurance with respect thereto.
2.02 All of Seller's assets which are not accounted for on the
Balance Sheet or the Closing Balance Sheet or otherwise listed in sections 1.01
through 1.14, including without limitation, Seller's corporate minute book and
related corporate records.
2.03 The name and mark "Generac Corporation", in whole or in
part, the name and mark "Generac", in whole or in part, the name and mark
"Generac Nagano," in whole or in part, and any name or mark derived from,
including or confusingly similar to any of the foregoing. All of Seller's
intellectual property other than the Intangible Assets, including, without
limitation, its foreign and domestic patents and patent applications not
specifically listed on Schedule 1.04.
3. ASSUMPTION OF LIABILITIES. Purchaser shall assume and agree to pay,
perform and discharge the liabilities and obligations of Seller which relate to
the Division (including, without limitation, that part of the Division which is
located in the UK, Germany and Spain), as set forth below in this section 3 (the
"Assumed Liabilities"). The Assumed Liabilities shall consist only of the
following and shall specifically exclude those liabilities and obligations
defined below as "Excluded Liabilities:"
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3.01 All liabilities and obligations of Seller of the type
reflected or reserved against on the Balance Sheet as are brought forward and
reflected or reserved against on the Closing Date Balance Sheet and any other
liability or obligation reflected or reserved against on the Closing Date
Balance Sheet that affects the calculation of Net Working Capital.
3.02 All liabilities and obligations of Seller related to the
Division arising in the ordinary course of business after the Closing Date
directly on account of Seller's ownership and operation of the Division prior to
the Closing Date.
3.03 All liabilities, obligations and duties (including
warranty liabilities, obligations and duties) relating to repairs, refunds or
replacements resulting from or related to any products manufactured, shipped or
sold by the Division prior to the Closing Date which are returned to Purchaser
or Seller because of product defects or failure to meet specifications. Seller
shall make Seller's sales records available to Purchaser and shall take such
other actions as may be necessary to allow Purchaser to determine customer
eligibility for warranty service. Warranty service shall be administered and
accounted for by Purchaser consistent with Seller's past practices, and Seller
shall make available its warranty manuals or other appropriate guides for that
purpose. In determining the foregoing, only those expenses which would have been
chargeable against Seller's warranty reserve for the Division had Seller been
responsible therefor shall be used. The parties acknowledge that all
calculations of Net Working Capital have been reduced by and reflect the reserve
for warranty claims with respect to products manufactured, shipped or sold by
the Division and Seller makes no representation or warranty concerning the
adequacy or sufficiency of such reserve, except as provided in section 10.04 of
this Agreement.
3.04 All liabilities and obligations arising out of the
Contracts or the Leases other than those obligations and liabilities that should
have been reflected on the Closing Date Balance Sheet in accordance with
generally accepted accounting principles and were not so reflected.
3.05 All liabilities and obligations arising from the
ownership and operation of the Purchased Assets on and after the Closing Date.
4. EXCLUDED LIABILITIES. Anything to the contrary contained in this
Agreement notwithstanding, Purchaser shall not assume, and the term "Assumed
Liabilities" shall not include, the following liabilities, obligations or
commitments of Seller (collectively, the "Excluded Liabilities"):
4.01 Any liability for Seller's long-term indebtedness for
borrowed money (including current maturities of such long-term debt and Seller's
lines of credit with its financial institutions), which debt is described on
Schedule 4.01.
4.02 The expenses of Seller referred to in sections 19.05(a)
and (b) which are to be paid by Seller.
4.03 All liabilities attributable to the Excluded Assets.
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4.04. Any liability that should have been reflected on the
Closing Date Balance Sheet in accordance with generally accepted accounting
principles and was not so reflected.
4.05 Income taxes attributable to the operation of the
Division prior to Closing or to the sale of assets of the Division prior to
Closing. None of such income taxes shall be reflected on the Closing Date
Balance Sheet.
5. PURCHASE PRICE.
5.01 AMOUNT TO SELLER. Purchaser shall, in addition to
assuming the Assumed Liabilities, pay to Seller in the manner set forth below,
an amount equal to $294,871,500 (a) plus the amount by which Net Working Capital
determined from the Closing Date Balance Sheet is greater than Net Working
Capital determined from the Unaudited Balance Sheet or (b) minus the amount by
which Net Working Capital determined from the Closing Date Balance Sheet is less
than Net Working Capital determined from the Unaudited Balance Sheet (in the
aggregate, the "Purchase Price"). The term "Net Working Capital," as used
herein, shall mean the amount by which current assets (including Inventory)
exceeds current liabilities. For purposes of determining Net Working Capital
from the Closing Date Balance Sheet, current assets shall include all Purchased
Assets which under generally accepted accounting principles are treated as such
and current liabilities shall include all accruals, payables and reserves that
are treated as current liabilities under generally accepted accounting
principles, but no such liability shall be included in determining Net Working
Capital from the Closing Date Balance Sheet unless it is an Assumed Liability.
5.02 MANNER OF PAYMENT OF THE PURCHASE PRICE. At Closing,
Purchaser shall:
(a) assume the Assumed Liabilities;
(b) pay to Seller the Estimated Purchase Price (as
defined in section 5.03), in accordance with Seller's directions, through a bank
wire transfer (the "Cash Payment").
5.03 ADJUSTMENT AT CLOSING. On the second business day prior
to Closing, Seller shall furnish to Purchaser a preliminary Closing Date Balance
Sheet (the "Preliminary Closing Date Balance Sheet") and a statement ("Seller's
Closing Statement") setting forth (a) an estimate of the Net Working Capital as
of the Closing Date (the "Net Working Capital Estimate"), (b) a purchase price
adjustment amount (the "Closing Adjustment Amount") based upon the Net Working
Capital Estimate and (c) the estimated Purchase Price (the "Estimated Purchase
Price") to be paid at Closing by Purchaser in accordance with section 5.02(b)
based upon the Closing Adjustment Amount. Seller shall prepare the Preliminary
Closing Date Balance Sheet and the Seller's Closing Statement, and make the
calculations set forth therein, in good faith and in accordance with generally
accepted accounting principles applied in a manner consistent with those used in
the preparation of the Balance Sheet.
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5.04 POST-CLOSING ADJUSTMENTS.
(a) As soon as practicable, but not later than 75
days after the Closing Date, Seller shall prepare and deliver to Purchaser a
Closing Date Balance Sheet and a statement ("Seller's Post-Closing Statement")
setting forth a reconciliation of the Net Working Capital Estimate, the Closing
Adjustment Amount and the Estimated Purchase Price that takes into account
changes between the Preliminary Closing Date Balance Sheet and the Closing Date
Balance Sheet. Based upon such reconciliation, Seller's Post-Closing Statement
shall set forth a final determination of the Purchase Price (the "Final Purchase
Price"). Seller's Post-Closing Statement shall be prepared in accordance with
generally accepted accounting principles applied consistently with the method of
accounting used in preparing Seller's Closing Statement. Seller shall retain
Deloitte & Touche to perform an audit of Seller's Post-Closing Statement. Seller
shall permit Purchaser and its independent certified public accountant to review
all accounting records and all work papers and computations used in the
preparation of Seller's Post-Closing Statement. If Purchaser does not give
notice of dispute to Seller within 25 days of receiving Seller's Post-Closing
Statement, the parties agree that Seller's Post-Closing Statement shall be
deemed to set forth the Final Purchase Price. If Purchaser gives notice of
dispute to Seller within such 25-day period, Seller and Purchaser shall
negotiate in good faith to resolve the dispute. If, after 20 days from the date
notice of dispute is given hereunder, Seller and Purchaser cannot agree on the
resolution of the dispute, the dispute shall be resolved pursuant to section
19.10. In the event the dispute is submitted to arbitration pursuant to section
19.10, Purchaser and Seller shall use their best efforts to resolve the dispute
as expeditiously as possible.
(b) In the event that the Final Purchase Price is
greater than the Estimated Purchase Price, Purchaser shall pay to Seller the
difference between them plus interest on such difference from the Closing Date
to the date of such payment at the rate of 6.75% per annum. In the event that
the Final Purchase Price is less than the Estimated Purchase Price, Seller shall
pay to Purchaser the difference between them plus interest on such difference
from the Closing Date to the date of such payment at the rate of 6.75% per
annum. Any payment required to be made pursuant to this section 5.04(b) shall be
made within ten days of Purchaser's acceptance of the Final Purchase Price or,
if applicable, within ten days of receipt of a determination and resolution of
any dispute over the calculation of the Final Purchase Price as provided for in
section 5.04(a) and section 19.10. Any such amount payable by one party to the
other shall be paid by wire transfer.
5.05 ALLOCATION OF PURCHASE PRICE. The parties shall allocate
the Purchase Price to the Purchased Assets in a manner consistent with the
allocation set forth on Schedule 5.05 and the parties agree to utilize such
allocation for all purposes, including tax returns and other public filings.
6. CLOSING. The closing of the transactions pursuant to this Agreement
(the "Closing") shall take place on June 30, 1998 (the "Closing Date") at the
offices of Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c. located at
1000 North Water Street, Suite 2100, Milwaukee, Wisconsin 53202, or as soon
thereafter as the satisfaction or waiver of all conditions to the obligations of
the parties hereto to consummate the transactions contemplated hereby shall
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have occurred (other than conditions with respect to actions the respective
parties will take at the closing itself) or such other time and place as Seller
and Purchaser may agree. The effective time of the Closing shall be deemed to be
11:59 p.m. local time on the Closing Date. To the extent the Balance Sheet and
the audited balance sheet and statements of income for the Division as of
December 31, 1996 are delivered to Purchaser after May 22, 1998, the Closing
Date shall be postponed one business day for each business day after May 22,
1998 (but not including May 22, 1998) to the date the Balance Sheet and the
audited balance sheet and statements of income for the Division as of December
31, 1996 are so delivered.
7. CONDITIONS TO OBLIGATIONS OF PURCHASER. Each and every obligation of
Purchaser under this Agreement to be performed by Purchaser at or before the
Closing shall be subject to the satisfaction, at or before the Closing, of each
of the following conditions, unless waived in writing by Purchaser:
7.01 PERFORMANCE. Seller shall have, in all material respects,
performed and complied with all of its covenants and other obligations under
this Agreement which are to be performed or complied with by it prior to or at
Closing.
7.02 REPRESENTATIONS AND WARRANTIES TRUE. All representations
and warranties of the Seller contained herein shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if made
or given on and as of the Closing Date.
7.03 NOTICES AND CONSENTS. All government consents and
licenses, permits, authorizations, approvals of, filings with and notifications
to any United States, state, local or other governmental or regulatory body
required to be made or obtained or made in connection with the consummation of
the transactions contemplated by this Agreement shall have been made or
obtained.
7.04 COMPLIANCE WITH LAW. No material statute, law, rule,
regulation or order shall have been enacted, entered or deemed applicable by any
governmental or regulatory authority which would make any of the transactions
contemplated by this Agreement illegal or otherwise prevent the consummation
thereof.
7.05 NO MATERIAL CHANGE. No material adverse change in the
financial condition, results of operations, business, assets, operations,
properties, suppliers or customer relations of the Division shall have occurred
since the Balance Sheet Date. ("Material Adverse Change"). With respect to the
Division's relationship with its customers listed on Schedule 10.30(a), no
Material Adverse Change shall be deemed to have occurred unless, and only
unless, such adverse change, in the aggregate, exceeds ten percent of the
Division's business with such customers. This adverse change may be offset by
increases in business with existing customers or new customers.
7.06 ACTIONS OUTSIDE THE ORDINARY COURSE OF BUSINESS. Except
for the transactions contemplated by this Agreement, Seller shall not have taken
any material action outside the ordinary course of business with respect to the
Division from the date hereof until the
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Closing Date without the prior written consent of Purchaser.
7.07 NO RESTRAINT ON TRANSACTION. No action, suit,
investigation, inquiry or other proceeding shall have been instituted,
threatened or be reasonably expected to be instituted, to restrain, prohibit or
otherwise challenge the legality or validity of the transactions contemplated by
this Agreement.
7.08 DELIVERIES BY SELLER AT OR PRIOR TO CLOSING. Seller shall
deliver or cause to be delivered to Purchaser the following items at or prior to
Closing, all in form reasonably satisfactory to Purchaser's counsel:
(a) The General Bill of Sale in substantially the
form of Exhibit A, duly executed by Seller.
(b) An assignment of Seller's right, title and
interest in and to (i) any assignable Licenses and Permits, duly executed by
Seller, and originals (or copies if originals are not available) of all Licenses
and Permits, whether or not assignable and (ii) any assignable warranties and
guaranties relating to the Real Property, duly executed by Seller, and originals
(or copies if originals are not available) or all warranties and guaranties,
whether or not assignable.
(c) An Assignment and Assumption of Contracts and
Leases in substantially the form of Exhibit B (the "Assignment and Assumption
Agreement"), duly executed by Seller, together with all necessary consents to
assignment of the Contracts and Leases listed on Schedule 7.08.
(d) Duly executed titles to all Vehicles.
(e) The Documents.
(f) The legal opinion of Seller's counsel, Reinhart,
Boerner, Van Deuren, Norris & Rieselbach, s.c., dated as of the Closing Date in
substantially the form of Exhibit C.
(g) Certified copies of resolutions adopted by
Seller's Board of Directors authorizing the sale of the Purchased Assets to
Purchaser in accordance with the terms hereof and the execution and delivery of
this Agreement, the Related Agreements (as defined below), and all documents
contemplated hereby and thereby to be executed and delivered by Seller.
(h) Duly executed assignments of the Intangible
Assets in substantially the form of Exhibits D-1 and D-2, duly executed by
Seller (the "Intangible Property Assignments").
(i) Such other documents, certificates and
instruments, including officer's certificates, as Purchaser may reasonably
request to consummate the transactions
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contemplated by this Agreement and the Related Agreements.
(j) Warranty deeds, duly executed by Seller, for the
owned Real Property, free and clear of all liens and encumbrances, except for
the encumbrances listed on Schedule 7.08 ("Permitted Encumbrances") together
with (i) appropriate transfer tax returns and (ii) a sworn affidavit stating
Seller's FEIN and that Seller is not a foreign person for purposes of section
1445 of the Internal Revenue Code of 1986, as amended, and Treasury Regulation
section 1.1445-2T.
(k) A written consent from each lessor and
contracting party listed on Schedule 7.08 consenting to the assignment of the
lease or contract between such party and Seller to Purchaser in conjunction with
the transactions contemplated by this Agreement. The preceding sentence shall
only apply to contracts and leases for which the outstanding obligations of
Seller as of the Closing Date exceed $40,000 regardless of whether such lease or
contract is listed on Schedule 7.08.
(l) A Certificate of Status for Seller issued by the
Wisconsin Department of Financial Institutions dated within one day of the
Closing Date.
(m) A certificate of the Chairman of the Board of
Seller certifying that, subject to any update of the Schedules to this
Agreement, the conditions set forth in sections 7.01, 7.02 and 7.05 have been
satisfied.
(n) The OEM Engine Supply Agreement in the form
attached hereto as Exhibit E (the "Engine Supply Agreement"), duly executed by
Seller.
(o) The License Agreements in the form attached
hereto as Exhibits F-1 and F-2 (the "License Agreements"), duly executed by
Seller.
(p) The Generator Supply Agreement and Parts Supply
Agreement in the forms attached hereto as Exhibits G-1 and G-2 (the "Secondary
Supply Agreements"), and, together with the Assignment and Assumption Agreement,
the Intangible Property Assignments, the Engine Supply Agreement, the
Supplemental Agreement (as defined below), the License Agreements and the
Transition Agreement (as defined below) (the "Related Agreements"), duly
executed by Seller.
(q) The Transition Agreement in the form attached
hereto as Exhibit H (the "Transition Agreement"), duly executed by Seller.
(r) The Supplemental Agreement governing certain
matters with respect to the Division's operations in Europe in the form attached
hereto as Exhibit I (the "Supplemental Agreement"), duly executed by Seller.
(s) Such documents as are necessary to transfer all
of Seller's right, title and interest in each of the European Assets to
Purchaser pursuant to applicable law and as
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contemplated by this Agreement, duly executed by Seller.
7.09 TITLE INSURANCE. Purchaser shall have received prior to
Closing a title insurance commitment for each parcel of owned Real Property
(together with copies of all documents of title) in form and content reasonably
acceptable to Purchaser issued by Chicago Title Insurance Company or such other
title insurance company reasonably acceptable to Purchaser (the "Title Insurance
Company"). The premium for the title insurance and any charge for endorsements
shall be paid by Purchaser. Seller shall cause to be released on or before
Closing all liens, mortgages, deeds of trust and other security documents.
7.10 HART-SCOTT-RODINO ACT. Any waiting period (and any
extension thereof) applicable to the consummation of the transactions
contemplated by this Agreement under the Hart-Scott-Rodino Act shall have
expired or been terminated.
8. CONDITIONS TO OBLIGATIONS OF SELLER. Each and every obligation of
Seller under this Agreement to be performed by Seller at or before the Closing
shall be subject to the satisfaction, at or before the Closing, of each of the
following conditions, unless waived in writing by Seller:
8.01 PERFORMANCE. Purchaser shall have, in all material
respects, performed and complied with all of its covenants and other obligations
under this Agreement which are to be performed or complied with by Purchaser
prior to or at Closing, except this shall not relieve Purchaser of its
obligations to fully and completely meet the requirements of section 5.02 above.
8.02 REPRESENTATIONS AND WARRANTIES TRUE. All representations
and warranties of Purchaser contained herein shall be true and correct in all
material respects on and as of the Closing Date with the same effect as if made
or given on and as of the Closing Date.
8.03 NOTICES AND CONSENTS. All government consents and
licenses, permits, authorizations, approvals of, filings with and notifications
to any United States, state, local or other governmental or regulatory body
required to be made or obtained or made in connection with the consummation of
the transactions contemplated by this Agreement shall have been made or
obtained.
8.04 COMPLIANCE WITH LAW. No material statute, law, rule,
regulation or order shall have been enacted, entered or deemed applicable by any
governmental or regulatory authority which would make any of the transactions
contemplated by this Agreement illegal or otherwise prevent the consummation
thereof.
8.05 NO RESTRAINT ON TRANSACTION. No action, suit,
investigation, inquiry or other proceeding shall have been instituted or be
reasonably expected to be instituted to restrain, prohibit or otherwise
challenge the legality or validity of the transactions contemplated by this
Agreement.
8.06 DELIVERIES BY PURCHASER AT OR PRIOR TO CLOSING. Purchaser
shall deliver or
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cause to be delivered the following items at or prior to Closing, all in form
reasonably satisfactory to Seller's counsel:
(a) A bank wire transfer in the amount of the Cash
Payment in accordance with Seller's instructions.
(b) The legal opinion of Purchaser's counsel, King &
Spalding, dated as of the Closing Date in substantially the form of Exhibit J.
(c) Certified copy of the resolutions adopted by
Purchaser's Board of Directors authorizing the purchase of the Purchased Assets
from Seller in accordance with this Agreement and the execution and delivery of
this Agreement, Related Agreements to which it is a party and all documents
contemplated hereby and thereby to be executed and delivered by Purchaser.
(d) The Assignment and Assumption Agreement, duly
executed by Purchaser.
(e) A Certificate of Good Standing for Purchaser
issued by the Delaware Secretary of State dated within one day of the Closing
Date.
(f) A certificate of the President of Purchaser
certifying that the conditions set forth in sections 8.01 and 8.02 have been
satisfied.
(g) The Engine Supply Agreement, duly executed by
Purchaser.
(h) The License Agreements, duly executed by
Purchaser.
(i) The Intangible Property Assignments, duly
executed by Purchaser.
(j) The General Supply Agreement, duly executed by
Purchaser.
(k) The Secondary Supply Agreements, duly executed by
Purchaser.
(l) The Transition Agreement, duly executed by
Purchaser.
(m) The Supplemental Agreement, duly executed by
Purchaser.
(n) An opinion from an independent third party
reasonably acceptable to Seller, in form and substance reasonably acceptable to
Seller, setting forth the conclusions that, after giving effect to the
transactions contemplated by this Agreement and the Related Agreements and the
occurrence of all of the financings contemplated by Purchaser in connection
herewith and therewith, Purchaser and its subsidiaries taken as a whole and
Purchaser, on a stand alone basis, are not insolvent and will not be rendered
insolvent (as that term is used in 11 U.S.C. ss. 101 ET. SEq. and Wisconsin
Statutes Chapter 242) by the indebtedness or the payment of the
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Purchase Price incurred or made in connection herewith and therewith, will not
be left with unreasonably small assets or capital with which to engage in its
businesses and will not have incurred debts beyond its ability to pay such debts
as they mature or become due.
(o) An opinion from an independent third party
reasonably acceptable to Seller, in form and substance reasonably acceptable to
Seller, setting forth the conclusion that, in connection with the transactions
contemplated by this Agreement and the Related Agreements, the Purchase Price is
not greater than the reasonably equivalent value for the Purchased Assets.
Purchaser shall pay the first $50,000 for the cost of such opinion and Seller
and Purchaser shall each pay one-half of the cost in excess of $50,000.
(p) Such other instruments as Seller may reasonably
request to consummate the transactions contemplated by this Agreement and the
Related Agreements.
(q) Such documents as are necessary to transfer all
of Seller's right, title and interest in each of the European Assets to
Purchaser pursuant to applicable law and as contemplated by this Agreement to
the extent within the control of Purchaser, duly executed by Purchaser.
8.07 HART-SCOTT-RODINO ACT. Any waiting period (and any
extension thereof) applicable to the consummation of the transactions
contemplated by this Agreement under the Hart-Scott-Rodino Act shall have
expired or been terminated.
8.08 WAIVER OF DEFAULT. Seller has obtained all waivers of any
default or possible default upon the part of Seller that would, or may, result
from the consummation of the transactions contemplated by this Agreement under
Seller's agreements with NBD Bank and the State of Wisconsin Investment Board,
each such waiver being in a form reasonably acceptable to the executing parties.
8.09 PENSION BENEFITS. Purchaser shall have presented to
Seller, Seller shall have accepted, and Purchaser shall have committed to
implement a defined benefit plan (or plans) providing retirement benefits with
respect to the employees of the Division which Purchaser hires pursuant to
section 13 of this Agreement. Such plan (or plans) shall comply with section 13
of this Agreement and shall provide following the Closing, fully vested benefit
accruals as described in this section 8.09 for each of Seller's employees who
are employed by Purchaser immediately after the Closing pursuant to section
13.02. The retirement plan benefit accruals described in this section 8.09 shall
be no less than (a) the benefit determined according to the terms of the
Seller's defined benefit tax qualified retirement plan in which the employee
participated immediately prior to the Closing, calculating such benefit, to the
extent allowable under law, according to the terms of the plan as in effect
immediately prior to the Closing and by considering the employee's service under
the plan and compensation from the Seller prior to the Closing, as well as the
employee's service and compensation with the Purchaser after the Closing, offset
by (b) the benefit the employee had accrued under the Seller's tax qualified
retirement plan as of the Closing (which benefit shall be fully vested at
Closing). Seller acknowledges that this provision is not intended and shall not
be interpreted as a requirement that
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Purchaser provide identical types or number of post-retirement benefit plans
post-Closing as provided by Seller prior to Closing and that Purchaser may use
nonqualified plans to the extent the tax law prohibits Purchaser from using tax
qualified plans to provide these benefits.
9. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to Purchaser that the following statements are true, correct and
complete as of the date of this Agreement and will be true, correct and complete
as of the Closing Date (except for representations that are made as of a
specified date, which shall be true, correct and complete as of such date):
9.01 CORPORATE ORGANIZATION. Seller is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Wisconsin. Seller has the full corporate power and corporate authority to
carry on the Business as now conducted and to own and lease the properties and
assets it now owns and leases with respect to the Business.
9.02 AUTHORIZATION OF AGREEMENT. Seller has all necessary
corporate power to execute and deliver this Agreement and the Related
Agreements, to perform its obligations hereunder and thereunder and to
consummate the transactions provided for herein and therein. The execution and
delivery of this Agreement and each of the Related Agreements by Seller and the
performance by it of the obligations to be performed hereunder and thereunder
have been duly authorized by all necessary and appropriate corporate action. The
execution and delivery of this Agreement and each of the Related Agreements and
the consummation of the transactions contemplated hereby and thereby do not and
will not violate or conflict with any provision of, or result in a breach of, or
constitute a default under the terms or conditions of (a) Seller's Articles of
Incorporation or By-Laws, (b) any court or administrative order or process to
which Seller is a party, (c) any agreement or instrument by which Seller is a
party or by which Seller is bound except where such conflict or default would
not have a material adverse effect on the Business, or (d) any statute or
regulation of any governmental agency, except where such conflict or default
would not have a material adverse effect on the Business. This Agreement and
each of the Related Agreements are a valid and binding obligations of Seller and
are enforceable against Seller in accordance with their respective terms, except
as such enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and subject to general principles of equity.
9.03 TITLE TO PURCHASED ASSETS. Except for Permitted
Encumbrances and except as disclosed on Schedule 9.03, Seller has good,
indefeasible and marketable title to the Purchased Assets, including, without
limitation, the owned Real Property, free and clear of all mortgages, security
interests, title retention agreements, options to purchase, rights of first
refusal, rights of first offer, liens, encumbrances and restrictions. Except for
the Excluded Assets, the Purchased Assets and the property subject to the Leases
constitute all of the property (other than public property and property Seller
is entitled to use under license or other agreement or otherwise) used or held
for use primarily in the operation of the Business.
10. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby
represents and warrants to Purchaser that the following statements are true,
correct and complete as of the date
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of this Agreement and will be true, correct and complete as of the Closing Date.
For purposes of this section 10, any item listed or referenced on any Schedule
to this Agreement shall be deemed to be disclosed with respect to every
subsection of this section 10 where the disclosure to such other subsections is
reasonable with respect to such other subsections. Summaries of or references to
actual documents in the Schedules to this Agreement are qualified in their
entirety by such documents. The inclusion of any item on the Schedules to this
Agreement does not constitute an admission that a violation, right of
termination, default, liability or other obligation of any kind exists with
respect to such item but rather is intended only to set forth certain
information required by this Agreement and to qualify certain representations
and warranties in the Agreement.
10.01 FINANCIAL STATEMENTS.
(a) Schedule 10.01 contains copies of (i) the
unaudited balance sheet of the Division as of March 31, 1998 (the "Unaudited
Balance Sheet"); and (ii) unaudited statements of income of the Division for
such period. March 31, 1998 shall be referred to herein as the "Balance Sheet
Date." The balance sheet and income statement described in this paragraph (a)
were (x) prepared, and the audited financial statements referred to in paragraph
(b) below will be prepared, in accordance with Seller's books of account and
records; (y) present, or will present, as the case may be, fairly the financial
position of the Division as of the date specified and the results of its
operations for the period then ended; and (z) have been prepared, or will be
prepared, as the case may be, in accordance with generally accepted accounting
principles, consistently applied by Seller (subject to normal year-end
adjustments in the case of the unaudited financial statements).
(b) Audited financial statements of the Division as
of March 31, 1998 shall be delivered to Purchaser within ten business days of
the execution of this Agreement or as soon thereafter as such audited financial
statements can be delivered in accordance with generally accepted audited
standards. The audited March 31, 1998 balance sheet shall be referred to herein
as the "Balance Sheet." If income from Operations for the quarter ending March
31, 1998 as set forth in the audited statement of income is less than 90% of the
Income from Operations as set forth in the 1998 Budget, then Purchaser may
notify Seller that it does not intend to close the transactions contemplated by
this Agreement which shall be deemed terminated and neither party shall have any
liability or obligation to the other party as a result of such termination.
(c) Seller agrees that it shall provide Purchaser an
audited balance sheet as of, and audited statement of income of the Division for
the year ending, December 31, 1996, containing only such carve outs as may be
appropriate under generally accepted accounting principles as may be applicable
to a division of a business. Seller agrees it shall use its best efforts to
provide the audited financial statements referenced in the immediately preceding
sentence by May 22, 1998, and to the extent it is unable to provide such audited
financial statements by May 22, 1998, it shall provide them as soon thereafter
as such audited financial statements can be delivered in accordance with
generally accepted auditing standards. The parties agree that for each business
day that the foregoing financial statements are not
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delivered after May 22, 1998, the Closing Date shall be deferred as provided in
section 6 hereof. If required by Purchaser, after Closing Seller shall cooperate
with Purchaser to obtain audited statements of income for the Division as at and
for the year ending, December 31, 1995 as soon as such audited statements of
income can be delivered in accordance with generally accepted auditing
standards. Seller represents and warrants that such financial statements will be
prepared in accordance with generally accepted accounting principles consistent
with the preparation of the Division's 1997 audited financial statements.
10.02 LABOR MATTERS.
(a) Except as set forth on Schedule 10.02, Seller has
no union collective bargaining agreements, letters of understanding, agreements
modifying same or other labor contracts with respect to the Division. Seller has
provided Purchaser with copies of all arbitration or grievance proceedings with
respect to the Business within the last three years relating to any contract or
laws regarding employment practices. There are currently no open or unresolved
arbitration or grievance proceedings with respect to the Division relating to
any contract or laws regarding employment practices and, to Seller's knowledge,
none are currently pending or threatened. To Seller's knowledge, there is no
pending or threatened charge, complaint, or petition by, against or involving
Seller with respect to the Division before the National Labor Relations Board or
any agency which regulates employment practices.
(b) Except as set forth on Schedule 10.02, Seller is
not bound by any court, administrative agency, arbitration, tribunal, commission
or board decree, judgment, decision, agreement or settlement relating to (i) any
collective bargaining agreement or other labor or employment agreements of
Seller with respect to the Division (including, without limitation, the wages,
hours or other terms or conditions of employment contained therein); (ii) unfair
labor practices of Seller with respect to the Division; (iii) union
representation proceedings or attempts to organize collective bargaining units
of Seller with respect to the Division; (iv) employment discrimination claims
against Seller with respect to the Division within the past three years; (v)
wrongful discharge claims against Seller with respect to the Division within the
past three years; (vi) claims that Seller has within the past three years
violated any wage/hour matters with respect to the Division; (vii) unemployment
compensation claims against Seller with respect to the Division within the past
three years; (viii) worker's compensation claims against Seller with respect to
the Division within the past three years; (ix) claims that Seller has within the
past three years violated any occupational safety and health, safe work place or
employee right-to-know laws with respect to the Division; (x) claims that Seller
has within the past three years violated any affirmative action, government
contracts or contract compliance laws with respect to the Division; (xi) claims
that Seller has within the past three years violated any immigration laws with
respect to the Division; (xii) employment-related tort or retaliation claims
against Seller with respect to the Division within the past three years; (xiii)
claims that, with respect to the Division, Seller has within the past three
years violated any laws governing an employee's right to continued coverage
under a group health insurance plan; (xiv) claims that Seller has within the
past three years violated any plant closing and mass layoff laws with respect to
the Division; or (xv) any other employment related claim against Seller with
respect to the Division within the past three years, which may in any way
materially and
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adversely affect the Division or the Purchased Assets. Except as set forth on
Schedule 10.02, to Seller's knowledge, there have been no pending or threatened
employment related claims, charges or investigations against Seller within the
past three years, by or on behalf of current or former employees of the
Division, or applicants for employment with the Division. To Seller's knowledge,
there is no current investigation by any government agency relating to
employment or safety issues pertaining to the Division.
(c) Except as disclosed on Schedule 10.02, to
Seller's knowledge, there is no pending or threatened labor strike, slow-down or
work stoppage or other material labor trouble which may affect the Division.
Except as set forth on Schedule 10.02, to Seller's knowledge, no representation
question is pending or threatened against the Division.
10.03 CONSENTS AND APPROVALS. Except (i) as set forth on
Schedule 10.03 and (ii) for filing and recording appropriate documents related
to conveyance of interests in the Real Property, no consent, approval or
authorization of, or declaration, filing or registration with any entity, agency
or person is required in connection with the execution or delivery by Seller of
this Agreement or the consummation by Seller of the transactions contemplated
hereby. If any item requiring consent is not listed on Schedule 10.03, failure
to list such item shall not constitute a breach of the representation and
warranty contained in this section 10.03 if the applicable consent is received
prior to Closing.
10.04 LIABILITIES. To Seller's knowledge, Seller has no
liabilities, absolute, direct or contingent, or any outstanding evidence of
indebtedness with respect to the Division, except (a) as reflected or as
reserved against on the Balance Sheet; (b) liabilities incurred in the ordinary
course of business since the Balance Sheet Date; or (c) as reflected on Schedule
10.04. None of such liabilities were incurred other than in the ordinary course
of business, and the reserves reflected on the Balance Sheet are adequate,
appropriate and reasonable; provided, (x) with respect to the reserve for
returns, Seller represents only that such reserve shall be reasonable assuming
Purchaser maintains the return policy maintained by Seller as of the date of
this Agreement and implements such policy in a manner consistent with Seller's
implementation of such policy prior to the date hereof, and, (y) with respect to
the reserve for defective products, Seller represents only that such reserve is
reasonable assuming Purchaser handles claims in a manner consistent with
Seller's past practices.
10.05 ACCOUNTS RECEIVABLE. All of the accounts receivable
reflected on the Balance Sheet and the Closing Date Balance Sheet arose in the
ordinary course of business and represent amounts payable by a buyer for goods
actually sold or services actually performed, are current and collectible net of
any respective reserves shown on the Balance Sheet or on the Closing Date
Balance Sheet.
10.06 INVENTORY. The value at which inventory is carried on
the Balance Sheet reflects the customary inventory valuation policy consistently
applied by Seller with respect to the Business of stating inventory on the FIFO
method of accounting for inventory in accordance with generally accepted
accounting principles consistently applied by Seller. Subject to reasonable
reserves and expenses incurred by Seller in the ordinary course of business for
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obsolete and slow moving inventory, the Inventory is usable and salable in the
ordinary course of business consistent with past practice. The Inventory has
been acquired and commitments to acquire Inventory have been made only in the
ordinary course of business. Except as described on Schedule 10.06, no Inventory
has been consigned to others.
10.07 BUSINESS CHANGES. Except as set forth on Schedule 10.07,
there has not been since the Balance Sheet Date, with respect to the Division:
(a) any material (i) adverse change in the condition
(financial or other) or in the operations, business, properties or assets of the
Division or the Purchased Assets, (ii) damage, destruction or loss (whether or
not covered by insurance) affecting the Division or the Purchased Assets or
(iii) transaction outside the ordinary course of business affecting the Division
or the Purchased Assets;
(b) any (i) sale, lease, transfer, assignment,
abandonment or other disposition of any Inventory, machinery, equipment,
operating or intellectual property or other assets used or usable primarily by
the Division except for dispositions in the ordinary course of business, (ii)
cancellation or compromise of any debt owed to Seller with respect to the
Division or claim of Seller with respect to the Division except in the ordinary
course of business or (iii) waiver or release of any material right or claim
with respect to the Division;
(c) any payment by Seller of any liability of the
Division other than (i) those then required to be discharged or satisfied, (ii)
current liabilities shown on or reserved against the Balance Sheet and (iii)
current liabilities incurred since the Balance Sheet Date in the ordinary course
of business;
(d) any material loans, payments or transfers of cash
or other assets by Seller with respect to the Division outside of the ordinary
course of business;
(e) any material deviation from the ordinary and
usual course of operating the Division including, without limitation, any
adoption of any new benefit program, plan or other arrangement for officers or
employees of the Division or any agreement, contract or lease entered into by
Seller with respect to the Division;
(f) aggregate capital expenditures and commitments by
Seller with respect to the Division in excess of $500,000 (excluding
expenditures made in connection with the building addition at the Division's
facility in Jefferson, Wisconsin or the building addition at the Division's
facility in Winsford, Cheshire, England);
(g) any mortgage, pledge or creation of any lien,
charge, security interest or other encumbrance on any of the Purchased Assets;
(h) any material change or modification of Seller's
accounting methods or practices with respect to the Division (including changes
to amortization or depreciation policies or write-downs in the value of any
Inventory or Receivable);
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(i) to Seller's knowledge, any labor union organizing
activity, any actual or threatened employee strikes, work stoppages, slow-downs
or lockouts or any adverse material change in the Division's relations with its
employees, agents, customers or suppliers;
(j) any transfer of the Purchased Assets by Seller to
any shareholder, officer, director, employer or affiliate of Seller or any other
transfer of Purchased Assets outside the ordinary course of business; or
(k) any material increase in any obligations or
liabilities of Seller with respect to the Division (whether absolute, accrued,
contingent or otherwise and whether due or to become due), except items incurred
in the ordinary course of business and generally consistent with past practice.
(l) any increases in or creation of compensation
payable or to become payable to any of the personnel of the Division (including
any such increases pursuant to any bonus, pension, profit sharing or other plan
or commitment) where such increases in or creation of compensation payable or to
become payable, in the aggregate, exceed the compensation for the personnel of
the Division set forth in the Division's 1998 Operating Budget, which Seller has
provided to Purchaser.
(m) any agreement to do any of the foregoing.
10.08 REAL PROPERTY. Schedule 1.02 sets forth a true and
complete list and description of each parcel of real estate owned or leased by
Seller with respect to the Division. The Real Property is the only real property
owned or leased in connection with the operation of the Division. Except as set
forth on Schedule 1.02, Seller does not own a fee interest in any real estate
with respect to the Division. Except for the Permitted Encumbrances, Seller has,
and at the Closing Purchaser will receive, good and marketable title to the
owned Real Property, free and clear of all mortgages, liens, security interests,
easements, covenants, rights of way and other encumbrances or restrictions of
any nature whatsoever. All installments of real estate taxes with respect to the
owned Real Property due prior to the date hereof are paid current. Except as
described on Schedule 1.05, Seller is not, with respect to the Division, a
lessee or sublessee under any lease of real property.
10.09 CONDITION OF REAL PROPERTY. Except as set forth on
Schedule 10.09, to Seller's knowledge, there are no material structural or
nonstructural defects in any of the buildings or other improvements situated on
the Real Property and all building systems, structures, fixtures and
improvements, owned, leased or used by Seller with respect to the Division are,
in all material respects, in a condition and working order sufficient to conduct
the Business in the manner currently and historically conducted by Seller.
Except as set forth on Schedule 10.09, no capital expenditures on the Real
Property are contemplated by Seller within the 12 months following the Closing
Date. The Real Property is serviced by electric, gas, telephone, municipal
water, municipal sanitary and storm sewer sufficient in quality and quantity to
operate the Division as now operated from the Real Property.
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10.10 PLANNED PUBLIC IMPROVEMENTS AND SPECIAL ASSESSMENTS.
Seller has not received notice of any planned, contemplated or commenced public
improvements that may result in special assessments or special charges
pertaining to the Real Property or that may otherwise materially and adversely
affect the availability of utility service or access to the Real Property. To
Seller's knowledge, there are no deferred water or sewer charges nor any
deferred special assessments pertaining to the Real Property.
10.11 ACCESS. There is full and free vehicular access to and
from public highways and roads to the Real Property and all utility companies
providing utilities to each such parcel of Real Property have adequate rights of
access to provide the services necessary for the conduct of the business now
conducted upon each such parcel of Real Property.
10.12 BUILDING CODE COMPLIANCE. Seller has not received notice
of any government agency or court order requiring repairs, alterations or
corrections of any existing conditions on the Real Property with respect to
which Seller has not complied. Except as set forth on Schedule 10.12, to
Seller's knowledge, the Real Property complies in all material respects with all
federal, state and municipal laws, ordinances, orders, regulations and
requirements.
10.13 ZONING. The current use of and the improvements on the
Real Property are permitted under governing zoning laws and ordinances and are
not nonconforming or a special use or special exception. Seller has not received
notice of any contemplated change in the current zoning classification. To
Seller's knowledge, all improvements and buildings comprising the Real Property
(including, without limitation, the number of parking spaces, the building site
and area, the set-backs and height) are in compliance with all applicable zoning
and building codes and ordinances. To Seller's knowledge, all licenses, permits,
certificates and other governmental approvals necessary for the use or occupancy
of the Real Property have been issued and are in full force and effect for all
portions of the Real Property.
10.14 PERSONAL PROPERTY LEASED. Schedule 1.05 sets forth a
list of all material machinery, equipment, vehicles and other tangible personal
property used in the operation of the Division which is covered by a lease to
which Seller is a party.
10.15 CONDITION OF PURCHASED ASSETS. No material maintenance
outside the ordinary course of business is needed with respect to the Purchased
Assets and none of the Purchased Assets or the ownership, lease, occupancy or
operation thereof, is in material violation of any law, ordinance, code, rule or
regulation. The Purchased Assets are in good condition and working order except
for ordinary wear and tear and depreciation that do not significantly affect the
normal operations of any facility included in the Purchased Assets. No notice
from any governmental body or other person has been served upon Seller with
respect to the Division or upon any of the Purchased Assets or other assets
leased, occupied or operated by Seller with respect to the Division within the
last three years claiming any violation of any law, ordinance, code, rule or
regulation or requiring, or calling attention to the need for any work, repairs,
construction, alterations or installation on or in connection with such property
with respect to
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which Seller has not complied.
10.16 CONTRACTS AND LEASES. The Contracts and Leases
(including the real property leases set forth in Schedule 1.05) are all legally
valid, binding and enforceable in accordance with their terms and are in full
force and effect with respect to the parties thereto and neither Seller nor, to
Seller's knowledge, any of the other parties thereto is in material default
thereof. Seller has not received any notice of any claimed breach of any of the
Contracts or Leases. To Seller's knowledge, no event has occurred which, after
the passage of time or the giving of notice or both, would constitute a default
under any Contract or Lease by Seller or any other party to any of the Contracts
or Leases. Except as set forth on Schedule 10.16 and subject to receipt of any
required consents thereunder, none of the rights of Seller under the Contracts
or Leases will be impaired by the consummation of the transactions contemplated
by this Agreement and all of Seller's rights thereunder will be enforceable by
Purchaser after Closing. Seller has delivered to Purchaser copies of all
material Contracts and Leases, all of which are true and complete and include
all amendments or modifications. All of the Contracts and Leases were entered
into in the ordinary course of business. Schedule 1.05 sets forth a list of all
material leases of real estate used in the operation of the Division to which
Seller is a party.
10.17 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) ENVIRONMENTAL LAWS. The term "Environmental Laws"
shall mean all foreign, federal, interstate, state and local laws, including
statutes, rules, regulations, and other governmental orders and guidances
relating to the discharge, release, emission, dispersal, spilling, leaking,
dumping or migration of Hazardous Substances or otherwise relating to the
protection of the environment, the management of Hazardous Substances or the
protection of employee health and safety or safeguarding public health and
welfare including, but not limited to, the Solid Waste Disposal Act, the Clean
Air Act, the Water Pollution Control Act, the Resource Conservation and Recovery
Act of 1976, the Comprehensive, Environmental Response, Compensation, and
Liability Act of 1980, the Superfund Amendments and Reauthorization Act, the
Occupational Safety and Health Act of 1970, the Toxic Substances Control Act,
the Hazardous Materials Transportation Act (all as the same may have been
amended), rules and regulations of the United States Environmental Protection
Agency, rules and regulations of the United States Nuclear Regulatory Agency,
rules and regulations of the United States Department of Transportation, state
environmental protection statutes, and rules and regulations of any state or
local department of environmental or natural resources or any state or local
environmental protection agency now in effect.
(b) HAZARDOUS SUBSTANCES. The term "Hazardous
Substances" shall mean all hazardous and toxic materials or wastes (including,
without limitation, petroleum products, asbestos and raw materials which include
hazardous constituents), fumes, smoke, soot, acids, alkalis, chemicals, liquids,
gases, vapors, wastes and materials; any pollutants or contaminants; and any
other similar substances or materials which are regulated under Environmental
Laws.
(c) Schedule 10.17 describes:
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(i) With expiration dates, all permits,
licenses, approvals and consents issued by or received from government agencies
(including local sewerage districts) relating to Environmental Laws or Hazardous
Substances which are held by Seller and which relate to the Real Property or the
Division (the "Environmental Permits").
(ii) All above or below ground storage tanks
on the Real Property, and identifies all products and materials stored in such
tanks.
(d) Except as described on Schedule 10.17, (i) to the
Seller's knowledge, the Environmental Permits are in full force and effect and
constitute all permits, licenses, approvals and consents relating to
Environmental Laws or Hazardous Substances required for the operation of the
Division and the use of the Purchased Assets and the Real Property in compliance
with Environmental Laws; (ii) to the Seller's knowledge, no proceeding for the
suspension, revocation or cancellation of any Environmental Permit is pending or
threatened and (iii) no applications for permits or reports filed by Seller with
respect to the Division in connection with any Environmental Law or
Environmental Permit contained any untrue statement of material fact or omitted
any statement of material fact necessary to make the statements made not
misleading.
(e) Except as set forth on Schedule 10.17, to
Seller's knowledge, Seller (i) has filed all reports, returns and other filings
required to be filed with respect to the Real Property and the Division under
Environmental Laws and the Environmental Permits; and (ii) has furnished
Purchaser complete copies of all environmental filings described in this
subparagraph which have been made since January 1, 1996.
(f) Except as set forth on Schedule 10.17, (i) to the
Seller's knowledge, the Division and the Real Property have, in all material
respects, been operated by Seller in substantial compliance with the
Environmental Laws and Environmental Permits; and (ii) Seller has not received
notice that the Division, the Purchased Assets or the Real Property are not in
material compliance with any Environmental Law or Environmental Permit.
(g) Except as described on Schedule 10.17, to
Seller's knowledge, there are no actions, claims or investigations pending or
threatened against the Division, the Purchased Assets or the Real Property,
which in any case assert or allege (i) Seller, the Division, the Purchased
Assets or the Real Property materially violated any Environmental Law or
Environmental Permit or is in material default with respect to any Environmental
Permit or any environmental order, writ, judgment, variance, award or decree of
any government authority; (ii) Seller is, with respect to the Division, required
to clean up or undertake any investigation or any remedial or other response
action due to the disposal, discharge or other release of any Hazardous
Substance on the Real Property or elsewhere; or (iii) Seller is, with respect to
the Division, required to contribute to the cost of any past, present or future
cleanup or remedial or other response action which arises out of or is related
to the disposal, discharge or other release of any Hazardous Substance by
Seller. Except as described on Schedule 10.17, the Division, the Purchased
Assets or the Real Property is not subject to any judgment, stipulation, order,
decree
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or agreement arising under Environmental Laws.
(h) Except as described on Schedule 10.17, with
respect to the period during which Seller owned or occupied the Real Property
(i) to Seller's knowledge, no Hazardous Substances have been treated, recycled
or disposed of (intentionally or unintentionally) in material violation of
Environmental Law at the time such treatment, recycling or disposal occurred,
on, under or at the Real Property and/or such treatment, recycling or disposal
will not result in any requirement for investigation or cleanup under current
Environmental Law; (ii) to Seller's knowledge, there has been no release or
threatened release of any Hazardous Substance from the Real Property in material
violation of Environmental Law at the time such release occurred or was
threatened and/or such release or threatened release will not result in any
requirement for investigation or cleanup under current Environmental Law; (iii)
to Seller's knowledge, there have not been nor are there now any materials
containing asbestos or PCBs on the Real Property; (iv) to Seller's knowledge,
there have been no activities on the Real Property which would subject
Purchaser, or any subsequent owner, lessee, occupant or operator of the Real
Property to damages, penalties, injunctive relief or cleanup costs under any
Environmental Laws; and (v) to Seller's knowledge, any treatment, recycling or
disposal of Hazardous Substances conducted off the Real Property has been in
substantial compliance with all Environmental Laws and Environmental Permits in
effect at the time of the treatment, recycling or disposal.
10.18 GOVERNMENT LICENSES AND REGULATION. Seller has obtained
all governmental licenses and permits the failure of which to obtain would have
a material adverse impact upon Seller's ability to operate the Division and to
own and/or use the Purchased Assets. Except as set forth on Schedule 10.18, such
licenses and permits are in full force and effect, will remain in full force and
effect for the benefit of Purchaser immediately after Closing and are
transferable to Purchaser without the consent of any third party. No proceeding
is pending or, to Seller's knowledge, threatened regarding the revocation or
limitation of any such governmental license or permit.
10.19 RESTRICTIONS ON PERSONNEL. Except as described on
Schedule 10.19, to Seller's knowledge, none of the officers or employees of the
Division have entered into any agreement which is now in effect with any person,
corporation, partnership or business organization (other than Seller) requiring
such person to assign any interest in any invention, proprietary information or
trade secrets related to the Division or to keep confidential any such material
or containing any prohibition or restriction on competition by Seller with
respect to the Division or solicitation of customers of the Division.
10.20 TAXES. Except as described on Schedule 10.20:
(a) Seller has properly and timely filed in correct
form all tax returns and reports with respect to the Division required to be
filed by it with all taxing authorities (collectively, the "Returns"), and has
paid all taxes, governmental charges, penalties,
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assessments, interest and fines due or claimed to be due to such authorities,
including, without limitation, all federal, state, county and local income,
excise, sales, use, gross receipts, AD VALOREM, payroll and other taxes, fees
and assessments; the reserves for taxes reflected on the Balance Sheet (other
than for income taxes which are not being assumed) are adequate, and there are
no tax liens upon any property or assets of the Division except for taxes not
yet due.
(b) There are no actions, suits, proceedings,
investigations, audits or claims pending or threatened against the Division or
the Purchased Assets with respect to taxes, governmental charges or assessments,
nor are any such matters under discussion with any governmental authority.
(c) Seller (i) has withheld or collected from each
payment made to each of the Division's employees the amount of all taxes
(including, but not limited to, state and federal income taxes, state and
federal employment taxes and FICA) required to be withheld or collected
therefrom, (ii) has promptly remitted such amounts to the proper taxing
authorities, and (iii) has filed all reports with respect thereto with the
proper taxing authorities.
10.21 EMPLOYMENT CONTRACTS AND POLICIES. Except as set forth
on Schedule 10.21, Seller, with respect to the Division, has no express
employment contract with any person, nor any contract with any employee of the
Division, involving termination, retirement or termination pay, deferred
compensation, profit sharing or pension plans, employee benefit plans or other
employee benefits or post-employment benefits of any kind. Seller has provided
to Purchaser all of Seller's written employment policies presently in effect for
employees of the Division.
10.22 INTANGIBLE ASSETS. The Intangible Assets and the
intellectual property rights licensed to Purchaser pursuant to the License
Agreements collectively represent all intellectual property rights necessary to
operate the Business in a manner in all material respects consistent with the
current operation of the Business by Seller, except that Purchaser shall not
have the right to use the trademark "Generac" except as part of the mark
"Generac Portable Products" pursuant to the applicable License Agreement. All
Intangible Assets are fully assignable and are being transferred pursuant to the
Intangible Property Assignments and are free and clear of any adverse claims or
interests. Except as set forth on Schedule 10.22, no licenses, sublicenses,
covenants or agreements have been granted or entered into by Seller with respect
to the Intangible Assets. Except as set forth on Schedule 10.22, Seller has not
received any notice of infringement by others of any of the Intangible Assets.
Seller has no notice of any claim against the Division for infringement of any
patents, trademarks, trade dress, trade names, service marks, copyrights or
licenses of others or the misappropriation of trade secrets of others. Except as
set forth on Schedule 10.22, Seller owns all right, title and interest to the
Intangible Assets.
10.23 UNLAWFUL PAYMENTS. No payments of cash or other
consideration have been offered or made to any person, entity or government by
Seller with respect to the Division which were unlawful under the laws of the
United States or any state or other government having appropriate jurisdiction.
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10.24 COMPLIANCE WITH LAW. Seller's operation of the Division
and the Purchased Assets and Seller's use of the Real Property do not materially
violate any applicable federal, state, local, national or international laws or
ordinances or any other rule or regulation of any international, national,
federal, state or local agency or body. Seller has not received any notification
of any asserted failure by the Division to comply with such laws, rules or
regulations.
10.25 INSURANCE. Schedule 10.25 lists all insurance policies
owned by Seller with respect to the Division. All such policies are in full
force and effect, and all premiums on policies due prior to the date hereof have
been paid. Seller has not received notice that any such insurance is in default,
will be canceled or not renewed, or will be renewed at premium rates materially
in excess of the premium rates currently in effect. Such policies provide
adequate insurance coverage for the assets and operations of the Division (with
respect to the operations of the Division prior to the Closing Date) and will
not in any way be adversely affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement.
10.26 SUBSIDIARIES. Seller has no subsidiaries with respect to
the Division. Seller has no interest, direct or indirect, and has no commitment
to purchase any interest, direct or indirect, in any other corporation,
partnership, joint venture or other business enterprise or entity related to the
Division. Except as set forth on Schedule 10.26, the Division has not been
operated through any direct or indirect subsidiary or affiliate of Seller.
10.27 LITIGATION AND PROCEEDINGS. Except as set forth on
Schedule 10.27, there is no suit, action or legal, administrative, arbitration
or other proceeding (including, without limitation, condemnation cases, historic
designation proceedings or rezoning proceedings) pending or, to Seller's
knowledge, threatened against Seller with respect to the Division or the Real
Property or affecting the Purchased Assets or relating to any products that have
been manufactured or sold by the Division and alleged to have been defective or
improperly designed or manufactured. Schedule 10.27 sets forth a description of
all pending claims made (or presently contemplated claims to be made) by Seller
with respect to the Division against third parties. Except as set forth on
Schedule 10.27, Seller is not, with respect to the Division, now under any
judgment, order, injunction or decree of any court, administrative agency or
other governmental authority.
10.28 EMPLOYEE BENEFITS. The representations and warranties
contained in sections 10.28(a) through 10.28(r) apply solely to the employee
benefits of Seller with respect to the Division's employees located in the
United States.
(a) Schedule 10.28 lists all "employee pension
benefit plans," as such term is defined in section 3(2) of the Employee
Retirement Income Security Act of 1974 ("ERISA") without regard to any
exemptions from any requirements thereunder issued by the United States
Department of Labor in regulations or otherwise, maintained, sponsored or
contributed to by Seller for the benefit of any employee, as of the Closing
Date, of the Division (a "Division Employee") (the "Pension Plans"). The term
"Pension Plan" shall also include any terminated "employee pension benefit plan"
previously maintained, sponsored or contributed to
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by Seller for the benefit of any Division Employee which, as of the Closing
Date, has not distributed all of its assets in full satisfaction of accrued
benefits and/or obligations or for which Seller has any liability.
(b) Seller has made available to Purchaser copies of
(i) all documents governing each of the Pension Plans as in effect on the
Closing Date; (ii) the most recent annual report prepared on the appropriate
Internal Revenue Service Form 5500 series, including all required attachments,
for each of the Pension Plans subject to such reporting requirements; and (iii)
the most recent determination letter issued by the Internal Revenue Service or
application therefor concerning the qualification of any Pension Plan pursuant
to section 401(a) of the Code, all of which are true, correct and complete.
(c) None of the assets of Seller are subject to any
lien, constructive or otherwise, arising under ERISA section 4068.
(d) Except as described in Schedule 10.28, all
Pension Plans have obtained favorable determination letters from the Internal
Revenue Service relating to the tax qualification of the Pension Plan under Code
section 401(a) on the Pension Plans as currently in effect. The Pension Plans
have operated in accordance with the requirements of the Code in all material
respects, including but not limited to, compliance with Code sections 401(k)(3),
401(m) and 415.
(e) Schedule 10.28 lists all "employee welfare
benefit plans," as defined in ERISA section 3(1) without regard to any
exemptions from any requirements thereunder issued by the United States
Department of Labor in regulations or otherwise, maintained, sponsored or
contributed to by Seller for the benefit of any Division Employee (the "Welfare
Plans"). The term "Welfare Plans" shall also include any terminated employee
welfare benefit plan previously maintained, sponsored or contributed to by
Seller for the benefit of any Division Employee which, as of the Closing Date,
has not distributed all of its assets and/or satisfied all of its obligations
for which Seller had any liabilities.
(f) Seller has made available to Purchaser copies of
all documents governing each of the Welfare Plans as in effect on the Closing
Date, all of which are true, correct and complete.
(g) Schedule 10.28 lists all plans or programs to
provide fringe benefits to the Division's Employees (other than Pension Plans
and Welfare Plans) including, but not limited to, vacation, sick leave,
disability, severance pay and other plans or related benefits (the "Fringe
Benefit Plans").
(h) Seller has made available to Purchaser copies of
all documents governing each Fringe Benefit Plan as in effect on the Closing
Date, all of which are true, correct and complete.
(i) Seller has not, after April 1, 1998, made any
material modification,
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within the meaning of ERISA section 102 and the regulations thereunder (even if
such term does not apply under ERISA to such plan), to any existing Pension
Plan, Welfare Plan or Fringe Benefit Plan which is not set forth in the Pension
Plan, Welfare Plan or Fringe Benefit Plan documents provided to Purchaser and
which is not disclosed explicitly on Schedule 10.28 as a material modification
made after April 1, 1998.
(j) For purposes of this section, "Seller" shall
include Seller and all members of any controlled group of corporations (within
the meaning of Code section 414(b), relevant Treasury Regulations and Pension
Benefit Guaranty Corporation regulations issued pursuant to ERISA section 4001),
any group of trades or businesses under common control (within the meaning of
Code section 414(c), relevant Treasury Regulations and Pension Benefit Guaranty
Corporation regulations issued pursuant to ERISA section 4001) and any
affiliated service group (within the meaning of Code section 414(m) and relevant
Treasury Regulations and proposed Treasury Regulations) of which Seller is a
member.
(k) Except as disclosed on Schedule 10.28, Seller
never has been obligated to contribute on behalf of a Division Employee to any
multiemployer plan within the meaning of ERISA section 3(37) or 4001(a)(3).
(l) Except as disclosed on Schedule 10.28, the
Welfare Plans Pension Plans and Fringe Benefit Plans and the trusts or other
funding vehicles related to the Welfare Plans, Pension Plans and Fringe Benefit
Plans have been administered in all material respects in compliance with the
applicable requirements of ERISA, the Code, the plan documents and all other
applicable rules, regulations and laws and all reporting and disclosure
requirements under the Code, ERISA and other applicable law had been properly
and timely satisfied in all material respects. The Welfare Plans, Pension Plans
and Fringe Benefit Plans and the trusts or other funding vehicles related to the
Welfare Plans, Pension Plans and Fringe Benefit Plans meet, in all material
respects, applicable requirements, in form and in operation, for favorable tax
treatment under the Code. The Pension Plans comply in all material respects with
the requirements of the Tax Reform Act of 1986, Uruguay Round Agreements Act,
Small Business Job Protection Act of 1996, the Taxpayer Relief Act of 1997,
Uniformed Services Employment and Reemployment Rights Act and all applicable
subsequent legislation, requirements and amendments under the Code and ERISA.
All required contributions pursuant to the Welfare Plans, Pension Plans and
Fringe Benefit Plans for all periods prior to the Closing Date have been made or
will be made prior to the Closing Date or are adequately reflected in accordance
with generally accepted accounting principles on the Balance Sheet, and assets
of such Plans (at fair market value) at least equal the liabilities of such
Plans or such liabilities are adequately reflected in accordance with generally
accepted accounting principles on the Balance Sheet. To Seller's knowledge,
there are no threatened claims, lawsuits or arbitrations which have been
asserted or instituted against the Pension Plans, Welfare Plans or Fringe
Benefit Plans or any fiduciaries thereof with respect to their duties to the
Welfare Plans, Pension Plans or Fringe Benefit Plans or the assets of any of the
trusts under any Pension Plans, Welfare Plans or Fringe Benefit Plans. No
representations or communications with respect to participation, eligibility for
benefits, vesting, benefit accrual or coverage under the Pension Plans, Welfare
Plans or Fringe Benefit Plans have been made to the Division's Employees other
than those which are in accordance with the terms
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of such Pension Plans, Welfare Plans or Fringe Benefit Plans in effect
immediately prior to the Closing Date.
(m) With respect to any Welfare Plan which is a
"group health plan," as defined in Code section 4980B, except as disclosed on
Schedule 10.28, Seller has not failed to comply with the continuation coverage
requirements of Code section 4980B for any periods prior to the Closing Date.
(n) With respect to Welfare Plans, Pension Plans and
Fringe Benefit Plans, Seller has furnished to Purchaser copies of any currently
effective investment management agreements, fiduciary insurance policies,
fidelity bonds, rules, regulations or policies of the trustees or any committee
thereunder, all of which are true, correct and complete.
(o) Except as specified on Schedule 10.28, since
December 31, 1974, with respect to any Pension Plan subject to Title IV of
ERISA, there has been no:
(i) "reportable event" as defined in section
4043 of ERISA;
(ii) event described in section 4063(a),
4064 or 4068(a) of ERISA;
(iii) termination, partial termination or
commencement of proceedings seeking termination;
(iv) grounds for termination as described in
section 4042(a) of ERISA;
(v) request for waiver of minimum funding
standards filed with the Internal Revenue Service; or
(vi) accumulated funding deficiency, as
defined in ERISA section 302 and Code section 412.
Except as specified on Schedule 10.28, the Closing of the purchase and sale
contemplated hereby will not result in any such events and Seller is not aware
of any events that are threatened or which would result in any of the events
described herein.
(p) Except as specified on Schedule 10.28, since
December 31, 1974, no fiduciary of the Pension Plans or the Welfare Plans has
engaged in any "prohibited transaction" (as defined in ERISA section 406 or
Internal Revenue Code section 4975) nor has any fiduciary breached any fiduciary
responsibility, as described in Part 4 of Title I of ERISA, with respect to such
Pension Plans or Welfare Plans.
(q) Except as specified on Schedule 10.28, Seller is
not aware of the occurrence of any event with respect to any Welfare Plan or
Pension Plan which could result in a
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liability of Seller, or any member of Seller's controlled group to the Pension
Benefit Guaranty Corporation ("PBGC"), other than the timely payment of premiums
pursuant to section 4007 of ERISA. All required PBGC premiums have been paid for
the periods through the Closing Date.
(r) Except as specified on Schedule 10.28, no Welfare
Plan or Fringe Benefit Plan provides any form of post-retirement health benefits
to retired Division Employees of Seller, other than benefits required to be
provided pursuant to Code section 4980B.
The representations and warranties contained in
sections 10.28(aa) through 10.28(dd) apply solely to the Seller's employees with
respect to the Division located in Europe.
(aa) Save for the Generac International Pension
Scheme for Salary Employees and the Standard Life Group Personal Pension Plan
(the "Schemes"), there is not in operation any agreement or arrangement for the
payment of, or payment of a contribution towards, a pension, allowance, lump
sum, annuity, gratuity or other similar benefit on retirement, death,
termination of employment (whether voluntary or not) or during periods of
sickness or disablement for the benefit of an employee or an employee's
dependents.
(bb) The Schemes are not in the process of being
wound up.
(cc) No employer contribution due in respect of a
Scheme is unpaid. All contributions due from members of a Scheme have been paid
to that Scheme.
(dd) The Schemes are approved and the Seller is not
aware of a matter which might give the Inland Revenue reason to withdraw
Approval.
(ee) The Schemes are both defined contribution
schemes and there is no liability to pay any benefit under and the Schemes other
than an amount equal in value to the contributions paid by and on behalf of an
employee who is a member of the Scheme, together with any investment return on
those contributions.
For purposes of section 10.28(dd), "Approved" means
approved by the Inland Revenue for the purposes of Chapter I or Chapter IV of
Part XIV of the Income and Corporation Taxes Act 1988 and a reference to
"Approval" is to be construed accordingly.
10.29 DISCLAIMER OF OTHER REPRESENTATIONS AND WARRANTIES.
Except as expressly set forth in Sections 9 and 10 of this Agreement, Seller
makes no representation or warranty, express or implied, at law or in equity, in
respect to any of its assets (including, without limitation, the Purchased
Assets), liabilities or operations, including, without limitation, with respect
to merchantability or fitness for any particular purpose and any such other
representations or warranties are hereby expressly disclaimed. Without limiting
the generality of the foregoing, the Seller makes no representation or warranty
regarding any assets other than the Purchased Assets or any liabilities other
than the Assumed Liabilities, and none shall be implied at law or in equity.
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10.30 CUSTOMERS AND SUPPLIERS. Schedules 10.30(a) and (b),
respectively, set forth: (a) list of (i) the ten largest customers of the
Division in terms of sales during the fiscal year ended December 31, 1997 and
(ii) the ten largest customers of the Division in terms of sales during the
three months ended March 31, 1998, showing the approximate total sales by the
Division to each such customer during the fiscal year ended December 31, 1997
and the three months ended March 31, 1998, respectively; and (b) a list of (i)
the ten largest suppliers of the Division in terms of purchases during the
fiscal year ended December 31, 1997, and (ii) the ten largest suppliers of the
Division in terms of purchases during the three months ended March 31, 1998,
showing the approximate total purchases by the Division from each such supplier
during the fiscal year ended December 31, 1997 and the three months ended March
31, 1998, respectively. Except for the customers and suppliers named in
Schedules 10.30(a) or 10.30(b), the Division did not have any customer who
accounted for more than 5% of the Division's sales during the period from
December 31, 1996 to December 31, 1997, or any supplier from whom it purchased
more than 5% of the goods of services which it purchased during the period from
December 31, 1996 to December 31, 1997.
10.31 ORDERS, COMMITMENTS AND RETURNS. As of the Balance Sheet
Date, the aggregate of all accepted and unfilled orders for the sale of
merchandise entered into by the Division does not exceed $18,000,000, and the
aggregate of all contracts or commitments for the purchase of supplies by it
does not exceed $25,250,000, all of which orders, contracts and commitments were
made in the ordinary course of business.
11. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser represents
and warrants to Seller that the following statements are true:
11.01 CORPORATE ORGANIZATION. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Purchaser has full corporate power and corporate authority to carry on
its business as now conducted and to own and lease the properties and assets it
now owns and leases.
11.02 AUTHORIZATION OF AGREEMENT. Purchaser has all necessary
corporate power to execute and deliver this Agreement and the Related
Agreements, to perform its obligations hereunder and thereunder, and to
consummate the transactions provided for herein and therein. The execution and
delivery of this Agreement and each of the Related Agreements by Purchaser and
the performance by it of the obligations to be performed hereunder and
thereunder have been duly authorized by all necessary and appropriate corporate
action. The execution and delivery of this Agreement and each of the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby do not and will not violate or conflict with any provision of, or result
in a breach of, or constitute a default under (a) Purchaser's Certificate of
Incorporation or By-Laws or (b) any court or administrative order or process to
which Purchaser is a party, (c) any agreement or instrument to which Purchaser
is a party or by which Purchaser is bound, or (d) any statute or regulation of
any governmental agency. This Agreement and each of the Related Agreements are
valid and binding obligations of Purchaser and are enforceable against Purchaser
in accordance with their terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to
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creditors' rights generally and subject to general principles of equity.
11.03 LITIGATION. There is no action, suit or proceeding or
investigation or claim pending or, to Purchaser's knowledge, threatened against
Purchaser which might adversely affect or restrict Purchaser's ability to
consummate the transactions contemplated hereby.
11.04 FULL DISCLOSURE. Purchaser has notified the Seller (a)
of any fact, condition or circumstance of which the Purchaser has knowledge
which the Purchaser reasonably believes would constitute a breach or default by
the Seller under this Agreement and (b) of any fact, condition or circumstance
which the Purchaser, in the exercise of reasonable business judgment, believes
would, after notice or lapse of time or both, constitute a breach or default by
Seller under this Agreement.
12. MUTUAL COVENANTS AND AGREEMENTS.
12.01 ACCESS TO BOOKS AND RECORDS. The parties agree that, for
purposes of this section, the "Access Period" is defined as the longer of (a) a
period of five years following the Closing Date or (b) the period of time
beginning on the Closing Date and ending on the date on which taxes may no
longer be assessed under the applicable statutes of limitation, including any
period of waivers or extensions thereof. Purchaser hereby covenants and agrees
to maintain in a reasonably accessible place, during the Access Period, the
books and records delivered by Seller hereunder relating to the Division and to
provide copies of such books and records to Seller or its representative upon
request, at Seller's expense. Purchaser agrees to notify Seller prior to
disposing of any such books and records and, upon request made within 60 days
after receipt of such notice, to deliver such books and records to Seller at
Seller's expense. With respect to the books and records of Seller not delivered
to Purchaser hereunder Seller hereby covenants and agrees to give Purchaser the
same access for the same time period and agrees to give Purchaser the same
notice and right in the event of any proposed disposition of such books and
records.
12.02 REPORTING ASSISTANCE. Purchaser agrees to cooperate and
timely assist Seller in preparing information for various authorities after the
Closing Date on the condition that such information relates to the purchase
contemplated by this Agreement or the Purchased Assets. This information
includes, but is not limited to, accounting and tax workbooks, responses to
audit requests, other filings to tax authorities, E.G., payroll, property, sales
and use taxes and other information necessary to comply with federal, state and
local laws. Seller agrees to provide the same reporting assistance to Purchaser
on the same terms and under the same conditions.
12.03 UPDATING AND SUPPLEMENTING SCHEDULES. The parties agree
that on or before the Closing Date, Seller shall, and shall have the right to,
supplement and update in writing any information contained on any Schedule to
this Agreement in order to make the information contained in the Schedules
correct and complete as of the Closing Date. It is agreed by the parties that
the furnishing of such supplemental and updated information in and of itself
shall not constitute or evidence the existence of any breach or violation by
Seller of any provision of this Agreement. If Seller updates or supplements the
Schedules to this Agreement
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pursuant to this section and such update or supplement discloses one or more
liabilities of the Division which, in the aggregate, reasonably are expected to
involve liabilities to the Division of greater than $5,000,000 or which would
materially impair Purchaser's ability to operate the Business as currently
operated (a "Material Liability Disclosure"), Purchaser shall have the right not
to close the transactions contemplated by this Agreement unless such Material
Liability Disclosure is assumed by Seller (E.G., a product liability claim for
which Seller has insurance). If Purchaser closes the transactions contemplated
by this Agreement notwithstanding a Material Liability Disclosure, such Material
Liability Disclosure shall not constitute a breach or violation of any provision
of this Agreement. If Purchaser elects not to close the transactions
contemplated by this Agreement following a Material Liability Disclosure, such
election shall constitute Purchaser's sole remedy and Purchaser shall not be
entitled to any other damages under this Agreement or at law or equity which
result from such Material Liability Disclosure or Purchaser's election not to
close the transactions contemplated by this Agreement pursuant hereto. Seller
agrees that, with respect to any supplement or update to the Schedules to this
Agreement made pursuant to this section 12.03, to the extent such supplement or
update discloses a liability of the Division (whether or not such liability is a
Material Liability Disclosure), unless such disclosure is a Material Liability
Disclosure and Purchaser exercises its right not to close the transactions
contemplated by this Agreement in accordance with this section 12.03 in which
case this sentence shall not apply, (a) to the extent applicable, an adjustment
to Net Working Capital shall be made to reflect such liability (if such
adjustment comports with generally accepted accounting principles), and (b) to
the extent such liability is not accounted for under (a) of this sentence, and
only to such extent, Seller shall indemnify Purchaser for such liability in
accordance with section 15 hereof. The parties agree that the items listed on
Exhibit K have been omitted from the Schedules to this Agreement,
notwithstanding the fact such items may otherwise have been listed on certain
Schedules to this Agreement, in order to permit Purchaser to conduct additional
due diligence with respect to such items, which Purchaser shall complete within
7 days of the date of this Agreement. The items listed on Exhibit K (and any
such other related items as are appropriate) shall, as appropriate, be added to
the Schedules to this Agreement following completion of Purchaser's due
diligence with respect thereto. To the extent such items disclose one or more
liabilities of the Division which, in the aggregate, reasonably are expected to
involve liabilities to the Division of greater than $100,000, except where such
liabilities are reflected on the Balance Sheet, such excess shall (x) result in
an adjustment to Net Working Capital to reflect such liabilities and (b) to the
extent such liabilities are not accounted for under (x) of this sentence, and
only to such extent, Seller shall indemnify Purchaser for such liability in
accordance with section 15 hereof.
12.04 TAX RETURNS. The parties agree that all tax returns
filed as a result of the transactions contemplated by this Agreement shall be
based upon and shall reflect the allocation of the Purchased Price appearing on
Schedule 5.05.
12.05 POST-CLOSING USE OF LAMINATION DIES. The parties agree
that following the Closing Date, they shall jointly be entitled to use,
consistent with prior use by Seller and the Division prior to the Closing Date,
the Temple Steel lamination die (title to which will be retained by Seller
following the Closing Date) and the PSW lamination die (title of which will be
transferred to Purchaser following the Closing Date). After each of the
aforementioned
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lamination dies becomes unusable, the joint use of such die by the parties shall
discontinue. The parties acknowledge that the provisions of this section apply
only to use of the applicable dies in the United States.
12.06 POST-CLOSING USE OF CERTAIN OTHER DIES. The parties
agree that following the Closing Date, they shall jointly use each of the then
existing non-lamination dies for 200mm alternator components (individually a
"Die" and collectively the "Dies"). The parties agree that their use of the Dies
shall be consistent with the use of the Dies prior to the Closing Date by Seller
and the Division. The parties agree that with respect to each of the Dies, after
any Die existing as of the Closing Date becomes unusable, if, during the
12-month period ending upon the calendar quarter ending immediately preceding
the date such Die becomes unusable, either the Division and Purchaser (in their
combined use of such Die during such period) or Seller used 80% or more of such
Die used during such 12-month period, then the party using 80% or more of such
Die during such period shall replace such Die and the shared usage of such Die
shall continue until the replacement of such Die becomes unusable. The parties
agree that with respect to each of the Dies, after any Die existing as of the
Closing Date becomes unusable, if, during the 12-month period ending upon the
calendar quarter ending immediately preceding the date such Die becomes
unusable, neither the Division and Purchaser (in their combined use of such Die
during such period) nor Seller used 80% or more of such Die used during such
12-month period, the joint use of such Die shall discontinue. The parties
acknowledge that the provisions of this section apply only to use of the
applicable dies in the United States.
12.07 CLAUS-PETER SCHMIDT. Purchaser and Seller agree that
they shall, in good faith, negotiate an agreement with Claus-Peter Schmidt,
whereby the employment by Seller of Mr. Schmidt, together with all of Seller's
rights, obligations and liabilities in respect of such employment will transfer
to Purchaser.
13. COVENANTS AND AGREEMENTS OF PURCHASER. Purchaser hereby covenants
and agrees that:
13.01 LITIGATION ASSISTANCE. Purchaser will fully cooperate
and assist Seller in defending any claim or lawsuit relating to Seller's
operation of the Division or the Purchased Assets at Seller's sole expense. Upon
written request, Seller shall reimburse Purchaser for reasonable out-of-pocket
expenses actually incurred by Purchaser (including reasonable attorneys' fees
and other professional fees, regular rates of salary, wages and traveling
expenses) in connection with providing the cooperation and assistance required
hereunder.
13.02 EMPLOYMENT RELATED MATTERS. Following Closing, Purchaser
shall employ substantially all of the Division's Employees on substantially
similar terms and conditions as employed by Seller. This section 13.02 is not
intended to restrict the right of Purchaser to terminate the employment of any
employee following Closing. The Employees shall receive credit following Closing
for services rendered and compensation received while employed by Seller prior
to Closing for all purposes, including, without limitation, participation in
benefits from employee benefit programs of Purchaser or any other term or
condition of employment which varies with seniority. In no event shall Purchaser
be obligated to make any payment in
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respect of special bonuses or incentives to employees of the Division to
continue their employment with the Division prior to Closing and any such
amounts shall not be Assumed Liabilities or accrued liabilities or payables for
purposes of computing Net Working Capital as of March 31, 1998 or as of the
Closing Date. Following Closing, Purchaser shall not request successor status
with respect to Seller's Unemployment Compensation Reserve Account Balance.
13.03 PURCHASER EQUITY. Within 11 business days of the date of
signing this Agreement, Purchaser shall deliver to Seller evidence that
Purchaser has received, without condition, equity investments aggregating no
less than $10,000,000. Purchaser covenants and warrants that no efforts will be
made to diminish or reduce the equity of Purchaser and that should Purchaser
incur costs that reduce its equity, Purchaser shall take steps to replenish the
equity so that the equity of Purchaser is at least $10,000,000 at all times
prior to the earlier of (a) the Closing and (b) the termination of this
Agreement pursuant to section 18, provided if Seller makes a claim for
reimbursement of its costs and expenses pursuant to section 18.02, Purchaser
shall maintain the equity investment in an amount equal to 110% of such claim
(but, in any event, not in excess of $10,000,000) until such time as the claim
is resolved. Purchaser also agrees it will not grant any person or entity (other
than Seller) a security interest in its assets prior to Closing.
13.04 CLAIMS HANDLING AND LIABILITIES. Following Closing,
Purchaser will cooperate in permitting Seller reasonable access to observe that
Purchaser dealt with and handled returns and warranty claims as set forth in
section 10.04 of this Agreement. Purchaser shall take all reasonable steps to
limit its loss (including field repairs and repair and resale of returned
products) from returns and warranty claims. In measuring the reasonableness of
the reserve in section 10.04, Purchaser's loss, if any, shall be determined as
if Purchaser took all such reasonable steps.
14. COVENANTS AND AGREEMENTS OF SELLER. Seller hereby covenants and
agrees that:
14.01 LITIGATION ASSISTANCE. Seller will fully cooperate and
assist Purchaser in defending any claim or lawsuit relating to the ownership and
operation of the Division and Purchased Assets on or after the Closing Date at
Purchaser's sole expense. Upon written request, Purchaser shall reimburse Seller
for all reasonable out-of-pocket expenses actually incurred by Seller (including
reasonable attorneys' fees and other professional fees, regular rates of salary,
wages and traveling expenses) in connection with providing the cooperation and
assistance required hereunder.
14.02 CONDUCT OF SELLER. From the date hereof until Closing,
without Purchaser's prior written consent, Seller will not (a) commit to make
any capital expenditures with respect to the Division in excess of $500,000 in
the aggregate (excluding expenditures made in connection with the building
addition at the Division's facility in Jefferson, Wisconsin or the building
addition at the Division's facility in Winsford, Cheshire, England); (b) except
as permitted under section 10.07(l), increase the compensation or benefits
payable to any employee of the Division; (c) enter into any material agreements
relating to the Division with third parties outside the ordinary course of
business or (d) otherwise take any action with respect to the Division outside
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the ordinary course of business. From the date hereof until Closing, Seller will
maintain the Purchased Assets in a manner consistent with past practices.
14.03 BOND PAYOFF. Prior to the Closing, Seller shall redeem
all of the outstanding bonds issued pursuant to the 1994, $7,200,000, City of
Jefferson, Industrial Revenue bond.
14.04 LICENSES AND PERMITS. Seller shall use all reasonable
efforts to obtain prior to Closing all consents, endorsements and other
appropriate approvals necessary to duly and validly transfer to Purchaser all
licenses and permits to which Purchaser is entitled pursuant to section 1.11. To
the extent a consent, endorsement or approval is not obtained prior to Closing
but is reasonably expected in the ordinary course to be obtained after Closing,
Seller shall continue to hold and maintain the license or permit applicable
thereto on Purchaser's behalf and at Purchaser's expense and shall transfer such
license or permit upon receipt of such consent, endorsement or approval.
Immediately upon Seller's good faith determination that Seller will be unable to
obtain any required consent, endorsement or approval, Seller that notify
Purchaser and thereafter shall fully cooperate and assist Purchaser in obtaining
replacement or renewal of the license or permit applicable thereto in
Purchaser's name.
14.05 WAIVERS OF DEFAULT. Seller shall use all reasonable
efforts prior to Closing to obtain the waivers referenced in section 8.08 of
this Agreement.
15. INDEMNIFICATION BY SELLER.
15.01 INDEMNIFICATION. Notwithstanding the Closing, and except
for the remedy of specific performance in the event of breach of section 19.12
or as provided in section 18.02, as Purchaser's sole and exclusive remedy for
breach of this Agreement or the Supplemental Agreement (except as may otherwise
be provided by sections 2.2(a) and 2.4(a)(ii) of the Supplemental Agreement),
Seller agrees to indemnify, defend and hold Purchaser and its directors,
officers, employees, agents and shareholders harmless from and against any
damage, liability, loss, cost or deficiency (including, but not limited to,
reasonable attorneys' fees and other costs and expenses incident to proceedings
or investigations, or the defense or settlement of any claim but not including
punitive damages) ("Purchaser's Damages") arising out of, resulting from or
relating to:
(a) any inaccuracy in or breach of the
representations and warranties of Seller set forth in sections 9 and 10 hereof
or set forth in the Related Agreements;
(b) any failure of Seller to duly perform or observe
any term, provision, covenant or agreement to be performed or observed by Seller
pursuant to this Agreement or any agreement described herein (except as the
remedies provided in such agreements for failure to perform are limited by the
terms of such agreements); and
(c) any Excluded Liabilities, brokerage fees and
expenses of Seller referred to in section 19.05 (except to the extent any such
fees and expenses are accrued for
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purposes of calculating Net Working Capital as of the Closing Date) or any bulk
sales liability referred to in section 19.06 with respect to the Excluded
Liabilities.
The representations and warranties of Seller set
forth in section 10 (except section 10.20) shall survive Closing for a period of
one year. The representations and warranties of Seller set forth in sections 9
and 10.20 shall survive Closing until the expiration of the applicable statute
of limitations. Seller's obligation to indemnify Purchaser with respect to a
claim for a breach of a representation and warranty set forth in section 10
(except section 10.20) shall extend beyond such one-year period if Purchaser
asserts such claim by notice in writing to Seller within such one-year period.
Purchaser may assert a claim under section 15.01(a) with respect to a
representation and warranty set forth in sections 9 and 10.20 and under section
15.01(b) or (c) at any time prior to the expiration of the applicable statute of
limitations.
Anything in this section 15.01 to and contrary
notwithstanding, Seller shall have no obligation under this section 15.01 to
indemnify Purchaser with respect to any matter that was the subject of a dispute
with respect to the Closing Date Balance Sheet and that did result in an
adjustment to the Purchase Price pursuant to section 5.04. Any such matter shall
be disregarded for all purposes of this section 15.01.
15.02 PROCEDURE. Purchaser shall give Seller prompt notice in
writing of any written claim, demand, assessment, action, suit or proceeding to
which the indemnity set forth in this section applies which notice shall provide
in reasonable detail such information as Purchaser may have with respect to such
claim or demand (including, without limitation, copies of any summons,
complaints or other pleadings which may have been served on Purchaser or its
agents and any written claim, demand, invoice, billing or other document
evidencing the same) ("Notice of Claim"). If such claim or demand is evidenced
by a court pleading, Purchaser shall give Notice of Claim within five days of
receipt of such pleading. If such claim or demand is evidenced by some other
writing or notice from a third party, Purchaser shall give Notice of Claim
within ten days of the date it receives a notice of such claim.
Failure to give timely notice of a matter which may
give rise to an indemnification claim shall not affect the rights of Purchaser
to collect such claims from Seller so long as such failure to so notify does not
materially adversely affect the Seller's ability to defend such claim against a
third party; provided, however, that the failure to provide Seller with a Notice
of Claim pursuant to section 15.01(a) hereof with respect to a representation
and warranty set forth in section 10 (except section 10.20) within one year
after the Closing Date shall act as a complete bar to recovery hereunder.
If Purchaser's request for indemnification arises
from the claim of a third party, the written notice shall permit Seller to
assume control of the defense of such claim or any litigation resulting from
such claim. Failure by Seller to so notify Purchaser of its election to defend a
complaint by a third party within ten days shall be a waiver by Seller of its
right to respond to such complaint and within 20 days after notice thereof shall
be a waiver by Seller of its right to assume control of the defense of such
claim or litigation. If Seller assumes control of the defense of such claim or
litigation resulting therefrom, Seller shall take all reasonable steps
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necessary in the defense or settlement of such claim or litigation resulting
therefrom, and Seller shall hold Purchaser harmless from and against all damages
arising out of or resulting from any settlement approved by Seller or any
judgment in connection with such claim or litigation. Notwithstanding Seller's
assumption of the defense of such third-party claim or demand, Purchaser shall
have the right to participate in the defense of such third-party claim or demand
at its own expense. Seller shall not, in the defense of such claim or
litigation, consent to entry of any judgment or enter into any settlement,
except in either case with a written consent of Purchaser, which consent shall
not be unreasonably withheld. Purchaser shall furnish Seller in reasonable
detail all information Purchaser may have with respect to any such third-party
claim and shall make available to Seller and its representatives all records and
other similar materials which are reasonably required in the defense of such
third-party claim and shall otherwise cooperate with and assist Seller in the
defense of such third-party claim. If Seller does not assume control of the
defense of any such third-party claim or litigation resulting therefrom,
Purchaser may defend against such claim or litigation in such manner as it may
reasonably deem appropriate, and Seller shall indemnify Purchaser from any
damages and costs indemnifiable under this section incurred in connection
therewith.
15.03 LIMITATIONS. No indemnification shall be payable by
Seller to Purchaser unless and until Purchaser's Damages, net of any related
insurance proceeds or tax benefits received by Purchaser, exceed $3,000,000 in
the aggregate. At such time that the aggregate amount of Purchaser's Damages
exceeds $3,000,000, Seller shall be liable to Purchaser only for such of
Purchaser's Damages, net of any related insurance proceeds and/or tax benefits
received or receivable by Purchaser, which exceed $3,000,000. In no event shall
Seller's aggregate liability hereunder to Purchaser exceed 10% of the Cash
Payment, as adjusted pursuant to sections 5.03 and 5.04(b). Notwithstanding the
foregoing, the limitations set forth in this section 15.03 shall not apply to
claims based upon a breach of section 9.01, 9.02 or 9.03 hereof or the Excluded
Liabilities.
16. INDEMNIFICATION BY PURCHASER.
16.01 INDEMNIFICATION. Notwithstanding the Closing, and except
for the remedy of specific performance in the event of a breach of section 19.12
or as provided in sections 12.03 or 18.02, as Seller's sole and exclusive remedy
for a breach of this Agreement or the Supplemental Agreement (except as may
otherwise be provided by section 2.2(b) of the Supplemental Agreement),
Purchaser agrees to indemnify, defend and hold Seller, its directors, officers,
employees, agents and shareholders harmless from and against any damage,
liability, loss, cost or deficiency (including, but not limited to, reasonable
attorneys' fees and other costs and expenses incident to proceedings or
investigations or the defense or settlement of any claim but not including
punitive damages) ("Seller's Damages") arising out of, resulting from or
relating to:
(a) any inaccuracy in or breach of the
representations or warranties of Purchaser set forth in section 11 hereof or set
forth in the Related Agreements; or
(b) any failure to duly perform or satisfy the
Assumed Liabilities or
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duly perform or observe any term, provision or covenant to be performed or
observed by Purchaser pursuant to this Agreement or any agreement described
herein (except as the remedies provided in such agreements for failure to
perform are limited by the terms of such agreements); or
(c) except for Excluded Liabilities, any liabilities
relating to the Business and arising after the Closing Date.
The representations and warranties of Purchaser set
forth in section 11.03 shall survive Closing for a period of one year. The
representations and warranties of Purchaser set forth in section 11.01, 11.02
and 11.04 shall survive Closing until the expiration of the applicable statute
of limitations. Purchaser's obligation to indemnify Seller with respect to a
claim for a breach of a representation and warranty set forth in section 11.03
shall extend beyond such one-year period if Seller asserts such claim by notice
in writing to Purchaser within such one-year period. Seller may assert a claim
under section 16.01(b) or (c) or under section 16.01(a) for a breach of section
11.01, 11.02 or 11.04 at any time prior to the expiration of the applicable
statute of limitations.
Anything is this section 16.01 to the contrary
notwithstanding, Purchaser shall have no obligation under this section 16.01 to
indemnify Seller with respect to any matter that was the subject of a dispute
with respect to the Closing Date Balance Sheet but did not result in an
adjustment to the Purchase price pursuant to section 5.04. Any such matter shall
be disregarded for all purposes of this section 16.01
16.02 PROCEDURE. The procedural rules set forth in section
15.02 shall apply with respect to indemnification by Purchaser; provided,
however, that the parties' obligations under section 15.02 shall be reversed, as
appropriate.
16.03 LIMITATION. Purchaser's obligation to indemnify Seller
for Seller's Damages shall be net of any related insurance proceeds or tax
benefits received by Seller.
17. NATURE OF REPRESENTATIONS. All statements contained in any
certificate, exhibit, schedule, list or other instrument delivered by or on
behalf of Seller or Purchaser pursuant hereto, or in connection with the
transactions contemplated hereby, shall be deemed representations and warranties
by Seller or Purchaser hereunder. If, prior to the Closing Date, either party
becomes aware of any breach of or inaccuracy with respect to a representation
warranty made in this Agreement by the other party, the party discovering such
breach or inaccuracy shall, promptly, give written notice to the other party
describing in reasonable detail the nature of such inaccuracy or breach.
18. TERMINATION AND ABANDONMENT.
18.01 METHODS OF TERMINATION. This Agreement may be terminated
at any time prior to the Closing:
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(a) By mutual consent of Purchaser and Seller; or
(b) By either Purchaser or Seller if there shall have
been a material misrepresentation, material breach of warranty or material
failure to perform obligations on the part of the other party in respect of the
representations, warranties and obligations set forth in this Agreement;
provided, however, that the party claiming material breach or failure to perform
on the part of the other party shall serve notice thereof on the other party as
soon practicable after it becomes aware of such material breach or failure and
provided, further, that such material breach or failure has not been remedied
within thirty (30) days after notice thereof has been given to such other party
(it being agreed that where such 30-day notice period would extend beyond the
scheduled Closing hereunder, the Closing will be postponed to such 30th day).
A termination of this Agreement pursuant hereto shall
automatically, without any further actions by Purchaser and/or Seller, operate
as a termination of the European Agreement.
18.02 PROCEDURE UPON TERMINATION. In the event of termination
and abandonment by Purchaser or Seller, or both, pursuant to section 18.01,
written notice thereof shall forthwith be given to the other party and the
transactions contemplated by this Agreement shall be terminated and/or
abandoned, without further action by Purchaser or Seller. If the transactions
contemplated by this Agreement are terminated and/or abandoned as provided
herein, each party shall redeliver all documents, workpapers and other material
of the other party relating to the transactions contemplated hereby whether so
obtained before or after execution hereof, to the party furnishing the same. If
this Agreement is terminated pursuant to section 18.01(a), no party hereto shall
have any liability or obligation to the other party to this Agreement as a
result of such termination. If this Agreement is terminated pursuant to section
18.01(b), the non-breaching party, in addition to its other rights and remedies,
shall be entitled to recover its costs and expenses which are incurred in
connection with the negotiation of the transactions contemplated by this
Agreement, up to a maximum amount of $10,000,000 plus brokers' fees and
reasonable attorneys' fees. In the event that a condition precedent to its
obligations is not satisfied, nothing contained herein shall be deemed to
require any party to terminate this Agreement, rather than to waive such
condition precedent and proceed with the transactions contemplated hereby or
permit the other party additional time to attempt to satisfy such condition
precedent.
19. MISCELLANEOUS.
19.01 FURTHER ASSURANCES. Upon reasonable request, from time
to time, each party agrees that it shall (or direct its employees to, if
applicable) execute and deliver all documents, make all rightful oaths, testify
in any proceedings and do all other acts which may be necessary or desirable in
the reasonable opinion of another party to protect or record the right or title
of Purchaser to the Purchased Assets or to aid in the prosecution or defense of
any rights arising therefrom, all without further consideration, except as
otherwise provided in sections 15 or 16.
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19.02 GENERAL. This Agreement may be amended only by an
agreement in writing by the parties hereto. This Agreement shall be governed by
and subject to the laws of the State of Wisconsin without giving effect to
choice of law principles thereunder. The failure of any party to insist, in any
one or more instances, upon performance of any of the terms and conditions of
this Agreement shall not be construed as a waiver or relinquishment of any
rights granted hereunder or of the future performance of any such term, covenant
or condition. In the event of any controversy concerning the rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of equity by a decree of specific performance. Such
remedy shall, however, be cumulative and nonexclusive and shall be in addition
to any other remedy which the parties may have. If any provision, clause or part
of this Agreement, or the application thereof under certain circumstances, is
held invalid, the remainder of this Agreement, or the application of each
provision, clause or part under other circumstances, shall not be affected
thereby.
19.07 ENTIRE AGREEMENT. This Agreement and the schedules and
other documents to be delivered pursuant hereto constitute the entire agreement
among the parties hereto and there are no agreements, representations or
warranties which are not set forth herein. All prior negotiations, agreements
and understandings with respect to such subject matter are superseded hereby.
19.08 PUBLIC ANNOUNCEMENT. Except as required by law, no
public announcement of the transactions contemplated hereby shall be made after
the date hereof by way of press release, disclosure to the trade or otherwise
except with the mutual approval of the parties.
19.09 ACCOUNT DEBTORS. If Seller receives any payment from any
account debtor with respect to a Receivable after Closing, it shall promptly
remit the payment to Purchaser. Purchaser is authorized to endorse any
instrument of payment to Seller in Seller's name pursuant to its rights
hereunder.
19.10 ARBITRATION. All claims, disputes and other matters in
question between the parties to this Agreement, arising out of or in any way
relating to this Agreement or the Supplemental Agreement or the breach of either
of them, shall be decided by arbitration in Milwaukee, Wisconsin, in accordance
with the rules of the American Arbitration Association ("AAA") then in effect
unless the parties mutually agree otherwise. This agreement to arbitrate shall
be specifically enforceable under the prevailing arbitration law. Notice of the
demand for arbitration shall be filed in writing with the other party to this
Agreement and with the American Arbitration Association in Milwaukee, Wisconsin.
The demand shall be made within a reasonable time after the claim, dispute or
other matter in question has arisen. In no event shall the demand for
arbitration be made after the date when institution of legal or equitable
proceedings based on such claim, dispute, or other matter in question would be
barred by this Agreement or the applicable statute of limitations.
Upon filing of a notice for demand for arbitration by
any party hereto, arbitration shall be commenced and conducted as follows:
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(a) ARBITRATORS. All claims, disputes, controversies
and other matters (collectively "Matters") shall be referred to and decided and
settled by one (1) arbitrator mutually agreeable to the parties. If the parties
are unable to agree on an arbitrator, the matter shall be referred to and
decided and settled by a panel of three (3) independent arbitrators, one
selected by the Seller, one selected by the Purchaser and the third selected by
the two arbitrators so selected. In the event the two (2) arbitrators are unable
to agree on the third arbitrator, the third arbitrator shall be selected in
accordance with the then current rules of the AAA. The selection of arbitrators
shall be made within thirty (30) days after the date of the notice of demand for
arbitration given pursuant hereto.
(b) COST OF ARBITRATION. Each party shall bear its
own costs incurred in connection with the arbitration proceeding. The parties
shall each be responsible for one-half (1/2) of the fees of the arbitrator(s)
and his or their related expenses.
(c) LOCATION OF PROCEEDINGS. All arbitration
proceedings shall be held in Milwaukee, Wisconsin unless the parties agree
otherwise.
(d) PRE-HEARING DISCOVERY. The parties shall have the
right to conduct and enforce pre-hearing discovery in accordance with the then
current Federal Rules of Civil Procedure. Document discovery and other discovery
shall be under the control of and be enforceable by the arbitrator and the
arbitrator shall permit and facilitate such discovery as he shall determine is
appropriate under the circumstances, taking into account the needs of the
parties and the desirability of making discovery expeditious and cost effective.
(e) HEARINGS. The hearings shall be conducted to
preserve their privacy and to allow reasonable procedural due process.
(f) GOVERNING LAW. The laws of the State of Wisconsin
shall be applied, without reference to the choice of law principles thereof, in
resolving matters submitted to such arbitration, except that the laws of England
shall be applied, without reference to the choice of law principles thereof, in
resolving matters relating to the Supplemental Agreement submitted to such
arbitration.
(g) CONSOLIDATION. No arbitration shall include, by
consolidation, joinder or in any other manner, any additional person not a party
to this Agreement (other than affiliates of any such party, which affiliates may
be included in the arbitration) except by written consent of the parties hereto
containing a specific reference to this Agreement or the Supplemental Agreement
(as the case may be).
(h) AWARD. The arbitrators are empowered to render an
award of general compensatory damages and equitable relief (including, without
limitation, injunctive relief). Any award issued by the arbitrator shall be
final and may be enforced in any court of competent jurisdiction.
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(i) CONFIDENTIALITY. The parties hereto will maintain
the substance of any proceedings hereunder in confidence and make disclosures to
others only to the extent necessary to properly conduct the proceedings.
19.11 BROKERS. Purchaser and Seller represent and warrant to
each other that, except for the fees of Goldman Sachs & Co., for which Seller
shall be responsible, there are no brokerage or finder's fees in connection with
the transactions contemplated hereby resulting from any actions taken by them
and they hereby indemnify, save and hold each other harmless from and against
any claims by any broker or finder for a fee or expense which is based in any
way on an agreement, arrangement or understanding made or alleged to have been
made by them relating to the transactions contemplated hereby.
19.12 COVENANT NOT TO COMPETE.
(a) Within North America, South America and Europe,
Seller shall not, directly or indirectly, during the nine-year period beginning
on the Closing Date and ending on the anniversary thereof in calendar year 2007
(the "Restricted Period"), engage in the manufacture or sale of pressure
washers, consumer portable generators and welders. Within North America, South
America and Europe, Purchaser shall not, directly or indirectly, during the
Restricted Period, engage in the manufacture or sale of products currently
manufactured or sold by Seller's industrial division, including, but not limited
to, air-cooled generator applications (including, but not limited to,
recreational vehicles, industrial mobile, telecom or home stand-by or any other
types of residential, commercial, or industrial products currently manufactured
or sold by Seller's industrial division), and diesel, natural gas, propane or
gasoline powered generators and related equipment such as transfer switches,
battery chargers, control systems, etc., and any items currently in production
by Seller's industrial division. The restrictions contained in this section
19.12(a) shall not in any way apply to or limit Seller's ability to sell
component parts to portable generators and welders; provided, however, that
Seller's ability to sell its GN Series engines as components for pressure
washers, consumer portable generators and welders shall be subject to the
provisions of the Engine Supply Agreement. The restriction contained in this
section 19.12(a) shall not in any way apply to or limit Seller's ability to
manufacture or sell industrial generators or any component parts to industrial
generators. "Consumer portable generators" shall mean air-cooled generators of
the type currently in production at the Division at the time of signing this
Agreement. "Industrial generators" shall mean any generator of any type above
10KW, including, but not limited to, diesel, natural gas, propane, or gasoline
powered generators and related equipment such as transfer switches, battery
charges, control systems, etc., and any other items currently in production by
Seller other than at the Division at the time of signing this Agreement.
(b) During the Restricted Period, Seller shall keep
secret and retain in confidence and shall not use for the benefit of Seller or
others any and all confidential matters of Seller with respect to the Business,
including, without limitation, trade secrets of Seller with respect to the
Business, and shall not disclose such confidential matters to anyone other than
Purchaser without the express written consent of Purchaser or as required by
law. During the Restricted Period, Purchaser shall keep secret and retain in
confidence and shall not use for the
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benefit of Purchaser or others any and all confidential matters with respect to
any business engaged in by Seller after the Closing Date, including, without
limitation, trade secrets of Seller with respect to such business, and shall not
disclose such confidential information to anyone other than Seller without the
express written consent of Seller or as required by law.
(c) During the Restricted Period, Seller shall not,
directly or indirectly, encourage to leave the employment of Purchaser or in any
way solicit for employment any person who is employed by Purchaser immediately
after the Closing Date and Purchaser shall not, directly or indirectly,
encourage to leave the employment of Seller or in any way solicit for employment
any person who is employed by Seller immediately after the Closing Date..
19.13 KNOWLEDGE. Whenever the Agreement refers to matters
within the Seller's "knowledge," "known to Seller" or of which Seller "knows,"
such reference is limited to the actual knowledge of the persons listed on
Schedule 19.13 as of the Closing Date. Schedule 19.13 should include Robert D.
Kern, William W. Treffert, Gary J. Lato, Gerald C. Ruehlow, Roger W. Shaus and
Dawn A. Tabat. Further, to the extent Seller is required to make a
representation or warranty as to an act or action "threatened" against Seller,
Seller shall be deemed to have knowledge of such threat only if such threat is
known to one of the persons listed on Schedule 19.13 and a reasonable person in
the exercise of reasonable business judgment would characterize the statements
made or notice given or actions taken as a material "threat."
19.14 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement,
and shall become effective when one or more such counterparts have been signed
by each of the parties and delivered to the other party.
19.15 DRAFTING. This Agreement was jointly drafted and
prepared by the parties hereto and no presumption, either in favor of or against
either party hereto, shall be deemed to exist with respect to the interpretation
of any provision of this Agreement by virtue of the authorship thereof.
19.16 SURVIVABILITY OF CERTAIN PROVISIONS. The representations
and warranties of Purchaser and Seller contained in sections 9, 10 and 11 shall
survive Closing as provided in sections 15 and 16. The agreements and covenants
of Purchaser and Seller contained in sections 12 (except section 12.03), 13,
14.01, 19.05, 19.06, 19.08, 19.09 and 19.12 shall survive Closing for the period
set forth in such sections or, if no specific period is set forth in such
sections, for five years. The agreements and covenants contained in section
19.10 shall survive Closing indefinitely.
19.17 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits
and Schedules, identified in this Agreement are incorporated herein by reference
and made a part hereof.
19.18 SUPPLEMENTAL AGREEMENT. The parties acknowledge that the
purpose of the Supplemental Agreement is to deal with issues relating to value
added tax chargeable on the sale of the European Assets, employees of Seller who
are employed in the UK, Germany and
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Spain and business records kept in relation to those parts of the Division
located in the UK, Germany and Spain, such matters being "European Matters".
Accordingly, to the extent that any term of this Agreement conflicts with any
term of the Supplemental Agreement, the relevant term of the Supplemental
Agreement shall, in relation to European Matters only, take precedence over the
relevant term of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day, month and year first above written.
GENERAC CORPORATION
BY /s/ Robert D. Kern
-------------------------------------
Robert D. Kern, Chairman of the Board
GPPC, INC.
BY /s/ Eric R. Wilkinson
-------------------------------------
Eric R. Wilkinson, President
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EXHIBITS
A General Bill of Sale
B Assignment and Assumption Agreement
C Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c. Opinion
D-1 and D-2 Intangible Property Assignments
E Engine Supply Agreement
F-1 and F-2 License Agreements
G-1 and G-2 Secondary Supply Agreements
H Transition Agreement
I Supplemental Agreement
J Purchaser's Counsel's Legal Opinion
K
SCHEDULES
1.01 Personal Property
1.02 Real Property
1.03 Vehicles
1.04 Intangible Assets
1.05 Leases
1.06 Contracts
1.07 Prepaid Assets
1.09 Receivables
1.10 Inventory
1.11 Licenses and Permits
2.01 Insurance Policies Excluded
4.01 Long Term Debt
5.05 Purchase Price Allocation
7.08 Permitted Encumbrances; Leases and Contracts Requiring Consent;
Estoppel Certificates Regarding Contract and Leases
9.03 Title to Purchased Assets
10.01 Financial Statements
10.02 Labor Matters
10.03 Consents and Approvals
10.04 Liabilities
10.06 Inventory
10.07 Business Changes
10.09 Condition of Real Property
10.12 Building Code Compliance
10.16 Contracts and Leases
10.17 Environmental Matters
10.18 Government Licenses and Regulation
10.19 Restrictions on Personnel
10.20 Taxes
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10.21 Employment Contracts and Policies
10.22 Intangible Assets
10.25 Insurance
10.26 Subsidiaries
10.27 Litigation and Proceedings
10.28 Employee Benefits
10.30(a) Customers
10.30(b) Suppliers
19.13 Knowledge
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Exhibit 10.4
PARTS SUPPLY AGREEMENT
THIS PARTS SUPPLY AGREEMENT (the "Agreement") is made and
entered into on the 9th day of July, 1998, by and between GENERAC
CORPORATION, a Wisconsin corporation with its principal office and place of
business in Waukesha, Wisconsin ("Seller") and GENERAC PORTABLE PRODUCTS,
INC. (F/K/A GPPC, INC.), a Delaware corporation ("Buyer"). This Agreement
shall be binding as of the date written above but for purposes of computing
time periods and anniversary dates, the effective date shall be considered to
be July 9, 1998.
RECITALS
A. As a result of its purchase from Seller of Seller's
portable products division, Buyer is now engaged in the marketing, manufacture
and sale of welders, pressure washers, Consumer portable generators and other
similar portable equipment. For the purpose of this Agreement "Consumer Portable
Generators" are defined as: air-cooled generators of the type in production at
the portable products division at time of signing the Agreement.
B. Seller is engaged in the business of manufacturing its CCG
Stator Assemblies, 10 inch Rotors and 10 inch Stator Assemblies (the "Products")
which are used in connection with the Consumer Portable Generators and similar
portable equipment.
C. In connection with Buyer's purchase of Seller's portable
products division, Buyer desires that Seller manufacture the Products requested
by Buyer from time to time according to Seller's established specifications for
the Products (the "Specifications") and Seller has adequate facilities,
expertise and personnel to manufacture the Products.
D. Buyer desires to purchase the Products from Seller, and
Seller desires to manufacture and sell the Products to Buyer on the terms and
subject to the conditions set forth below.
AGREEMENTS
In consideration of the above recitals and the mutual
covenants and valuable consideration contained herein, the parties agree as
follows:
1. SUPPLY OF PRODUCTS.
<PAGE>
(a) SALE AND PURCHASE OF PRODUCTS. Seller shall manufacture and sell to
Buyer and Buyer may purchase from Seller the Products during the term of this
Agreement pursuant to the terms and conditions set forth herein.
(b) RETAINED RIGHTS OF SELLER. Nothing in this Agreement will be
construed to prevent Seller from using the Products or from selling them to any
other purchaser, original equipment manufacturer or otherwise, and at any price
it elects. Seller retains the right to use and sell the Products to other
air-cooled generator applications, including, but not limited to, R.V.,
Industrial Mobile, Telecom, Home Stand-By or any other type of residential,
commercial or industrial application.
2. TERM OF AGREEMENT. Subject to the provisions for termination set
forth elsewhere in this Agreement, this Agreement shall commence on the date
first written above and continue for 3 years (the "Initial Term"). After
completion of the Initial Term, this Agreement shall automatically renew for a
one year period ("Renewal Term") unless either party gives written notice of its
intent to terminate this Agreement to the other party at least 6 months prior to
the expiration of the Initial Term. Notwithstanding the foregoing, in the event
of a sale of Seller's assets or Seller's stock as described in section 12 below
(whether during the Initial Term or any Renewal Term), upon the closing date of
such sale the remaining term of this Agreement shall be the remainder of the
Initial Term, subject to the one year renewal term as described in the second
sentence of this section.
3. PRODUCT ORDERS.
(a) PURCHASE ORDERS. Purchase orders will be issued by Buyer on the
first business day of each month specifying Buyer's requirements for the third
month following the month in which the purchase order is issued. In the event
Buyer desires to issue a purchase order for a quantity of Products 20% greater
than Buyer's average monthly orders for the previous twelve (12) months, Buyer
must provide Seller with written notice of such order no less than six months
prior to the start of shipment. All purchase orders for Products to be
manufactured and delivered shall be firm and may not be canceled or modified by
Buyer without the written permission of Seller; provided, however, that purchase
orders may be modified by Buyer to provide for a later delivery date (not in
excess of 60 days) upon notice to Seller at least 60 days prior to the requested
delivery date.
Purchase orders issued by the Buyer to the Seller shall specify the
Products being ordered in some minimum package quantity as specified by Seller,
the required delivery dates, and the address to which Seller's invoice shall be
sent. Any provision, term or condition set forth on Buyer's purchase order or on
any
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acknowledgment, invoice or other document or communication provided by Buyer
which is inconsistent with the terms of this Agreement, or is not addressed
herein, is void and of no effect.
(b) SELLER'S PURCHASE ORDER ACKNOWLEDGMENT. Seller's purchase order
acknowledgment shall reflect the Buyer's purchase order number. A separate
purchase order acknowledgment shall be rendered for each purchase order and
shall be transmitted by Seller to the address specified on the purchase order.
Each purchase order acknowledgment rendered by Seller shall separately identify
the Products by model number, quantities thereof, unit prices, and total amount
due for such Products. Applicable sales or use taxes shall also be reflected and
will be paid by Buyer.
(c) FORECASTS. Prior to the beginning of each calendar quarter, Buyer
shall provide seller with a rolling written forecast of its estimated
requirements for the Products in each of the next four (4) calendar quarters
(the "Quarterly Forecast"). Each Quarterly Forecast shall contain an update of
the immediately preceding Quarterly Forecast with respect to the quarters
referred to in such preceding Quarterly Forecast.
In addition to the Quarterly Forecasts, if Buyer intends to purchase in
any future four (4) calendar quarter period (the "Expansion Period") more than
120% of the number of Products actually purchased in the four (4) calendar
quarters just ended, Buyer shall provide Seller with Buyer's estimated
requirements for the Products in the Expansion Period a minimum of six months
prior to the start of the Expansion Period (the "Expansion Forecast").
Notwithstanding anything to the contrary in this Agreement, Seller
shall have no obligation during the applicable period to manufacture and sell to
Buyer any number of Products greater than the Quarterly Forecast or the
Expansion Forecast as applicable. Buyer shall use its best efforts to ensure
that firm orders under section 3(a) of this Agreement conform to the estimates
in the latest forecast.
4. PRICES AND PAYMENT TERMS.
(a) PRODUCT PRICES.
(i) Buyer shall pay Seller for the Products in accordance with this
Agreement. The price of Products will vary based upon the specifications, volume
and delivery requirements. Such prices are subject to modification from time to
time in accordance with the terms of this Agreement. The actual prices Buyer
will pay for the Products will be Seller's actual costs of production, plus a
gross margin of 20%. At least 30 days prior to each annual anniversary of this
Agreement, the parties shall
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negotiate in good faith to determine the price for Products for the upcoming
year based on the expected cost of raw materials, freight, insurance, direct
labor, appropriate indirect manufacturing operating expenses and overhead (the
"Costs of Production"), plus a gross margin of 20%. Any agreed upon change to
the price for the Products shall be applied to Products purchased during the
following twelve-month period.
The Costs of Production shall be determined by Seller in its sole
discretion. Buyer shall be entitled, at the time of each regularly scheduled
price renegotiation, to review (subject to the confidentiality provisions of
this Agreement) Seller's records that directly pertain to Seller's calculation
of the Costs of Production. If Buyer does not agree with Seller's calculation of
the Costs of Production, Buyer's sole remedy shall be to purchase Products from
another supplier. All prices for Products supplied under this Agreement are
F.O.B. Seller's plant of manufacture or procurement in Eagle, Whitewater or
Waukesha, Wisconsin, as the case may be.
(ii) Seller agrees to use commercially reasonable efforts to work with
the lowest cost suppliers of the materials and services used directly in
connection with manufacturing the Products in order to keep the Costs of
Production at reasonable levels. Seller agrees to investigate any potential
suppliers suggested by Buyer. Seller retains the right to reject suppliers that
do not provide materials and/or services, as applicable, of the quality and
performance level which, by Seller's sole determination, is at least at the same
level of quality and performance provided by Seller's existing suppliers of such
materials and/or services.
(b) PAYMENT TERMS. The terms of payment of Seller's invoices shall be
net 30 days from Seller's invoice date. If Buyer disputes any invoice in good
faith, in whole or in part, Buyer shall promptly notify the Seller in writing
and shall set forth the basis for such dispute. The parties will then use their
best efforts to resolve the dispute expeditiously. Any such dispute not resolved
within 30 days may be submitted to binding arbitration in accordance with
section 13 of this Agreement. Any invoice balance which remains unpaid after 30
days shall bear interest at the rate of 1.5% per month until paid.
(c) NON-RECURRING ENGINEERING CHARGE. Buyer agrees to pay Seller a
non-recurring engineering fee with respect to Seller's preparation for
manufacture of the Products exclusive to Buyer and for the acquisition of
certain tooling, equipment and fixtures in connection with the manufacturing of
such Products. Upon Buyer's request, Seller shall provide Buyer with the amount
of such fee, reasonable detail of the fee and the payment terms of such fee (the
"Engineering Proposal"). Buyer shall own
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title to certain tooling, equipment and fixtures detailed in the Engineering
Proposal and for which the payment of associated non-recurring engineering fees
has been received.
(d) SUSPENSION OR TERMINATION FOR FAILURE TO PAY INVOICES WHEN DUE. In
the event that Buyer fails to pay any invoice, other than amounts which are in
good faith dispute, when due, Seller may, at its option, immediately suspend its
performance under the Agreement five days after providing written notice to
Buyer of the overdue amount if such amounts are not paid within the five day
period. Seller shall be under no obligation to resume performance until all
overdue amounts, other than amounts in good faith dispute, are paid. Seller may,
at its option, immediately terminate this contract if Buyer fails to pay any
such amounts due which are not in good faith dispute within 15 days of the
written notice of the overdue amount.
5. TESTING, DELIVERY, USE AND SERVICE AND PARTS.
(a) SELLER TESTING. All Products shall be inspected and tested by
Seller for conformity to the Specifications prior to shipment to the Buyer.
(b) DELIVERY. All Products manufactured by Seller under this Agreement
shall be delivered F.O.B. Seller's plant of manufacture or procurement in Eagle,
Whitewater, or Waukesha, Wisconsin (as the case may be), and upon such delivery
to carrier, title and risk of loss shall pass to Buyer.
(c) RISK OF RESALE AND NO INDEPENDENT RIGHT TO RESELL. Risk of resale
of the Products shall be with the Buyer. Under no circumstances shall Seller
assume any liability whatever in the event that Buyer is unable to resell the
Products, and Buyer shall have no right to return the Products to Seller under
such circumstances. Buyer shall resell Products solely as components in its
welders, pressure washers, Consumer Portable Generators and other products
approved by Seller. Buyer shall not, and shall not have the right to, resell
Products independently of its welders, pressure washers, Consumer Portable
Generators or other products approved by Seller.
(d) APPROVAL OF APPLICATIONS. Seller shall have the right to approve
all applications and uses of the Products and Buyer shall request and receive
such approval in writing prior to any application or use of the Products not
already approved hereby. Seller hereby approves the application and use of the
Products as components in Buyer's existing product lines of welders, pressure
washers and Consumer Portable Generators to the extent the Products are used
therein as of the date hereof.
(e) SERVICE AND PARTS. Buyer may request Seller to provide services in
connection with the Products. The price for such services will be Seller's
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<PAGE>
standard service costs as determined by Seller. Additionally, Buyer may request
service parts for the Products, and Seller may supply such service parts to the
extent available, in the quantities which Buyer may request and which Seller may
agree to sell, at the price(s) determined by Seller. The sale of Products or
services after the term of this Agreement will be separately negotiated by the
parties.
6. WARRANTIES.
(a) EXCLUSION OF WARRANTIES. Seller makes no warranty of any kind with
respect to:
(i) Repairs for Products necessitated by normal wear and tear, damage
in transit or accident, through abuse, misuse or negligence of Buyer or its
customers, or by failure of any of those persons to maintain or use the Products
in accordance with Seller's written instructions; or
(ii) Products that have been modified in any manner after shipment by
Seller.
SELLER MAKES NO WARRANTIES OR EXPRESSED OR IMPLIED, WITH RESPECT TO THE
PRODUCTS, INCLUDING THEIR DESIGN, QUALITY, PERFORMANCE, MERCHANTABILITY, OR
FITNESS FOR A PARTICULAR PURPOSE.
(b) LIMITATION OF REMEDIES. IN NO EVENT SHALL SELLER BE LIABLE FOR ANY
INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES, INCLUDING ANY
LOST PROFITS OF BUYER, IN CONNECTION WITH SELLER'S BREACH OF THIS AGREEMENT IN
ANY WAY, INCLUDING, BUT NOT LIMITED TO, THE FAILURE OF THE PRODUCTS TO MEET THE
SPECIFICATIONS OR SELLER'S FAILURE TO DELIVER THE PRODUCTS WHEN DUE OR AT ALL.
The parties acknowledge that the limitation of damages contained in
this paragraph is a separate item of their agreement. The parties acknowledge
their intent that this limitation of damages shall be severable from the limited
warranty and shall be enforceable even if the limitations in the limited
warranty are held to be unenforceable.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION.
(a) OWNERSHIP OF INFORMATION. Buyer acknowledges that all
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<PAGE>
information disclosed to it by Seller pursuant to this Agreement, including all
information pertaining to the design of and the manufacturing process for the
Products and all information pertaining to the conduct of Seller's business and
affairs, shall, at all times, both during and after the termination of this
Agreement, however occurring, remain the exclusive property of Seller and that
Buyer shall not acquire any proprietary interest in such information.
Seller acknowledges that all information disclosed to it by Buyer
pursuant to this Agreement, including all information pertaining to the conduct
of Buyer's business and affairs, shall, at all times, both during and after the
termination of this Agreement, however occurring, remain the exclusive property
of Buyer and that Seller shall not acquire any proprietary interest in such
information.
(b) ACCESS TO CONFIDENTIAL INFORMATION. Neither party shall, directly
or indirectly, disclose, or permit anyone to disclose, any Confidential
Information disclosed or made available by the other party, and shall carefully
guard and keep secret all such Confidential Information. Neither party shall, at
any time, allow anyone other than the other party hereto, or those authorized by
the other party, to have access to or use any Confidential Information disclosed
or made available by the other party. Each party shall use all reasonable
efforts to protect the proprietary nature of any and all Confidential
Information of the other.
Except as expressly provided otherwise in this Agreement, neither party
shall copy, modify, transcribe, store, sell, lease or otherwise transfer or
distribute any Confidential Information of the other in whole or in part without
prior authorization in writing from the other party. Both parties shall use the
Confidential Information only during the term of this Agreement and solely for
the purpose of carrying out the intent of this Agreement.
For purposes of this Agreement, the term "Confidential Information"
includes, without limitation, a party's techniques, processes, procedures,
operations and other proprietary information relating to research and
development, design, manufacturing, operations, marketing and finances. Upon
termination of this Agreement, however occurring, both parties shall surrender
to the other party all documents including, but not limited to, plans,
specifications, literature, samples, documents and other tangible things,
relating to Confidential Information disclosed or made available by the other
party and all supplies which are the property of the other party.
(c) LIABILITY FOR DISCLOSURE. Neither party shall be liable for
disclosure to others of Confidential Information disclosed or made available to
it by the
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<PAGE>
other party if the information: (i) can be demonstrated by contemporaneous
written records to have been in the other party's possession or available to the
other party prior to the receipt of same from Buyer or Seller as the case may
be; (ii) can be demonstrated by clear and convincing evidence to have been
received from a third party having no obligation to hold the same in confidence;
(iii) can be demonstrated by clear and convincing evidence to have been
generally known or generally available to the public prior to the date of the
disclosure; (iv) becomes generally known or generally available to the public
through no act or failure to act on the part of either party or its affiliates;
or (v) is required by a valid order of a court of law to be disclosed.
If any Confidential Information of a party is required by law to be
disclosed by the other party hereto (as contemplated by section 7(c)(v)), the
disclosing party shall provide the nondisclosing party with prompt notice of
such disclosure and take such legally available steps as may be necessary to
resist or narrow such request and/or to procure a court order stipulating that
the Confidential Information required to be disclosed shall be used solely for
the purposes for which the court order was issued.
(d) NO GRANT OF LICENSE. No rights or obligations other than those
expressly stated shall be implied from this Agreement. In particular, no license
or other right is hereby granted, either express or implied, to one party by the
other party (i) with respect to the other party's Confidential Information or
(ii) under any patent, patent application, copyright, trademark, or other
proprietary right or intellectual property right now or hereafter controlled by
the other party.
(e) DESIGN INFORMATION. Buyer understands and agrees that the Products
may embody design and manufacture information including, but not limited to,
design or production concepts, methods, materials, structures, assemblies or
similar information which is proprietary to Seller (the "Design Information").
Buyer shall not reverse engineer or disassemble the Products and shall not use,
nor permit any third party to use, the Design Information for any purpose other
than those necessary to further the transactions contemplated by this Agreement.
Under no circumstances shall the Buyer have the right to use the Design
Information to design or manufacture any product, or assist any third party in
manufacturing any product, which competes with the Products.
(f) SPECIFIC PERFORMANCE. The Parties agree that breach of this section
7 by either party would cause irreparable damage to the other party and that
monetary damages alone would not provide the injured party with an adequate
remedy for such breach. Therefore, if any controversy arises concerning the
rights or obligations of either party under this section 7, such rights or
obligations may be specifically enforced by an injunction order issued by a
court of competent jurisdiction. Such remedy,
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however, shall be in addition to any other remedy to which the injured party may
be entitled.
8. INDEMNIFICATION.
(a) BREACH OF THIS AGREEMENT. Subject to the limitations set forth in
section 6(b) of this Agreement, each party agrees to indemnify and hold the
other party, its affiliates, shareholders, directors, officers, employees,
customers, successors and assigns harmless against all liabilities, claims,
costs, damages, losses and expenses, including reasonable legal fees and related
costs, which the indemnified party incurs by reason of the defaulting party's
failure to perform its obligations under this Agreement.
If a claim, demand or suit is presented or filed against the
nondefaulting party and indemnification by the nondefaulting party is sought
pursuant to this provision, the nondefaulting party shall give prompt notice to
the defaulting party and provide reasonable assistance to and cooperation with
the defaulting party, at the defaulting party's cost, in the settlement or
defense of the claim, demand or suit. The right of indemnification shall be
extinguished if the nondefaulting party fails to give notice of the claim,
demand or suit, or settles the same without the written consent of the
defaulting party.
(b) INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold
harmless Seller, its officers, employees and agents, from and against all loss,
damages, liability and expense incurred by reason of any claims, actions, suits
or governmental investigations or proceedings including, but not limited to,
product liability claims, brought against or involving them or any of them,
which relate to or arise out of negligence or willful misconduct of Buyer with
respect to equipment manufactured and/or assembled by Buyer or the Buyer's
misuse or abuse of the Products.
(c) PRODUCT LIABILITY INSURANCE. During the term of this Agreement, and
for a period of three years thereafter, each party will at its own expense
purchase (if it has not already purchased) and maintain general product
liability insurance, naming the other party as an additional insured. The
coverage shall have limits of liability of no less than $5 million and shall be
placed with an insurance carrier having a Best's rating of no less than "A".
Each party shall provide a copy of the insurance policy to the other party upon
the other party's request.
9. TERMINATION.
(a) In addition to any other provision of this Agreement which grants a
right of termination, the following shall also constitute bases for termination:
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(i) A material default in the performance of an obligation under this
Agreement, provided such default continues for more than 60 days after written
notice is provided by the nondefaulting party.
(ii) If either party becomes the subject of a voluntary bankruptcy or
insolvency proceeding; if such proceeding is involuntary, then the right of
termination shall exist only if such proceeding has continued unstayed for a
period of 60 consecutive days after filing.
(b) Buyer also may terminate this Agreement at any time without cause
upon 90 days written notice to Seller.
(c) Upon the expiration or termination of this Agreement as set forth
above, Seller will complete Products on order at the date of termination, and
Buyer shall purchase such Products from Seller. Expiration or termination of
this Agreement for any reason shall not affect any liabilities or obligations of
either party which have accrued at the date of expiration or termination or
which by their nature survive expiration or termination (including, without
limitation, the obligations under sections 6, 7, 8, 9 and 13).
10. FORCE MAJEURE. Neither party (nor any successor to either party,
including, without limitation, the Purchasing Party (as defined in section 12))
to this Agreement shall be liable for delay or failure to perform under this
Agreement which results from any occurrence or event which could not have been
reasonably avoided including, without limitation, accident, action of the
elements, act of God, civil unrest, enemy action, epidemic, explosion, fire,
flood, insurrection, strike, lockout or other labor trouble or shortage, natural
catastrophe, riot, unavailability or shortage of material, equipment or
transportation, war, act, demand or requirement of law or of the Government of
the United States or any other competent governmental authority, or any other
similar cause beyond such party's control, if the party in default makes
reasonable efforts to remove or overcome the effects of such occurrence or
event. If a party believes that any one or more of the above occurrences or
events shall cause a delay or prevent its performance hereunder, it shall
promptly notify the other party in writing of such fact.
11. RELATIONSHIP OF THE PARTIES. The relationship established between
the parties by this Agreement during its term shall be solely that of vendor and
vendee. Under no circumstances shall the contractual relationship between the
parties be deemed or construed as one of agency, joint venture, employment or
otherwise. This Agreement does not give either party any right to act as a
representative or agent of the other party or any authority to incur or create
any obligation in the name of or on behalf of the other
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party.
12. ASSIGNMENT, SUCCESSORS AND ASSIGNS AND SALE OF SELLER'S BUSINESS.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party; provided, however, Seller
or Buyer, as applicable, may assign, upon written notice to the other party and
without the other party's consent, this Agreement or its interest herein to any
affiliate or to any third party succeeding to its business. Subject to the
foregoing, this Agreement shall bind and inure to the benefit of Buyer, Seller,
and their respective representatives, heirs, successors and assigns.
13. ARBITRATION OF DISPUTES. All disputes or claims arising out of,
resulting from or related to this Agreement shall be finally settled under the
Rules of the American Arbitration Association (the "Rules") by an arbitrator
appointed in accordance with the Rules. If the parties fail to so nominate a
sole arbitrator within 30 days from the date when the claimant's request for
arbitration has been communicated to the other party, the sole arbitrator shall
be appointed in accordance with the Rules. Any decision made by such an
arbitrator within the scope of his or her authority shall be binding upon the
parties. The cost for such arbitrator shall be borne equally between the
parties, but all other costs involved in the arbitration shall be borne
separately by the parties. Each party shall enter into an arbitration agreement
providing reasonable protection to the arbitrator. The place of arbitration
shall be in Milwaukee County, Wisconsin, USA. Judgment on any award rendered by
the arbitrator may be entered by any court of competent jurisdiction. The
parties irrevocably consent and submit to the jurisdiction of any local, state
or federal court in Milwaukee County, Wisconsin, USA.
14. NOTICES. Notices permitted or required to be given under this
Agreement shall be deemed sufficient if sent by mail or other delivery service,
facsimile, or, if promptly confirmed in writing, by telephone, addressed to the
parties as set forth below. Notices so given shall be effective upon (a) receipt
by the party to which notice is given or (b) on the fifth day following the date
such notice was posted or transmitted, whichever occurs first. Notices shall be
addressed as follows:
If to Seller: Generac Corporation
P.O. Box 8
Highway 59 at Hillside Road
Waukesha, WI 53187
Attn: Chief Executive Officer
If to Buyer:
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Generac Portable Products, Inc.
(a/k/a GPPC, Inc.)
399 Park Avenue
17th Floor
New York, NY 10022
Attn: Mr. Eric Wilkinson
or to such other address as the parties may designate in writing.
15. ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
constitute the entire understanding between the parties with reference to the
subject matter hereof and no statements or agreements, oral or written made
prior to the signing of this Agreement shall vary or modify the written terms
hereof. No amendment or modification of this Agreement or release form any of
the provisions hereof shall be valid unless made in writing and signed by the
parties.
16. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof will in no way affect the
right to require such performance at any time thereafter, nor will the waiver by
either party of a breach of any provision hereof constitute a waiver of any
succeeding breach of the same or any other provision, or constitute a waiver of
the provision itself.
17. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, the parties agree that such invalidity
or unenforceability shall not affect any other provision of this Agreement, the
remaining terms, covenants and provisions hereof shall remain in full force and
effect.
18. GOVERNING LAW. This Agreement and any disputes hereunder shall be
governed and construed in accordance with the internal laws of the state of
Wisconsin.
19. HEADINGS. The headings used in this Agreement are for convenience
and reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
The parties intending to be bound hereby have caused this Agreement to
be signed by their duly authorized representatives on the day and year first
written above.
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GENERAC CORPORATION
BY /s/ Robert D. Kern
-------------------------------
Robert D. Kern
Chairman of the Board
GENERAC PORTABLE PRODUCTS, INC.
(F/K/A GPPC, INC.)
BY /s/ Eric R. Wilkinson
-------------------------------
Eric R. Wilkinson
President
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SCHEDULE A
Parts Supply Agreement - Parts Sell Price Schedule
PART NUMBER PART DESCRIPTION SELL
----------- ---------------- ----
94009B Assy, Stator 16-Turn 132.00
97396 Assy, Stator 170 WLD 167.00
20684 Assy, Rotor 8Kw 2P10" 138.00
20685 Assy, Rtr 6.4Kw 2P10" 131.00
92381G Fan and Rotor Assy 106.00
20686 Assm, Statr 6.4Kw 3Ph 167.00
92382 Stator 10A Batt Chrg 139.00
94983 Stator 10A Batt Tric 138.00
98480 Stator Assy 8Kw 3Ph 185.00
<PAGE>
Exhibit 10.5
GENERATOR SUPPLY AGREEMENT
THIS SUPPLY AGREEMENT (the "Agreement") is made and entered into on the
9th day of July, 1998, by and between GENERAC CORPORATION, a Wisconsin
corporation with its principal office and place of business in Waukesha,
Wisconsin ("Seller") and GENERAC PORTABLE PRODUCTS, INC. (F/K/A GPPC, INC.), a
Delaware corporation ("Buyer"). This Agreement shall be binding as of the date
written above but for purposes of computing time periods and anniversary dates,
the effective date shall be considered to be July 9, 1998.
RECITALS
A. As a result of its purchase from Seller of Seller's portable
products division, Buyer desires to engage in the marketing and sale of
air-cooled, home stand-by generator systems of the type manufactured by the
industrial division of Seller at time of signing the Agreement (the
"Generators").
B. In connection with Buyer's purchase of Seller's portable products
division, Buyer desires that Seller manufacture the Generators requested by
Buyer from time to time according to Seller's established specifications for the
Generators (the "Specifications") and Seller has adequate facilities, expertise
and personnel to manufacture the Generators according to the Specifications.
C. Buyer desires to purchase the Generators from Seller, and Seller
desires to manufacture and sell the Generators to Buyer on the terms and subject
to the conditions set forth below.
AGREEMENTS
In consideration of the above recitals and the mutual covenants and
valuable consideration contained herein, the parties agree as follows:
1. SALE AND PURCHASE OF GENERATORS. Seller shall manufacture, according
to the Specifications or such other specifications as the parties may from time
to time agree, and sell to Buyer and Buyer shall purchase from Seller the
Generators during the term of this Agreement pursuant to the terms and
conditions set forth herein.
2. TERM OF AGREEMENT. Subject to the provisions for termination set
forth elsewhere in this Agreement, this Agreement shall commence on the date
first written above and continue for one year (the "Initial Term"). After
completion of the
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Initial Term, this Agreement shall automatically renew for consecutive one year
periods ("Renewal Term") unless either party gives written notice of its intent
to terminate this Agreement to the other party at least 6 months prior to the
expiration of the Initial Term or any Renewal Term.
3. PRODUCT ORDERS.
(a) PURCHASE ORDERS. Purchase orders will be issued by Buyer on the
first business day of each month specifying Buyer's requirements for the fourth
month following the month in which the purchase order is issued. In the event
Buyer desires to issue a purchase order for a quantity of Generators 20% greater
than Buyer's average monthly orders for the previous twelve (12) months, Buyer
must provide Seller with written notice of such order no less than six months
prior to the start of shipment. All purchase orders for Generators to be
manufactured and delivered shall be firm and may not be canceled or modified by
Buyer without the written permission of Seller; provided, however, that Purchase
orders may be modified by Buyer to provide for a later delivery date (not in
excess of 60 days) upon notice to Seller at least 60 days prior to the requested
delivery date.
Purchase orders issued by the Buyer to the Seller shall specify the
Generators being ordered, the required delivery dates, and the address to which
Seller's invoice shall be sent. Any provision, term or condition set forth on
Buyer's purchase order or on any acknowledgment, invoice or other document or
communication provided by Buyer which is inconsistent with the terms of this
Agreement, or is not addressed herein, is void and of no effect.
(b) SELLER'S PURCHASE ORDER ACKNOWLEDGMENT. Seller's purchase order
acknowledgment shall reflect the Buyer's purchase order number. A separate
purchase order acknowledgment shall be rendered for each purchase order and
shall be transmitted by Seller to the address specified on the purchase order.
Each purchase order acknowledgment rendered by Seller shall separately identify
the Generators by model number, quantities thereof, unit prices, and total
amount due for such Generators. Applicable sales or use taxes shall also be
reflected.
(c) FORECASTS. Prior to the beginning of each calendar quarter, Buyer
shall provide seller with a rolling written forecast of its estimated
requirements for the Generators in each of the next four (4) calendar quarters
(the "Quarterly Forecast"). Each Quarterly Forecast shall contain an update of
the immediately preceding Quarterly Forecast with respect to the quarters
referred to in such preceding Quarterly Forecast.
In addition to the Quarterly Forecasts, if Buyer intends to purchase in
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any future four (4) calendar quarter period (the "Expansion Period") more than
120% of the number of Generators actually purchased in the four (4) calendar
quarters just ended, Buyer shall provide Seller with Buyer's estimated
requirements for the Generators in the Expansion Period a minimum of six months
prior to the start of the Expansion Period (the "Expansion Forecast").
Notwithstanding anything to the contrary in this Agreement, Seller
shall have no obligation during the applicable period to manufacture and sell to
Buyer any number of Generators greater than the Quarterly Forecast or the
Expansion Forecast as applicable. Buyer shall use its best efforts to ensure
that firm orders under section 3(a) of this Agreement conform to the estimates
in the latest forecast.
4. PRICES AND PAYMENT TERMS.
(a) GENERATOR PRICES. Buyer shall pay Seller for the Generators in
accordance with prices to be mutually agreed upon by Seller and Buyer based on
the Specifications of the particular model of Generator and accessories ordered
by Buyer, subject to modification from time to time in accordance with the terms
of this Agreement. At least 30 days prior to each annual anniversary of this
Agreement, the parties shall negotiate in good faith to determine the price for
Generators for the upcoming year. Any agreed upon change to the price for the
Generators shall be applied to Generators purchased during the following
twelve-month period. All prices for Generators supplied under this Agreement are
F.O.B. Seller's plant of manufacture in Eagle, Whitewater, or Waukesha,
Wisconsin, as the case may be.
(b) NON-RECURRING ENGINEERING CHARGE. Buyer agrees to pay Seller a
non-recurring engineering fee with respect to Seller's preparation for
manufacture of Generators of a configuration other than that described in the
Specifications and for the acquisition of certain tooling, equipment and
fixtures in connection with the manufacturing of such components. Upon Buyer's
request, Seller shall provide Buyer with the amount of such fee, reasonable
detail of the fee and the payment terms of such fee (the "Engineering
Proposal"). Buyer shall own title to certain tooling, equipment and fixtures
detailed in the Engineering Proposal and for which the payment of associated
non-recurring engineering fees has been received.
(c) PAYMENT TERMS. The terms of payment of Seller's invoices shall be
net 30 days from Seller's invoice date. If Buyer disputes any invoice in good
faith, in whole or in part, Buyer shall promptly notify the Seller in writing
and shall set forth the basis for such dispute. The parties will then use their
best efforts to resolve the dispute expeditiously. Any such dispute not resolved
within 30 days may be submitted to binding arbitration in accordance with
section 13 of this Agreement. Any invoice balance
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which remains unpaid after 30 days shall bear interest at the rate of 1.5% per
month until paid.
(d) SUSPENSION OR TERMINATION FOR FAILURE TO PAY INVOICES WHEN DUE. In
the event that Buyer fails to pay any invoice, other than amounts which are in
good faith dispute, when due, Seller may, at its option, immediately suspend its
performance under the Agreement five days after providing written notice to
Buyer of the overdue amount if such amounts are not paid within the five day
period. Seller shall be under no obligation to resume performance until all
overdue amounts, other than amounts in good faith dispute, are paid. Seller may,
at its option, immediately terminate this contract if Buyer fails to pay any
such amounts due which are not in good faith dispute within 15 days of the
written notice of the overdue amount.
5. TESTING, DELIVERY, USE, PRIVATE LABELS AND SERVICE AND PARTS.
(a) SELLER TESTING. All Generators shall be inspected and tested by
Seller for conformity to the Specifications prior to shipment to the Buyer.
(b) DELIVERY. All Generators manufactured by Seller under this
Agreement shall be delivered F.O.B. Seller's plant of manufacture in Eagle,
Whitewater, or Waukesha, Wisconsin (as the case may be), and upon such delivery
to carrier, title and risk of loss shall pass to Buyer.
(c) RISK OF RESALE AND NO INDEPENDENT RIGHT TO RESELL. Risk of resale
of the Generators shall be with the Buyer. Under no circumstances shall Seller
assume any liability whatever in the event that Buyer is unable to resell the
Generators, and Buyer shall have no right to return the Generators to Seller
under such circumstances.
(d) After sale to an end-user, Buyer shall ensure that the Generator is
properly installed and maintained in accordance with Seller's installation and
maintenance procedures and the requirements of the Seller's Limited Warranty (as
defined in section 6(a) below).
(e) SERVICE AND PARTS. Seller shall, to the extent required by this
Agreement and to the extent requested by Buyer and agreed to by Seller, provide
repair services for the Generators and Buyer shall utilize Seller for the
performance of such repair services. Additionally, Seller shall sell to Buyer
and Buyer shall purchase from Seller spare and replacement parts for the
Generators, in the quantities which Buyer may request and which Seller may agree
to sell, at the price at which Seller sells such spare and replacement parts to
its master parts distributors, which may be modified by Seller from time to
time.
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6. WARRANTIES.
(a) LIMITED WARRANTY. The Generators will be subject to Seller's
standard limited warranty for the Generators which is set forth on Schedule A
(the "Limited Warranty"). Seller retains the right to modify the Limited
Warranty at any time and from time to time. SELLER MAKES NO OTHER WARRANTIES OR
REPRESENTATIONS, EITHER EXPRESSED OR IMPLIED, WITH RESPECT TO THE GENERATORS,
INCLUDING THEIR DESIGN, QUALITY, PERFORMANCE, MERCHANTABILITY, OR FITNESS FOR A
PARTICULAR PURPOSE.
(b) WARRANTY EXCLUSIONS. Seller makes no warranty of any kind with
respect to:
(i) Repairs for Generators necessitated by normal wear and tear, damage
in transit or accident, through abuse, misuse or negligence of Buyer or its
customers, or by failure of any of those persons to maintain or use the
Generators in accordance with Seller's written instructions; or
(ii) Generators that have been modified in any manner after shipment by
Seller.
(c) RETURN AUTHORIZATION. Generators warranted by Seller shall be
repaired or replaced at Seller's option and expense upon presentation of
evidence that demonstrates to Seller's reasonable satisfaction a breach of the
limited warranty. Prior to return of any Generator to Seller, Buyer shall obtain
a return authorization from Seller and comply with Seller's return authorization
procedures in force at the time of the return. Seller shall have no obligation
to repair or replace Generators returned without a return authorization.
(d) LIMITATION OF REMEDIES. Buyer's exclusive remedy for any defect in
the Generators or breach of Seller's warranty under section 6(a) of this
Agreement is, at Seller's option, either refund of the price paid by Buyer for
the defective Generators, repair of the defective Generators sufficient to cause
them to meet the Specifications or replacement of the defective Generators with
equivalent Generators that meet the appropriate Specifications.
IN NO EVENT SHALL SELLER BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, CONSEQUENTIAL OR OTHER DAMAGES, INCLUDING ANY LOST PROFITS OF BUYER,
IN CONNECTION WITH SELLER'S BREACH OF THIS AGREEMENT IN ANY WAY, INCLUDING, BUT
NOT LIMITED TO, THE FAILURE OF THE GENERATORS TO MEET THE SPECIFICATIONS OR
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SELLER'S FAILURE TO DELIVER THE GENERATORS WHEN DUE OR AT ALL.
The parties acknowledge that the limitation of damages contained in
this paragraph is a separate item of their agreement. The parties acknowledge
their intent that this limitation of damages shall be severable from the limited
warranty and shall be enforceable even if the limitations in the limited
warranty are held to be unenforceable.
7. CONFIDENTIAL AND PROPRIETARY INFORMATION.
(a) OWNERSHIP OF INFORMATION. Buyer acknowledges that all information
disclosed to it by Seller pursuant to this Agreement, including all information
pertaining to the design of and the manufacturing process for the Generators and
all information pertaining to the conduct of Seller's business and affairs,
shall, at all times, both during and after the termination of this Agreement,
however occurring, remain the exclusive property of Seller and that Buyer shall
not acquire any proprietary interest in such information.
Seller acknowledges that all information disclosed to it by Buyer
pursuant to this Agreement, including all information pertaining to the conduct
of Buyer's business and affairs, shall, at all times, both during and after the
termination of this Agreement, however occurring, remain the exclusive property
of Buyer and that Seller shall not acquire any proprietary interest in such
information.
(b) ACCESS TO CONFIDENTIAL INFORMATION. Neither party shall, directly
or indirectly, disclose, or permit anyone to disclose, any Confidential
Information disclosed or made available by the other party, and shall carefully
guard and keep secret all such Confidential Information. Neither party shall, at
any time, allow anyone other than the other party hereto, or those authorized by
the other party, to have access to or use any Confidential Information disclosed
or made available by the other party. Each party shall use all reasonable
efforts to protect the proprietary nature of any and all Confidential
Information of the other.
Except as expressly provided otherwise in this Agreement, neither party
shall copy, modify, transcribe, store, sell, lease or otherwise transfer or
distribute any Confidential Information of the other in whole or in part without
prior authorization in writing from the other party. Both parties shall use the
Confidential Information only during the term of this Agreement and solely for
the purpose of carrying out the intent of this Agreement.
For purposes of this Agreement, the term "Confidential Information"
includes, without limitation, a party's techniques, processes, procedures,
operations and
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other proprietary information relating to research and development, design,
manufacturing, operations, marketing and finances. Upon termination of this
Agreement, however occurring, both parties shall surrender to the other party
all documents including, but not limited to, plans, specifications, literature,
samples, documents and other tangible things, relating to Confidential
Information disclosed or made available by the other party and all supplies
which are the property of the other party.
(c) LIABILITY FOR DISCLOSURE. Neither party shall be liable for
disclosure to others of Confidential Information disclosed or made available to
it by the other party if the information: (i) can be demonstrated by
contemporaneous written records to have been in the other party's possession or
available to the other party prior to the receipt of same from Buyer or Seller
as the case may be; (ii) can be demonstrated by clear and convincing evidence to
have been received from a third party having no obligation to hold the same in
confidence; (iii) can be demonstrated by clear and convincing evidence to have
been generally known or generally available to the public prior to the date of
the disclosure; (iv) becomes generally known or generally available to the
public through no act or failure to act on the part of either party or its
affiliates; or (v) is required by a valid order of a court of law to be
disclosed.
If any Confidential Information of a party is required by law to be
disclosed by the other party hereto (as contemplated by section 7(c)(iv)), the
disclosing party shall provide the nondisclosing party with prompt notice of
such disclosure and take such legally available steps as may be necessary to
resist or narrow such request and/or to procure a court order stipulating that
the Confidential Information required to be disclosed shall be used solely for
the purposes for which the court order was issued.
(d) NO GRANT OF LICENSE. No rights or obligations other than those
expressly stated shall be implied from this Agreement. In particular, no license
or other right is hereby granted, either express or implied, to one party by the
other party (i) with respect to the other party's Confidential Information or
(ii) under any patent, patent application, copyright, trademark, or other
proprietary right or intellectual property right now or hereafter controlled by
the other party.
(e) Buyer understands and agrees that the Generators embody design and
manufacture information including, but not limited to, design or production
concepts, methods, materials, structures, assemblies or similar information
which is proprietary to Seller (the "Design Information"). Buyer shall not
reverse engineer or disassemble the Generators and shall not use, nor permit any
third party to use, the Design Information for any purpose other than those
necessary to further the transactions contemplated by this Agreement. Under no
circumstances shall the Buyer have the right to use the Design Information to
design or manufacture any product, or assist any third
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party in manufacturing any product, which competes with the Generators.
(f) SPECIFIC PERFORMANCE. The Parties agree that breach of this section
7 by either party would cause irreparable damage to the other party and that
monetary damages alone would not provide the injured party with an adequate
remedy for such breach. Therefore, if any controversy arises concerning the
rights or obligations of either party under this section 7, such rights or
obligations may be specifically enforced by an injunction order issued by a
court of competent jurisdiction. Such remedy, however, shall be in addition to
any other remedy to which the injured party may be entitled.
8. INDEMNIFICATION.
(a) BREACH OF THIS AGREEMENT. Subject to the limitations set forth in
section 6(d) of this Agreement, each party agrees to indemnify and hold the
other party, its affiliates, shareholders, directors, officers, employees,
customers, successors and assigns harmless against all liabilities, claims,
costs, damages, losses and expenses, including reasonable legal fees and related
costs, which the indemnified party incurs by reason of the defaulting party's
failure to perform its obligations under this Agreement.
If a claim, demand or suit is presented or filed against the
nondefaulting party and indemnification by the nondefaulting party is sought
pursuant to this provision, the nondefaulting party shall give prompt notice to
the defaulting party and provide reasonable assistance to and cooperation with
the defaulting party, at the defaulting party's cost, in the settlement or
defense of the claim, demand or suit. The right of indemnification shall be
extinguished if the nondefaulting party fails to give notice of the claim,
demand or suit, or settles the same without the written consent of the
defaulting party.
(b) INDEMNIFICATION BY BUYER. Buyer agrees to indemnify and hold
harmless Seller, its officers, employees and agents, from and against all loss,
damages, liability and expense incurred by reason of any claims, actions, suits
or governmental investigations or proceedings including, but not limited to,
product liability claims, brought against or involving them or any of them,
which relate to or arise out of the manufacture of the Generators by Seller for
the Buyer. Provided, however, that Buyer shall not be obligated to indemnify
Seller for any claim which arises out of Seller's failure to comply with the
limited warranty for the Generators described in section 6 above or failure to
manufacture the Generators in compliance with the Specifications.
(c) PRODUCT LIABILITY.
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(i) INSURANCE. During the term of this Agreement, and for a period of
three years thereafter, each party will at its own expense purchase (if it has
not already purchased) and maintain general product liability insurance, naming
the other party as an additional insured. The coverage shall have limits of
liability of no less than $5 million and shall be placed with an insurance
carrier having a Best's rating of no less than "A". Each party shall provide a
copy of the insurance policy to the other party upon the other party's request.
9. TERMINATION. In addition to any other provision of this Agreement
which grants a right of termination, the following shall also constitute bases
for termination:
(a) A material default in the performance of an obligation under this
Agreement, provided such default continues for more than 120 days after written
notice is provided by the nondefaulting party.
(b) If either party becomes the subject of a voluntary bankruptcy or
insolvency proceeding; if such proceeding is involuntary, then the right of
termination shall exist only if such proceeding has continued unstayed for a
period of 60 consecutive days after filing.
Upon the expiration or termination of this Agreement as set forth
above, Seller will complete Generators on order at the date of termination, and
Buyer shall purchase such Generators from Seller. Expiration or termination of
this Agreement for any reason shall not affect any liabilities or obligations of
either party which have accrued at the date of expiration or termination or
which by their nature survive expiration or termination (including, without
limitation, the obligations under sections 6, 7, 8, 9 and 13).
10. FORCE MAJEURE. Neither party to this Agreement shall be liable for
delay or failure to perform under this Agreement which results from any
occurrence or event which could not have been reasonably avoided including,
without limitation, accident, action of the elements, act of God, civil unrest,
enemy action, epidemic, explosion, fire, flood, insurrection, strike, lockout or
other labor trouble or shortage, natural catastrophe, riot, unavailability or
shortage of material, equipment or transportation, war, act, demand or
requirement of law or of the Government of the United States or any other
competent governmental authority, or any other similar cause beyond such party's
control, if the party in default makes reasonable efforts to remove or overcome
the effects of such occurrence or event. If a party believes that any one or
more of the above occurrences or events shall cause a delay or prevent its
performance hereunder, it shall promptly notify the other party in writing of
such fact.
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11. RELATIONSHIP OF THE PARTIES. The relationship established between
the parties by this Agreement during its term shall be solely that of vendor and
vendee. Under no circumstances shall the contractual relationship between the
parties be deemed or construed as one of agency, joint venture, employment or
otherwise. This Agreement does not give either party any right to act as a
representative or agent of the other party or any authority to incur or create
any obligation in the name of or on behalf of the other party.
12. ASSIGNMENT, SUCCESSORS AND ASSIGNS AND SALE OF SELLER'S BUSINESS.
Neither party may assign this Agreement or any rights or obligations hereunder
without the prior written consent of the other party; provided, however, Seller
may assign, upon written notice to Buyer and without Buyer's consent, this
Agreement or its interest herein to any affiliate or to any third party
succeeding to Seller's business. Subject to the foregoing, this Agreement shall
bind and inure to the benefit of Buyer, Seller, and their respective
representatives, heirs, successors and assigns. If Seller desires to sell or
transfer more than 50% of its stock (except for transfers among existing
shareholders of Seller or any trusts for the benefit thereof and among existing
shareholders of Seller and their spouses, siblings and lineal descendants or any
trusts for the benefit thereof) or sell or transfer substantially all of its
assets used in connection with manufacturing of the Generators, Seller agrees to
have the party purchasing or receiving the stock or assets accept assignment of
this Agreement subject to the term adjustment provision contained in section 2,
above.
13. ARBITRATION OF DISPUTES. All disputes or claims arising out of,
resulting from or related to this Agreement shall be finally settled under the
Rules of the American Arbitration Association (the "Rules") by an arbitrator
appointed in accordance with the Rules. If the parties fail to so nominate a
sole arbitrator within 30 days from the date when the claimant's request for
arbitration has been communicated to the other party, the sole arbitrator shall
be appointed in accordance with the Rules. Any decision made by such an
arbitrator within the scope of his or her authority shall be binding upon the
parties. The cost for such arbitrator shall be borne equally between the
parties, but all other costs involved in the arbitration shall be borne
separately by the parties. Each party shall enter into an arbitration agreement
providing reasonable protection to the arbitrator. The place of arbitration
shall be in Milwaukee County, Wisconsin, USA. Judgment on any award rendered by
the arbitrator may be entered by any court of competent jurisdiction. The
parties irrevocably consent and submit to the jurisdiction of any local, state
or federal court in Milwaukee County, Wisconsin, USA.
14. NOTICES. Notices permitted or required to be given under this
Agreement shall be deemed sufficient if sent by mail or other delivery service,
facsimile,
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or, if promptly confirmed in writing, by telephone, addressed to the parties as
set forth below. Notices so given shall be effective upon (a) receipt by the
party to which notice is given or (b) on the fifth day following the date such
notice was posted or transmitted, whichever occurs first. Notices shall be
addressed as follows:
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If to Seller: Generac Corporation
P.O. Box 8
Highway 59 at Hillside Road
Waukesha, WI 53187
Attn: Chief Executive Officer
If to Buyer: Generac Portable Products, Inc.
(f/k/a GPPC, Inc.)
399 Park Avenue
17th Floor
New York, NY 10022
Attn: Mr. Eric Wilkinson
or to such other address as the parties may designate in writing.
15. ENTIRE AGREEMENT. This Agreement and the exhibits attached hereto
constitute the entire understanding between the parties with reference to the
subject matter hereof and no statements or agreements, oral or written made
prior to the signing of this Agreement shall vary or modify the written terms
hereof. No amendment or modification of this Agreement or release form any of
the provisions hereof shall be valid unless made in writing and signed by the
parties.
16. WAIVER. The failure of either party at any time to require
performance by the other party of any provision hereof will in no way affect the
right to require such performance at any time thereafter, nor will the waiver by
either party of a breach of any provision hereof constitute a waiver of any
succeeding breach of the same or any other provision, or constitute a waiver of
the provision itself.
17. SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable for any reason, the parties agree that such invalidity
or unenforceability shall not affect any other provision of this Agreement, the
remaining terms, covenants and provisions hereof shall remain in full force and
effect.
18. GOVERNING LAW. This Agreement and any disputes hereunder shall be
governed and construed in accordance with the internal laws of the state of
Wisconsin.
19. HEADINGS. The headings used in this Agreement are for convenience
and reference purposes only and shall not affect the meaning or interpretation
of this Agreement.
20. COUNTERPARTS. This Agreement may be executed in
counterparts,
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each of which shall be deemed an original, but both of which taken together
shall constitute one and the same instrument.
The parties intending to be bound hereby have caused this Agreement to
be signed by their duly authorized representatives on the day and year first
written above.
GENERAC CORPORATION
BY /s/ Robert D. Kern
-------------------------------
Robert D. Kern
Chairman of the Board
GENERAC PORTABLE PRODUCTS, INC.
(F/K/A GPPC, INC.)
BY /s/ Eric R. Wilkinson
-------------------------------
Eric R. Wilkinson
President
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LIST OF SCHEDULES
Schedule A: Limited Warranty
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SCHEDULE A
GENERAC'S STANDARD 1 YEAR LIMITED WARRANTY FOR STANDBY POWER SYSTEMS
For a period of one (1) year or 1500 hours of operation from the date of
original sale, whichever occurs first, Generac will, at its option, repair or
replace any part which, upon examination by Generac, is found to be defective
under normal use and service in accordance with the warranty schedule set forth
below. Any equipment which the buyer claims to be defective must be returned to
and examined by the nearest authorized Generac warranty service facility. All
transportation costs under the warranty, including return to the factory, are to
be borne and prepaid by the buyer. This warranty applies only to generators used
in standby applications ("Standby" as defined by Generac), provided said unit
has been initially installed and inspected by an authorized Generac distributor
or branch thereof.
WARRANTY SCHEDULE
YEAR ONE - 100% coverage on labor and parts listed:
ENGINE - All components
ALTERNATOR - All components
TRANSFER SYSTEM - All components
All warranty expense allowances are subject to the conditions defined in the
published GENERAC POLICIES AND PROCEDURE Manual.
Units which have been resold are not covered under the Generac warranty, as this
warranty is not transferable.
THIS WARRANTY SHALL NOT APPLY TO:
1. Costs or normal maintenance, adjustments, installation, and startup.
2. Units sold, rated or used for "prime power" applications as "Prime
Power" has been defined by Generac.
3. Failures due to (a) normal wear and tear, or (b) accident, misuse,
abuse, negligence, or improper installation.
4. Products which are modified or altered in a manner not authorized by
Generac in writing.
5. Any incidental, consequential, or indirect damages caused by defects in
materials or workmanship or any delay in repair or replacement of the
defective parts.
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6. Failure due to misapplication.
7. Telephone, telegraph, teletype, or other communication expenses.
8. Living or travel expenses for person performing service.
9. Rental equipment used while warranty repairs are being performed.
10. Overtime labor.
11. Starting batteries, fuses, light bulbs and engine fluids.
THIS WARRANTY IS IN PLACE OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED.
SPECIFICALLY, GENERAC MAKES NO OTHER WARRANTIES AS TO MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE. Some states do not allow limitations on how long an
implied warranty lasts, so the above limitation may not apply to you.
GENERAC'S ONLY LIABILITY SHALL BE THE REPAIR OR REPLACEMENT OF PARTS AS STATED
ABOVE. IN NO EVENT SHALL GENERAC BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL
DAMAGES, EVEN IF SUCH DAMAGES ARE A DIRECT RESULT OF GENERAC'S NEGLIGENCE. Some
states do not allow the exclusion or limitation of incidental or consequential
damages, so the above limitation may not apply to you. Buyer agrees to make no
claims against Generac based on negligence.
This warranty gives you specific legal rights, and you may also have other
rights which very from state to state.
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Exhiibt 10.6
TRADEMARK LICENSE AGREEMENT
This Trademark License Agreement (the "License") is entered
into this 9th day of July, 1998, by and between GENERAC CORPORATION, a
Wisconsin corporation ("Licensor"), and GENERAC PORTABLE PRODUCTS, INC.
(F/K/A GPPC, INC.), a Delaware corporation ("Licensee"). (Licensor and
Licensee are sometimes referred to hereinafter collectively as the "Parties"
and individually as a "Party.")
RECITALS
A. Licensee and Licensor have entered into a separate Asset
Purchase and Sale Agreement (the "Purchase Agreement") under which Licensee will
purchase the Licensor's Portable Products Division (the "Division"), which
consists of certain assets relating to the business of manufacturing, marketing
and selling portable consumer generators, pressure washers and engine driven
welders ("Products").
B. Licensor is the owner of certain rights to the "GENERAC"
trademark in various forms.
C. Licensee wishes to obtain from Licensor, and Licensor
wishes to grant to Licensee, a limited license to use the trademark "GENERAC
PORTABLE PRODUCTS" (the "Trademark") in connection with the manufacturing,
marketing and sale of Products (the "Business"), under the terms and conditions
described below.
AGREEMENTS
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises set forth herein, and for other good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. Licensor hereby grants to Licensee a limited
exclusive right during the term of this License to use the Trademark on Products
and their packaging, and on printed materials advertising the Products,
throughout any portion of the world in which Licensor possesses rights to the
Trademark (the "Territory"). Licensor hereby further grants to Licensee a
limited exclusive right during the term of this License to use the Trademark as
a part of the name of the entities under which it and its affiliates conduct the
Business. Licensee may use the Trademark with respect to the Business, but shall
not use the Trademark in connection with any other goods or services. Licensee
may use the Trademark only in the forms appearing in Exhibit A attached hereto
(as that Exhibit may be amended from time to time in accordance with section 8
of this License),
<PAGE>
and shall not modify the Trademark without the prior, written consent of
Licensor.
2. TERM. The term of this License shall start on the effective
date of the Purchase Agreement, and shall continue in perpetuity unless
terminated under section 5 of this License.
3. QUALITY STANDARDS. All Products marketed or sold by
Licensee under the Trademark shall meet or exceed in all material respects the
quality of the same or similar products sold by Licensor under the Trademark
immediately prior to the date of the Purchase Agreement, and shall conform to
the requirements of all laws and regulations applicable to such Products in the
Territory. The appearance and content of any promotional materials distributed
by Licensee bearing the Trademark shall be of such a nature that they will not
harm the public image of the Trademark or the consumer goodwill related thereto,
and shall also conform to the requirements of all laws and regulations
applicable to such materials in the Territory.
4. QUALITY CONTROL SAMPLES. Licensee shall provide to
Licensor, at cost, such samples of Products as Licensor may reasonably request
from time to time for the purpose of ensuring that Products marketed or sold
under the Trademark meet the quality standards described in section 3 of this
License. Licensee shall provide to Licensor, at no charge and prior to any
public distribution, with representative samples of all promotional materials
developed by Licensee bearing the Trademark. With advance notice and during
normal business hours, Licensee shall also provide Licensor or its
representatives with such access to manufacturing facilities and worksites as is
reasonably necessary to check on the quality of Products being manufactured by
or for Licensee for marketing or sale under the Trademark.
5. TERMINATION. Any breach of this License or the Purchase
Agreement by Licensee shall be adequate grounds for termination of this License
by Licensor, at Licensor's sole discretion, if: (a) such breach remains uncured
30 days following Licensor's written notice to Licensee of such breach, or (b)
the material term breached by Licensee has previously been breached and cured by
Licensee twice prior to such breach. Upon termination of this License, Licensee
shall provide Licensor with all tangible embodiments of the Trademark under
Licensee's control, and will make no further use of the Trademark, although
Licensee may have three months following termination to sell off any inventory
of Products that are in Licensee's possession and bear the Trademark on the date
of termination.
6. OWNERSHIP AND ENFORCEMENT. Licensor represents and warrants
that it is the owner of trademark rights in the term GENERAC, including those
rights granted by U.S. Trademark Registration Number 1,706,283, and that
Licensor has the unfettered
2
<PAGE>
authority to license those rights in whole or part. Licensee acknowledges that,
as between Licensor and Licensee, Licensor is the owner of the Trademark, that
nothing in this License or the Purchase Agreement grants Licensee any ownership
interest in the Trademark, and that any goodwill arising from Licensee's use of
the Trademark shall inure to the benefit of Licensor. Licensee agrees that it
shall not assist or encourage, through action or inaction, any challenge to the
validity of the Trademark or Licensor's ownership of the Trademark. Licensee
shall provide reasonable cooperation and support, and execute such documents as
are reasonably required, to assist Licensor in any registration or maintenance
of the Trademark that Licensor may choose to pursue. Upon learning of any actual
or anticipated infringement of the Trademark by any third party, Licensee shall
promptly inform Licensor of such infringement, and shall provide all reasonable
support and cooperation to any enforcement efforts Licensor may choose to make
to prevent or remedy such infringement. Licensor has no notice of any
infringement claims against the Division relating to the Trademark.
7. NOTICES. Any notice to be given hereunder shall be given
and deemed sufficient if in writing and delivered or two business days after
being mailed by registered or certified mail, in the case of Licensor, to:
Generac Corporation
P.O. Box 8
Waukesha, WI 53187
Attn: Robert D. Kern, Chairman of the Board
with a copy to:
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street
Suite 2100
Milwaukee, WI 53202
Attn: Richard A. Van Deuren, Esq.
and, in the case of Licensee, to:
Generac Portable Products, Inc. (f/k/a GPPC, Inc.)
399 Park Avenue
17th Floor
New York, NY 10022
Attn: Mr. Eric Wilkinson
with a copy to:
King & Spalding
3
<PAGE>
1185 Avenue of the Americas
New York, NY 10036
Attn: Mark Zvonkovic, Esq.
8. ASSIGNMENT, AMENDMENT AND SEVERABILITY. Neither party may
assign or otherwise transfer this License or any rights or obligations hereunder
without the prior written consent of the other party; provided, however, either
party may assign, upon written notice to the other party and without the other
party's consent, this License or its interest herein to any third party
succeeding to its business. Subject to the foregoing, this License shall bind
and inure to the benefit of Licensor, Licensee, and their respective
representatives, heirs, successors and assigns. This License constitutes the
entire agreement between the Parties regarding the Trademark and may not be
substituted, varied or abridged in any manner except by written amendment
executed by authorized officers of both Parties. In the event any provision of
this License is found to be void or unenforceable, all remaining provisions of
this License will remain in full force and effect.
9. GOVERNING LAW. This License and the relationship between
the Parties will be governed by and construed in accordance with the internal
laws of the State of Wisconsin.
10. COUNTERPARTS. This License may be executed in
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this License has been executed and
delivered as of the date first above written.
GENERAC CORPORATION
BY /s/ Robert D. Kern
-------------------------------
Robert D. Kern
Chairman of the Board
GENERAC PORTABLE PRODUCTS, INC.
(F/K/A GPPC, INC.)
BY /s/ Eric R. Wilkinson
-------------------------------
Eric R. Wilkinson
President
4
<PAGE>
EXHIBIT A
Licensed Forms of the Trademark
1. GENERAC PORTABLE PRODUCTS (in all standard scripts and fonts)
<PAGE>
Exhibit 10.7
PATENT LICENSE AGREEMENT
THIS AGREEMENT, effective the last date of signature below, is by and
between GENERAC CORPORATION, a Wisconsin corporation ("Licensor") and GENERAC
PORTABLE PRODUCTS, INC. (F/K/A GPPC, INC.), a Delaware corporation ("Licensee").
RECITALS
A. Licensor is the owner of certain patents, together with the
inventions disclosed thereby, as described more fully below.
B. Licensee wishes to obtain a license to the patents, and Licensor has
authority to grant such a license in conjunction with Licensee's purchase of
Licensor's Portable Products Division (the "Division") and in accordance with
the parties' Asset Purchase and Sale Agreement.
AGREEMENTS
In consideration of the recitals and the mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
(a) "Patents" means U.S. Patent No. 5,504,417, U.S. Patent No.
5,489,811, and U.S. Patent No. 5,376,877, together with any reissue or
reexamination patents resulting therefrom;
(b) "Inventions" means inventions claimed in the Patents;
(c) "Patent Rights" means all rights held by the Licensor to make, use
and sell the Inventions, and to exclude third parties from making, using or
selling the Inventions;
(d) "Field of Use" means use of the Patent Rights for the manufacture
and sale of pressure washers, portable engine driven welders and portable
consumer generators (hereinafter, "Products").
2. TERM. This Agreement shall become effective on the date of the last
signature below, and shall remain in effect until expiration of the last of the
Patents to expire, or until terminated under paragraph 5 of this Agreement, or
until terminated by mutual written agreement of Licensee and Licensor (the
"Term"). Upon the expiration
<PAGE>
and/or termination of this Agreement, the license to exercise the Patent Rights
shall cease.
3. GRANT OF LICENSE. Licensor hereby grants to Licensee an exclusive
right and paid-up license to exercise the Patent Rights in the Field of Use and
the right to sublicense such Patent Rights in the Field of Use during the Term,
subject to the terms and conditions set forth herein. The right to sublicense is
contingent upon the prior written consent of Licensor, which consent shall not
be unreasonably withheld.
4. RIGHT OF INSPECTION. Licensee shall keep accounts and records of the
manufacture and sale of goods incorporating the Inventions, in sufficient detail
to enable compliance with the terms of this Agreement to be verified by Licensor
and/or its authorized representative. Licensee shall make such records available
for inspection and audit by Licensor and/or its authorized representative during
reasonable business hours and at such time or times as Licensor may reasonably
request for the purpose of verifying compliance under this Agreement.
5. TERMINATION.
(a) Licensee and Licensor agree that this Agreement may be terminated
before the Term expires by either Licensee or Licensor if the other breaches or
defaults on any material obligation under this Agreement and fails to cure such
breach within 120 days after written notice from the other setting forth the
basis of such breach and the intent to terminate this Agreement due to such
breach.
(b) Either Licensee or Licensor may terminate this Agreement if (i) a
petition in bankruptcy is filed against the other and not dismissed within 90
days thereafter, or (ii) if the other's business or any substantial portion of
the assets of the other are attached by order of the court, and such attachment
is not dissolved within 90 days.
(c) Termination of this Agreement shall extinguish the respective
rights and obligations of Licensee and Licensor, except that (i) Licensee shall
have the right to sell any Products in its possession and/or fulfill any
purchase order obligations existing at the time of termination, and to meet any
manufacturing obligation and/or to sell any Products in its possession at the
time of termination; (ii) the respective warranty and indemnification
obligations of Licensor and Licensee, as provided herein, shall survive
termination of this Agreement; and (iii) both Licensee and Licensor shall be
responsible to the other for any obligation incurred prior to termination.
2
<PAGE>
6. REPRESENTATIONS AND WARRANTIES.
(a) Licensor represents and warrants that Licensor has full and
complete authority as the owner of the Patents to enter into this Agreement and
the right to license the Patent Rights as provided herein.
(b) Licensor represents and warrants that it has taken no action which
adversely affect the rights of Licensee under this Agreement.
(c) Licensee warrants and represents that it will not in any manner
challenge the validity of the Patents. Furthermore, Licensee will not
intentionally act in any manner to induce or cause a third party to challenge or
question the validity of any of the Patents. Without limiting Licensor remedies,
action by Licensee contrary to this paragraph will be cause for termination of
this Agreement by Licensor.
(d) Licensor represents and warrants that the Patents are enforceable
and that the maintenance fees for each of the Patents will be paid in a timely
manner during this Agreement to maintain enforceability of the Patents.
(e) Licensor represents and warrants that it has no notice of any
infringement claims against the Division relating to the Patents.
7. IMPROVEMENTS. Licensee agrees that inventions, innovations or
technology conceived, made and/or reduced to practice by either Licensee or
Licensor, and representing improvements to the Inventions, shall be owned solely
by Licensor, and Licensee shall execute, or have executed, documents reasonably
required by Licensor to perfect such ownership. Licensor agrees that Licensor
and Licensee shall enter into good faith negotiations to permit Licensee to
make, use and/or sell such inventions, innovations or technology, the terms of
any such agreement to be mutually agreeable by the parties.
8. ENFORCEMENT OF PATENTS. Licensee shall promptly report in writing to
Licensor any known or suspected infringement of any of the Patents by any third
party, and shall provide Licensor with any and all available information and
evidence supporting such infringement. Notwithstanding the reporting requirement
contained herein, enforcement of the Patents shall be the right of Licensor
until such time as Licensor, following written notice from Licensee of a third
party's infringement of any of the Patents, declines to enforce the Patents. If
Licensor so declines, Licensee may bring an infringement action against the
third party identified in the notice, and may join Licensor as a necessary party
if so required by the court. In such an action, after both Licensee and Licensor
have been fully compensated for any out-of-pocket expenses incurred in the
course of said action, any remaining damage award or settlement payment made in
compensation for lost sales or other harm incurred within the Field of Use shall
be the property of Licensee.
3
<PAGE>
9. NOTICES. Any notice to be given hereunder shall be given
and deemed sufficient if in writing and delivered or two business days after
being mailed by registered or certified mail, in the case of Licensor, to:
Generac Corporation
P.O. Box 8
Waukesha, WI 53187
Attn: Robert D. Kern, Chairman of the Board
with a copy to:
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, s.c.
1000 North Water Street
Suite 2100
Milwaukee, WI 53202
Attn: Richard A. Van Deuren, Esq.
and, in the case of Licensee, to:
Generac Portable Products Inc. (f/k/a GPPC, Inc.)
399 Park Avenue
17th Floor
New York, NY 10022
Attn: Mr. Eric Wilkinson
with a copy to:
King & Spalding
1185 Avenue of the Americas
New York, NY 10036
Attn: Mark Zvonkovic, Esq.
10. RELATIONSHIP OF THE PARTIES. The relationship established between
the parties under this Agreement during its term shall be solely that of
licensor and licensee. Under no circumstances shall the contractual relationship
between the parties be deemed or construed as one of agency, partnership, joint
venture, employment or otherwise. Except as expressly provided herein, this
Agreement does not give either party any right to act as a representative or
agent of the other party or any authority to incur or create any obligation in
the name of or on behalf of the other party.
4
<PAGE>
11. ASSIGNMENT. But for the right of Licensee to sublicense the Patent
Rights, neither party may assign or otherwise transfer this Agreement or any
rights or obligations hereunder without the prior written consent of the other
party; provided, however, either party may assign, upon written notice to the
other party and without the other party's consent, this Agreement or its
interest herein to any third party succeeding to its business. Subject to the
foregoing, this Agreement shall bind and inure to the benefit of Licensor,
Licensee, and their respective representatives, heirs, successors and assigns.
12. GOVERNING LAW. This Agreement shall be interpreted, applied and
performed according to the laws of the State of Wisconsin, without regard to
conflict of law principles.
13. WAIVER. The failure of either party to insist, in any one or more
instances, upon performance of any of the terms, promises and conditions of this
Agreement, shall not be construed as a waiver or relinquishment of any right
granted hereunder or of the future performance of any such term, promise or
condition.
14. SEVERABILITY. If any paragraph, term or condition of this Agreement
is held to be invalid or unenforceable for any reason, the parties agree that
such invalidity or unenforceability shall not affect any other paragraph, term
or condition of this Agreement, and that the remaining paragraphs, terms and
conditions shall remain in full force and effect and any court of competent
jurisdiction may so modify any objectionable paragraph, term or condition as to
make it valid and enforceable.
15. ENTIRE AGREEMENT. This Agreement, together with the Asset Purchase
and Sale Agreement, constitutes and contains the entire agreement of the parties
with respect to the subject matter hereof. This Agreement supersedes any and all
prior understandings and agreements between the parties. Any modification of
this Agreement shall be in writing and executed in the same manner as this
license.
16. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
GENERAC CORPORATION GENERAC PORTABLE PRODUCTS, INC.
(F/K/A GPPC, INC.)
BY____________________________ BY____________________________
Robert D. Kern Eric R. Wilkinson
Chairman of the Board President
Date: July 9, 1998 Date:___________________________
5
<PAGE>
Exhibit 10.8
ASSIGNMENT OF TRADEMARK APPLICATIONS AND COMMON LAW
TRADEMARKS
THIS ASSIGNMENT, effective the date of last signature below,
is by and between GENERAC CORPORATION, a Wisconsin corporation ("Assignor") and
GENERAC PORTABLE PRODUCTS, INC. (F/K/A GPPC, INC.), a Delaware corporation
("Assignee").
RECITALS
A. Assignor is the owner of certain rights in various
intellectual properties, including the trademark applications and common law
trademarks used by Assignor's Portable Products Division, all as listed in
Schedule A attached hereto (the "Trademarks").
B. Assignor desires to assign to Assignee all of Assignor's
right, title and interest in and to the Trademarks, and Assignee desires such an
assignment as part of the purchase of Assignor's Portable Products Division and
in accordance with the parties' Asset Purchase and Sale Agreement.
AGREEMENTS
In consideration of the recitals and mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. ASSIGNMENT OF TRADEMARKS. Assignor hereby assigns and
transfers to Assignee, its successors and assigns, Assignor's entire right,
title and interest in and to the Trademarks, together with the goodwill
associated therewith.
2. ASSIGNOR WARRANTY. Assignor hereby warrants and represents
that it has the unrestricted right to make this Assignment free and clear of all
liens, encumbrances, security interests and rights of any third party. Assignor
further represents and warrants that no assignment, sale, license, agreement or
any other encumbrance has been or will be made or entered into which would
conflict with this Assignment.
3. ASSIGNOR COOPERATION. Assignor and its successors and
assigns further agree to, without further consideration, promptly provide
Assignee with all pertinent documents relating to the Trademarks and will, upon
Assignee's reasonable request, provide Assignee with all pertinent facts
relating thereto. Assignor further agrees to testify as to said facts and
documents in any litigation or proceeding related thereto.
<PAGE>
Assignor will promptly execute and deliver to Assignee or its legal
representatives, and will undertake all reasonable efforts to secure the same
from its employees, agents, officers and directors, any and all papers,
instruments, documents, affidavits or declarations determined by Assignee in its
reasonable judgment as required by Assignee to apply for, obtain, maintain,
issue or enforce any of the Trademarks.
4. ASSIGNMENT OF ACCRUED ENFORCEMENT RIGHTS. Assignor assigns
and transfers to Assignee any and all claims or causes of action for
infringement of any of the Trademarks that may have accrued prior to the
effective date of this Assignment, together with the right to bring suit for
and/or initiate any proceeding to collect any and all damages arising from said
claim or cause of action.
5. COUNTERPARTS. This Assignment may be executed in
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument.
[Signatures on the following page]
2
<PAGE>
IN WITNESS WHEREOF, we have hereunto set our hands and seal.
For Assignor, Generac Corporation:
BY: /s/ Robert D. Kern
-------------------------------
Printed Name: Robert D. Kern
Title: Chairman of the Board
State of Wisconsin )
: SS
_________ County )
On this ____ day of _____________, 1998, before me appeared
to me personally known, who, being by me duly sworn, did say that he is
of Generac Corporation, and that said instrument was signed on behalf of said
corporation by authority of the Board of Directors.
[Seal] Notary Public, State of
My commission
For Assignee, Generac Portable Products, Inc. (f/k/a GPPC, Inc.):
BY /s/ Eric R. Wilkinson
--------------------------------
Printed Name: Eric R. Wilkinson
Title: President
State of _________ )
: SS
__________ County )
On this ____ day of ______________, 1998, before me appeared
______________________ to me personally known, who, being by me duly sworn, did
say that he is of Generac Portable Products, Inc. (f/k/a GPPC, Inc.), and that
said instrument was signed on behalf of said corporation by authority of the
Board of Directors.
[Seal] Notary Public, State of
My commission
3
<PAGE>
SCHEDULE A
Pending U.S. federal trademark applications:
1. GRIPSTART (U.S. serial no. 75/203,329, filed 11/25/96)
2. MEGAFORCE (U.S. serial no. 75/249,372, filed 02/27/97)
3. SAFETY FLOW (U.S. serial no. 75/203,328, filed 11/25/96)
4. SMARTWELD (U.S. serial no. 75/331,792, filed 07/28/97)
5. TRIGGER UP (U.S. serial no. 75/203,332, filed 11/25/96)
6. WATER CHECK (U.S. serial no. 75/203,331, filed 11/25/96)
Common law trademarks used in connection with Assignor's portable products:
1. LITEHOUSE
2. NIAGARA
3. HOME AND AWAY (also sometimes used as HOME & AWAY)
4. SPORT AND HOME (also sometimes used as SPORT & HOME)
5. G-FORCE
6. SV
7. SVP
8. SVT
9. XL
10. EC
11. ET
4
<PAGE>
Exhibit 10.9
ASSIGNMENT OF PATENTS AND PATENT APPLICATIONS
THIS ASSIGNMENT, effective the date of last signature below,
is by and between GENERAC CORPORATION, a Wisconsin corporation ("Assignor") and
GENERAC PORTABLE PRODUCTS, INC. (F/K/A GPPC, INC.), a Delaware corporation
("Assignee").
RECITALS
A. Assignor is the sole owner of certain intellectual
properties, including the patent applications and patents, together with the
inventions disclosed thereby, as described more fully below.
B. Assignor desires to assign all of its rights, title and
interest in such properties to Assignee, and Assignee desires such an assignment
as part of the purchase of Assignor's Portable Products Division and in
accordance with the parties' Asset Purchase and Sale Agreement.
AGREEMENTS
In consideration of the recitals and mutual promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. ASSIGNMENT OF PATENTS AND PATENT APPLICATIONS. Assignor
hereby assigns and transfers to Assignee, its successors and assigns, Assignor's
entire rights, title and interest in and to the patents and patent applications
listed in Schedule A attached hereto, together with Assignor's entire rights,
title and interest in and to the inventions and improvements disclosed therein.
Assignor also hereby assigns and transfers its entire rights, title, and
interest in and to any continuation, divisional, renewal, substitute or
continuation-in-part application or the equivalent thereof with respect to any
such patent application, in and to any patent issued from any said patent
application, and in and to any reissue or reexamination patent or the equivalent
thereof that may result from any such patent or patent application.
2. ASSIGNOR WARRANTY. Assignor hereby warrants and represents
that it has the unrestricted right to make this Assignment free and clear of all
liens, encumbrances, security interests and rights of any third party. Assignor
further represents and warrants that no assignment, sale, license, agreement or
any other encumbrance has been or will be made or entered into which would
conflict with this Assignment or its rights, title and interest in and to said
patents and patent applications.
<PAGE>
3. ASSIGNOR COOPERATION. Assignor and its successors and
assigns further agree to, without further consideration, promptly provide
Assignee with all pertinent documents relating to the patents and/or patent
applications listed in Schedule A and will, upon Assignee's reasonable request,
provide Assignee with all pertinent facts relating to said patents and/or patent
applications. Assignor further agrees to testify as to said facts and documents
in any interference, litigation or proceeding related thereto. Assignor will
promptly execute and deliver to Assignee or its legal representatives, and
undertake all reasonable efforts to secure the same from its employees, agents,
officers, directors, as well as any inventor of any patent or patent application
hereby assigned, any and all papers, instruments, documents, affidavits or
declarations determined by Assignee in its reasonable judgment as required by
Assignee to apply for, obtain, maintain, issue or enforce any of said patents or
patent applications, any continuation, divisional, renewal, substitute or
continuation-in-part application or the equivalent thereof, any patents which
may issue from said applications, and any reissue or reexamination patent or the
equivalent thereof that may result from any said patent and/or patent
application.
4. ASSIGNMENT OF ACCRUED ENFORCEMENT RIGHTS. Assignor assigns
and transfers to Assignee any and all claims or causes of action for
infringement of any patent listed in Schedule A that may have accrued prior to
the effective date of this Assignment, together with the right to bring suit for
and/or initiate any proceeding to collect any and all damages arising from said
claim or cause of action.
5. COUNTERPARTS. This Assignment may be executed in
counterparts, each of which shall be deemed an original, but both of which taken
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, we have hereunto set our hands and seal.
For Assignor, Generac Corporation:
BY: /s/ Robert D. Kern
-------------------------------
Printed Name: Robert D. Kern
Title: Chairman of the Board
State of Wisconsin )
: SS
__________County )
On this ____ day of _____________, 1998, before me appeared to me
personally known, who, being by me duly sworn, did say that he is of Generac
Corporation, and that said instrument was signed
2
<PAGE>
on behalf of said corporation by authority of the Board of Directors.
--------------------------------
[Seal] Notary Public, State of ________
My commission __________________
For Assignee, Generac Portable Products, Inc. (f/k/a GPPC, Inc.):
BY /s/ Eric R. Wilkinson
----------------------------------
Printed Name: Eric R. Wilkinson
Title: President
State of _________ )
: SS
__________ County )
On this ____ day of ______________, 1998, before me appeared
______________________ to me personally known, who, being by me duly sworn, did
say that he is of Generac Portable Products, Inc. (f/k/a GPPC, Inc.), and that
said instrument was signed on behalf of said corporation by authority of the
Board of Directors.
--------------------------------
[Seal] Notary Public, State of ________
My commission __________________
3
<PAGE>
SCHEDULE A
1. Patent No. 5,718,255, for "Flow Responsive Diverting Valve," issued
February 17, 1998.
2. Patent Application Serial No. 08/780,520, for "Improved Piston for Water
Pump and Related Method," filed January 8, 1997.
3. Patent Application Serial No. 08/780,406, for "Flow Control Valve for a
Pressure Washer," filed January 9, 1997.
4. Patent Application Serial No. 08/810,215, for "Improved Adapter for
Mechanically Coupling a Pump and Prime Mover," filed February 28, 1997.
5. PCT Patent Application Serial No. PCT/US97/24033 for "Flow Control Valve
for a Pressure Washer," filed December 29, 1997.
6. PCT Patent Application Serial No. PCT/US97/24032 for "Improved Piston
for Water Pump and Related Method," filed December 29, 1997
7. PCT Patent Application Serial No. PCT/US97/24034 for "Flow Responsive
Diverting Valve," filed December 29, 1997.
8. PCT Patent Application Serial No. PCT/US98/02303 for "Improved Adapter
for Mechanically Coupling a Pump and Prime Mover," filed January 21,
1998.
4
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF GENERAC PORTABLE PRODUCTS, INC.
1. GPPW, Inc., a Wisconsin corporation.
2. GPPD, Inc., a Delaware corporation.
<PAGE>
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Generac Portable Products, Inc.
We consent to the use in this Registration Statement of Generac Portable
Products, Inc. on Form S-1 of our report dated January 29, 1999 (relating to
the financial statements of the Portable Products Division, a Business Unit
of Generac Corporation) appearing in the Prospectus, which is part of this
Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
Our audits of the financial statements also included the financial statement
schedule of the Portable Products Division, a Business Unit of Generac
Corporation listed in Item 16(b) Schedule II. This financial statement
schedule is the responsibility of the Corporation'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
financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
May 21, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1
of Generac Portable Products, Inc. of our report dated February 22, 1999,
except as to the EARNINGS PER SHARE section of Note 2, and Note 10, which are
as of May 20,1999, relating to the financial statements of Generac Portable
Products, Inc., which appears in such Registration Statement. We also consent
to the use in this Registration Statement of our report dated February 22,
1999 relating to the Financial Statement Schedule of Generac Portable
Products, Inc. We also consent to the reference to us under the heading
"Experts" in such Registration Statement.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
May 20, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Unaudited Interim Financial Statements as of and for the Three Months
Ended March 31, 1999 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<CIK> 0001080892
<NAME> GENERAC PORTABLE PRODUCTS, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,407
<SECURITIES> 0
<RECEIVABLES> 71,162
<ALLOWANCES> 263
<INVENTORY> 58,955
<CURRENT-ASSETS> 132,404
<PP&E> 22,266
<DEPRECIATION> 1,607
<TOTAL-ASSETS> 370,198
<CURRENT-LIABILITIES> 55,402
<BONDS> 110,000
0
0
<COMMON> 106
<OTHER-SE> 105,084
<TOTAL-LIABILITY-AND-EQUITY> 370,198
<SALES> 92,887
<TOTAL-REVENUES> 92,887
<CGS> 68,730
<TOTAL-COSTS> 81,883
<OTHER-EXPENSES> 1,538
<LOSS-PROVISION> 21
<INTEREST-EXPENSE> 5,096
<INCOME-PRETAX> 4,349
<INCOME-TAX> 1,524
<INCOME-CONTINUING> 2,825
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,825
<EPS-PRIMARY> .266
<EPS-DILUTED> .260
</TABLE>
