<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-K

                  FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO
                 SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE
                                   ACT OF 1934

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999

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

                     FOR THE TRANSITION PERIOD FROM    TO
                                                   ----  ----
                        COMMISSION FILE NUMBER: 33-73247

                         GENERAC PORTABLE PRODUCTS, INC.
                         GENERAC PORTABLE PRODUCTS, LLC
                                   GPPW, INC.
      (EXACT NAME OF REGISTRANTS AS SPECIFIED IN THEIR RESPECTIVE CHARTERS)

            DELAWARE                                 13-4006887
            DELAWARE                                 39-1932782
            WISCONSIN                                13-4012695
            (STATE OR OTHER JURISDICTION             (I.R.S. EMPLOYER
            OF INCORPORATION OR                      IDENTIFICATION NUMBERS)
            ORGANIZATION)

                                  1 GENERAC WAY
                           JEFFERSON, WISCONSIN 53549
                                 (920) 674-3750
                    (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

                  SECURITIES OF GENERAC PORTABLE PRODUCTS, INC.
              REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

                  SECURITIES OF GENERAC PORTABLE PRODUCTS, INC.
              REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

                  SECURITIES OF GENERAC PORTABLE PRODUCTS, LLC
              REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

                  SECURITIES OF GENERAC PORTABLE PRODUCTS, LLC
                REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                   11-1/4 % Senior Subordinated Notes Due 2006

                            SECURITIES OF GPPW, INC.
              REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

                            SECURITIES OF GPPW, INC.
                REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
                   11-1/4 % Senior Subordinated Notes Due 2006
<PAGE>   2



Indicate by check mark whether the registrants (1) have filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X  No ---

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

The aggregate market value of voting stock held by non-affiliates of Generac
Portable Products, Inc. is not determinable as such shares were privately placed
and there is currently no public market for such shares. None of the common
equity of either Generac Portable Products, LLC or GPPW, Inc. is held by
non-affiliates.

The number of shares of common stock of each of Generac Portable Products, Inc.
and GPPW, Inc. outstanding as of March 1, 2000 is as follows:

Generac Portable Products, Inc.        12,633,125
GPPW, Inc.                                  1,000







                                       2
<PAGE>   3






                                     PART I

ITEM 1.  BUSINESS

THE COMPANY

         Generac Portable Products, Inc. (together with its direct and indirect
wholly owned subsidiaries, the "company" or "Generac") was incorporated in the
state of Delaware on April 29, 1998. Generac Portable Products, Inc. is a
holding company that owns 100% of the stock of each of GPPW, Inc, a Wisconsin
corporation, and GPPD, Inc, a Delaware corporation. GPPW, Inc. and GPPD, Inc.
hold, respectively, 5% and 95% member interests in Generac Portable Products,
LLC, a Delaware limited liability company.

         The company's predecessor, Generac Power Systems, Inc. ("GPSI"),
formerly known as Generac Corporation, was founded in 1959. On July 9, 1998,
Generac purchased the business and substantially all of the assets of GPSI's
Portable Products Division (the "Predecessor").

         The company's principal executive offices are located at 1 Generac Way,
Jefferson, Wisconsin, 53549 and its telephone number is (920) 674-3750.

BUSINESS

         Generac is a leading designer, manufacturer and marketer of
engine-powered tools and related accessories for use in both consumer and
commercial applications. The company has domestic operations located in
Jefferson, Wisconsin and branch operations in the United Kingdom, Germany and
Spain. Generac sells primarily to large home center retailers throughout the
United States, Canada and Europe.

         Generac's two principal product lines are portable generators and
pressure washers. The company sells its products through multiple channels of
retail distribution, including the leading home center chains, mass merchants
and warehouse clubs as well as independent dealers. Generac has been a major
supplier of portable generators to Sears since 1961, and is one of two suppliers
to Sears of pressure washers, both marketed under the Craftsman label. The
company is also a core supplier of portable generators and pressure washers,
both marketed under the Generac label, to Home Depot. In addition, the company
is a core supplier for many of the leading retail home centers and
do-it-yourself retailers.

         In addition to the manufacture of portable generators and pressure
washers, Generac also manufactures core components for those products, including
alternators and pressure washer pumps, in cases where such integration improves
operating profitability by providing lower costs, streamlined production
processes or the standardization of components.

PRODUCTS

         The company primarily produces portable generators and pressure washers
built around commercially available lawn mower-type engines and the
Generac-Nagano overhead valve industrial engine. The overhead valve industrial
engine, or OHVI engine, is a highly engineered


                                        3
<PAGE>   4


product that established new industry standards for the highest power-to-weight
ratio, the lowest noise level and the longest operating life. The company has
exclusive supply rights to GPSI's Generac-Nagano family of engines for use in
consumer portable generators and pressure washers.

         PORTABLE GENERATORS. Applications for portable generators include
running power tools and other appliances at residential as well as remote
construction sites, providing electrical power in connection with the use of
recreational vehicles and at camping sites and, more recently, providing
homeowners with back-up power and home security. The company's portable
generator product offerings range from premium-priced models, incorporating
advanced operating features and performance characteristics built around the
proprietary Generac-Nagano engine, to value-priced products built around
conventional commercially available lawn mower-type engines. Generac's generator
line includes the most basic units without protective frames to complete units,
and the simplest electrical outlet features to full control panels with related
features that are attractive to the industrial and contractor markets. The
entire portable generator product line incorporates various value-added features
such as low oil shutdown and reduced noise levels. Many of the company's premium
Generac-Nagano engine-powered generators are equipped with voltage regulators
which provide superior voltage control and surge capacity for starting large
electrical loads. The Generac-Nagano engine-powered units also feature lighter
weight for portability, compact size, reduced maintenance and lower fuel
consumption. Electric start is available on certain models and the contractor
units incorporate a unique idle control device which further reduces noise,
greatly extends engine operating life and additionally reduces fuel consumption.
Oversized fuel tanks for longer operating times are standard with these units.

         PRESSURE WASHERS. 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 product. Consumer applications include car washing, deck 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. The company's
engine-driven pressure washers incorporate unique value added features such as
push-button electric start, a thermal overload device, which prevents
overheating and resulting failures and an exclusive unloading circuit which
makes starting easier. Generac's 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. The company's
proprietary pump, based on different combinations of internally designed
components and a low-cost aluminum pump head, promotes greater manufacturing
flexibility and a faster response to evolving end-user needs. As with the
company's portable generators, end-users are offered a premium Generac-Nagano
engine-powered product which features lower fuel consumption, longer life and
lower noise levels.

         NEW AND RELATED PRODUCTS. All of the company's new product initiatives
are based on its core manufacturing and marketing strengths. The company has
identified several new product and business opportunities in which it can
provide added value to end-users and attractive profit margins to retailers.
These include residential power transfer systems to complement portable


                                       4
<PAGE>   5


generators and engine-driven air compressors. Generac's research and development
group is in the latter stages of developing and field-testing these products.

DISTRIBUTION AND MARKETING

         The company's three largest customers are Home Depot, Sears and Costco,
which individually accounted for more than 10% of sales, and combined accounted
for approximately 73% of sales, in 1999. The company also sells to other
consumer home centers and warehouse clubs, as well as mass merchants, hardware
stores and outdoor power equipment dealers. In addition to traditional retail
distribution, Generac offers its products through national catalog companies
such as Northern Hydraulic, Sears Power Tool catalog and its own "special-order"
service.

         The company has been a major supplier of portable generators to Sears
since 1961 and one of two suppliers to Sears of pressure washers since Sears
first introduced that product category in 1994. Generac has developed a
longstanding partnership with Sears involving the development of exclusive
product offerings under the Craftsman label, high levels of in-store sales
support, well-coordinated merchandising and promotional campaigns and access to
Sears' nationwide service network. The company continues to increase its sales
through Sears' expanding hardware distribution channels including its new local
hardware stores, dealer stores and Orchard Supply.

         Over the past five years, Generac has expanded the distribution of its
products, marketed under the Generac name, to home centers and warehouse clubs.
Borrowing from its experience at Sears, Generac offers to its customers a total
category management approach, including value-added, in-store services such as
merchandising, informational materials, sales associate training and product
support. Major U.S. retail customers now include B.J.'s Wholesale Club, Costco,
Home Base, Home Depot, Lowe's, Sam's Club, Sears and Tru-Serv Incorporated.
Generac is well-represented in six of the leading home center retailers in
Europe.

         The company employs a two-tiered sales force to sell its 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 center and warehouse club channels.
Territory sales managers are responsible for establishing 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 the company's manufacturing operation and its independent dealer
network. Generac has assembled a comprehensive after-sales service network in
North America for portable generators and pressure washers comprised of (1)
approximately 3,000 authorized independent dealers, (2) five independently owned
master parts distributors and (3) a company-owned fleet of mobile service
training vehicles. Although most independent dealers do not generate the traffic
to be competitive with mass merchants, home centers or warehouse clubs, Generac
continues to maintain its independent dealer network for the express purpose of
providing the after sales service capability that supports its products. Most of
the master part distributors have their own sales force, which effectively
broadens the availability of the company's products and spare parts.


                                       5
<PAGE>   6


PRODUCT TECHNOLOGY AND DEVELOPMENT

         The majority of the company's new product development initiatives are
based on the generator and pressure washer markets. However, the company has new
product categories under development, and its research and development group is
continually developing and field-testing various products. Generac incurred
research and development costs of $2.7 million in 1999, $1.9 million in 1998 and
$1.7 million in 1997.

         The company's product development program for the generator product
line includes manual and automatic power transfer systems for residential use,
residential back-up power generators and generators designed to operate on
gaseous fuels such as natural gas and liquid petroleum gas. The company's
product development program for the pressure washer product line includes a new
contractor line of gasoline-powered pressure washers, a new Dial-A-Cleaner
cleaning system and an expanded line of accessories. In both categories research
and development is continuing to focus on product cost reductions and
performance enhancements to existing models.

INTERNATIONAL OPERATIONS

         The company has been successful in building long-term customer
relationships with the leading home center retailers in European markets located
in the U.K., Germany, Switzerland, Spain, Belgium and France. To support the
company's growing European power generator business, local sales offices have
been established in Winsford, U.K., Cologne, Germany and Barcelona, Spain. To
service Generac's European customer base more effectively, the company designs
and assembles its European products in its Cheshire, England facility. This
facility imports alternators, engines and other components and assembles
portable generators to meet local product requirements and quality assurance
regulations. Generac's international operations have contributed approximately
10% of total net sales for fiscal year 1999. See Note 12 to the company's
consolidated financial statements.

COMPETITION

         The U.S. engine powered tools industry has experienced significant
consolidation over the last ten to 15 years. The number of competitors in its
products categories has decreased from approximately 20 in 1985 to approximately
ten today, of which only four companies have national distribution capabilities.
The principal competitive factors in the engine powered tools industry include
price, service, product performance, technical innovation and delivery. In the
manufacture and sale of portable generators, Generac competes primarily with
Coleman Powermate, a division of The Coleman Company, Inc., and Honda Engine
Company. In the manufacture and sale of pressure washers, Generac competes
primarily with DeVilbiss Air Power Company, an affiliate of Pentair, Inc., and,
to a lesser extent, with Alfred Karcher GmbH & Co. and Campbell Hausfeld, an
affiliate of Scott & Fetzer, Inc.

         As measured by net sales, the company believes it was one of the two
largest suppliers of both portable generators and consumer pressure washers in
the North American market in 1999.



                                       6
<PAGE>   7



RAW MATERIALS AND SUPPLIERS

         The company has used the Generac-Nagano overhead valve industrial
engine in certain of its products since 1992. Currently, approximately 35% of
the company's sales are from products that incorporate the Generac-Nagano
engine. At the time of the acquisition of the Portable Products Division of
GPSI, the company entered into an engine supply agreement with GPSI. This
agreement provides that GPSI will supply the company with certain models of the
Generac-Nagano engine for use in the company's pressure washers and consumer
portable generators on an exclusive basis as long as the company makes minimum
annual purchases of Generac-Nagano engines. This agreement also gives the
company the right to increase the number of engines purchased based on the
company's forecast requirements. The initial term of the engine supply agreement
is until 2007, with provision for three year renewals, subject to certain
conditions. The company also purchases engines from Briggs & Stratton, Tecumseh
Products and Honda.

         The company manufactures many of the other components used in its
products. It also purchases a variety of basic materials and component parts.
The company has not experienced any difficulty obtaining necessary purchased
supplies.

EMPLOYEE AND LABOR RELATIONS

         As of December 31, 1999, the company had approximately 1,150 employees,
the majority of whom were involved in production and distribution, with the
balance engaged in technical, administration, sales and clerical work. Of these
employees, 1,070 were employed in the United States and 80 in international
operations. All of the company's production employees are covered by a
collective bargaining agreement which was renegotiated in October 1999 and
expires on February 15, 2003. The company considers its relations with its
employees to be good.

ENVIRONMENTAL MATTERS

         The company's operations are subject to a variety of 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. The company believes that its business, operations and facilities have
been and are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations. The
company does not currently anticipate any material adverse effect on its
business, financial condition or results of operations as a result of compliance
with federal, state or local environmental laws or regulations or remediation
costs. However, the operation of manufacturing plants entails risks in these
areas, and there can be no assurance that the company will not incur material
costs or liabilities in the future. In addition, potentially significant
expenditures could be required in order to comply with evolving environmental
and health and safety laws, regulations or requirements that may be adopted or
imposed in the future.





                                       7


<PAGE>   8



INTELLECTUAL PROPERTY

         The company's patents and trademarks taken individually, and as a
whole, are not critical to the ongoing success of its business. The proprietary
nature of certain of the company's products is primarily attributable to its
exclusive access to Generac-Nagano engines for use in its products rather than
attributable to proprietary patented or licensed technology.

SEASONALITY

         Sales of certain products of Generac 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 first and
second quarters than at other times of the year. The residential and commercial
construction markets are sensitive to cyclical changes in the economy.


FORWARD-LOOKING STATEMENTS AND CAUTIONARY STATEMENTS UNDER THE PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         This report, including the "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations" ("MD&A") sections,
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995, which can be identified by the use of
forward-looking terminology such as "may," "intend," "will," "expect,"
"anticipate," "plan," "management believes," "estimate," "continue" or
"position" or the negatives of or other variations on those terms or comparable
terminology. In particular, any statement, expressed or implied, concerning
future operating results or the ability to generate revenues, income or cash
flow are forward-looking statements. Readers are cautioned that reliance on any
forward-looking statements involves risks and uncertainties and that, although
the company believes that the assumptions on which the forward-looking
statements contained in this report are based are reasonable, any of those
assumptions could prove to be inaccurate. As a result, the forward-looking
statements based on those assumptions also could be incorrect, and actual
results may differ materially from any results indicated or suggested by those
forward-looking statements. The uncertainties in this regard include, but are
not limited to, the impact of leverage, dependence on major customers,
fluctuating demand for portable generators and pressure washers, risks in
product and technology development, competition, litigation and capital
requirements and those discussed in "Environmental Matters" in this section,
Item 3 of this report and other cautionary statements contained throughout the
"Business" and "MD&A" sections of this report. All forward-looking statements
are expressly qualified by the cautionary statements set forth therein. In light
of these and other uncertainties, the inclusion of a forward-looking statement
in this report should not be regarded as a representation by the company that
the company's plans and objectives will be achieved.









                                       8

<PAGE>   9


ITEM 2.  PROPERTIES

         The principal properties of the company, the location, the primary use,
the square feet and the ownership status thereof as of December 31, 1999 are set
forth in the table below:

<TABLE>
<CAPTION>

                                                                                       OWNED/
         LOCATION                           USE                   SQUARE FEET          LEASED          LEASE EXPIRATION
---------------------------    -------------------------------    -------------     -------------    ---------------------
<S>                            <C>                                <C>               <C>              <C>
Jefferson, WI                        Corporate Office/              250,000            Owned                  -
                                       Manufacturing/
                                         Warehouse
Jefferson, WI                            Warehouse                   90,500            Leased           December 2000
Sullivan, WI                          Office/Warehouse               52,000            Leased            October 2001
Cambridge, WI                            Warehouse                   60,000            Leased              Monthly
Milwaukee, WI                            Warehouse                   12,000            Leased              Monthly
Watertown, WI                            Warehouse                   52,000            Leased           December 2000
Waukesha, WI                             Warehouse                   36,000            Leased              Monthly
Waukesha, WI                               Office                     760              Leased           September 2000
Cheshire, England                   Manufacturing/Office             45,000            Owned                  -
Cologne, Germany                         Sales Office                 6,000            Leased           December 2005
Barcelona, Spain                         Sales Office                 1,100            Leased             April 2003
</TABLE>


         The company believes that its existing leased facilities are adequate
for the operations of the company. The company does not believe that it will
have any difficulty renewing any real property lease or readily obtaining an
alternative facility.



ITEM 3.  LEGAL PROCEEDINGS

         Generac is involved from time to time in litigation arising out of its
business operations. Most of such litigation involves claims for personal
injury, property damage, breach of contract and claims involving employee
relations and certain administrative proceedings. Generac believes such claims
do not involve a risk of material loss to the company.

         On September 29, 1999, Generac commenced an arbitration against GPSI,
entitled In the Matter of An Arbitration Between Generac Portable Products, Inc.
and Generac Power Systems, Inc., formerly known as Generac Corporation, under
the auspices of the American Arbitration Association in Milwaukee, Wisconsin.
The dispute concerns the respective rights of the company and GPSI to
manufacture and sell in the retail market portable generators with an output
level greater than ten kilowatts and home standby stationary generators. The
company has alleged that GPSI has improperly taken the position with both the
company and the company's retail customers that a mutual agreement not to
compete executed by the parties in connection with the company's acquisition of
the Portable Products Division of GPSI prohibits the company from manufacturing
or selling those products. It is the company's position that the noncompete
agreement does not preclude the company from manufacturing or selling those


                                       9

<PAGE>   10

products to retailers and that the parties'contractual arrangements preclude
GPSI from interfering with the company's rights to do so by, among other things,
attempting to sell home standby stationary generators to retailers, including
the company's retail customers. The company also has alleged that GPSI has
breached its obligations under a generator supply contract by refusing for nine
months to negotiate a price for home standby stationary generators and to
provide such generators to the company for resale and by selling those
generators directly to the company's retail customers. Generac is seeking (i) a
declaration that GPSI has breached its contractual obligations to the company,
including the implied covenant of good faith and fair dealing; (ii) a
declaration that Generac is free to manufacture and sell to retailers portable
generators with an output level greater than ten kilowatts and home standby
generators; (iii) to enjoin GPSI from taking actions which would delay or
displace the company's efforts to market those products to retailers; (iv) to
enjoin GPSI from engaging in the sale of home standby stationary generators to
retailers, at least during the pendency of the generator supply contract; and
(v) to hold GPSI liable for compensatory and punitive damages resulting from
GPSI's conduct. On October 19, 1999, GPSI responded to the company's claims by
filing an Answering Statement denying the company's allegations and reiterating
its position that the relevant agreements give GPSI the exclusive right to
manufacture and sell home standby stationary generators and generators with an
output level greater than ten kilowatts in any distribution channel. The parties
have selected an arbitrator and anticipate resolution to this matter during
2000.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         No matters were submitted to a vote of the company's security holders
during the last quarter of its fiscal year ended December 31, 1999.


                                     PART II

ITEM 5.  MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

         There is no established trading market for the common stock of Generac
Portable Products, Inc. As of March 1, 2000, 18 persons held the 12,633,125
outstanding shares of common stock of Generac Portable Products, Inc. Generac
Portable Products, Inc. has not declared or paid dividends since its inception
in April 1998 and has no intention to pay dividends for the foreseeable future.

         There is no established trading market for the common equity of either
GPPW, Inc. or Generac Portable Products, LLC. All of the issued and outstanding
shares of common stock of GPPW, Inc. are held by Generac Portable Products, Inc.
All of the member interests in Generac Portable Products, LLC are held by GPPW,
Inc. and GPPD, Inc. No cash dividends or distributions have been paid or made by
either GPPW, Inc. or Generac Portable Products, LLC since their respective
formations. The indenture, dated as of July 1, 1998, by and among Generac
Portable Products, LLC , GPPW, Inc. and Marine Midland Bank, as trustee, with
respect to the 11-1/4% Senior Subordinated Notes due 2006, contains restrictions
on the ability of GPPW, Inc. and Generac Portable Products, LLC to declare or
pay dividends or make distributions on their respective equity securities.


                                       10

<PAGE>   11


ITEM 6.  SELECTED FINANCIAL DATA

SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

         The selected historical financial information of Generac for the year
ended December 31, 1999 and for the period July 10, 1998 through December 31,
1998 has been derived from, and should be read in conjunction with, the audited
historical financial statements of Generac (including the related notes)
included elsewhere herein. The selected historical financial information of the
Predecessor from January 1, 1998 through July 9, 1998 and for the year ended
December 31, 1997 have been derived from, and should be read in conjunction
with, the audited historical financial statements of GPSI's Portable Products
Division (including the related notes) included elsewhere herein. The selected
historical financial information for the year ended December 31, 1996 has been
derived from the audited historical financial statements of GPSI's Portable
Products Division. The selected historical financial information for the year
ended December 31, 1995 has been derived from GPSI's unaudited financial
statements and include, in the opinion of GPSI's management, all adjustments,
consisting only of normal recurring adjustments, necessary to present fairly the
data for such period. The selected Pro Forma financial information for the year
ended December 31, 1998 combines the results of the Predecessor for the period
January 1, 1998 through July 9, 1998 with the Company's results for the period
July 10, 1998 through December 31, 1998 and have been prepared to reflect the
consummation of the acquisition of the Portable Products Division of GPSI on
July 9, 1998, as if it had occurred on January 1, 1998, using the purchase
method of accounting. The following table should also be read in conjunction
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" that appears later in this report.










                                       11
<PAGE>   12


<TABLE>
<CAPTION>

                                                                       (dollars in millions)

                                                                              Predecessor
                                              ------------------------------------------------------------

                                                                                          January 1, 1998
                                                                                              through
                                                1995 (a)          1996           1997       July 9, 1998
                                              -------------   ------------   -----------  -----------------
<S>                                           <C>             <C>            <C>           <C>
                                              (unaudited)
STATEMENT OF OPERATIONS DATA:
    Net sales                                 $       104.8   $     122.6    $     178.0   $        139.6
    Gross profit                                   N/A               27.3           46.9             35.0
    Selling & service expense                      N/A               13.9           21.7             16.6
    General and administrative expense             N/A                4.4            4.2              2.4
    Intangible asset amortization                  N/A                -             -                 -
    Direct expenses                                    98.5
                                              -------------   ------------   ------------- ---------------
    Income from operations                                            9.0           21.0             16.0
    Interest Expense                               N/A                2.2            2.1              1.4
    Deferred financing cost amortization           N/A                -              -                -
    Other (income) expense                         N/A                -              0.2              0.1
    Income Taxes (b)                               N/A                -              -                -
    Excess of revenues over direct
      expenses (c)                            $        6.3
                                              -------------   ------------   ------------- ---------------
    Net Income                                     N/A        $       6.8    $      18.7   $         14.5
                                              ==============  ============   ============= ===============


BALANCE SHEET DATA:
    Working capital                                N/A               29.3           40.5             68.5
    Total assets                                                     53.1           65.3            105.8
    Divisional Assets (d)                            $ 57.4
    Total debt, including current portion          N/A                -              -               -
    Stockholders' equity (e)                       N/A               41.6           52.8             81.9


OTHER FINANCIAL DATA:
    EBITDA (f)                                     N/A               10.5           22.3             16.7
    Depreciation and amortization                       1.0           1.5            1.5              0.8
    Interest expense                               N/A                2.2            2.1              1.4
    Capital expenditures                                4.0           2.3            1.4              1.6
CASH FLOW DATA:
    Net cash provided by (used in)
      operating activities                         N/A              17.3             8.2            (13.6)
    Net cash provided by (used in)
     investing activities                          N/A              (2.3)           (1.4)            (1.6)
    Net cash provided by (used in)
     financing activities                          N/A             (14.2)           (6.8)            14.8
</TABLE>


<TABLE>
<CAPTION>

                                              (dollars in millions)

                                                     Company             Pro Forma      Company
                                              ----------------------   -------------  ------------

                                                  July 10, 1998
                                                     through
                                                 December 31, 1998         1998           1999
                                              ----------------------   -------------  ------------
<S>                                           <C>                      <C>            <C>
                                                                        (unaudited)

STATEMENT OF OPERATIONS DATA:
    Net sales                                 $               136.9    $      276.4   $     398.1
    Gross profit                                               38.6            73.8         107.2
    Selling & service expense                                  16.9            33.6          47.3
    General and administrative expense                          2.9             5.3          10.1
    Intangible asset amortization                               2.5             5.3           5.4
    Direct expenses
                                              ----------------------   -------------  ------------
    Income from operations                                     16.3            29.6          44.4
    Interest Expense                                            9.7            20.0          20.8
    Deferred financing cost amortization                        0.4             0.8           0.9
    Other (income) expense                                      (.2)           (0.1)          1.8
    Income Taxes (b)                                            2.2             3.1           7.4
    Excess of revenues over direct
      expenses (c)
                                              ----------------------   -------------  ------------
    Net Income                                $                 4.2    $        5.8   $      13.5
                                              ======================   =============  ============


BALANCE SHEET DATA:
    Working capital                                            57.5                          60.6
    Total assets                                              332.0                         357.5
    Divisional Assets (d)
    Total debt, including current portion                     197.8                         189.4
    Stockholders' equity (e)                                  103.3                         115.2


OTHER FINANCIAL DATA:
    EBITDA (f)                                                 20.0            37.0          52.1
    Depreciation and amortization                               3.9             8.1           9.2
    Interest expense                                            9.7            20.0          20.8
    Capital expenditures                                        3.8             5.4          12.5
CASH FLOW DATA:
    Net cash provided by (used in)
      operating activities                                     16.2                          20.3
    Net cash provided by (used in)
     investing activities                                      (3.8)                        (12.5)
    Net cash provided by (used in)
     financing activities                                     (11.5)                         (8.9)

</TABLE>




                                       12
<PAGE>   13

NOTES TO SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA

(a)      Beginning in 1997, the Predecessor operated as a business unit of GPSI
         with separate financial reporting. During 1995, a dedicated
         manufacturing facility was completed to accommodate the portable
         products business. In connection with its move to this new facility,
         GPSI began to separately identify certain assets and liabilities as
         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, albeit 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 the Predecessor was commingled with that of GPSI and, therefore,
         Generac's summary data as of and for the year ended December 31, 1995
         is limited and certain historical financial data are not available.

(b)      Historically, the Predecessor's taxable income was included in GPSI's
         taxable income. GPSI 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 the
         Predecessor's financial statements. Generac has been subject to state
         and federal income taxes since July 9, 1998.

(c)      Direct expenses are those expenses that are directly related to the
         revenue-producing activities of the Predecessor.

(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 July 9, 1998.

(f)      EBITDA represents earnings before interest, taxes, depreciation,
         amortization and certain other non-recurring charges (principally the
         expenses from the withdrawn common stock offering). 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 and should not
         be considered as a substitute for operating income, net income, cash
         flows from operations, or other statement of operations 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 or the 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 report.


                                       13
<PAGE>   14


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

         References to Generac means Generac Portable Products, Inc. and its
subsidiaries, on a consolidated basis, and, as the context requires, the
Predecessor. The "Predecessor" refers to the Portable Products Division of GPSI.

GENERAL

         The company is a leading designer, manufacturer and marketer of
engine-powered tools and related accessories for use in both consumer and
commercial applications. In 1999, the company generated $398.1 million in net
sales, $44.4 million in operating income and $52.1 million in EBITDA. In 1999,
domestic sales represented 90.2% of total net sales and international sales
represented 9.8% of total net sales. The company has experienced strong growth
from 1996 through 1999, with net sales increasing at a compounded annual growth
rate of 48%, operating income increasing at a rate of 70% and EBITDA increasing
at a rate of 71%.

         The table below sets forth the company's results of operations for the
periods indicated. Included in the table is a presentation of EBITDA, which
represents earnings before interest, taxes, depreciation, amortization and
certain other non-recurring charges (principally the expenses from the withdrawn
common stock offering). EBITDA is included herein because management believes
that certain investors find it to be a useful tool for measuring a company's
ability to service its 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 the company's historical operating
results or those of the 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 financial statements included elsewhere in this report.








                                       14



<PAGE>   15

<TABLE>
<CAPTION>
                                               (dollars in millions)
                                      Predecessor                    Pro Forma                        Company
                              ----------------------------   ----------------------------   --------------------------------
                                                                    (unaudited)

                                  1997        % of Sales         1998        % of Sales         1999           % of Sales
                              ------------   -------------   -------------  -------------   --------------   ---------------
<S>                           <C>            <C>             <C>            <C>             <C>              <C>
Net Sales
              Domestic        $     164.0             92.1%  $       255.4           92.4%  $        359.0              90.2%
              International          14.0              7.9%           21.0            7.6%            39.1               9.8%
                              ------------   -------------   -------------  -------------   --------------   ---------------
Total net sales                     178.0            100.0%          276.4          100.0%           398.1             100.0%

Gross profit                         46.9             26.3%           73.8           26.7%           107.2              26.9%

Operating expenses                   25.9             14.6%           44.2           16.0%            62.8              15.8%

Operating income                     21.0             11.8%           29.6           10.7%            44.4              11.2%

Net income                           18.7             10.5%            5.8            2.1%            13.5               3.4%

EBITDA                               22.3             12.5%           37.0           13.4%            52.1              13.1%
</TABLE>

         The company sells its portable generators, pressure washers and other
products primarily to home center chains, mass merchants and warehouse clubs as
well as to independent dealers. Generac's three largest customers, Home Depot,
Sears and Costco, accounted for approximately 73% of total net sales in 1999 and
74% of total net sales for each of 1998 and 1997. Generac's international sales
represented approximately 10% of total net sales in 1999 and 8% of total net
sales in 1998 and 1997.

         Cost of sales consists of the cost of engines and raw materials and
costs to manufacture and package Generac's 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 the
company's 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 Generac's 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 generally not impacted by incremental
volume changes in the short run.

         The company's business dates back to 1959, when it was part of GPSI. In
1997, the company became a separately identifiable division of GPSI with
separate financial reporting. 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 GPSI's Portable Products Division located at its facilities in Wisconsin,
England, Spain and Germany. The purchase price was approximately $314.2 million
in cash, including $8.7 million in fees and expenses, after post-closing
adjustments of $1.0



                                       15

<PAGE>   16

million. This was funded primarily through the issuance of $110.0 million of
11 1/4% Senior Subordinated Notes due 2006, 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 The Beacon Group III - Focus
Value Fund, L.P., members of management and other investors. Additionally,
Generac Portable Products, LLC entered into a capital lease arrangement with
GPSI for certain manufacturing equipment with a fair value of approximately
$2.6 million. 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, the company's net income has been affected by
an increase in interest expense as a result of the borrowings in connection with
the acquisition.

         The pro forma results of operations for the year ended December 31,
1998 combines the results of the Predecessor for the period January 1, 1998
through July 9, 1998 with the company's results for the period July 10, 1998
through December 31, 1998 and have been prepared to reflect the consummation of
the acquisition of the Predecessor on July 9, 1998, as if it had occurred on
January 1, 1998, using the purchase method of accounting. As a result of the use
of purchase accounting for the acquisition of the Predecessor, pro forma
adjustments reflect increased goodwill and intangible asset amortization. In
addition, pro forma adjustments were made to reflect increased interest expenses
incurred on borrowings made in connection with the acquisition.

         Prior to July 10, 1998, the Predecessor's taxable income was included
in GPSI's taxable income. GPSI 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 Predecessor's financial statements
for periods prior to July 10, 1998. The company has been subject to state and
federal income taxes since July 10, 1998. Consequently, a pro forma adjustment
was made to reflect income taxes that would have been incurred prior to July 9,
1998.


RESULTS OF OPERATIONS

         YEAR ENDED DECEMBER 31, 1999 (COMPANY) COMPARED TO YEAR ENDED DECEMBER
31, 1998 (PRO FORMA)

         Net sales.  Net sales increased  $121.7 million,  or 44.0%, to $398.1
million for 1999 from $276.4 million for 1998 pro forma.

         Domestic sales increased $103.6 million, or 40.6%, to $359.0 million
for 1999 from $255.4 million for 1998 pro forma. This increase was primarily due
to increased sales of generators and related accessories to existing customers
resulting from new store additions and sales to new customers. A portion of the
increased demand for generators resulted from consumer concerns relating to
possible Year 2000 power outages and, accordingly, the company anticipates that
an increase in sales during 2000 will not occur at the level experienced in
1999.




                                       16
<PAGE>   17


         International sales increased $18.1 million, or 86.2%, to $39.1 million
for 1999 from $21.0 million for 1998 pro forma. This increase was due to
increased generator sales by the company's branch in the United Kingdom to meet
the demand of existing domestic customers.

         Gross profit. Gross profit increased $33.4 million, or 45.3%, to $107.2
million for 1999 from $73.8 million for 1998 pro forma. This increase was due to
increased overall sales as described above and improved gross margins due to a
greater sales mix of higher margin generators, partially offset by higher costs
incurred for certain engines. Gross profit margin increased slightly to 26.9%
for 1999 from 26.7% for 1998 pro forma.

         Operating expenses. Operating expenses increased $18.6 million, or
42.1%, to $62.8 million for 1999 from $44.2 million for 1998 pro forma. The
increase was due to increases in selling and service expenses and general and
administrative expenses. Selling and service expenses increased due to selling
and distribution costs that are impacted by sales volume and increases in sales
force personnel, promotional expenses for new pressure washer product offerings,
certain sales incentives offered to new domestic customers and incentives for
sales into home centers in Germany. The increase in general and administrative
expenses was reflective of increased training and support costs related to the
company's new business software implementation and increases in personnel to
support certain finance, accounting and human resource functions which had
previously been shared with GPSI. As a percentage of sales, operating expenses
decreased slightly to 15.8% for 1999 from 16.0% for 1998 pro forma.

         Net income. Net income increased $7.7 million, or 132.8%, to $13.5
million for 1999 from $5.8 million for 1998 pro forma. This increase in net
income was primarily due to the availability of operating earnings from the
increased sales volume to cover certain fixed charges. The increase was
partially offset by approximately $1.2 million in costs incurred on a pretax
basis in conjunction with the company's planned initial public offering of its
common stock, which was withdrawn in July 1999. As a percentage of sales, net
income increased to 3.4% for 1999 from 2.1% for 1998 pro forma.

         EBITDA. EBITDA increased $15.1 million, or 40.8%, to $52.1 million for
1999 from $37.0 million for 1998 pro forma. This increase was due to increased
sales volume and improved gross margins as described above. As a percentage of
sales, EBITDA decreased slightly to 13.1% for 1999 from 13.4% for 1998 pro
forma.


         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 increased $91.4 million, or 55.7%, to $255.4 million for
1998 pro forma from $164.0 million for 1997. This increase was primarily due to
strong overall consumer demand for generator and pressure washer product
categories throughout 1998. The broad sales increase was further reflective of
the store growth for existing customers, expanded pressure






                                       17


<PAGE>   18

washer product offerings to Home Depot, and strong overall generator sales
resulting from winter and summer storm activity.

         International sales increased $7.0 million, or 50.0%, to $21.0 million
for 1998 pro forma from $14.0 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 versus
lower margin pressure washer sales and improved gross margins for International
sales.

         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. 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. Home
centers typically command higher volume, promotional and other sales incentives.
In addition, 1998 pro forma operating expenses include $5.3 million (1.9% as a
percentage of sales) in amortization of goodwill and other intangible assets
recorded in connection with the acquisition. As a percentage of sales, operating
expenses increased to 16.0% in 1998 pro forma from 14.6% in 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 including interest expense; amortization of goodwill,
deferred financing costs and other intangible assets; and provision for income
taxes. These expenses (a $17.9 million increase in interest expense, a $6.1
million increase in intangible asset and deferred financing cost amortization
and a $3.1 million increase in income tax expense) decreased 1998 pro forma net
income by an additional $27.1 million (9.8% as a percentage of sales) 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.

LIQUIDITY AND CAPITAL RESOURCES

         To finance its capital expenditure program and fund its operational and
liquidity needs, Generac has relied principally on cash flow generated from
operations and the $30 million revolving credit portion of its credit facility.
Generac principally requires liquidity to meet debt service requirements,
finance its capital expenditures and provide working capital.



                                       18

<PAGE>   19

         At December 31, 1999, Generac had approximately $189.4 million of
outstanding debt, including $110.0 million of senior notes payable, $77.5
million under its credit facility and $1.9 million under capital lease
obligations. Cash interest paid during 1999 was approximately $21.7 million.

         Generac Portable Products, LLC is a party to a credit facility with a
group of lenders and Bankers Trust Company, as Administrative Agent, under which
it is able to borrow up to $115 million. The credit facility consists of a $45
million senior secured term loan facility, a $40 million senior secured term
loan facility and a $30 million senior secured revolving credit facility, less
the amount outstanding under letters of credit. As of March 15, 2000, Generac
Portable Products, LLC had approximately $7.0 million of available funds under
this credit facility.

         On July 2, 1998, Generac Portable Products, LLC and GPPW, Inc. issued
$110.0 million of their 11-1/4% Senior Subordinated Notes due 2006, which are
guaranteed by Generac Portable Products, Inc. The senior notes are redeemable at
the option of the issuers at any time after July 1, 2002 at an initial
redemption price of 107.625% of the principal amount of the notes at maturity,
plus accrued and unpaid interest, with declining redemption prices thereafter.
Interest on the senior notes is payable semi-annually on January 1 and July 1 in
the amount of $6,187,500.

         Cash provided by operating activities for the year ended December 31,
1999 totaled $20.3 million. The activity in operating cash flows was primarily a
result of 1999 earnings plus non-cash charges. Positive cash flows were
partially offset by a net increase in working capital to support increased sales
activity. 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 Generac's 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.

         Capital expenditures were $12.5 million, $5.4 million and $1.4 million
in 1999, 1998 and 1997, respectively. The capital expenditures related primarily
to plant expansions at the company's facilities, new production machinery, and
updating the company's business software. Generac expects to spend approximately
$3.0 million in 2000 for various capital projects, including cost improvement
and quality enhancement initiatives and updating management information systems.
Generac spent approximately $2.7 million, $1.9 million and $1.7 million in 1999,
1998 and 1997, respectively, on research and development.

         The company expects its principal sources of liquidity to be from its
operating activities and funding from the revolving portion of the credit
facility. Based upon the current level of operations and anticipated growth,
Generac believes that future cash flow from operations, together with available
borrowings under the credit facility will be adequate to meet Generac's
anticipated requirements for capital expenditures, working capital, interest
payments and scheduled principal payments for at least the next 12 months.






                                       19
<PAGE>   20





INITIAL PUBLIC OFFERING COSTS

         During 1999, Generac incurred approximately $1.2 million of expenses in
conjunction with its efforts to complete an initial public offering of its
common stock. Generac withdrew its offering during July 1999 as it did not
believe that the price at which the stock could be sold adequately represented
the value of the company. Consequently, these costs were expensed during the
year ended December 31, 1999.

RAW MATERIAL COSTS AND INFLATION

         The rate of inflation over recent years has been relatively low and has
not had a significant effect on Generac's results of operations. Approximately
47% of Generac's cost of goods sold relate to small gasoline engines which in
total have not been subject to material price fluctuations. Generac purchases
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 STRATEGY

         Many computer systems and software products use two digits rather than
four to define the applicable year. For example, date-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. This
could have resulted in systems failures or miscalculations causing disruptions
of the company's operations. Generac completed a process of making all necessary
software changes to ensure that it did not experience any loss of critical
business functionality due to the Year 2000 issue. Generac adopted and
implemented a three phase approach of assessment, correction and testing. The
scope of the project included 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. Generac completed
its Year 2000 project during the last six months of 1999.

         As of December 31, 1999, substantially all of the company's information
sub-systems were Year 2000 ready. In most instances, Generac replaced older
software with new programs and systems, rather than modifying existing systems
solely to become Year 2000 ready. In this regard, Generac installed a new, Year
2000 compliant, enterprise resource planning system. Replacing these systems has
resulted 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 was influenced by the Year 2000, in most instances
these systems would have been replaced in the normal course of business.

         Generac has not experienced any significant business disruptions
relating to Year 2000 related systems failures or miscalculations from its
internal software, hardware, operating systems, non-information technology
systems, products, vendor systems or the systems of other parties.




                                       20
<PAGE>   21


         Generac spent approximately $4.9 million and $0.9 million during 1999
and 1998, respectively, to upgrade and replace its systems to ensure Year 2000
readiness.

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 currency 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. Generac has operations in member countries of the EMU and,
accordingly, has 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 Generac's operations, cash flows or financial
condition.

FUTURE ACCOUNTING CHANGES

         In June 1998, the Financial Accounting Standards Board issued SFAS No.
133 "Accounting for Derivative Instruments and Hedging Activities". This
statement requires all derivative instruments to be recorded in the consolidated
balance sheets at their fair value. Changes in fair value of derivatives are
required to be recorded each period in current earnings or other comprehensive
income, depending on whether the derivative is designated as part of a hedge
transaction and if it is, the type of hedge transaction. It will be effective
January 1, 2001 for Generac. Due to the company's current limited use of
derivative instruments, the adoption of this statement is not expected to have a
material effect on Generac's financial condition or results of operations.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Generac is exposed to market risk from changes in interest rates and,
to a lesser extent, foreign exchange rates and commodities. To reduce such
risks, Generac selectively uses 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 the company's accounting policies for derivative financial
instruments is included in the summary of Significant Accounting Policies in
Note 2 to the Consolidated Financial Statements included elsewhere in this
report.

         The fair value of the company's notes is estimated at $114.7 million as
of December 31, 1999 based upon market quotations as of that date. Generac
estimates that this fair value would increase by approximately $5.6 million
based upon an assumed 10% decrease in market interest rates and that the fair
value would decrease by approximately $5.3 million based upon an


                                       21
<PAGE>   22


assumed 10% increase in market interest rates, compared with the average yield
of approximately 10.33% on December 31, 1999.

         Generac uses interest rate swaps to modify the company's 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. The company's earnings exposure related
to adverse movements in interest 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 8.5% at December 31, 1999 of the
company's debt under its bank credit facility would result in an
increase/decrease in annual pre-tax interest expense of approximately $311,000
after giving effect to an outstanding interest rate swap. A 10%
increase/decrease in Eurodollar rates would increase/decrease the fair value of
the interest rate swap by approximately $600,000 as compared to its fair value
at December 31, 1999.

         Generac has manufacturing, sales and distribution facilities throughout
Europe and sources raw materials from around the world. Accordingly, Generac
Portable Products makes investments and enters into transactions denominated in
various foreign currencies. Generac is 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. Management does not believe the company's foreign currency
exposure is material.

         The company's exposure to commodity price changes relates to certain
manufacturing operations that utilize raw commodities. Generac manages its
exposure to changes in those prices primarily through its procurement and sales
practices. This exposure is not material to Generac.
















                                       22

<PAGE>   23
ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

         The company's financial statements are included in this report as
indicated in the Index to Financial Statements and Financial Statement Schedules
on page 38 and incorporated herein by reference.


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

         None.






















                                       23
<PAGE>   24




                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANTS

         The following table sets forth the name, age and position of each of
the directors and executive officers of Generac.

<TABLE>
<CAPTION>
NAME                                        AGE                        POSITION
----                                        ---                        --------
<S>                                         <C>

Dorrance J. Noonan, Jr                      47       President, Chief Executive Officer and Director of
                                                     Generac Portable Products, LLC; Director of
                                                     Generac Portable Products, Inc.
Gary J. Lato                                40       Chief Financial Officer and Secretary of Generac
                                                     Portable Products, LLC
James H. Deneffe                            56       Senior Vice President - Sales, Generac Portable
                                                     Products, LLC
Wesley C Sodemann                           56       Vice President of Engineering, Generac Portable
                                                     Products, LLC
Jay C. Sugar                                39       Vice President of Operations, Generac Portable
                                                     Products, LLC
J. David Bramhill                           44       Vice President of International Operations, Generac
                                                     Portable Products, LLC
Robert M. Saeger                            54       Vice President of Service and Planning, Generac
                                                     Portable Products, LLC
Timothy J. Lemont                           46       Vice President of Marketing, Generac Portable
                                                     Products, LLC
Rosemary A. Wallner                         43       Vice President of Human Resources of Generac
                                                     Portable Products Portable Products, LLC
Faith Rosenfeld                             48       President of GPPW, Inc.
Eric R. Wilkinson(1)                        44       President and Director of Generac Portable
                                                     Products, Inc.
Richard A. Aube                             31       Secretary, Treasurer and Director of GPPW,
                                                     Inc.;  Secretary and Treasurer of Generac
                                                     Portable Products, Inc.; Director of Generac
                                                     Portable Products, LLC
R. Eugene Cartledge(1)(2)                   70       Chairman of the Board of Generac Portable
                                                     Products, Inc.
Thomas A. Commes(2)                         57       Director of Generac Portable Products, Inc.
Thomas G. Mendell                           53       Director of Generac Portable Products, Inc.
R. Ralph Parks(1)                           56       Director of Generac Portable Products, Inc.
James P. Schadt(2)                          61       Director of Generac Portable Products, Inc.
</TABLE>

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

(1) MEMBER OF THE COMPENSATION COMMITTEE

(2) MEMBER OF THE AUDIT COMMITTEE

                                       24
<PAGE>   25


         DORRANCE J. NOONAN, JR., President, Chief Executive Officer and
Director of Generac Portable Products, LLC and Director of Generac Portable
Products, Inc. since July 1998, served in various management positions with GPSI
from 1990 to 1998, most recently as Chief Operating Officer from 1997 to 1998.
Prior to joining GPSI, 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 since July 1998, joined GPSI in 1991, serving as Director of
Finance in 1991 and as Vice President -- Finance from 1992 to 1998. Prior to
joining GPSI, Mr. Lato held various positions, including most recently as Senior
Audit Manager, at Price Waterhouse LLP from 1981 to 1991.

         JAMES H. DENEFFE, Senior Vice President -- Sales of Generac Portable
Products, LLC since July 1998, held that position at GPSI from 1996 to 1998. Mr.
Deneffe joined GPSI in 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 since July 1998, held that position at GPSI from 1996 to 1998. Mr.
Sodemann also served as Chief Engineer of GPSI from 1979 to 1996 and as
Associate Engineer from 1965 to 1979.

         JAY C. SUGAR, Vice President of Operations of Generac Portable
Products, LLC since July 1998, held that position at GPSI from 1996 to 1998. Mr.
Sugar also served as Manufacturing Manager of GPSI from 1993 to 1996 and as
Manager of Production and Inventory Control in 1993. Prior to joining GPSI, 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 since July 1998, held that position at GPSI from
1997 to 1998 and served as European Operations Manager for GPSI from 1992 to
1996. Prior to joining GPSI, 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 Service and Planning of Generac
Portable Products, LLC, has held that position since July 1998. From 1997 to
1998, Mr. Saeger served as Director of Accounting/Controller with GPSI 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 in March 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 has held various positions, including most


                                      25
<PAGE>   26

recently as Senior Tax Manager, at Price Waterhouse LLP in Milwaukee, Wisconsin
from 1980 through 1985.

         ROSEMARY A. WALLNER, Vice President of Human Resources of Generac
Portable Products, LLC, joined Generac in July 1999. Prior to this she served as
Vice President of Human Resources with RVSI Systemation Engineered Products from
1998 to 1999. In addition, Ms. Wallner served as Vice President of Human
Resources for GB Electrical, a wholly-owned subsidiary of Applied Power, Inc.,
from 1989 to 1997, with a one year assignment as Director of Manufacturing.

         FAITH ROSENFELD, President of GPPW, Inc. since July 1998, has been a
Managing Director of The Beacon Group, LLC (an affiliate of The Beacon Group III
-- Focus Value Fund, L.P.) since its inception in 1993. Prior to joining The
Beacon Group, LLC, Ms. Rosenfeld was employed by Goldman, Sachs & Co. for 14
years where she held various positions, including, most recently, Vice
President, Investment Banking Division. Ms. Rosenfeld is a director of SBL, Inc.
and Savia International, Ltd.

         ERIC R. WILKINSON, President and Director of Generac Portable Products,
Inc. since July 1998, has been a Managing Director of The Beacon Group, LLC
since 1994. 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, the strategy-consulting firm, from 1983 to 1989.
Mr. Wilkinson is a director of Doctors Health Systems, Etinuum, Inc., Eyeweb,
Inc., The Identity Group, OnCare Inc., National Century Financial Enterprises,
Inc. and International Components Corporation.

         RICHARD A. AUBE, Secretary and Treasurer of Generac Portable Products,
Inc., Director of Generac Portable Products, LLC and Secretary, Treasurer and
Director of GPPW, Inc. since July 1998, has been with The Beacon Group, LLC
since 1993, most recently as a Managing 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 Capstone Turbine
Corporation.

         R. EUGENE CARTLEDGE, Chairman of the Board of Generac Portable
Products, Inc. since July 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.

         THOMAS A. COMMES, Director of Generac Portable Products, Inc. since
March 1999, served as 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, and is a trustee of The Cleveland Clinic Foundation
and Vocational Guidance Services.

         THOMAS G. MENDELL, Director of Generac Portable Products, Inc. since
July 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 served as a

                                       26
<PAGE>   27
member of the firm's Investment Committee and head of GS Capital. Mr. Mendell
is a director of Doctors Health Systems, Wallace Theaters, Inc., Coherent
Networks, Inc., The Identity Group and OnCare Inc.

         R. RALPH PARKS, Director of Generac Portable Products, Inc. since July
1998, has been a Managing Director of The Beacon Group, LLC, since 1999. From
1997 to 1999, Mr. Parks was a limited partner of The Beacon Group LP (an
affiliate of The Beacon Group III -- Focus Value Fund, L.P.). Prior to joining
The Beacon Group, LP, Mr. Parks was a partner of Goldman, Sachs & Co. and head
of its Investment Banking Services for Europe and Canada.

         JAMES P. SCHADT, Director of Generac Portable Products, Inc. since July
1999, had been active with the management of Reader's Digest Association, Inc.
from 1991 until his retirement in 1997, serving as director and as the President
and Chief Operating Officer and, later, as the Chairman and Chief Executive
Officer. Mr. Schadt is currently the Chairman of Dailey Capital Management,
L.P., and he is a trustee and Chairman of the Weinberg College of Arts and
Sciences Board of Advisors. Mr. Schadt is also a trustee of the American
Enterprise Institute and a director of TSI International Inc.

         Directors of each of Generac Portable Products, LLC, GPPW, Inc. and
Generac Portable Products, Inc. will hold office until his or her successor has
been elected and qualified. Officers of each of Generac Portable Products, LLC,
GPPW, Inc. and Generac Portable Products, Inc. are elected by their respective
boards of directors and serve at the discretion of such boards of directors.










                                       27
<PAGE>   28




ITEM 11.  EXECUTIVE COMPENSATION

         The following table sets forth information regarding the compensation
paid during the company's last three completed fiscal years to the Chief
Executive Officer and each of the other four most highly compensated executive
officers of Generac as of December 31, 1999.

                           SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>


                                                                                                (1)
NAME AND                                                     ANNUAL COMPENSATION             ALL OTHER
PRINCIPAL POSITION                            YEAR         SALARY ($)      BONUS($)      COMPENSATION ($)
------------------                            ----         ----------      --------      ----------------
<S>                                           <C>          <C>             <C>           <C>
Dorrance J. Noonan, Jr.
      Chief Executive Officer                 1999          160,000         23,169               13,132
                                              1998          136,500         26,340                5,287
                                              1997          130,000         37,032                3,372


Gary J. Lato
      Chief Financial Officer                 1999          150,000         22,336                6,977
                                              1998          131,250         25,500                3,127
                                              1997          125,000         35,781                1,762

James H. Deneffe
      Senior Vice President
      Sales and Marketing                     1999          150,000         22,336               20,072
                                              1998          131,250         25,500               11,737
                                              1997          125,000         35,781                8,970

Wesley C. Sodemann
      Vice President of Engineering           1999          110,000         18,963               17,896
                                              1998          101,923         24,000               56,258
                                              1997           92,501         23,000                6,845

Robert M. Saeger
      Vice President of Service
      and Planning                            1999          110,000         18,963               19,937
                                              1998           85,000              -               54,233
                                              1997           80,000              -                6,500
</TABLE>

(1)  All other compensation includes the value of deferred compensation
     agreements maintained with the officers of Generac Portable Products, LLC.






                                       28
<PAGE>   29




                        OPTION GRANTS IN LAST FISCAL YEAR

         There were no options granted during fiscal 1999 to the executive
officers named in the Summary Compensation Table. Options to purchase a total of
451,182 shares were granted to new board members and certain key employees
during 1999.

                 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 and outstanding at fiscal year-end 1999. To
date, no such options have been exercised.

<TABLE>
<CAPTION>
                                                            NUMBER OF SECURITIES                     VALUE OF UNEXERCISED
                                                           UNDERLYING UNEXERCISED                     IN-THE-MONEY OPTIONS
                           SHARES                             OPTIONS AT FY-END                            AT FY-END (1)
                        ACQUIRED ON         VALUE      --------------------------------------  -------------------------------------
NAME                    EXERCISE (#)     REALIZED ($)   EXERCISABLE         UNEXERCISABLE        EXERCISABLE         UNEXERCISABLE
--------------          ------------   --------------  -------------      -------------------  ---------------      ----------------
<S>                     <C>            <C>             <C>                <C>                  <C>                  <C>
Dorrance J. Noonan, Jr.      -               -            75,197               300,788         $ 172,201              $ 688,805
Gary J. Lato                 -               -            60,158               240,630           137,762                551,043
James H. Deneffe             -               -            30,079               120,315            68,881                275,521
Wesley C. Sodemann           -               -            30,079               120,315            68,881                275,521
Robert M. Saeger             -               -            30,079               120,315            68,881                275,521
</TABLE>


(1) Assumes the fair market value of the shares underlying the options is $11.00
as compared to the exercise price ($8.71 per share) payable for such shares. The
fair market value at fiscal year-end 1999 of $11.00 is approximately the price
per share at which the company was valued in conjunction with the company's
planned public offering of its stock which was withdrawn during fiscal 1999. See
also discussion at "Initial Public Offering Costs" in Part II, Item 7 of this
report.


                                       29
<PAGE>   30




DIRECTOR'S COMPENSATION

         Directors of Generac 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 the the company's stock option plan. See "-- Stock
Option Plan." Options to purchase 300,788 shares of Generac Portable Products,
Inc. common stock were granted to certain directors during 1998. Options to
purchase 150,394 shares of common stock were granted to certain directors during
1999. A total of 75,197 of options to purchase shares of Generac Portable
Products, Inc. common stock were forfeited by a director during 1999.

BENEFIT PLANS

         Generac has 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 GPSI.

         Generac Portable Products has also established 401(k) employee
retirement savings plans for the benefit of its employees. Generac pays all
administrative costs of the plans but makes no contributions. Additionally,
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, Generac has adopted the Generac
Portable Products, Inc. Stock Option Plan. Under this Plan, stock options to
acquire up to 2,406,310 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
three to five-year period and expire ten years subsequent to the grant date.

         Stock option transactions for the year ended December 31, 1999 and the
period from July 9, 1998 through December 31, 1998 are summarized as follows:


<TABLE>
<CAPTION>
                                                     1999                     1998
                                             ----------------------     -----------------
<S>                                          <C>                        <C>
Options granted                                            451,182             1,729,531
Options forfeited                                           75,197                     -
Options outstanding                                      2,105,516             1,729,531
Remaining contractual life (years)                             9.4                   8.5
Exercise price                                      $8.71 - $11.00                $ 8.71
Fair value at grant date                                    $ 3.68                $ 2.92
</TABLE>



                                       30

<PAGE>   31


         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%.

         The stock option plan is administered by Generac Portable Products,
Inc.'s board of directors. The board of directors designates which employees of
Generac are 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, 1999 approximately 2.4% 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.

COMPENSATION COMMITTEE INTERLOCK AND INSIDER PARTICIPATION

         The Compensation Committee of the board of directors of Generac
Portable Products, Inc. establishes salary, incentives and other forms of
compensation. During the year ending December 31, 1999, the Compensation
Committee was composed of Messrs. Cartledge and Wilkinson. During the year ended
December 31, 1999, none of the company's executive officers served on the board
of directors or on the compensation committee of any other entity which has one
or more executive officers serving as a member of Generac Portable Products,
Inc.'s board of directors or the Compensation Committee.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         All of the common stock of GPPW, Inc. is held by Generac Portable
Products, Inc. All of the equity interest in Generac Portable Products, LLC is
held indirectly by Generac Portable Products, Inc. through two wholly owned
subsidiaries: GPPD, Inc. and GPPW, Inc. GPPD, Inc. holds 95% of the limited
liability company interests in Generac Portable Products, LLC and GPPW, Inc.
holds the remaining 5% interest.

         The following table sets forth certain information as of March 1, 2000,
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 of Generac's directors; (3) each of the executive officers
named in the Summary Compensation Table; and (4) all executive officers and
directors of Generac 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.

         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 following
persons and

                                       31

<PAGE>   32

entities have sole voting and investment power with respect to all shares
beneficially owned, subject to community property laws where applicable.

<TABLE>
<CAPTION>
                                                                                       SHARES
                                                                                 BENEFICIALLY OWNED
                                                                        ------------------------------------
NAME OF BENEFICIAL OWNER                                                     NUMBER               PERCENT
-------------------------------------                                   -----------------       ------------
<S>                                                                     <C>                     <C>
5% HOLDERS:
      The Beacon Group III - Focus Value Fund, L.P. (1)                        6,982,672              55.3%
      California Public Employees' Retirement System (2)                       2,871,164              22.7%
      Capital d' Amerique CDPQ Inc. (3)                                          849,864               6.7%

DIRECTORS:
      R. Eugene Cartledge (4)                                                     93,973 (5)         *
      Thomas G. Mendell                                                        6,982,672 (6)          55.3%
      R. Ralph Parks                                                              50,131 (7)         *
      Thomas A. Commes                                                            25,066 (5)         *
      Eric R. Wilkinson                                                        6,982,672 (6)          55.3%

OFFICERS:
      Dorrance J. Noonan, Jr.                                                    190,043 (8)           1.5%
      Gary J. Lato                                                               175,004 (9)           1.4%
      James H. Deneffe                                                           144,925 (10)          1.1%
      Wesley C. Sodemann                                                          32,950 (10)        *
      Robert M. Saeger                                                            32,950 (10)        *
      Faith Rosenfeld                                                          6,982,672 (6)          55.3%
      All directors and executive officers as a group
            (17 individuals) (12)                                                841,019 (11)          6.7%
</TABLE>

----------------
*  Less than 1%.

(1) The address of The Beacon Group III -- Focus Value Fund, L.P. is 399 Park
    Avenue, New York, New York 10022.

(2) The address of California Public Employees' Retirement System is Lincoln
    Plaza -- 400 P Street, P.O. Box 942707, Sacramento, California 94229.

(3) The address of Capital d'Amerique CDPQ Inc. is 1981, Avenue McGill College,
    9th Floor, Montreal, Quebec H3A3C7.

(4) 34,454 shares are owned by the Cartledge Family Limited Partnership, of


                                       32
<PAGE>   33

    which Mr. Cartledge is the general partner.

(5) Includes options to purchase 25,066 shares of common stock currently
exercisable.

(6) Messrs. Wilkinson and Mendell and Ms. Rosenfeld 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 and Ms.Rosenfeld 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
and Ms. Rosenfeld is c/o The Beacon Group III -- Focus Value Fund, L.P., 399
Park Avenue, New York, New York 10022.

(7) Includes options to purchase 50,131 shares of common stock currently
exercisable.

(8) Includes options to purchase 75,197 shares of common stock currently
exercisable.

(9) Includes options to purchase 60,158 shares of common stock currently
exercisable.

(10) Includes options to purchase 30,079 shares of common stock currently
exercisable.

(11) Includes options to purchase 416,090 shares of common stock currently
exercisable.

(12) Does not include 6,982,672 shares as to which Messrs. Wilkinson and Mendell
and Ms. Rosenfeld may be deemed to have beneficial ownership by virtue of their
indirect control of The Beacon Group III -- Focus Value Fund, L.P.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

PRINCIPAL STOCKHOLDERS' AGREEMENT

         The Beacon Group III -- Focus Value Fund, L.P., certain other of
Generac Portable Products, Inc.'s stockholders and Generac Portable Products,
Inc. entered into a stockholders' agreement for the purposes, among others, of
establishing the composition of the board of directors of Generac Portable
Products, Inc. and limiting the manner and terms by which the common stock owned
by the stockholders may be transferred. The provisions of the stockholders'
agreement 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:


                                       33
<PAGE>   34

         - at least four members of the board are designated by Beacon;

         - the chief executive officer of Generac Portable Products, LLC 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. The minority stockholders have
agreed that they 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
Generac Portable Products, Inc. has 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. Generac Portable Products, Inc. may elect to
assign its right to purchase the offered shares to the non-selling stockholders
on a pro rata basis. In the event an assignment by Generac Portable Products,
Inc. is made 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 Generac Portable Products, Inc. or, in the event an assignment by
Generac Portable Products, Inc. is made, 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 that Generac Portable Products, Inc.
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
Generac Portable Products, Inc. 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,


                                       34
<PAGE>   35

will be correspondingly reduced. If any non-selling stockholder fails to elect
to participate in Beacon's or the selling stockholder's 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, Generac Portable Products, Inc.
Has agreed not to:

         - adopt or effect any plan of sale, merger, consolidation, dissolution,
         reorganization or recapitalization of Generac Portable Products, Inc.;

         - offer for sale or sell all or substantially all of the assets of
         Generac Portable Products, Inc.;

         - amend or restate the certificate of incorporation or the bylaws other
         than in conformity with the stockholders' agreement;

         - redeem any shares of capital stock of Generac Portable Products, Inc.
         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 Generac Portable
         Products, Inc. is 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 Generac Portable Products, Inc., to vote for such sale and to
take all actions, at Generac Portable Products, Inc.'s expense, reasonably
requested by Generac Portable Products, Inc. in order to consummate such sale.

         PARTICIPATION/PREEMPTIVE RIGHTS. Generac Portable Products, Inc. has
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 stockholders of Generac
Portable Products, Inc. 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 Generac
Portable Products, Inc. common stock. Beacon may require that Generac Portable
Products, Inc. use its best efforts to register its registrable securities for
public resale, provided that the anticipated offering price would exceed $25
million. Generac Portable Products, Inc. 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 Generac Portable Products, Inc. use its
best efforts to register their registrable securities for public resale on Form
S-3, provided that the expected offering price would exceed $10 million. Generac
Portable Products, Inc. must bear all the registration expenses for all of the
Form S-3 registrations that are


                                       35
<PAGE>   36

not underwritten and for three of the Form S-3 registrations that are
underwritten. If Generac Portable Products, Inc. registers any of its common
stock for its 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.
Generac Portable Products, Inc. must bear all registration expenses.

EMPLOYEE STOCKHOLDERS' AGREEMENT

         Employees who own stock of Generac Portable Products, Inc. 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 Generac Portable Products, Inc. the right to purchase stock
held by terminated employees or employees that have filed for personal
bankruptcy or have been declared insolvent.




















                                       36
<PAGE>   37
                                    PART IV

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

(a)      The following documents are filed, incorporated by reference, as part
         of this report:

     1.  Financial Statements:

         See "Index to Financial Statements and Financial Statement Schedules"
         on page 38, the Reports of Independent Accountants on pages 39 and 63
         and the Consolidated Financial Statements on pages 40 to 61 and pages
         64 to 70, all of which are incorporated herein by reference.

     2.  Financial Statement Schedules:

         See "Index to Consolidated Financial Statements and Financial Statement
         Schedules" on page 38, the Reports of Independent Accountants on pages
         39 and 63 and the Financial Statement Schedules on pages 62 and 71.

     3.  Exhibits

         See "Index to Exhibits" on pages 75 to 76.

(b)      No Current Reports on Form 8-K were filed during the last quarter of
         the year ended December 31, 1999.


                                       37
<PAGE>   38
         INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES


<TABLE>
<CAPTION>

                                                                                                       PAGE
                                                                                                       ----
<S>                                                                                                  <C>
CONSOLIDATED FINANCIAL STATEMENTS OF GENERAC PORTABLE PRODUCTS, INC.

  Report of Independent Accountants                                                                      39
  Consolidated Balance Sheets as of December 31, 1999 and 1998                                           40
  Consolidated Statements of Income for the year ended December 31, 1999
       and for the period July 10, 1998 through December 31, 1998                                        41
  Consolidated Statement of Changes in Stockholders' Equity for the year ended
       December 31, 1999 and for the period July 10, 1998 through December 31, 1998                      42
  Consolidated Statement of Cash flows for the year ended December 31, 1999
       and for the period July 10, 1998 through December 31, 1998                                        43
  Notes to Consolidated Financial Statements                                                          44-61
  Schedule II - Generac Portable Products, Inc. Schedule of Valuation and Qualifying
       Accounts                                                                                          62

FINANCIAL STATEMENTS OF PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC
  CORPORATION

  Report of Independent Accountants                                                                      63
  Statements of Income for the Six Months and Nine Days Ended July 9, 1998 and
       the Year Ended December 31, 1997                                                                  64
  Statements of Cash Flows for the Six Months and Nine Days Ended July 9, 1998 and
       the Year Ended December 31, 1997                                                                  65
  Notes to Financial Statements                                                                       66-70
  Schedule II - Portable Products Division, A Business Unit of Generac Corporation
       Schedule of Valuation and Qualifying Accounts                                                     71
</TABLE>



                                       38
<PAGE>   39


REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Generac Portable Products, Inc.

         In our opinion, the consolidated financial statements listed in the
accompanying index under Item 14(a)(1) present fairly, in all material respects,
the financial position of Generac Portable Products, Inc. and its subsidiaries
at December 31, 1999 and 1998, and the results of their operations and their
cash flows for the year ended December 31, 1999 and for the period July 10, 1998
through December 31, 1998, in conformity with accounting principles generally
accepted in the United States. In addition, in our opinion, the financial
statement schedules listed in the index under Item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements. These financial
statements and financial statement schedules are the responsibility of Generac's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States, 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
audits provide a reasonable basis for the opinion expressed above.



PRICEWATERHOUSECOOPERS LLP

Milwaukee, Wisconsin
February 25, 2000






                                       39
<PAGE>   40


                         GENERAC PORTABLE PRODUCTS, INC.
                           CONSOLIDATED BALANCE SHEETS
                        AS OF DECEMBER 31, 1999 AND 1998
                               (AMOUNTS IN 000'S)


<TABLE>
<CAPTION>

                                                                                         1999              1998
                                                                                      ---------          ---------
<S>                                                                                 <C>                <C>
ASSETS
Current assets:
   Cash and cash equivalents                                                          $     384          $   1,528
   Accounts receivable (less allowances of $548 and $242, respectively)                  55,465             44,695
   Inventories                                                                           58,372             46,651
   Deferred income taxes                                                                  1,171                139
   Prepaid expenses and other current assets                                                144                898
                                                                                      ---------          ---------
      Total current assets                                                              115,536             93,911

Property, plant and equipment, net                                                       28,911             19,437
Intangible assets, net                                                                  206,229            211,407
Deferred financing costs, net                                                             6,608              6,985
Other                                                                                       205                262
                                                                                      ---------          ---------
         Total assets                                                                 $ 357,489          $ 332,002
                                                                                      =========          =========

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
   Current portion of long-term debt                                                  $   8,869          $   7,922
   Trade accounts payable                                                                23,793             12,839
   Accrued employee compensation, benefits and payroll withholdings                       3,263              1,185
   Other accrued liabilities                                                             18,991             14,424
                                                                                      ---------          ---------
      Total current liabilities                                                          54,916             36,370

Long-term debt obligations                                                              180,520            189,861
Other long-term obligations                                                               1,089                999
Deferred income taxes                                                                     5,717              1,505

Commitments and contingencies (Note 13)

Stockholders' equity:
   Common stock, $.01 par value, 40,000 shares authorized; 12,633 shares
      issued and outstanding                                                                126                126
   Additional paid-in capital                                                           109,874            109,874
   Retained earnings                                                                     17,741              4,202
   Accumulated other comprehensive (loss) income                                           (836)               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                                                        115,247            103,267
                                                                                      ---------          ---------
      Total liabilities and stockholders' equity                                      $ 357,489          $ 332,002
                                                                                      =========          =========
</TABLE>


The accompanying notes are an integral part of the financial statements.




                                       40
<PAGE>   41



                         GENERAC PORTABLE PRODUCTS, INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                               (AMOUNTS IN 000'S)

<TABLE>
<CAPTION>

                                                                                                   FOR THE PERIOD
                                                                               FOR THE YEAR         JULY 10, 1998
                                                                                  ENDED               THROUGH
                                                                            DECEMBER 31, 1999     DECEMBER 31, 1998
                                                                            -----------------     ----------------
<S>                                                                         <C>                   <C>
Net sales                                                                       $ 398,096             $ 136,862
Cost of sales                                                                     290,885                98,245
                                                                                ---------             ---------
      Gross profit                                                                107,211                38,617
Operating expenses:
  Selling and service                                                              47,251                16,935
  General and administrative                                                       10,118                 2,865
  Intangible asset amortization                                                     5,368                 2,531
                                                                                ---------             ---------
      Income from operations                                                       44,474                16,286
Other expense:
  Interest expense                                                                 20,823                 9,674
  Deferred financing cost amortization                                                909                   401
  Expenses from withdrawn common stock offering (Note 15)                           1,160                    --
  Other expense (income), net                                                         619                  (171)
                                                                                ---------             ---------
      Income before income taxes                                                   20,963                 6,382
Provision for income taxes                                                          7,424                 2,180
                                                                                ---------             ---------
      Net income                                                                $  13,539             $   4,202
                                                                                =========             =========
</TABLE>



The accompanying notes are an integral part of the financial statements.



                                       41

<PAGE>   42


                         GENERAC PORTABLE PRODUCTS, INC.
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
      FOR THE YEAR ENDED DECEMBER 31, 1999 AND 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 (Loss)   Other (A)      Total
                                       ---------   ---------   ---------   ---------   -------------    ---------    ---------
<S>                                  <C>         <C>         <C>         <C>           <C>            <C>          <C>
Balances, July 9, 1998                    12,633   $     126   $ 109,874   $      --     $      --      $ (11,658)   $  98,342

Comprehensive income:

  Net income                                  --          --          --       4,202            --             --        4,202

  Translation adjustments                     --          --          --          --           723             --          723
                                       ---------   ---------   ---------   ---------     ---------      ---------    ---------

Total comprehensive income                    --          --          --       4,202           723             --        4,925
                                       ---------   ---------   ---------   ---------     ---------      ---------    ---------

Balances, December 31, 1998               12,633   $     126   $ 109,874   $   4,202     $     723        (11,658)   $ 103,267
                                       =========   =========   =========   =========     =========      =========    =========



Balances, December 31, 1998               12,633   $     126   $ 109,874   $   4,202     $     723        (11,658)   $ 103,267

Comprehensive income (loss):

  Net income                                  --          --          --      13,539            --             --       13,539

  Translation adjustments                     --          --          --          --        (1,559)            --       (1,559)
                                       ---------   ---------   ---------   ---------     ---------      ---------    ---------

Total comprehensive income (loss)             --          --          --      13,539        (1,559)            --       11,980

                                       ---------   ---------   ---------   ---------     ---------      ---------    ---------
Balances, December 31, 1999               12,633   $     126   $ 109,874   $  17,741     $    (836)     $ (11,658)   $ 115,247
                                       =========   =========   =========   =========     =========      =========    =========
</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 the financial statements.


                                       42
<PAGE>   43

                         GENERAC PORTABLE PRODUCTS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               (AMOUNTS IN $000'S)


<TABLE>
<CAPTION>

                                                                                                             For the period
                                                                                        For the year           July 10, 1998
                                                                                          ended                  through
                                                                                       December 31, 1999       December 31, 1998
                                                                                    ---------------------   ---------------------
<S>                                                                                   <C>                    <C>
Operating activities:
   Net income                                                                            $ 13,539               $  4,202
   Adjustments to reconcile net income to net cash provided by operating activities
      Depreciation                                                                          2,881                  1,022
      Amortization                                                                          6,277                  2,932
      Deferred income taxes                                                                 3,180                  1,366
      Loss on sale of fixed assets                                                              5                     --
      Increase (decrease) in cash due to changes in:
              Accounts receivable                                                         (11,253)                 6,696
              Inventories                                                                 (12,791)                (3,627)
              Other assets                                                                    582                   (726)
              Trade accounts payable                                                       11,226                 (2,106)
              Accrued liabilities                                                           6,688                  6,454
                                                                                         --------               --------
      Net cash provided by operating activities                                            20,334                 16,213
                                                                                         --------               --------

Investing activities:
   Capital expenditures                                                                   (12,463)                (3,814)
   Proceeds from sale of fixed assets                                                          17                     34
                                                                                          --------               --------
       Net cash used for investing activities                                             (12,446)                (3,780)
                                                                                         --------               --------

Financing activities:
   Net payments under revolving loan facility                                                (600)               (11,008)
   Payments on other long-term debt obligations                                            (7,794)                  (434)
   Payment of deferred financing costs                                                       (532)                   (77)
                                                                                         --------               --------
       Net cash used for financing activities                                              (8,926)               (11,519)
                                                                                         --------               --------

Effect of exchange rate changes on cash                                                      (106)                    15
                                                                                         --------               --------

Net increase (decrease) in cash and cash equivalents                                       (1,144)                   929

Cash and cash equivalents:
   Beginning of period                                                                   $  1,528               $    599
                                                                                         --------               --------
   End of period                                                                         $    384               $  1,528
                                                                                         ========               ========

Supplemental cash flow information:
   Cash paid for interest                                                                $ 21,708               $  2,260
                                                                                         ========               ========
   Cash paid for taxes                                                                   $  4,610               $     --
                                                                                         ========               ========
</TABLE>



The accompanying notes are an integral part of the financial statements.



                                       43

<PAGE>   44
                         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" 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 Power Systems, Inc.
("GPSI"), formerly known as GPSI. The primary business activity of Generac
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 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 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 GPSI (the "Acquisition"). The
aggregate consideration paid for the net assets of the Predecessor was
approximately $330 million, which included cash acquired of $0.6 million, direct
acquisition costs of $1.4 million and assumed liabilities of $23.9 million. The
purchase price paid for the Predecessor was adjusted for a post-closing
adjustment of $1.0 million based on net working capital at July 9, 1998, as
defined.

      The Acquisition has been accounted for using the purchase method of
accounting and accordingly, the purchase price was 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 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
</TABLE>


                                       44

<PAGE>   45



      In addition to the issuance of common stock by Generac, 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, with domestic operations located in Jefferson, Wisconsin and
branch operations in the United Kingdom, Germany and Spain, is a leading
designer, manufacturer and marketer of engine-powered tools and related
accessories for use in both consumer and commercial applications.

2.    SIGNIFICANT ACCOUNTING POLICIES

      USE OF ESTIMATES: Generac 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's 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 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 GPSI. Such limitation was based
upon the lesser of each continuing shareholder's interest in Generac 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 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 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 $2,682 and $1,011 for the year
ended December 31, 1999 and for the period ended December 31, 1998,
respectively. Costs related to manufacturing start-up activities for new
products are included in cost of sales as incurred.


                                       45

<PAGE>   46


      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>

<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>

      CAPITALIZED SOFTWARE: Generac capitalizes purchased software as well as
internally developed software. Internal software development costs are
capitalized from the time the internal use software is considered probable of
completion until the software is ready for use. Business analysis, system
evaluation, selection and software maintenance costs are expensed as incurred.
Capitalized software costs are amortized using the straight-line method over the
estimated useful life of the software. Capitalized software costs are recorded
as office equipment for financial statement purposes.

      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 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 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.



                                       46

<PAGE>   47


      INTEREST RATE SWAPS: To limit the effect of increases in interest rates,
Generac 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 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 $5,793 and $1,989 for the year ended December 31, 1999
and for the period ended December 31, 1998, respectively.

      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's Senior Subordinated Notes at December
31, 1999 and 1998 is based upon market quotations 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).

      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's 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 (loss).

      FUTURE ACCOUNTING CHANGES: In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". This statement requires all derivative instruments to be
recorded in the consolidated balance sheets at their fair value. Changes in fair
value of derivatives are required to be recorded each period in current earnings
or other comprehensive income (loss), depending on whether the derivative is
designated as part of a hedge transaction and if it is, the type of hedge
transaction. In June 1999, the statement's effective date was delayed by one
year, and it will be effective



                                       47

<PAGE>   48


January 1, 2001 for Generac. Due to the company's current limited use of
derivative instruments, the adoption of this statement is not expected to have a
material effect on Generac's financial condition or results of operations.



3.    INVENTORIES

      Inventories consist of the following at December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                      1999         1998
                                                    -------       -------
<S>                                               <C>           <C>
      Raw materials and sub-assemblies              $33,814       $27,721
      Finished goods                                 24,558        18,930
                                                    -------       -------
                                                    $58,372       $46,651
                                                    =======       =======
</TABLE>

4.    PROPERTY, PLANT AND EQUIPMENT

      Property, plant and equipment consist of the following at December 31,
1999 and 1998:

<TABLE>
<CAPTION>

                                                 1999            1998
                                              --------         --------
<S>                                         <C>              <C>
      Land and land improvements                 1,095              980
      Buildings                                  9,642            5,940
      Machinery and equipment                   12,438            8,056
      Dies and tools                             3,194            2,742
      Office equipment                           5,899            1,357
      Vehicles                                      24               56
                                              --------         --------
                                                32,292           19,131
      Accumulated depreciation                  (3,875)          (1,023)
                                              --------         --------
                                                28,417           18,108
      Construction in progress                     494            1,329
                                              --------         --------
                                              $ 28,911         $ 19,437
                                              ========         ========
</TABLE>



5.    INTANGIBLE ASSETS

      Intangible assets consist of the following at December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                  1999            1998
                                               ---------       ---------
<S>                                          <C>             <C>
      Goodwill                                 $ 213,928       $ 213,738
      Trademarks and patents                         100             100
      Noncompete agreement                           100             100
                                               ---------       ---------
                                                 214,128         213,938
      Accumulated amortization                    (7,899)         (2,531)
                                               ---------       ---------
                                               $ 206,229       $ 211,407
                                               =========       =========
</TABLE>






                                       48
<PAGE>   49




6.    OTHER ACCRUED LIABILITIES

      Other accrued liabilities consist of the following at December 31, 1999
and 1998:


<TABLE>
<CAPTION>

                                               1999          1998
                                             -------       -------
<S>                                        <C>           <C>
      Sales incentives                       $ 9,370       $ 4,430
      Product warranty                         1,984         1,229
      Accrued interest                         6,529         7,414
      Other                                    1,108         1,351
                                             -------       -------
                                             $18,991       $14,424
                                             =======       =======
</TABLE>


7.    LONG-TERM DEBT OBLIGATIONS

      Long-term debt consists of the following at December 31, 1999 and 1998:


<TABLE>
<CAPTION>

                                              1999           1998
                                           ---------      ---------
<S>                                      <C>            <C>
      Bank credit facility                 $  77,493      $  85,400
      Senior subordinated notes              110,000        110,000
      Capital lease obligations                1,896          2,383
                                           ---------      ---------
                                             189,389        197,783
      Less:  current portion                  (8,869)        (7,922)
                                           ---------      ---------
                                           $ 180,520      $ 189,861
                                           =========      =========
</TABLE>


      In connection with the Acquisition, Generac Portable Products, LLC 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, 1999 of $39 million and
$38.5 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. There were
no borrowings under the revolving loan arrangements as of December 31, 1999. 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 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 year ended December 31, 1999 was approximately $0.7 million and



                                       49

<PAGE>   50

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's 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's consolidated debt to EBITDA ratio. The weighted
average interest rate for the term loans as of December 31, 1999 was 8.5%.
Borrowings under the revolving loans bear interest at the prime rate plus 1.25%.
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's consolidated debt to EBITDA ratio. Substantially all of Generac's
assets are pledged as collateral under the Senior Secured Credit Facility.

      Effective October 15, 1998, Generac 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 long-term debt. The notional amount of this
agreement was $40 million at December 31, 1999. Interest expense has been
adjusted for the net amount payable under this agreement. The effect of this
agreement on Generac's interest expense for the period ended December 31, 1999
was not significant. The fair value of the interest rate swap agreement was
$3,621 at December 31, 1999, which is the amount Generac would have received to
settle the instrument at such date. Generac 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, 1999
is approximately $114.7 million.

      The Notes are redeemable, at Generac's 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:



                                       50

<PAGE>   51


<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
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 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. 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
EBITDA.

      Capital lease obligations relate to Generac's 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.

      The aggregate scheduled maturities of long-term debt and capital lease
obligations in subsequent years are as follows:

<TABLE>
<CAPTION>

<S>                                   <C>
      2000                              $   8,869
      2001                                  8,218
      2002                                 13,266
      2003                                 21,472
      2004                                 18,376
      Thereafter                          119,188
                                        ----------
                                        $ 189,389
                                        ==========
</TABLE>


8.    EMPLOYEE RETIREMENT AND SAVINGS PLANS

      In connection with the Acquisition, Generac 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




                                       51

<PAGE>   52



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
GPSI. Generac's funding policy is to contribute amounts that equal or exceed the
minimum requirements of the Employee Retirement Income Security Act of 1974
("ERISA"). Net pension expense is comprised of the following components:

<TABLE>
<CAPTION>


                                                                               JULY 10, 1998
                                                                                 THROUGH
                                                                   1999      DECEMBER 31, 1998
                                                                  ------     -----------------
<S>                                                             <C>            <C>
Service cost                                                      $ 340            $  48
Interest cost on projected benefit obligation                        88               24
Return on assets                                                     (1)              --
Amortization of net loss from earlier periods                        21               --
                                                                  -----            -----
                                                                  $ 448            $  72
                                                                  =====            =====
</TABLE>



      The following table summarizes those items comprising the change in the
benefit obligation:

<TABLE>
<CAPTION>

                                                                                 JULY 10, 1998
                                                                                   THROUGH
                                                                   1999       DECEMBER 31, 1998
                                                                 ------       -----------------
<S>                                                            <C>            <C>
Benefit obligation as of the beginning of the period             $  750              678
Service cost                                                        340               48
Interest cost                                                        88               24
Actuarial loss                                                      436               --
                                                                 ------           ------
Benefit obligation as of the end of the period                   $1,614           $  750
                                                                 ======           ======
</TABLE>

      The following table summarizes those items comprising the change in the
fair value of plan assets during 1999. There were no assets contributed to the
plans as of December 31, 1998:

<TABLE>
<CAPTION>

<S>                                                         <C>
Fair value of plan assets, December 31, 1998                  $ --
Company contributions                                          100
Actual return on plan assets                                     1
                                                              ----
Fair value of plan assets, December 31, 1999                  $101
                                                              ====
</TABLE>



                                       52
<PAGE>   53


      The following table summarizes the funded status of the plans as of
December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                                            1999          1998
                                                          -------       -------
<S>                                                     <C>           <C>
Funded status of plan                                     $(1,513)      $  (750)
Unrecognized net loss                                         415            --
                                                          -------       -------
Net amount accrued                                        $(1,098)      $  (750)
                                                          =======       =======
</TABLE>


      The assumptions used in developing the pension information as of December
31, 1999 and 1998 were as follows:

<TABLE>
<CAPTION>

                                                         1999        1998
                                                         ----        ----
<S>                                                    <C>         <C>
Discount rate                                            8.00%       7.00%
Return on plan assets                                    8.00%       8.00%
Rate of compensation increase                            5.50%       4.50%
</TABLE>


      In connection with the Acquisition, Generac established deferred
compensation plans for certain key employees and at December 31, 1999 and 1998,
approximately $401 and $340, respectively, was included in other long-term
obligations related to such plans. Deferred compensation expense charged to
operations was $61 and $23 for the year ended December 31, 1999 and the period
ended December 31, 1998, respectively. In connection with the Acquisition,
Generac established a qualified 401(k) profit sharing plan covering
substantially all full-time employees. No contributions were made to the plan
for the year ended December 31, 1999 or for the period ended December 31, 1998.



                                       53
<PAGE>   54


9.    INCOME TAXES

      The provision for income taxes consists of the following:

<TABLE>
<CAPTION>

                                                                                   FOR THE PERIOD
                                                                                    JULY 10, 1998
                                                                                      THROUGH
                                                                   1999           DECEMBER 31, 1998
                                                                  -------         -----------------
<S>                                                              <C>                  <C>
      Current:
              Federal                                              $3,799               $  781
              State                                                   295                   33
              Foreign                                                 150                   --
                                                                   ------               ------
                      Total current                                 4,244                  814

      Deferred:
              Federal and state                                     3,180                1,366
                                                                   ------               ------
                      Total provision for income taxes             $7,424               $2,180
                                                                   ======               ======
</TABLE>


      The components of consolidated pretax income for the year ended December
31, 1999 are as follows:

<TABLE>
<CAPTION>

<S>                                      <C>
      United States                        $ 21,247
      Europe                                   (284)
                                           --------
      Total                                $ 20,963
                                           ========
</TABLE>



      The following reconciles the U.S. federal statutory income tax rate with
Generac's effective tax rate:

<TABLE>
<CAPTION>

                                                                    FOR THE PERIOD
                                                                    JULY 10, 1998
                                                                      THROUGH
                                                    1999          DECEMBER 31, 1998
                                                  -------         -----------------
<S>                                               <C>                 <C>
U.S. federal statutory income tax rate              34.0%               34.0%
State income taxes, net of federal benefit           1.8                 1.0
Amortization of excess tax goodwill                 (1.3)               (2.0)
Other                                                0.9                 1.2
                                                    ----                ----
                                                    35.4%               34.2%
                                                    ====                ====
</TABLE>



                                       54
<PAGE>   55


      Deferred income taxes reflected in the balance sheet consist of the
following at December 31, 1999 and 1998:

<TABLE>
<CAPTION>

                                            1999          1998
                                          -------       -------
<S>                                     <C>           <C>
Deferred tax assets:
           Inventories and receivables    $   271       $   267
           Sales incentives                   197            --
           Accrued warranty                   607            76
           Employee benefits                  203            --
                                          -------       -------
                                            1,278           343

Deferred tax liabilities:
           Fixed assets                      (688)           --
           Intangible assets               (5,105)       (1,512)
           Sales incentives                    --          (161)
           Other                              (31)          (36)
                                          -------       -------
                                           (5,824)       (1,709)
                                          -------       -------
                                          $(4,546)      $(1,366)
                                          =======       =======
</TABLE>

10.   STOCKHOLDERS' EQUITY

      In connection with the initial capitalization of Generac, The Beacon Group
III--Focus Value Fund, L.P., management of Generac and certain other investors
purchased an aggregate of $110 million of common stock, par value of $.01 per
share, constituting 100% of Generac's outstanding common stock. Upon
consummation of the Acquisition, The Beacon Group III--Focus Value Fund, L.P.
and the other stockholders of Generac, and Generac, entered into a Stockholders'
Agreement which includes certain transfer restrictions, voting agreements and
registration rights. Employees who own stock of Generac 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 is not obligated to purchase this stock.

      Effective July 9, 1998, Generac's board of directors approved the Generac
Portable Products, Inc. Stock Option Plan which provides for the granting of
stock options as an incentive to members of the board of directors and certain
key employees. Under this Plan, stock options to acquire up to 2,406,310 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 three to five-year period and
expire ten years subsequent to the grant date.



                                       55

<PAGE>   56


      Stock option transactions for the year ended December 31, 1999 and the
period ended December 31, 1998 are summarized as follows:

<TABLE>
<CAPTION>

                                                           1999               1998
                                                     --------------        -----------
<S>                                                <C>                   <C>
      Options granted                                       451,182          1,729,531
      Options forfeited                                      75,197                  -
      Options outstanding                                 2,105,516          1,729,531
      Exercised options                                           -                  -
      Exercisable options                                   360,946                  -
      Remaining contractual life (years)                        9.4                8.5
      Exercise price                                 $8.71 - $11.00        $      8.71
      Fair value at grant date                       $         3.68        $      2.92
</TABLE>


      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 applies Accounting Principles Board Opinion No.25 and related
interpretations in accounting for its stock option plan. Accordingly, no
compensation expense has been recognized in the statement of income for the year
ended December 31, 1999. If compensation cost had been determined in accordance
with SFAS No.123, net income would have decreased approximately $843 and $351
during the year ended December 31, 1999 and during the period ended December 31,
1998, respectively.

      On May 20, 1999, the company effected a 1,250 for one common stock split
and on May 28, 1999, the company effected a 1.189 for one common stock split.
All share information in these consolidated financial statements have been
retroactively adjusted to reflect these stock splits.

11.   LEASES

      Generac 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 entered into a capital
lease arrangement with GPSI for certain manufacturing equipment. Property, plant
and equipment at December 31, 1999 and 1998 includes $2,102 and $2,451,
respectively, for equipment under capital leases, which is net of $514 and $165
in accumulated depreciation, respectively. 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,
1999:


                                       56

<PAGE>   57

<TABLE>
<CAPTION>

                                              OPERATING             CAPITAL
                                               LEASES               LEASES
                                              ---------            ---------
<S>                                          <C>                 <C>
      2000                                     $   602             $   673
      2001                                         222                 673
      2002                                          --                 830
                                               -------             -------
                                               $   824               2,176
                                               =======
      Less amount representing interest                               (280)
                                                                   -------
      Present value of minimum lease payments                      $ 1,896
                                                                   =======
</TABLE>

      Total rent expense recognized by Generac for the year ended December 31,
1999 and for the period ended December 31, 1998 was $2,521 and $559,
respectively.


12.   SEGMENT INFORMATION

      Generac is a leading designer, manufacturer and marketer of engine-powered
tools and related accessories for use in both consumer and commercial
applications. Engineering, manufacturing, marketing and administrative resources
are generally not product specific and Generac evaluates operating performance
based upon the combined results of these product lines.

      Information regarding Generac's geographic areas is summarized below:

<TABLE>
<CAPTION>

                                                          United
                                                          States        Europe    Consolidated
                                                        ---------     ---------   ------------
<S>                                                   <C>           <C>           <C>
As and for the year ended December 31, 1999:
       Net sales to unaffiliated customers              $ 358,999     $  39,097     $ 398,096
       Long-lived assets                                  239,448         2,505       241,953
As and for the period ended December 31, 1998:
       Net sales to unaffiliated customers                126,740        10,122       136,862
       Long-lived assets                                  235,517         2,574       238,091
</TABLE>


      Generac sells primarily to large home center retailers. Three customers
accounted for approximately 73% and 74% of net sales for the year ended December
31, 1999 and for the period ended December 31, 1998, respectively. All three
customers individually comprise more than 10% of Generac's net sales. Included
in accounts receivable at December 31, 1999 and 1998 are amounts due from these
three customers aggregating $33,236 and $29,862, respectively.


                                       57

<PAGE>   58


13.   COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

      In the normal course of business Generac 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's financial
position, results of operations or cash flows.

      In connection with the Acquisition, Generac entered into an OEM engine
supply agreement with GPSI, to supply it with the engine used in certain of
Generac's pressure washers and consumer portable generators. The engine supply
agreement allows for Generac to make minimum purchases of engines from GPSI in
each of the next nine years and gives Generac 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 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.
Management also considers the provisions of the engine supply agreement to
reflect arms-length terms. For the year ended December 31, 1999 and for the
period ended December 31, 1998, Generac purchased product approximating $55.1
and $14.4 million, respectively, under this agreement. In addition, Generac also
purchased other components from GPSI approximating $11.6 and $6.5 million for
the year ended December 31, 1999 and for the period ended December 31, 1998,
respectively. Included in accounts payable are amounts due to GPSI of
approximately $6.7 and $4.7 million at December 31, 1999 and 1998, respectively.

      On September 29, 1999, Generac commenced an arbitration against Generac
Power Systems, Inc. ("GPSI"), entitled In the Matter of An Arbitration Between
Generac Portable Products, Inc. and Generac Power Systems, Inc., formerly known
as Generac Corporation, under the auspices of the American Arbitration
Association in Milwaukee, Wisconsin. The dispute concerns the respective rights
of the company and GPSI to manufacture and sell in the retail market portable
generators with an output level greater than ten kilowatts and home standby
stationary generators. The company has alleged that GPSI has improperly taken
the position with both the company and the company's retail customers that a
mutual agreement not to compete executed by the parties in connection with the
Acquisition prohibits the company from manufacturing or selling those products.
It is the company's position that the noncompete agreement does not preclude the
company from manufacturing or selling those products to retailers and that the
parties'contractual arrangements preclude GPSI from interfering with the
company's rights to do so by, among other things, attempting to sell home
standby stationary generators to retailers, including the company's retail
customers. The company also has alleged that GPSI has breached its obligations
under a generator supply contract by refusing for nine months to negotiate a
price for home standby stationary generators and to provide such generators to
the company for resale and by selling those generators directly to the company's
retail customers. Generac is seeking (i) a declaration that GPSI has breached
its contractual obligations to the company, including the implied covenant of
good faith and fair dealing; (ii) a declaration that Generac is free to
manufacture and sell to retailers portable generators with an output level
greater than ten kilowatts and home standby generators; (iii) to enjoin GPSI
from taking actions which would delay or displace the company's efforts to
market those products to retailers; (iv) to enjoin GPSI from engaging in the
sale of home standby stationary generators to



                                       58

<PAGE>   59

retailers, at least during the pendency of the generator supply contract; and
(v) to hold GPSI liable for compensatory and punitive damages resulting from
GPSI's conduct. On October 19, 1999, GPSI responded to the company's claims by
filing an Answering Statement denying the company's allegations and reiterating
its position that the relevant agreements give GPSI the exclusive right to
manufacture and sell home standby stationary generators and generators with an
output level greater than ten kilowatts in any distribution channel.

      The parties have finalized selection of an arbitrator. The company does
not believe the arbitration dispute discussed above will have an adverse effect
on its relationship with GPSI under the OEM engine supply agreement.


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 has provided a full and unconditional
guarantee of the Notes. However, because Generac has no operating activities
independent of Generac Portable Products, LLC, Generac's 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, GPPW and GPPD in Generac Portable Products,
LLC using the equity method. Generac, 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, and GPPW and GPPD hold a 5% and 95% ownership interest
in Generac Portable Products, LLC, respectively.







                                       59
<PAGE>   60
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
-----------------------
                                  GENERAC PORTABLE                              GENERAC PORTABLE
                                   PRODUCTS, INC.        GPPW        GPPD         PRODUCTS, LLC      ELIMINATIONS     CONSOLIDATED
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
<S>                               <C>                  <C>        <C>           <C>                  <C>              <C>
 Current assets                   $             -      $     59   $     1,112   $         114,365    $           -    $     115,536
 Investment in affiliates                   122,357       6,596       125,303                 -           (254,256)             -
 Noncurrent assets                              -           -             -               241,953                -          241,953
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
                                  $         122,357    $  6,655   $   126,415   $         356,318    $     (254,256)  $     357,489
                                  ==================   =========  ============  ==================   ==============   ==============

 Current liabilities              $             -      $     23   $       425   $          54,468    $         -      $      54,916
 Long-term debt                                 -           -             -               180,520              -            180,520
 Other long-term obligations                    -           286         5,431               1,089              -              6,806
 Stockholders' equity                       122,357       6,346       120,559             120,241          (254,256)        115,247
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
                                  $         122,357    $  6,655   $   126,415   $         356,318    $     (254,256)  $     357,489
                                  ==================   =========  ============  ==================   ==============   ==============
<CAPTION>
AS OF DECEMBER 31, 1998
-----------------------
                                  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
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
                                  $         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>
FOR THE YEAR ENDED DECEMBER 31, 1999
------------------------------------

                                  GENERAC PORTABLE                              GENERAC PORTABLE
                                   PRODUCTS, INC.        GPPW        GPPD         PRODUCTS, LLC      ELIMINATIONS     CONSOLIDATED
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
<S>                              <C>                  <C>        <C>           <C>                   <C>             <C>
 Net sales                        $             -      $    -     $       -     $         398,096    $         -      $     398,096
 Gross profit                                   -           -             -               107,211              -            107,211
 Operating expenses                             -           -             -                62,737              -             62,737
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
 Income from operations                         -           -             -                44,474              -             44,474
 Interest expense                               -           -             -                20,823              -             20,823
 Other expense (income), net                    -           -             -                 2,688              -              2,688
 Equity in earnings of affiliates            13,539       1,045        19,856                 -             (34,440)            -
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
 Income before income taxes                  13,539       1,045        19,856              20,963           (34,440)         20,963
 Provision for income taxes                     -           368         6,994                  62              -              7,424
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
 Net income                       $          13,539    $    677   $    12,862   $          20,901    $      (34,440)  $      13,539
                                  ==================   =========  ============  ==================   ==============   ==============
<CAPTION>
FOR THE PERIOD ENDED DECEMBER 31, 1998
--------------------------------------
                                  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
                                  ------------------   ---------  ------------  ------------------   --------------   --------------
 Income from operations                         -           -             -                16,286              -             16,286
 Interest expense                               -           -             -                 9,674              -              9,674
 Other expense (income), net                    -           -             -                   230              -                230
 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>






                                       60
<PAGE>   61


15.      EXPENSES FROM WITHDRAWN COMMON STOCK OFFERING

         During the year ended December 31, 1999, Generac incurred certain fees
and expenses in conjunction with its efforts to complete an initial public
offering of its common stock. Generac withdrew its initial public stock offering
during July 1999. Expenses related to this offering of approximately $1.2
million were recorded during the year ended December 31, 1999.

































                                       61
<PAGE>   62


                                   SCHEDULE II
                         GENERAC PORTABLE PRODUCTS, INC.
                  SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                                                   BALANCE AT
                                                                    BEGINNING     CHARGES TO                            BALANCE AT
                                                                    OF PERIOD       EXPENSE         DEDUCTIONS         END OF PERIOD
                                                                 ------------    --------------    --------------    ---------------
ACCOUNTS RECEIVABLE:
<S>                                                              <C>             <C>               <C>               <C>
       For the Year Ended December 31, 1999                               242           372                 66                   548
       For the Period July 10, 1998 through December 31, 1998             225            17                -                     242

<CAPTION>
                                                                  BALANCE AT
                                                                    BEGINNING      CHARGES TO                            BALANCE AT
                                                                    OF PERIOD       EXPENSE          DEDUCTIONS        END OF PERIOD
                                                                 ------------    --------------    --------------    ---------------
<S>                                                             <C>             <C>               <C>               <C>
INVENTORY
       For the year ended December 31, 1999                               774         2,089               1,352                1,511
       For the period July 10, 1998 through December 31, 1998             500           593                 319                  774
</TABLE>


















                                       62

<PAGE>   63


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders
of Generac Corporation:

         We have audited the accompanying statements of income and cash flows
for the six months and nine days ended July 9, 1998 and the year ended December
31, 1997. Our audits also included the financial statement schedule listed at
Item 14 (a) 2. These financial statements and financial statement schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         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 results of operations and cash flows of the Portable
Products Division, a Business Unit of Generac Corporation for the six months and
nine days ended July 9, 1998 and the year ended December 31, 1997 in conformity
with generally accepted accounting principles. Also, 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
January 29, 1999















                                       63
<PAGE>   64


                   PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
                             OF GENERAC CORPORATION

                         STATEMENTS OF INCOME (IN 000'S)

<TABLE>
<CAPTION>

                                         FOR THE SIX MONTHS
                                           AND NINE DAYS          FOR THE YEAR ENDED
                                         ENDED JULY 9, 1998        DECEMBER 31, 1997
                                       --------------------     --------------------
<S>                                     <C>                     <C>
Net sales                                $          139,551       $          178,014
Cost of sales                                       104,537                  131,095
                                       --------------------     --------------------
     Gross profit                                    35,014                   46,919
                                       --------------------     --------------------

Expenses
  Selling and service                                16,624                   21,729
  General and administrative                          2,380                    4,161
                                       --------------------     --------------------
     Total expenses                                  19,004                   25,890
                                       --------------------     --------------------

Income from operations                               16,010                   21,029
Other expenses
  Interest expense                                    1,409                    2,100
  Foreign currency                                      108                      186
                                       --------------------     --------------------
     Total other expense                              1,517                    2,286
                                       --------------------     --------------------

Net income                               $           14,493       $           18,743
                                       ====================     ====================

Comprehensive income
  Net income                             $           14,493       $           18,743
  Translation adjustments                              (535)                    (832)
                                       --------------------     --------------------
     Total comprehensive
        income                           $           13,958       $           17,911
                                       ====================     ====================
</TABLE>


See notes to financial statements.















                                       64

<PAGE>   65


                   PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
                             OF GENERAC CORPORATION

                       STATEMENTS OF CASH FLOWS (IN 000'S)

<TABLE>
<CAPTION>

                                               FOR THE SIX MONTHS
                                                 AND NINE DAYS          FOR THE YEAR ENDED
                                               ENDED JULY 9, 1998        DECEMBER 31, 1997
                                            ---------------------    ----------------------
<S>                                           <C>                      <C>
Operating Activities:
  Net income                                   $           14,493        $           18,743
  Adjustments to reconcile net
     income to net cash (used in)
     provided by operating
     activities:
     Depreciation                                             796                     1,466
     (Increase) decrease in assets:
        Accounts receivable                               (29,943)                   (4,753)
        Inventories                                       (10,054)                   (8,696)
        Prepaid expenses                                     (224)                      276
     Increase in liabilities:
        Accounts payable                                    7,936                        95
        Accrued liabilities                                 3,428                     1,084
                                            ---------------------    ----------------------
           Net cash (used in)
              provided by operating
              activities                                  (13,568)                    8,215

Investing Activities--Capital
  expenditures                                             (1,553)                   (1,413)

Financing Activities--Increase
  (decrease) in business unit
  investment, net                                          14,787                    (6,784)

Effect of exchange rate changes
  on cash                                                    (132)                      (75)
                                            ---------------------    ----------------------

Net decrease in cash
  and cash equivalents                                       (466)                      (57)

Cash and cash equivalents:
  Beginning of Period                                       1,065                     1,122
                                            ---------------------    ----------------------
  End of Period                                $              599        $            1,065
                                            =====================    ======================
</TABLE>


See notes to financial statements.

                                       65
<PAGE>   66


                   PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT
                             OF GENERAC CORPORATION

                          NOTES TO FINANCIAL STATEMENTS
                   SIX MONTHS AND NINE DAYS ENDED JULY 9, 1998
                      AND THE YEAR ENDED DECEMBER 31, 1997

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 year ended December 31, 1997                                  1,743
</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>





                                       66
<PAGE>   67



     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
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 year ended December 31, 1997                                  5,305
</TABLE>


         FOREIGN CURRENCY TRANSLATION -- The translation of the branch accounts
into U.S. dollars is performed 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.

         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 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 with separate financial
reporting. The financial statements for the six months and nine days ended July
9, 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 and the year ended December 31, 1997
included manufacturing support of $125,000 and $587,000, service support of
$11,000 and $789,000, research and development support of $21,000 and $410,000,
general and administrative support of $152,000 and $280,000, and human resource
and employee benefits support of $76,000 and $228,000, respectively.

     Research and development expenses totaling $131,000 and $246,000 were
incurred by the Business Unit's United Kingdom branch during the six months and
nine days ended July 9, 1998 and the year ended December 31, 1997, respectively,
on behalf of Generac and charged to Generac.






                                       67

<PAGE>   68


     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 and the year ended December 31, 1997 were $7,855,000 and $9,541,000,
respectively, from Generac to the Business Unit and $350,000 and $1,330,000,
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, the Business Unit purchased
$12,223,000 of inventories related to such transferred production.

     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 and $1,999,000 during the six months and nine days ended July 9, 1998
and the year ended December 31, 1997, 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.

The changes within the business unit investment for the period ended July 9,
1998 are as follows:

<TABLE>
<CAPTION>
<S>                                              <C>
     Balance at January 1, 1997                  $           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                                             14,493
      Cumulative translation adjustments                       (535)
      Activity with parent, net                              15,189
                                                 ------------------
     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.   PROVISION FOR DOUBTFUL ACCOUNTS

     The provision for doubtful accounts charged 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 year ended December 31, 1997                                     21

</TABLE>






                                       68

<PAGE>   69



5.   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 and the year ended December 31, 1997 was $231,000 and $293,000,
respectively.

         Generac maintains deferred compensation plans for key employees of the
Business Unit. Deferred compensation expense charged to operations was $18,000
and $40,000, for the six months and nine days ended July 9, 1998 and for the
year ended December 31, 1997, respectively.

6.   RENT EXPENSE

     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.

     Total rent expense for the six months and nine days ended July 9, 1998 and
the year ended December 31, 1997 was approximately $476,000 and $462,000,
respectively.

7.   MAJOR CUSTOMERS

     Two customers accounted for approximately 69% of net sales for the six
months and nine days ended July 9, 1998. Three customers accounted for
approximately 74% of net sales for the year ended December 31, 1997.

8.   FOREIGN OPERATIONS

     Sales for the Business Unit's European operations accounted for
approximately 8% of net sales for the six months and nine days ended July 9,
1998 and the year ended December 31, 1997.

9.   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.

10.  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


                                       69

<PAGE>   70

company formed by The Beacon Group III -- Focus Value Fund, L.P.) for a net
purchase price of approximately $305 million, including expenses.





































                                       70

<PAGE>   71


                                   SCHEDULE II
       PORTABLE PRODUCTS DIVISION, A BUSINESS UNIT OF GENERAC CORPORATION
                  SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>

                                                           BALANCE AT
                                                            BEGINNING         CHARGES TO                            BALANCE AT
                                                            OF PERIOD           EXPENSE         DEDUCTIONS        END OF PERIOD
                                                         ----------------    --------------    ------------   -------------------
<S>                                                      <C>                 <C>               <C>              <C>
ACCOUNTS RECEIVABLE:
       Six Months and Nine Days Ended July 9, 1998                172                67                14                   225
       For the Year Ended December 31, 1997                       151                21               -                     172

<CAPTION>
                                                           BALANCE AT
                                                            BEGINNING          CHARGES TO                           BALANCE AT
                                                            OF PERIOD           EXPENSE         DEDUCTIONS        END OF PERIOD
                                                         ----------------    --------------    ------------   -------------------
<S>                                                     <C>                 <C>               <C>            <C>
INVENTORY
       Six Months and Nine Days Ended July 9, 1998                350               412                262                  500
       For the Year Ended December 31, 1997                       125               781                556                  350
</TABLE>



















                                       71



<PAGE>   72


                                   SIGNATURES

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

                                            GENERAC PORTABLE PRODUCTS, INC.
                                            (Registrant)

Date:  March 29, 2000               By      /s/   ERIC R. WILKINSON
                                            -----------------------
                                            Eric R. Wilkinson
                                            President

                                POWER OF ATTORNEY

         The undersigned officers and directors of Generac Portable Products,
Inc. hereby severally constitute Eric R. Wilkinson, President of Generac
Portable Products, Inc., or Richard A. Aube, Secretary and Treasurer of Generac
Portable Products, Inc., and each of them singly our true and lawful attorneys,
with full power to them and each of them singly, to sign for us in our names in
the capacities indicated below the Annual Report on Form 10-K filed herewith and
any and all amendments thereto, and generally to do all such things in our name
and on our behalf in our capacities as officers and directors to enable Generac
Portable Products, Inc. to comply with the provisions of the Securities Exchange
Act of 1934, as amended, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any one of them, on the Annual Report on Form 10-K and
any and all amendments thereto.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Generac
Portable Products, Inc. and in the capacities and on the date indicated.

Date:  March 29, 2000               By      /s/   ERIC R. WILKINSON
                                            -----------------------
                                            Eric R. Wilkinson
                                            President

Date:  March 29, 2000               By      /s/   RICHARD A. AUBE
                                            ------------------------
                                            Richard A. Aube
                                            Secretary and Treasurer

Date:  March 29, 2000               By      /s/   R. EUGENE CARTLEDGE
                                            -------------------------
                                            R. Eugene Cartledge
                                            Chairman of the Board

Date:  March 29, 2000               By      /s/   THOMAS A. COMMES
                                            ----------------------
                                            Thomas A. Commes
                                            Director




                                       72

<PAGE>   73


Date:  March 29, 2000               By      /s/  THOMAS G. MENDELL
                                            ----------------------
                                            Thomas G. Mendell
                                            Director

Date:  March 29, 2000               By      /s/   DORRANCE J. NOONAN, JR.
                                            -----------------------------
                                            Dorrance J. Noonan, Jr.
                                            Director

Date:  March 29, 2000               By      /s/   R. RALPH PARKS
                                            --------------------
                                            R. Ralph Parks
                                            Director

Date:  March 29, 2000               By      /s/   JAMES P. SCHADT
                                            ---------------------
                                            James P. Schadt
                                            Director

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

                                           GENERAC PORTABLE PRODUCTS, LLC
                                           (Registrant)

Date:  March 29, 2000               By     /s/   DORRANCE J. NOONAN, JR.
                                           -----------------------------
                                           Dorrance J. Noonan, Jr.
                                           President and Chief Executive Officer

                                POWER OF ATTORNEY

         The undersigned officers and directors of Generac Portable Products,
LLC hereby severally constitute Gary J. Lato, Chief Financial Officer of Generac
Portable Products, LLC, our true and lawful attorney, with full power to him, to
sign for us in our names in the capacities indicated below the Annual Report on
Form 10-K filed herewith and any and all amendments thereto, and generally to do
all such things in our name and on our behalf in our capacities as officers and
directors to enable Generac Portable Products, LLC to comply with the provisions
of the Securities Exchange Act of 1934, as amended, and all requirements of the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney on the Annual Report on
Form 10-K and any and all amendments thereto.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of Generac
Portable Products, LLC and in the capacities and on the date indicated.


Date:  March 29, 2000        By  /s/   DORRANCE J. NOONAN, JR.
                                 -----------------------------
                                 Dorrance J. Noonan, Jr.
                                 President, Chief Executive Officer and Director


                                       73
<PAGE>   74



Date:  March 29, 2000                      By  /s/   GARY J. LATO
                                               ------------------
                                               Gary J. Lato
                                               Chief Financial Officer

Date:  March 29, 2000                      By  /s/   RICHARD A. AUBE
                                               ---------------------
                                               Richard A. Aube
                                               Director

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

                                                     GPPW, INC.
                                                     (Registrant)

Date  March 29, 2000                       By  /s/   FAITH ROSENFELD
                                               ---------------------
                                               Faith Rosenfeld
                                               President

                                POWER OF ATTORNEY

         The undersigned officers and directors of GPPW, Inc. hereby severally
constitute Richard A. Aube, Secretary and Treasurer of GPPW, Inc., our true and
lawful attorney, with full power to him, to sign for us in our names in the
capacities indicated below the Annual Report on Form 10-K filed herewith and any
and all amendments thereto, and generally to do all such things in our name and
on our behalf in our capacities as officers and directors to enable GPPW, Inc.
to comply with the provisions of the Securities Exchange Act of 1934, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorney on the Annual Report on Form 10-K and any and all amendments thereto.

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of GPPW,
Inc. and in the capacities and on the date indicated.

Date  March 29, 2000                       By  /s/   FAITH ROSENFELD
                                               ---------------------
                                               Faith Rosenfeld
                                               President

Date:  March 29, 2000                      By  /s/   RICHARD A. AUBE
                                               ------------------------
                                               Richard A. Aube
                                               Secretary, Treasurer and Director

                                       74



<PAGE>   75




 EXHIBIT
 NUMBER       DESCRIPTION OF EXHIBITS
 ------       -----------------------

 3.1          Certificate of Incorporation of GPPC, Inc. (incorporated by
              reference to Exhibit 3.1 to the Registrants' Registration
              Statement on Form S-4 dated July 26, 1999).
 3.2          Certificate of Amendment of Certificate of Incorporation
              Before Payment of Any Part of the Capital of GPPC, Inc.
              (incorporated by reference to Exhibit 3.2 to the
              Registrants' Registration Statement on Form S-4 dated July
              26, 1999).
 3.3          Certificate of Amendment of Certificate of Incorporation
              Before Payment of Any Part of the Capital of Generac
              Portable Products, Inc. (incorporated by reference to
              Exhibit 3.3 to the Registrants' Registration Statement on
              Form S-4 dated July 26, 1999).
 3.4          By-Laws of Generac Portable Products, Inc. (incorporated by
              reference to Exhibit 3.4 to the Registrants' Registration
              Statement on Form S-4 dated July 26, 1999).
 3.5          Certificate of Formation of Generac Portable Products, LLC
              (incorporated by reference to Exhibit 3.5 to the
              Registrants' Registration Statement on Form S-4 dated July
              26, 1999).
 3.6          Limited Liability Company Agreement of Generac Portable
              Products, LLC (incorporated by reference to Exhibit 3.6 to
              the Registrants' Registration Statement on Form S-4 dated
              July 26, 1999).
 3.7          Articles of Incorporation of GPPW, Inc. (incorporated by
              reference to Exhibit 3.7 to the Registrants' Registration
              Statement on Form S-4 dated July 26, 1999).
 3.8          By-laws of GPPW, Inc. (incorporated by reference to Exhibit
              3.8 to the Registrants' Registration Statement on Form S-4
              dated July 26, 1999).
 4.1          Indenture, dated as of July 1, 1998 among Generac Portable
              Products, LLC, GPPW, Inc. and Marine Midland Bank, as
              trustee (incorporated by reference to Exhibit 4.1 to the
              Registrants' Registration Statement on Form S-4 dated July
              26, 1999).
 4.2          Registration Rights Agreement, dated as of July 2, 1998
              among Generac Portable Products, LLC, GPPW, Inc. and
              Deutsche Bank Securities Inc. (incorporated by reference to
              Exhibit 4.2 to the Registrants' Registration Statement on
              Form S-4 dated July 26, 1999).
 4.3          Form of Security for 11 1/4% senior subordinated notes due
              2006 issued by Generac Portable Products, LLC and GPPW, Inc.
              (including the form of Guarantee) (incorporated by reference
              to Exhibit 4.4 to the Registrants' Registration Statement on
              Form S-4 dated July 26, 1999).
 4.4          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.
              (incorporated by reference to Exhibit 4.1 to the
              Registrants' Registration Statement on Form S-1 dated May
              21, 1999).




                                       75
<PAGE>   76
 10.1         OEM Engine Supply Agreement dated July 9, 1998 between
              Generac Corporation and Generac Portable Products, Inc.
              (incorporated by reference to Exhibit 10.1 to the
              Registrants' Registration Statement on Form S-4 dated July
              26, 1999).
 24.1         Powers of Attorney (included in the signature pages of this
              Form 10-K).
 27.1         Financial Data Schedule.






                                       76