10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 27, 2004

OR

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

For the transition period from              to             

Commission File Number: 001-16501

GLOBAL POWER EQUIPMENT GROUP INC.

(Exact name of registrant as specified in its charter)

Delaware	73-1541378
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

6120 South Yale, Suite 1480, Tulsa, Oklahoma

(Address of principal executive offices)

74136

(Zip Code)

(918) 488-0828

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

The number of shares of the Registrant’s common stock, $.01 par value, outstanding at May 3, 2004 was 46,323,798.

GLOBAL POWER EQUIPMENT GROUP INC.

FORM 10-Q

March 27, 2004

INDEX

			Page
Part I.	Financial Information
	Item 1.	Financial Statements
		Condensed Consolidated Balance Sheets at March 27, 2004 and December 27, 2003	1
		Condensed Consolidated Statements of Income for the Three Months Ended March 27, 2004 and March 29, 2003	2
		Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 27, 2004 and March 29, 2003	3
		Notes to Condensed Consolidated Financial Statements	4
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14
	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	22
	Item 4.	Controls and Procedures	23
Part II.	Other Information
	Item 1.	Legal Proceedings	23
	Item 6.	Exhibits and Reports on Form 8-K	23
Signatures			25
Exhibit Index			26

PART I. FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(in thousands, except share data)

	March 27, 2004			December 27, 2003
ASSETS
Current assets:
Cash and cash equivalents	$	53,414		$	51,315
Accounts receivable, net of allowance of $1,333 and $1,325		34,889			42,582
Inventories at FIFO		3,881			3,013
Costs and estimated earnings in excess of billings		42,206			40,706
Deferred income taxes		15,209			17,315
Other current assets		8,833			3,983
Total current assets		158,432			158,914
Property, plant and equipment, net		20,030			20,740
Deferred income taxes		53,409			55,094
Goodwill		45,000			45,000
Other assets		1,595			1,248
Total assets	$	278,466		$	280,996
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	14		$	14
Accounts payable		14,787			18,974
Accrued compensation and employee benefits		3,779			7,285
Accrued warranty		15,038			15,004
Billings in excess of costs and estimated earnings		60,494			53,293
Other current liabilities		4,724			5,203
Total current liabilities		98,836			99,773
Other long-term liabilities		1,888			1,888
Long-term debt, net of current maturities		16,633			24,949
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized, no shares issued or outstanding		—			—
Common stock, $0.01 par value, 100,000,000 shares authorized, 46,323,798 and 45,207,930 shares issued and outstanding, respectively		463			452
Paid-in capital deficit		(19,553	)		(25,492	)
Accumulated other comprehensive income		2,551			2,616
Retained earnings		177,648			176,810
Total stockholders’ equity		161,109			154,386
Total liabilities and stockholders’ equity	$	278,466		$	280,996

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 27, 2004		March 29, 2003
Revenues	$	55,126	$	77,026
Cost of sales		43,313		55,808
Gross profit		11,813		21,218
Selling and administrative expenses		10,261		9,464
Operating income		1,552		11,754
Interest expense, net		200		498
Income before income taxes		1,352		11,256
Income tax provision		514		4,390
Net income available to common stockholders	$	838	$	6,866
Earnings per weighted average common share:
Basic	$	0.02	$	0.16
Weighted average number of shares of common stock outstanding-basic		45,657		43,988
Diluted	$	0.02	$	0.15
Weighted average number of shares of common stock outstanding-diluted		46,727		45,609

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(in thousands)

	Three Months Ended
	March 27, 2004			March 29, 2003
Operating activities:
Net income	$	838		$	6,866
Adjustments to reconcile net income to net cash provided by (used in) operating activities-
Depreciation and amortization		940			1,058
Deferred income taxes		3,791			5,481
Loss on disposal of equipment		62			—
Stock-based compensation		487			—
Changes in operating items (Note 9)		3,136			(14,725	)
Net cash provided by (used in) operating activities		9,254			(1,320	)
Investing activities:
Proceeds from sale of equipment		1			—
Purchases of property, plant and equipment		(134	)		(59	)
Net cash used in investing activities		(133	)		(59	)
Financing activities:
Payments on long-term debt		(8,316	)		(15	)
Proceeds from issuance of common stock		1,416			5
Net cash used in financing activities		(6,900	)		(10	)
Effect of exchange rate changes on cash		(122	)		378
Net increase (decrease) in cash and cash equivalents		2,099			(1,011	)
Cash and cash equivalents, beginning of period		51,315			59,042
Cash and cash equivalents, end of period	$	53,414		$	58,031

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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GLOBAL POWER EQUIPMENT GROUP INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BUSINESS AND ORGANIZATION

Global Power Equipment Group Inc. and Subsidiaries (the Company or GPEG) designs, engineers and manufactures heat recovery and auxiliary power equipment. Our products include:

Ÿ	heat recovery steam generators;	Ÿ	exhaust systems;
Ÿ	filter houses;	Ÿ	diverter dampers; and
Ÿ	inlet systems;	Ÿ	specialty boilers and related products
Ÿ	gas turbine, steam turbine and generator enclosures;

The Company’s corporate headquarters are located in Tulsa, Oklahoma, with operating facilities in Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; Clinton, South Carolina; Monterrey, Mexico; Toluca, Mexico; Shanghai, China; and Heerlen, Netherlands.

2. INTERIM FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished in the condensed consolidated financial statements, in the opinion of management, includes normal recurring adjustments and reflects all adjustments which are necessary for a fair presentation of such financial statements. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. Although the Company believes that the disclosures are adequate to make the information presented not misleading, these condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended December 27, 2003, filed with the Securities and Exchange Commission. The quarterly results are not necessarily indicative of the actual results that may occur for the entire fiscal year.

3. GOODWILL

There were no changes in the carrying amount of goodwill during the first three months of fiscal 2004. The Company will complete its annual impairment testing during the fourth quarter of fiscal year 2004 or as necessary if circumstances warrant a possible impairment charge. The balances by operating segment as of March 27, 2004 and December 27, 2003 were as follows (in thousands):

Heat Recovery Equipment		Auxiliary Power Equipment		Corporate		Total
$	25,230	$	18,623	$	1,147	$	45,000

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4. EARNINGS PER SHARE

Basic and diluted earnings per common share are calculated as follows (in thousands, except share and per share data):

	Three Months Ended
	March 27, 2004		March 29, 2003
Basic earnings per common share:
Numerator:
Net income available to common stockholders	$	838	$	6,866
Denominator:
Weighted average shares outstanding		45,656,937		43,987,970
Basic earnings per common share	$	0.02	$	0.16
Diluted earnings per common share:
Numerator:
Net income available to common stockholders	$	838	$	6,866
Denominator:
Weighted average shares outstanding		45,656,937		43,987,970
Dilutive effect of options to purchase common stock *		1,070,390		1,620,896
Weighted average shares outstanding assuming dilution		46,727,327		45,608,866
Diluted earnings per common share	$	0.02	$	0.15

* There were 560,000 and 566,000 of anti-dilutive stock options excluded from this calculation for the three months ended March 27, 2004 and March 29, 2003, respectively.

5. DERIVATIVE FINANCIAL INSTRUMENTS

SFAS 133, “Accounting for Derivative Instruments and Hedging Activities,” establishes accounting and reporting standards requiring that every derivative instrument be recorded on the balance sheet as either an asset or a liability measured at fair value. SFAS 133 requires that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative’s gains and losses to be deferred in other comprehensive income until the transaction occurs (“cash flow hedge”) or to offset related results on the hedged item in the income statement (“fair value hedge”). Hedge accounting requires that a company formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment.

Periodically, the Company uses derivative financial instruments in the management of its foreign currency exchange and interest rate exposures. As of March 27, 2004, there were foreign currency forward exchange contracts outstanding with a notional amount of approximately $2.2 million with varying amounts due through December 2004. Currently, the Company recognizes changes in fair values of the forward agreements through earnings. The fair values of unrealized losses on the forward agreements of approximately $0.05 million for the period ended March 27, 2004 are included in earnings through cost of sales. As of March 29, 2003, amounts outstanding under foreign currency forward exchange agreements were $12.8 million with varying amounts due through July 2003. The Company recorded unrealized gains on the forward agreements of approximately $0.4 million for the period ended March 29, 2003.

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6. LITIGATION, COMMITMENTS AND CONTINGENCIES

In June 2003, Stone & Webster, Inc. and Stone & Webster Purchasing, Inc. (collectively, “S&W”) commenced a lawsuit in the U.S. District Court for the Southern District of Iowa Central Division, against Deltak, L.L.C. (“Deltak”), one of the Company’s subsidiaries. The lawsuit alleged Deltak committed breach of contract and warranty and made certain intentional misrepresentations in connection with a contract to provide two heat recovery steam generators for a project in which S&W was the general contractor. S&W alleged it incurred significant cost increases and delays on the project resulting from certain design, constructability and fabrication issues related to the heat recovery steam generators provided by Deltak and sought an unspecified amount of damages for costs. Deltak filed counterclaims against S&W seeking damages from S&W for breach of contract and unjust enrichment. On March 8, 2004, this lawsuit was settled for the payment by Deltak of an amount that was less than the reserve for this contingency the Company had accrued in fiscal 2003 resulting in an increase to the first quarter 2004 pre-tax net income of $1.1 million. Under the confidential settlement agreement, all claims by the parties were mutually dismissed and the parties were mutually released from any and all damages.

The Company is also involved in other legal actions which arise in the ordinary course of its business. Although the outcomes of any such legal actions cannot be predicted, in the opinion of management, the resolution of any currently pending or threatened actions will not have a material adverse effect upon the consolidated financial position or results of operations of the Company.

Estimated costs related to product warranty are accrued and included in cost of sales as revenue is recognized. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. We manage our exposure to warranty claims by having our field service and quality assurance personnel regularly monitor our projects and maintain ongoing and regular communications with the customer.

A reconciliation of the changes to our warranty accrual for the periods indicated is as follows:

	Three Months Ended
	March 27, 2004			March 29, 2003
Balance at beginning of period	$	15,004		$	19,460
Accruals during the period		2,042			1,654
Changes in previous accruals		(607	)		(676	)
Settlements made (in cash or in kind) during the period		(1,401	)		(714	)
Ending balance	$	15,038		$	19,724

During the periods presented above, the Company had changes in previous accruals due to the lapse of warranty periods and lesser than expected settlements under warranty claims. The Company continues to review its warranty accrual policy in light of its changing business operations and settlement experience.

At March 27, 2004, the Company had a contingent liability for stand-by letters of credit totaling $41.1 million that have been issued and are outstanding that generally were issued to secure performance on customer contracts. Currently, there are no amounts drawn upon these letters of credit.

During the first quarter of fiscal 2004, the Company entered into two loan agreements with banks in China. The agreements allow for the Company to borrow $4.8 million at a rate of 5.31%. The agreements expire April 1, 2005. As of March 27, 2004, no amounts have been borrowed under the loan agreements. The loans are collateralized by letters of credit from the Company’s senior credit facility.

The Company’s amended and restated senior credit facility:

• is guaranteed by all of its domestic subsidiaries;

6

• is secured by a lien on all of its and its domestic subsidiaries’ property and assets, including, without limitation, a pledge of all capital stock owned by it and its domestic subsidiaries, subject to a limitation of 65% of the voting stock of any foreign subsidiary;

• requires the Company to maintain minimum interest and fixed charge coverage ratios and limit its maximum leverage; and

• among other things, restricts the Company’s ability to (1) incur additional indebtedness, (2) sell assets other than in the ordinary course of business, (3) pay dividends in excess of 25% of its cumulative net income from January 1, 2001 through the most recent fiscal quarter end, subject to leverage and liquidity thresholds and other customary restrictions, (4) make capital expenditures in excess of $13 million in fiscal year 2001 or $10 million in any fiscal year, thereafter, with adjustments for carry-overs from the previous year, (5) make investments and acquisitions and (6) enter into mergers, consolidations or similar transactions.

In the first quarter of fiscal year 2004, the Company’s senior credit facility was amended to provide for a one-time reduction in the fixed charge ratio covenant to reflect the reduction of the Company’s EBITDA (as defined in the credit agreement) related to the restructuring charges taken in the fourth quarter of fiscal year 2003 and the first quarter of fiscal year 2004.

The Company is currently in compliance with these covenants and restrictions.

Under a management agreement with Harvest Partners, Inc. we are contractually committed to annual payments of certain fees for financial advisory and strategic planning services to Harvest of $1.3 million per year. The terms of the management agreement provide for automatic renewals of additional one-year periods commencing each August unless terminated for cause or by Harvest. During any subsequent renewal period of the management agreement, the management fee will decrease to $750,000 per year if the affiliates of Harvest Partners, Inc. sell more than 50% of the shares of the Company’s common stock they owned at the time of the Company’s initial public offering on May 23, 2001. The management fee will be eliminated and the management agreement will terminate, if in any subsequent renewal period the affiliates of Harvest Partners, Inc. sell more than 66.6% of the shares of the Company’s common stock they owned on May 23, 2001.

7. SEGMENT INFORMATION

The “management approach” called for by SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” has been used by GPEG management to present the segment information which follows. GPEG considered the way its management team organizes its operations for making operating decisions and assessing performance and considered which components of its enterprise have discrete financial information available. Management makes decisions using a product group focus and its analysis resulted in two operating segments, Heat Recovery Equipment and Auxiliary Power Equipment. The Company evaluates performance based on net income or loss not including certain items as noted below. Intersegment revenues and transactions were not significant. Corporate assets consist primarily of cash and deferred tax assets. Interest income has not been allocated as cash management activities are handled at a corporate level. During the period ended March 27, 2004, we changed the basis by which we allocated corporate general and administrative expenses to the operating segments. This new manner of allocating corporate expenses better reflects the use of corporate resources by the operating segments. Prior year amounts were reclassified to conform to the 2004 presentation.

7

The following table presents information about segment income and assets (in thousands):

	Heat Recovery Equipment				Auxiliary Power Equipment
	Three Months Ended				Three Months Ended
	March 27, 2004		March 29, 2003		March 27, 2004			March 29, 2003
Revenues	$	28,436	$	36,697	$	26,690		$	40,329
Interest expense		116		263		188			367
Depreciation and amortization		320		344		505			555
Income tax provision (benefit)		908		381		(286	)		4,092
Segment income (loss)		1,480		597		(466	)		6,399
Assets*		68,405		118,417		88,286			108,566

* As of December 27, 2003, total assets in the Heat Recovery Equipment and Auxiliary Power Equipment segments were $77,027 and $97,545, respectively.

The following tables present information which reconciles segment information to consolidated totals (in thousands):

	Three Months Ended
	March 27, 2004			March 29, 2003
Net income:
Total segment income	$	1,014		$	6,996
Unallocated interest income		104			132
Other		(280	)		(262	)
Consolidated net income	$	838		$	6,866
	March 27, 2004			December 27, 2003
Assets:
Total segment assets	$	156,691		$	174,572
Corporate cash and cash equivalents		50,444			42,172
Other unallocated amounts, principally deferred tax assets		71,331			64,252
Consolidated total assets	$	278,466		$	280,996

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The following table represents revenues by product group (in thousands):

	Three Months Ended
	March 27, 2004		March 29, 2003
Heat Recovery Equipment segment:
HRSGs	$	20,628	$	27,958
Specialty boilers		7,808		8,739
		28,436		36,697
Auxiliary Power Equipment segment:
Exhaust systems		11,387		17,664
Inlet systems		8,579		11,964
Other		6,724		10,701
		26,690		40,329
Total	$	55,126	$	77,026

The following table presents revenues by geographic region (in thousands):

	Three Months Ended
	March 27, 2004		March 29, 2003
North America	$	28,854	$	54,062
South America		329		1,104
Europe		5,853		6,722
Asia		6,693		3,475
Middle East		12,721		9,074
Other		676		2,589
Total	$	55,126	$	77,026

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8. MAJOR CUSTOMERS

The Company has certain customers that represent more than 10 percent of consolidated revenues. The revenue for these customers, as well as corresponding accounts receivable, as a percentage of the consolidated revenues and accounts receivable balances, at and for the three months ended March 27, 2004 and March 29, 2003 are as follows:

	Revenues
	Three Months Ended				Accounts Receivable
	March 27, 2004		March 29, 2003		March 27, 2004		March 29, 2003
General Electric	20	%	19	%	14	%	9	%
ExxonMobil	10	%	2	%	0	%	1	%
Calpine	10	%	0	%	7	%	2	%
Seimens Westinghouse	9	%	16	%	9	%	7	%
Tenaska	1	%	14	%	0	%	3	%

9. SUPPLEMENTAL CASH FLOW INFORMATION

Changes in current operating items were as follows (in thousands):

	Three Months Ended
	March 27, 2004			March 29, 2003
Accounts receivable	$	7,693		$	(12,385	)
Inventories		(868	)		186
Costs and estimated earnings in excess of billings		(1,500	)		30,411
Accounts payable		(4,187	)		(1,310	)
Accrued expenses and other		(5,203	)		(9,215	)
Billings in excess of costs and estimated earnings		7,201			(22,412	)
	$	3,136		$	(14,725	)

Supplemental cash flow disclosures are as follows (in thousands):

	Three Months Ended
	March 27, 2004			March 29, 2003
Cash paid (received) during the period for:
Interest	$	183		$	601
Income taxes		(2,320	)		3,238

During the first quarter of fiscal years 2004 and 2003, there was $4.0 million and $0 million, respectively, of tax benefit related to stock options exercised. The Company reflected the tax benefit of stock options exercised as a non-cash transaction in the condensed consolidated statements of cash flows.

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10. RECENT ACCOUNTING PRONOUNCEMENTS

In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, “Consolidation of Variable Interest Entities.” This is an interpretation of ARB No. 51 “Consolidation of Financial Statements,” which addresses the consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the equity investors lack an essential characteristic of a controlling interest. In December 2003, the FASB issued a revision of FIN 46 (FIN 46R), which clarified certain complexities of FIN 46 and generally requires adoption of all special-purpose entities that qualify as variable interest entities no later than the end of the first reporting period ending after December 15, 2003 and to all non special-purpose entities that qualify as variable interest entities no later than the end of the first reporting period ending after March 15, 2004. At March 27, 2004, the Company did not have any entities that require disclosure or new consolidation as a result of adopting the provisions of FIN 46 or FIN 46R.

11. COMPREHENSIVE INCOME

The table below presents comprehensive income for all applicable periods (in thousands):

	Three Months Ended
	March 27, 2004			March 29, 2003
Net income	$	838		$	6,866
Foreign currency translation adjustments		(65	)		378
Comprehensive income	$	773		$	7,244

12. RESTRUCTURING

In October 2003, the Company announced a management restructuring plan pursuant to which certain employees were offered either one-time termination or retirement benefits. Certain employees that were offered the retirement incentive packages entered into consulting agreements with the Company subsequent to their retirement. The expense of the consulting agreements will be recognized as the services are provided over the term of the agreements. In addition, retiring employees were offered the right to amend their stock option agreements to extend the date such options remain exercisable from the original period of 90 days after termination of employment to a new period extending to one year after termination of employment. In some cases, this plan also provided for the acceleration of vesting for certain unvested stock options. Due to variable plan option accounting under APB Opinion No. 25, “Accounting for Stock Issued to Employees,” the Company will expense the intrinsic value of the options. The Company recorded charges of approximately $2.0 million during the first quarter of fiscal year 2004 related to the restructuring plan in selling and administrative expenses.

Under the 2003 management restructuring plan, a retirement benefits agreement was entered into with the Company’s Chief Executive Officer (CEO), Larry Edwards, pursuant to which he determines his own future retirement date. At this time, the retirement date is unknown. Upon retirement, Mr. Edwards will receive a payment of approximately $1.9 million, which was expensed in 2003 and is included in other long-term liabilities as of March 27, 2004.

From the inception of the management restructuring plan through March 27, 2004, the Company has incurred costs of approximately $5.9 million related to the plan. The Company expects to incur approximately $4.8 million of restructuring charges in the future, including an estimate of $2.7 million for the expected consulting fees and variable stock option expense related to the CEO’s retirement benefits agreement.

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A reconciliation of the liability (included in other current liabilities) for the restructuring costs from December 27, 2003 to March 27, 2004 is as follows:

Balance, December 27, 2003	$	797
Payments to employees		(797	)
Balance, March 27, 2004	$	—

The balance of $1.9 million in other long-term liabilities remained unchanged from December 27, 2003 to March 27, 2004.

Approximately $0.8 million and $1.2 million of the fiscal year 2004 restructuring costs were allocated to the Heat Recovery Equipment and Auxiliary Power Equipment segments, respectively.

13. STOCK-BASED COMPENSATION

Stock-based compensation is accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense is recorded for stock options when granted, as option prices have historically been set at the market value of the underlying stock at the date of grant.

SFAS 123 “Accounting for Stock-Based Compensation,” requires the measurement of the fair value of options to be included in the statement of operations or disclosed in the notes to the financial statements. The Company elected the disclosure-only alternative under SFAS 123.

Had compensation cost been determined consistent with SFAS 123, the Company’s pro forma net income would have been as follows:

	Three Months Ended
	March 27, 2004			March 29, 2003
Net income available to common stockholders:
As reported	$	838		$	6,866
Stock-based compensation expense included return in net income as reported *		302			—
Additional stock-based compensation expense return had the fair value been applied to all awards		(569	)		(147	)
Pro forma	$	571		$	6,719
Basic income per common share :
As reported	$	0.02		$	0.16
Pro forma		0.01			0.15
Diluted income per common share:
As reported	$	0.02		$	0.15
Pro forma		0.01			0.15

* Intrinsic value of stock options that were accelerated as a result of the management restructuring plan described in footnote 12 above.

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The paid-in capital deficit decreased significantly from December 27, 2003 to March 27, 2004 primarily as a result of 1,115,868 stock options that were exercised during this period. A reconciliation of the changes in the account is as follows:

Balance, December 27, 2003	$	(25,492	)
Tax benefit of stock options exercised		4,047
Proceeds from stock options exercised in excess of par value		1,405
Stock-based compensation		487
Balance, March 27, 2004	$	(19,553	)

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

In addition to historical information, this Form 10-Q includes certain “forward-looking statements.” Forward-looking statements represent our beliefs regarding future events, many of which, by their nature, are inherently uncertain and outside of our control. These forward-looking statements include, in particular, the statements about our plans, strategies and prospects. When used in this report, the words “expect,” “may,” “intend,” “plan,” “anticipate,” “believe,” “seek” and similar expressions, as well as statements regarding our focus for the future, are generally intended to identify forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by these forward-looking statements are reasonable, these forward-looking statements rely on assumptions and are subject to risks and uncertainties that may prevent us from achieving our plans, intentions or expectations.

Information concerning some of the risks, uncertainties and other factors that could cause actual results to differ materially from those in, or implied by, the forward-looking statements we make in this Form 10-Q is set forth under “Risk Factors” in Item 1 of our Form 10-K for the fiscal year ended December 27, 2003, and in this section. All forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by the cautionary statements, risks and uncertainties found in the sections mentioned above. Accordingly, undue reliance should not be placed on these forward-looking statements, which speak only as of the date of this Form 10-Q. We undertake no obligation to update or revise the forward-looking statements.

We design, engineer and fabricate a comprehensive portfolio of heat recovery and auxiliary power equipment and provide related services. We conduct our business through two operating segments: our Heat Recovery Equipment segment and our Auxiliary Power Equipment segment. The Company’s corporate headquarters are located in Tulsa, Oklahoma, with operating facilities in Plymouth, Minnesota; Tulsa, Oklahoma; Auburn, Massachusetts; Clinton, South Carolina; Monterrey, Mexico; Toluca, Mexico; Shanghai, China and Heerlen, Netherlands. During fiscal year 2003, we focused our efforts on maintaining profitability despite the decrease in revenues. These efforts included closing one manufacturing plant, reducing debt and implementing a management restructuring plan to reduce staff and related costs and improve competitiveness. In addition, we strengthened our sales and operating initiatives in China and Southeast Asia allowing us to take advantage of the increasing need for additional power in that region. However, the demand for new power plants in the United States has decreased significantly, and we enter the second quarter of fiscal year 2004 with uncertainty regarding when that demand may increase.

During the second quarter of 2003, we decided to permanently close our San Antonio, Mexico plant effective April 30, 2003. The decision was based primarily on a reduction in volume due to the downturn in new power plant construction within the U.S. The Auxiliary Power Equipment segment recorded approximately $170,000 in severance and other costs associated with the elimination of approximately 35 employees and the closing of the plant. During 2003, we have also scaled back operations at other locations in our efforts to continually seek to further our use of low-cost subcontractor fabrication as well as manage our costs due to the downturn in the U.S. market. Also in 2003, the Auxiliary Power Equipment and Heat Recovery segments further reduced their workforce by 201 and 41, respectively. The severance costs associated with these 2003 workforce reductions totaled approximately $390,000. All amounts have been paid.

In October 2003, we announced a management restructuring plan pursuant to which certain employees were offered either one-time termination or retirement benefits. Certain employees that were offered the retirement incentive packages entered into consulting agreements with us subsequent to their retirement. The expense of the consulting agreements will be recognized as the services are provided over the term of the agreements. In addition, retiring employees were offered the right to amend their stock option agreements to extend the date such options remain exercisable from the original period of 90 days after termination of employment to a new period extending to one year after termination of employment. In some cases, this plan also provided for the acceleration of vesting for certain unvested stock options. Due to variable plan option accounting under APB Opinion No. 25 (APB 25), “Accounting for Stock Issued to Employees,” we will expense the intrinsic value of the options.

Under the 2003 management restructuring plan, a retirement benefits agreement was entered into with our Chief Executive Officer (CEO), Larry Edwards, pursuant to which he determines his own future retirement date. At this time, his retirement date is unknown. Upon retirement, Mr. Edwards will receive a payment of approximately $1.9 million, which was expensed in 2003 and included in Other long-term liabilities as of March 27, 2004. This amount is included in the $3.9 million of restructuring costs recognized in fiscal year 2003. In addition, we agreed to pay Mr. Edwards approximately $812,000 in the future upon signing a release agreement on the

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retirement date. This amount will be expensed in the fiscal quarter in which he retires. On the retirement date, we plan to enter into a one-year consulting agreement with Mr. Edwards. The consulting fees, currently estimated at approximately $850,000, will be expensed as the services are rendered over the term of the agreement. This amount will change based on the actual salary and target bonus at the retirement date.

Under our current stock option plans, participants may exercise their vested options up to 90 days after their termination date. As part of his retirement benefits package, Mr. Edwards may execute an extension agreement, on the retirement date, whereby certain of his stock options become immediately fully vested. In addition, instead of the normal 90-day exercise period, Mr. Edwards would have one year from the retirement date to exercise his options. If this extension agreement were executed and these modifications were made to Mr. Edwards’ original stock option agreements, the Company could incur significant compensation expense in accordance with APB 25. The compensation expense would be measured on the retirement date, as the excess of the fair value of the stock over the exercise prices times the number of stock options outstanding. Assuming the number of options outstanding ($0.36/share options – 202,151 shares; $4.87/share options – 100,000 shares; $6.10/share options – 100,000 shares) and the closing stock price of $7.24 as of April 30, 2004, we estimate that this pre-tax charge would be approximately $1.9 million. This amount would vary based on the number of unexercised options and the stock price as of the retirement date.

We recorded charges of approximately $2.0 million during the first quarter of fiscal year 2004 related to the restructuring plan in selling and administrative expenses.

Results of Operations

The table below represents the operating results of the Company for the periods indicated (in thousands):

	Three Months Ended
	March 27, 2004		March 29, 2003
Revenues	$	55,126	$	77,026
Cost of sales		43,313		55,808
Gross profit		11,813		21,218
Selling and administrative expenses		10,261		9,464
Operating income		1,552		11,754
Interest expense, net		200		498
Income before income taxes		1,352		11,256
Income tax provision		514		4,390
Net income available to common stockholders	$	838	$	6,866

Our fiscal year ends on the last Saturday in December. As a result, references in this quarterly report to fiscal year 2003 refer to the fiscal year ending December 27, 2003. References to the first quarter of fiscal year 2004 refer to the three months ended March 27, 2004 and references to the first quarter of fiscal year 2003 refer to the three months ended March 29, 2003.

Three months ended March 27, 2004 compared to three months ended March 29, 2003

Revenues

Revenues decreased 28.4% to $55.1 million for the first quarter of fiscal year 2004 from $77.0 million for the first quarter of fiscal year 2003. This decrease is due to a continued decline in new orders for both Heat Recovery and Auxiliary Power equipment. Demand in the gas turbine power generation equipment industry in the United States began to decrease during the latter half of 2001 and that trend has continued into 2004. Consequently, the development of domestic gas turbine power plants has slowed considerably. We anticipate that revenues in fiscal 2004 will be lower than revenues in 2003 primarily due to the continued downturn in new power plant construction within the United States.

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The following table sets forth our segment revenues for the first quarter of fiscal years 2004 and 2003 (dollars in thousands):

	Three Months Ended				Percentage Change
	March 27, 2004		March 29, 2003
Heat Recovery Equipment segment:
HRSGs	$	20,628	$	27,958	-26.2	%
Specialty boilers		7,808		8,739	-10.7	%
Total segment	$	28,436	$	36,697	-22.5	%
Auxiliary Power Equipment segment:
Exhaust systems	$	11,387	$	17,664	-35.5	%
Inlet systems		8,579		11,964	-28.3	%
Other		6,724		10,701	-37.2	%
Total segment	$	26,690	$	40,329	-33.8	%

The Heat Recovery Equipment segment revenues decreased 22.5% to $28.4 million for the first quarter of fiscal year 2004. Revenues for HRSGs decreased 26.2% to $20.6 million. Revenues for specialty boilers decreased by 10.7% to $7.8 million. The Auxiliary Power Equipment segment revenues decreased 33.8% to $26.7 million for the first quarter of fiscal year 2004. Revenues for exhaust systems decreased by 35.5% to $11.4 million. Revenues for inlet systems and other equipment decreased by 28.3% to $8.6 million and 37.2% to $6.7 million, respectively. The significant decrease this quarter is due to a significantly lower level of orders booked (including some sizable cancellations) during the second and third quarters of fiscal 2003. We expect that our second quarter of fiscal 2004 revenues will represent the low point for the year. Revenues for the second half of fiscal year 2004 are expected to improve given the higher level of bookings that began in the fourth quarter of fiscal year 2003 and extended into the first quarter of 2004.

The following table presents our revenues by geographic region (dollars in thousands):

	Three Months Ended
	March 27, 2004				March 29, 2003
	Revenue		Percent of Total		Revenue		Percent of Total
North America	$	28,854	52.4	%	$	54,062	70.3	%
South America		329	0.6	%		1,104	1.4	%
Europe		5,853	10.6	%		6,722	8.7	%
Asia		6,693	12.1	%		3,475	4.5	%
Middle East		12,721	23.1	%		9,074	11.8	%
Other		676	1.2	%		2,589	3.3	%
Total	$	55,126	100.0	%	$	77,026	100.0	%

Revenues in North America comprised 52.4% of our revenues for the first quarter of fiscal year 2004 and 70.3% for the first quarter of fiscal year 2003. Revenues in North America decreased 46.6% to $28.9 million for the first quarter of fiscal year 2004, primarily as a result of the continued decrease in demand in the United States for our products. A number of factors have contributed to this situation such as debt and liquidity issues of several merchant power producing companies. While it is believed that the long-term need for power plants on a world-wide basis is substantial, we are unaware of when the demand in the United States will increase.

Revenues in Asia increased 92.6% for the first quarter of fiscal year 2004 to $6.7 million from $3.5 million for the first quarter of 2003. Asia represents a significant growth opportunity and is expected to account for an increasingly larger proportion of the Company’s revenues over the next several years. Revenues in Europe decreased by 12.9% to $5.9 million from $6.7 million for the first quarter of 2003 due to the timing of revenue recognized on several projects being sold last year compared to this year.

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Middle East revenues increased to $12.7 million for the first quarter of fiscal year 2004 from $9.1 million for the first quarter of 2003 primarily as a result of several large orders in Saudi Arabia.

Gross Profit

Gross profit decreased 44.3% to $11.8 million for the first quarter of fiscal year 2004 from $21.2 million for the first quarter of fiscal year 2003. Gross profit as a percentage of revenues decreased to 21.4% in the first quarter of fiscal year 2004 from 27.5% in the first quarter of fiscal year 2003. As expected, our first quarter of 2004 gross margin decreased to a more historical level. The primary reasons for the decrease are continued competitive pressures in the marketplace coupled with higher steel prices. We expect the margin to continue to decline somewhat in 2004; however, we are making efforts to minimize this by passing on the impact of higher steel prices to customers as new orders are negotiated.

Selling and Administrative Expenses

Selling and administrative expenses increased 8.4% to $10.3 million for the first quarter of fiscal year 2004 from $9.5 million for the first quarter of fiscal year 2003. This increase is due to the approximately $2.0 million of restructuring costs recognized in the first quarter of fiscal year 2004 partially offset by approximately $0.9 million of acquisition costs recognized in the first quarter of fiscal year 2003. As a percentage of revenues, selling and administrative expenses increased to 18.6% for the first quarter of fiscal year 2004 from 12.3% for the comparable period of fiscal year 2003 mainly as a result of our decreasing revenues.

Operating Income

Operating income decreased to $1.6 million for the first quarter of fiscal year 2004 from $11.8 million in the first quarter of fiscal year 2003. The decrease in revenues and associated gross profit were the main contributors to this decrease.

Interest Expense

Interest expense decreased to $0.2 million for the first quarter of fiscal year 2004 from $0.5 million for the first quarter of fiscal year 2003. This decrease is due primarily to a reduction in total debt of $43.4 million, of which, voluntary principal payments made in the first quarter amounted to $8.3 million. In addition, our significant levels of cash continue to result in substantial amounts of interest income. Our borrowing rate has decreased by approximately 19 basis points from March 29, 2003 due to general market interest rate reductions. At March 27, 2004, our term debt bore interest at an average rate of 2.26%.

Income Taxes

The Company is currently reflecting a 38.0% effective tax rate in the tax provision. Also, the reduction of the deferred tax asset related to the amortization of goodwill will allow us to reduce cash paid for future taxes by approximately $5.6 million annually, but will not reduce future income tax expense. We did not have any net operating loss carryforwards at March 27, 2004.

Liquidity and Capital Resources

Our primary sources of cash are net cash flow from operations and borrowings under our credit facilities. Our primary uses of this cash are principal and interest payments on indebtedness, capital expenditures and general corporate purposes.

Operating Activities

Net cash provided by (used in) operations increased to $9.3 million for the first three months of fiscal year 2004 from $(1.3) million for the first three months of fiscal year 2003. Significant collections of accounts receivable and an increase in billings in excess of costs and estimated earnings were the primary factors for this fluctuation.

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Investing Activities

Net cash used in investing activities increased to $0.1 million for the first three months of fiscal year 2004 from $0.06 million for the first three months of fiscal year 2003 due to a slight increase in capital expenditures.

Financing Activities

Net cash used in financing activities was $6.9 million in the first three months of fiscal year 2004 compared to $0.01 million in the first three months of fiscal year 2003. Long-term debt payments and proceeds from the issuance of common stock comprise the activity for the first three months of 2004. The long-term debt payments include a voluntary prepayment of $8.3 million. The proceeds from the issuance of common stock were higher in the first quarter of fiscal year 2004 due to approximately 1.1 million of stock options exercised.

The Company’s senior credit facility consists of a term loan of $60 million and a revolving loan of up to $75 million, which revolving loan supports the Company’s letters of credit. At March 27, 2004, the Company had $16.6 million outstanding under the term loan and no amount was outstanding under the revolver. Letters of credit totaling $41.1 million were issued and outstanding at March 27, 2004. Currently, there are no amounts drawn upon these letters of credit.

At the Company’s option, amounts borrowed under the amended and restated senior credit facility will bear interest at either the Eurodollar rate or an alternate base rate, plus, in each case, an applicable margin. The applicable margin will range from 1.0% to 2.25% in the case of a Eurodollar based loan and from 0% to 1.25% in the case of a base rate loan, in each case, based on a leverage ratio. At March 27, 2004, the term debt of $16.6 million bore interest at an average rate of approximately 2.26%.

The Company’s amended and restated senior credit facility:

• is guaranteed by all of its domestic subsidiaries;

• is secured by a lien on all of its and its domestic subsidiaries’ property and assets, including, without limitation, a pledge of all capital stock owned by it and its domestic subsidiaries, subject to a limitation of 65% of the voting stock of any foreign subsidiary;

• requires the Company to maintain minimum interest and fixed charge coverage ratios and limit its maximum leverage; and

• among other things, restricts the Company’s ability to (1) incur additional indebtedness, (2) sell assets other than in the ordinary course of business, (3) pay dividends in excess of 25% of its cumulative net income from January 1, 2001 through the most recent fiscal quarter end, subject to leverage and liquidity thresholds and other customary restrictions, (4) make capital expenditures in excess of $13 million in fiscal year 2001 or $10 million in any fiscal year, thereafter, with adjustments for carry-overs from the previous year, (5) make investments and acquisitions and (6) enter into mergers, consolidations or similar transactions.

The Company is currently in compliance with all covenant requirements under the senior credit facility. Because our financial performance is impacted by various economic, financial, and industry factors, we cannot say with certainty whether we will satisfy these covenants in the future. Noncompliance with these covenants would constitute an event of default, allowing the lenders to accelerate the repayment of any borrowings outstanding under the related amended and restated senior credit facility. While no assurances can be given, we believe that we would be able to successfully negotiate amended covenants or obtain waivers if an event of default were imminent; however, we might be required to make certain financial concessions. Our business, results of operations and financial condition may be adversely affected if we were unable to successfully negotiate amended covenants or obtain waivers on acceptable terms.

In the first quarter of fiscal year 2004, the Company’s senior credit facility was amended to provide for a one-time reduction in the fixed charge ratio covenant to reflect the reduction of the Company’s EBITDA (as defined in the credit agreement) related to the restructuring charges taken in the fourth quarter of fiscal year 2003 and the first quarter of fiscal year 2004. The Company was in compliance with the covenant for the fiscal quarter ended March 27, 2004.

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During the first quarter of fiscal 2004, the Company entered into two loan agreements with banks in China. The agreements allow for the Company to borrow $4.8 million at a rate of 5.31%. The agreements expire April 1, 2005. As of March 27, 2004, no amounts have been borrowed under the loan agreements. The loans are collateralized by letters of credit from the Company’s senior credit facility.

Cash Obligations

Under various agreements, we are obligated to make future cash payments in fixed amounts. These include payments under our amended and restated senior credit facility, our agreement with Harvest Partners, Inc., the 2003 management restructuring plan (including retirement and severance benefits and consulting fees) and rent payments required under operating lease agreements.

The following table summarizes our fixed cash obligations as of March 27, 2004 over various future periods (in thousands):

	Payments Due by Period
Contractual Cash Obligations	Less than 1 Year		1-3 Years		4-5 Years		After 5 Years			Total
Long-term Debt	$	14	$	16,633	$	—	$	—		$	16,647
Restructuring Costs		1,145		196		—		3,550	(1)		4,891
Operating Leases		2,117		3,132		3,187		2,202			10,638
Total Contractual Cash Obligations	$	3,276	$	19,961	$	3,187	$	5,752		$	32,176

(1) Represents amount due to the Company’s CEO in a year subsequent to 2003 in which he resigns, which resignation will result in retirement benefits payments in the year of resignation and consulting fees in the 12-month period following the resignation.

At March 27, 2004 we had a contingent liability for stand-by letters of credit totaling $41.1 million that have been issued and are outstanding that generally were issued to secure performance on customer contracts. Currently, there are no amounts drawn upon these letters of credit.

In addition, the Company has various future obligations in connection with its 2003 management restructuring plan. A full discussion of the management restructuring plan is located in the Overview section above.

Finally, under a management agreement with Harvest Partners, Inc., we are contractually committed to annual payments of certain fees for financial advisory and strategic planning services to Harvest of $1.3 million per year. The terms of the management agreement provide for automatic renewals of additional one-year periods commencing each August unless terminated for cause or by Harvest. During any subsequent renewal period of the management agreement the management fee will decrease to $750,000 per year if the affiliates of Harvest Partners, Inc. sell more than 50% of the shares of the Company’s common stock they owned at the time of the Company’s initial public offering on May 23, 2001. The management fee will be eliminated and the management agreement will terminate, if in any subsequent renewal period the affiliates of Harvest Partners, Inc. sell more than 66.6% of the shares of the Company’s common stock they owned on May 23, 2001.

At March 27, 2004, the Company had available cash on hand of approximately $53.4 million and approximately $33.9 million of available capacity under its revolving credit facility. The Company may utilize borrowings under the revolving credit facility to supplement its cash requirements from time to time. The Company anticipates that it will generate sufficient cash flows from operations to satisfy its cash commitments and capital requirements for fiscal year 2004. The amount of cash flows generated from operations is subject to a number of risks and uncertainties, including the continued construction of gas turbine power generation plants as well as other risks described under “Item 1. Business- Risk Factors” in the Company’s Form 10-K for the fiscal year ended December 27, 2003, filed with the Securities and Exchange Commission. In fiscal 2004, the Company may actively seek and consider acquisitions of or investments in complementary businesses, products or services. The consummation of any acquisition using cash will affect the Company’s liquidity.

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Critical Accounting Policies

The following discussion of accounting policies is intended to supplement the Summary of Significant Accounting Policies presented as Note 2 to the consolidated financial statements, included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of the Company’s Form 10-K for the fiscal year ended December 27, 2003, filed with the U.S. Securities and Exchange Commission. These policies were selected because a fluctuation in actual results versus expected results could materially affect our operating results and because the policies require significant judgments and estimates to be made each quarter. Our accounting related to these policies is initially based on our best estimates at the time of original entry in our accounting records. Adjustments are periodically recorded when our actual experience differs from the expected experience underlying the estimates. These adjustments could be material if our experience were to change significantly in a short period of time. We regularly, on a monthly basis, compare our actual experience and expected experience in order to further mitigate the likelihood of material adjustments.

Revenue Recognition- GPEG currently has two segments: Heat Recovery Equipment and Auxiliary Power Equipment. Revenues and cost of sales for our Heat Recovery Equipment segment are recognized on the percentage-of-completion method based on the percentage of actual hours incurred to date in relation to total estimated hours for each contract. Our estimate of the total hours to be incurred at any particular time has a significant impact on the revenue recognized for the respective period. The percentage-of-completion method is only allowed under certain circumstances in which the revenue process is long-term in nature (often in excess of one year), the products sold are highly customized and a process is in place whereby revenues, costs and margins can be accurately estimated. Changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to costs and income, and the effects of such revisions are recognized in the period that the revisions are determined. Under percentage-of-completion accounting, management must also make key judgments in areas such as percent complete, estimates of project costs and margin, estimates of total and remaining project hours and liquidated damages assessments. Any deviations from estimates could have a significant positive or negative impact on the results of operations. A one percent fluctuation of our estimate of percent complete would have increased or decreased first quarter of fiscal 2004 revenues by approximately $0.3 million.

Revenues for our Auxiliary Power Equipment segment are recognized on the completed-contract method due to the short-term nature of the product production period. Under this method, no revenue can be recognized until the contract is complete and the customer takes risk of loss and title. Similar to our Heat Recovery segment, changes in job performance, job conditions, estimated profitability and final contract settlements may result in revisions to job costs and income amounts that are different than were originally estimated.

During the course of a project or when a project has been completed, management may become aware of circumstances in which it should make provisions for estimated costs. Costs of this nature are common in our industry and inherent in the nature of our business. The Company records the estimated costs in the period in which they are identified. The costs are typically the result of warranty claims, final contract settlements and liquidated damages due to late delivery. Unanticipated cost increases or delays may occur as a result of several factors, including:

• increases in the cost or shortages of components, materials or labor;

• unanticipated technical problems;

• required project modifications not initiated by the customer; and

• suppliers’ or subcontractors’ failure to perform.

In some cases, cost overruns can be passed on to our customers, which are recognized in the period when agreement is reached with the customers as to the amount of the claims. The agreement may occur after project completion. Cost overruns that we cannot pass on to our customers or the payment of liquidated damages under our contracts will lower our gross profit and resulting operating income.

From time to time, customers have claims against the Company that result in litigation. The Company recognizes these claims as a charge to cost of sales in the period when it is probable they will result in a loss and the amount can be reasonably estimated.

While management has made its best efforts to record known adjustments to revenues and cost of sales for claims, settlements and damages for projects in process, it is possible that there are significant unknown adjustments that will be made in the future for those projects. These adjustments could have a material impact on gross profit percentages and resulting profitability in a given annual or quarterly reporting period.

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Nearly all of our contracts are entered into on a fixed-price basis. As a result, we benefit from cost savings, but have limited ability to recover for any cost overruns, except in those contracts where the scope has changed. Contract prices are established based in part on our projected costs, which are subject to a number of assumptions. The costs that we incur in connection with each contract can vary, sometimes substantially, from our original projections. Because of the large scale and long duration of our contracts, unanticipated changes may occur, such as customer budget decisions, design changes, delays in receiving permits and cost increases, which may delay delivery of our products and, in turn, delays revenue recognition.

Warranty- Estimated costs related to product warranty are accrued as revenue is recognized and included in cost of sales. Estimated costs are based upon past warranty claims and sales history. Warranty terms vary by contract but generally provide for a term of three years or less. We manage our exposure to warranty claims by having our field service and quality assurance personnel regularly monitor our projects and maintain ongoing and regular communications with the customer. In the first quarter of 2004, a one percent fluctuation of our warranty expense could increase or decrease cost of goods sold by approximately $0.02 million.

A reconciliation of the changes to our warranty accrual for the periods indicated are as follows:

	Three Months Ended
	March 27, 2004			March 29, 2003
Balance at beginning of period	$	15,004		$	19,460
Accruals during the period		2,042			1,654
Changes in previous accruals		(607	)		(676	)
Settlements made (in cash or in kind) during the period		(1,401	)		(714	)
Ending balance	$	15,038		$	19,724

Income Taxes- Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company classifies deferred tax assets and liabilities into current and non-current amounts based on the classification of the related assets and liabilities. Certain judgments are made relating to recoverability of deferred tax assets, level of expected future taxable income and available tax planning strategies. These judgments are routinely reviewed by management.

Stock-based Compensation- Stock-based compensation is accounted for using the intrinsic value method prescribed in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense is recorded for stock options when granted, as option prices have historically been set at the market value of the underlying stock at the date of grant.

Goodwill and Impairment of Long-Lived Assets- We perform annual impairment analyses on our recorded goodwill and long-lived assets whenever events and circumstances indicate that they may be impaired. The analysis includes assumptions related to future revenues, cash flows, and net assets. This analysis is based primarily on assumptions about future events such as revenue and cash flow growth rates, discount rates and terminal value of the Company. Actual deviations from the assumptions used in the analysis could have a significant impact on the estimated fair values calculated. Factors that would cause a more frequent test for impairment include, among other things, a significant negative change in the estimated future cash flows of a reporting unit that has goodwill because of an event or a combination of events. We did not record any impairment provisions upon the adoption of SFAS 142 nor have we recorded any in fiscal year 2003 or the first quarter of 2004.

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Related Parties

Affiliates of Harvest Partners, Inc. are our largest stockholders. In addition, two of the directors that serve on our board are both general partners of Harvest Partners, Inc. During the first three months of fiscal 2004 and the first three months of fiscal 2003, we incurred consulting expenses from Harvest in the amounts of $0.3 million in each three month period. Under a management agreement with Harvest, we are contractually committed to annual payments of certain fees for financial advisory and strategic planning services to Harvest of $1.3 million per year. The terms of the management agreement provide for automatic renewals of additional one-year periods commencing each August unless terminated for cause or by Harvest. During any subsequent renewal period of the management agreement, the management fee will decrease to $750,000 per year if the affiliates of Harvest Partners, Inc. sell more than 50% of the shares of the Company’s common stock they owned at the time of the Company’s initial public offering on May 23, 2001. The management fee will be eliminated and the management agreement will terminate, if in any subsequent renewal period the affiliates of Harvest Partners, Inc. sell more than 66.6% of the shares of the Company’s common stock they owned on May 23, 2001.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks. Market risk is the potential loss arising from adverse changes in market prices and interest and foreign currency rates. We do not enter into derivative or other financial instruments for speculative purposes. Our market risk could arise from changes in the credit worthiness of customers, interest rates and foreign currency exchange.

Credit Risks

Our financial instruments that are exposed to concentrations of credit risk consist primarily of trade receivables. Given the nature of our business, we typically have significant amounts due from a relatively low number of customers. At March 27, 2004, 30% of our trade receivables were due from three customers. In order to reduce our risk of non-collection, we perform extensive credit investigation of all new customers.

Interest Rate Risk

We are subject to market risk exposure related to changes in interest rates. Assuming our current level of borrowings, a 100 basis point increase in interest rates under these borrowings would have increased our interest expense for first quarter of fiscal year 2004 by approximately $0.06 million. However, under the terms of our amended and restated senior credit facility we are allowed to lock into interest rates for a period of up to twelve months on our long-term debt. In January 2004, we entered into fixed rate agreements currently yielding an average rate of 2.26% with varying maturity dates extending as long as eleven months on all of our outstanding long-term debt.

Foreign Currency Exchange Risk

Portions of our operations are located in foreign jurisdictions including Europe, Mexico and China. Our financial results could be affected by factors such as changes in foreign currency exchange rates or weak economic conditions in foreign markets. In addition, sales of products and services are affected by the value of the United States dollar relative to other currencies. Changes in currency rates may affect our cost of materials or labor purchased in foreign countries. We attempt to manage portions of our foreign currency exposure through denomination of cash receipts and cash disbursements in the same currency. Periodically, we manage our foreign currency exposure through the use of foreign currency forward exchange agreements. Forward agreements with a notional amount of $2.2 million were in place at March 27, 2004 with varying amounts due through December 2004. Currently, the Company recognizes changes in the fair values of the forward agreements through earnings. The fair values of unrealized losses on the forward agreements of approximately $0.05 million for the period ended March 27, 2004 are included in earnings.

Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (FASB) issued FIN 46, “Consolidation of Variable Interest Entities.” This is an interpretation of ARB No. 51 “Consolidation of Financial Statements,” which addresses the consolidation by business enterprises of variable interest entities that either: (1) do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support, or (2) the equity investors lack an essential characteristic of a controlling

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interest. In December 2003, the FASB issued a revision of FIN 46 (FIN 46R), which clarified certain complexities of FIN 46 and generally required adoption for all special-purpose entities that qualify as variable interest entities no later than the end of the first reporting period ending after December 15, 2003 and to all non special-purpose entities that qualify as variable interest entities no later than the end of the first reporting period ending after March 15, 2004. At March 27, 2004, the Company did not have any entities that required disclosure or new consolidation as a result of adopting the provisions of FIN 46 or FIN 46R.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined under Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are effective to ensure that information related to us, including our consolidated subsidiaries, required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commissions rules and forms.

Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal controls over financial reporting during the period covered by this report that have materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Reference is made to the disclosure provided in Note 6, “Litigation, Commitments and Contingencies” to the Condensed Consolidated Financial Statements included in Item 1 of Part I of this Form 10-Q, which disclosure is incorporated herein.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

10.1	Separation Agreement dated January 30, 2004, by and between Global Power Equipment Group Inc. and Gary J. Obermiller.
10.2	Consulting Agreement dated January 30, 2004, by and between Global Power Equipment Group Inc. and Gary J. Obermiller.
10.3	Employment Agreement, dated February 12, 2004, by and among Global Power Equipment Group Inc., Deltak, L.L.C. and Monte E. Ness.
31.1	Chief Executive Officer Certification pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer Certification pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.

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32.1	Chief Executive Officer Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

(1)	Form 8-K dated January 30, 2004 filed to report certain management changes under Item. 5.
(2)	Form 8-K dated February 17, 2004, filed to report under Item 12 earnings for the quarter and fiscal year ended December 27, 2003.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Global Power Equipment Group Inc.
DATED: May 6, 2004	By: /s/ Larry Edwards
	Larry Edwards
	Chairman, Chief Executive Officer and President

	Global Power Equipment Group Inc.
DATED: May 6, 2004	By: /s/ James P. Wilson
	James P. Wilson
	Chief Financial Officer and Vice President of Finance
	(Principal Financial Officer)

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Exhibit Index

Exhibit No.
10.1	Separation Agreement dated January 30, 2004, by and between Global Power Equipment Group Inc. and Gary J. Obermiller.
10.2	Consulting Agreement dated January 30, 2004, by and between Global Power Equipment Group Inc. and Gary J. Obermiller.
10.3	Employment Agreement, dated February 12, 2004, by and among Global Power Equipment Group Inc., Deltak, L.L.C. and Monte E. Ness.
31.1	Chief Executive Officer Certification pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Chief Financial Officer Certification pursuant to Rule 13a-14(a) and Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Chief Executive Officer Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Chief Financial Officer Certification pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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EX-10.1

EXHIBIT 10.1

SEPARATION AGREEMENT AND RELEASE

THIS SEPARATION AGREEMENT AND RELEASE (this “Agreement”) is made and entered into as of the 30^th day of January, 2004, by and between GLOBAL POWER EQUIPMENT GROUP INC., a Delaware corporation (“Employer”), and GARY J. OBERMILLER, an individual (“Employee”).

WHEREAS, Employee is employed by Employer, and Employee has voluntarily agreed to resign as President and Chief Operating Officer of Employer and retire from his employment with Employer and all other positions that the Employee holds with the Employer and its affiliates effective January 31, 2004 (the “Termination Date”); and

WHEREAS, Employer and Employee wish to achieve a final and amicable resolution of all issues related to their employment relationship;

NOW, THEREFORE, for and in consideration of the mutual covenants and promises set forth below, as well as other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1. Employee’s Termination. Employee and Employer confirm and agree that Employee will retire from his employment with Employer as of the Termination Date and that the employment relationship which existed between Employee and Employer and/or any of Employer’s affiliated companies will cease as of the Termination Date. However, nothing contained herein shall prevent or interfere with the ability of the parties to enter into agreements for Employee to provide consulting services and advice to Employer or Employer’s affiliates on an independent contractor basis (a “Subsequent Agreement”), including without limitation the Consulting Services Agreement being executed by Employer and Employee concurrently herewith. Except as set forth in Employer’s 2003 Management Incentive Compensation Plan, the 2000 Option Plan of GEEG Holdings, L.L.C., as amended, and the 2001 Stock Option Plan of Employer or as provided in any Subsequent Agreement, all of Employer’s obligations to Employee on or after the Termination Date are set forth herein. Accordingly, except as otherwise provided herein or in a Subsequent Agreement, Employer shall have no further obligations whatsoever to Employee after the Termination Date. Employer shall cause its personnel records to reflect that Employee terminated his employment with Employer effective on the Termination Date. The Employment Agreement dated as of May 1, 2002, between Employer (as assignee of Deltak, LLC) and Employee (the “Employment Agreement”) shall terminate effective upon the Termination Date and shall be of no further force or effect.

2. Lump Sum Payment. Within 19 days after the Termination Date and so long as Employee executes and delivers to Employer the Release attached as Exhibit A hereto (the “Release”) on January 30, 2004, and does not rescind or revoke the Release pursuant to the provisions thereof, Employer shall pay to Employee a lump sum amount of $1,163,910.00, less applicable withholding taxes, in consideration of the Release and the acknowledgements, waivers, representations and undertakings specified in this Agreement and in the Release. Such amount is equal to the sum of (a) $1,038,910.00, which is the portion of such amount that is

based on the discontinuation of Employee’s compensation from Employer after the Termination Date, plus (b) $125,000.00, which is the portion of such amount that is based on the discontinuation of benefits offered to Employee by Employer after the Termination Date. Employee acknowledges that such lump sum amount is consideration to which he is not otherwise entitled under any plan or program of Employer or prior agreement with Employer including without limitation the Employment Agreement. Anything in this Agreement to the contrary notwithstanding, Employer shall be under no obligation to pay such lump sum amount to Employee if (i) Employee does not execute and deliver the Release to Employer on January 30, 2004, or (ii) Employee revokes the Release pursuant to the terms thereof.

3. Base Salary and MIC Plan. Employer will continue to pay to Employee his current base salary through the Termination Date, less applicable withholding taxes. Employer will also pay to Employee the bonus to which Employee is entitled for fiscal year 2003 under Employer’s 2003 Management Incentive Compensation Plan (the “MIC Plan”), less applicable withholding taxes, at the time the amount thereof is determined and is payable under the terms of the MIC Plan.

4. Stock Options. Employee has been granted certain non-qualified stock options pursuant to the 2000 Option Plan of GEEG Holdings, L.L.C. (a predecessor to Employer), as amended (the “2000 Plan”), and the 2001 Stock Option Plan of Employer (the “2001 Plan”). Except as hereinafter provided, nothing in this Agreement shall affect any rights or obligations of Employee or Employer under the Non-Qualified Stock Option Agreements entered into by Employee pursuant to the 2000 Plan or the 2001 Plan. Effective as of the Termination Date: (a) Employer hereby accelerates the vesting of all of Employee’s unvested options under the 2001 Plan and (b) Employer and Employee hereby agree that the Non-Qualified Stock Option Agreement(s) entered into by Employee with respect to all outstanding stock options granted to Employee under the 2001 Plan shall be deemed to have been amended accordingly. The parties acknowledge that all of Employee’s outstanding stock options under the 2000 Plan are vested and that, therefore, the vesting thereof does not require acceleration.

5. Officer Matters. Employee shall resign from all employee, officer, director and committee member positions which Employee holds with Employer or any affiliate of Employer effective as of the Termination Date. Nothing in this Agreement shall affect any of Employee’s rights or obligations with respect to indemnification or director and officer liability insurance coverage to which Employee is entitled or subject in his capacity as a former officer of Employer or a former officer or director of any affiliate of Employer. Employee shall be entitled to the rights to indemnification and director and officer liability insurance coverage that Employer provides to other former officers of Employer and to former officers and directors of any affiliate of Employer. In addition, to the extent permitted by law, Employee, as a former officer of Employer, shall be entitled to the same indemnification rights that are provided to Employee pursuant to Employer’s Certificate of Incorporation and Bylaws as of the date hereof.

6. Accrued Vacation Pay. On the Termination Date, Employer shall compensate Employee for all of Employee’s accrued, but unused, vacation time through the Termination Date in accordance with the policies of Employer.

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7. Other Benefits. Except as specifically set forth in this Agreement, all employment benefits previously made available to Employee by Employer or any of its affiliates shall terminate on the Termination Date. None of this Agreement or the Release delivered pursuant to Section 2 of this Agreement shall waive Employee’s right to any accrued benefit (a) under an Employer plan in which he is a qualified participant or (b) to which he is entitled by law, including but not limited to rights under the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).

8. Release. In consideration for the lump sum payment set forth in Section 2 of this Agreement, the Employee agrees, as of January 30, 2004, to execute the Release.

9. Disclosure; No Disparagement. Employee and Employer will use good faith efforts to agree on the language of the press release to be used in announcing the termination of Employee’s employment with Employer; provided, however, that it is understood that Employer shall be permitted to make such truthful disclosure as may be required under federal securities laws. Employer agrees that it will instruct its officers and directors not to criticize, denigrate or disparage Employee, either orally or in writing; provided, however, that it is understood that Employer shall be permitted to make such truthful disclosure as may be required under federal securities laws. Employee agrees that Employee will not criticize, denigrate or disparage the Employer or any of its current or former representatives, officers, directors, shareholders, predecessors, successors, agents, subsidiaries, operating units, affiliates, divisions, employees, attorneys or their products and services, either orally or in writing; provided, however, that it is understood that Employee shall be permitted to make such truthful disclosure as may be required by law.

10. Cooperation in Litigation. To the extent reasonable and upon reasonable notice, following the Termination Date, Employee will cooperate with Employer and its affiliates in connection with the prosecution or defense of any claim asserted by or against any of them (excluding a claim in connection with the enforcement of this Agreement) with respect to which Employee may have any knowledge as a result of his employment with Employer or any of its affiliates.

11. Independent Legal Advice. Employee acknowledges that he has been advised to consult with legal counsel prior to executing this Agreement and the Release and that he has had the opportunity to be represented by independent legal counsel of his choice with respect to the advisability of signing this Agreement and providing the releases, waivers, acknowledgements, representations and undertakings specified herein, and with respect to his rights and obligations under the terms of this Agreement.

12. Knowledge of Contents. Each party acknowledges that such party has carefully read this Agreement and that the contents hereof are known and understood by such party. This Agreement is signed freely by each party hereto.

13. No Admission of Liability. This Agreement and compliance with this Agreement shall not be construed as an admission by Employer or Employee of any liability whatsoever, or as an admission by Employer of any violation of the rights of Employee or any other person, or any violation of any order, law, statute, duty or contract.

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14. Severability. In the event that any provision of this Agreement or the Release should be held to be void, voidable, or unenforceable, the remaining portions hereof and thereof shall remain in full force and effect.

15. Governing Law. Except to the extent preempted by federal law, this Agreement and the Release shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Minnesota, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof.

16. Prior Agreements Superseded; Entirety and Integration. Except as otherwise specifically provided herein, this Agreement supersedes and replaces all other prior agreements, written or oral, relating to Employee’s employment with Employer and/or any of Employer’s affiliated companies, including without limitation the Employment Agreement; provided, that, notwithstanding the foregoing, the Employment Agreement shall remain in effect until the Termination Date and the provisions of Sections 3, 4, 5, 7(g), and 7(i), of the Employment Agreement shall remain in full force and effect after the Termination Date in accordance with their terms. Upon the execution hereof by all of the parties hereto, this Agreement shall constitute a single, integrated contract expressing the entire agreement of the parties relative to the subject matter hereof and, except as otherwise specifically noted herein, supersedes all prior negotiations, understandings and/or agreements, if any, of the parties. No covenants, agreements, representations, or warranties of any kind whatsoever have been made by any party hereto, except as specifically set forth in this Agreement.

17. Binding Effect; Amendments; Counterparts. This Agreement and the Release will be binding upon, and inure to the benefit of, Employer and Employee and their respective successors and assigns. This Agreement may not be modified or amended except by an instrument in writing signed by both Employee and a duly authorized representative of Employer. This Agreement may be executed in one or more counterparts, which shall, collectively and separately, constitute one agreement.

18. Effectiveness. This Agreement shall be void and of no force or effect if Employee does not execute and deliver this Agreement and the Consulting Services Agreement referred to in Section 1 above to Employer on or before the Termination Date.

19. 21-Day Period. As permitted by 29 CFR Section 1625.22(e)(4), Employer and Employee acknowledge and agree that the changes made to this Agreement from the original version of this Agreement that was presented to Employee on January 7, 2004, do not restart the running of the 21-day period within which Employee had to review this Agreement.

20. Outplacement Services; Tax Preparation. Employer will provide outplacement services through the normal provider of Deltak, LLC, Employers Association, Inc. (“EA”), for a period of one year to begin within nine months of the Termination Date at a fee not to exceed $3,500. Employer will pay Employee’s reasonable costs incurred as part of the preparation of his personal income tax returns for 2003 and 2004; provided, however, in no event shall Employer pay in excess of $2,000 of such costs.

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21. Attorney’s Fees. Employer will pay the reasonable legal costs incurred by Employee in connection with the negotiation and preparation of this Agreement (approximately $5,000); provided, however, in no event shall Employer pay in excess of $5,000 of such costs.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the applicable date set forth below.

“Employer”
Global Power Equipment Group Inc.
By:	/s/ John M. Matheson
	John M. Matheson
	Vice President and General Counsel
Date of Signature: January 30, 2004
“Employee”
/s/ Gary J. Obermiller
Gary J. Obermiller
Date of Signature: January 30, 2004

Exhibit A Release

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EX-10.2

EXHIBIT 10.2

CONSULTING SERVICES AGREEMENT

THIS CONSULTING SERVICES AGREEMENT (this “Agreement”) is entered into as of the 30^th day of January, 2004, by and between Global Power Equipment Group Inc., a Delaware corporation (the “Company”), and Gary J. Obermiller, an individual (“Consultant”).

WHEREAS, the Company and its subsidiaries are engaged in the businesses of designing, engineering and fabricating equipment for gas turbine power plants and power-related equipment for industrial operations and providing related value-added services including engineering, retrofit and upgrade, and maintenance and repair, such businesses being conducted on a worldwide basis; and

WHEREAS, Consultant has significant experience and expertise in operational, management and other matters related to the Company and its subsidiaries on account of his service as the President and Chief Operating Officer of the Company and his prior service as Senior Vice President of the Company and President of Deltak, LLC, a wholly owned subsidiary of the Company; and

WHEREAS, pursuant to the Separation Agreement and Release, dated January 30, 2004, between the Company and Consultant (the “Separation Agreement”), Consultant has agreed to retire from the Company effective January 31, 2004; and

WHEREAS, the Company and its subsidiaries wish to obtain certain consulting services from Consultant in connection with their business activities after such retirement and Consultant is willing to provide such services to the Company and its subsidiaries on the terms specified herein;

NOW, THEREFORE, for and in consideration of the premises and the mutual promises and covenants hereinafter set forth, the parties hereto agree as follows:

1. Services. The services to be provided by Consultant will consist of assistance in connection with operational and management matters related to the Company and its subsidiaries normally performed by the President and COO of Global or the President of Deltak (“Services”). All Services will be rendered at the request and under the general direction of the Company’s Chief Executive Officer and other executives of the Company. The Company will provide Consultant such information about the business activities of the Company and its subsidiaries as Consultant may reasonably require in order to carry out the Services.

2. Standard of Performance. All Services will be performed by Consultant with a level of skill and care generally exercised by employees or other consultants engaged in performing the same or similar services. In performing the Services, Consultant will comply fully with all applicable laws.

3. Relationship. The relationship between the Company and Consultant will be that of independent contractors and Consultant will not be or be deemed to be a partner, agent or

employee of the Company or any of its subsidiaries. Consultant will not be eligible to participate in any employee pension, insurance, medical, retirement or other employee benefit plan of the Company or any of its subsidiaries on account of the provision of Services pursuant to this Agreement. Consultant shall have no authority to act as an agent of the Company, except on authority specifically so delegated, and Consultant shall not represent to the contrary to any person. Consultant shall only consult, render advice and perform such tasks as Consultant determines are necessary to achieve the results specified by the Company. Consultant shall not direct the work of any employee of the Company, or make any management decisions, or undertake to commit the Company to any course of action in relation to third persons. Although the Company may specify the results to be achieved by Consultant and may control and direct him in that regard, the Company shall not control or direct the Consultant as to the details or means by which such results are accomplished.

4. Term. This Agreement will become effective on February 1, 2004 and, except as provided below, will continue until January 31, 2005; provided, however, that this Agreement shall terminate and be of no force or effect if Consultant exercises any right of rescission or revocation under the Separation Agreement or the Release contemplated thereby or if Consultant fails to execute and deliver such Release to the Company on January 30, 2004. This Agreement and Consultant’s retention hereunder may be terminated by the Company for “Cause” (as defined below). In the event of a termination by the Company for Cause, neither the Company nor the Consultant shall have any further obligations hereunder, except as set forth in Sections 10, 11, 12 and 13 hereof. For purposes of this Agreement, “Cause” shall mean Consultant’s (i) gross malfeasance or gross misfeasance in the performance of his services to the Company, (ii) continued failure to perform the services to the Company reasonably requested of him hereunder, other than due to Consultant’s death or physical or mental incapacity, (iii) engagement in any felonious acts or other acts showing dishonesty or moral turpitude or (iv) breach of the covenants set forth in Sections 10, 11 or 12 hereof.

5. Availability. Upon reasonable advance notice, Consultant will be available to perform Services for a cumulative period of up to 40 hours per week and may, upon mutual agreement, provide Services in excess of 40 hours per week. For purposes of Paragraph 4(ii) of this Agreement, Consultant’s refusal to provide services in excess of 40 hours per week shall not be deemed a failure to perform services to the Company reasonably requested of him.

6. Compensation. The Company will pay Consultant an aggregate fee of $415,565.00 in consideration of Consultant’s performance of the Services. Such fee will be payable on the last day of each calendar month in 12 equal installments beginning on February 28, 2004; provided, however, that, at the Company’s discretion, such payment may be accelerated based upon substantial completion of assignments, satisfactory performance and other factors, but in no event shall the aggregate amount of payment be less than $415,565.00. In the event of Consultant’s death during the term of this Agreement, the unpaid portion of such fee shall be paid to Consultant’s estate in accordance with the above payment schedule. In the event of Consultant’s inability to perform the Services during the term of this Agreement on account of disability or incapacity, Consultant shall not be in breach of this Agreement on account thereof and the Company shall continue to make the payments to Consultant called for by this Section 6.

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7. Expenses and Facilities. The Company will reimburse Consultant for all reasonable business expenses paid or incurred by Consultant directly in connection with the performance of the Services. In addition, while this Agreement remains in effect and during the time that the Company has requested that Consultant perform any Services, the Company will make available to Consultant without charge appropriate office space, office equipment and clerical assistance for use in connection with Consultant’s performance of such Services. During the term of this Agreement, Consultant will retain possession of the portable computer obtained by Consultant from the Company. Upon the expiration of the term of this Agreement, Consultant will retain possession of such portable computer after removal therefrom of all property and software owned or licensed by the Company, including all Confidential Information (as hereinafter defined).

8. Taxes. Consultant will pay and be fully responsible for all taxes attributable to the compensation payable to Consultant hereunder, including, without limitation, income, Social Security and Medicare taxes. To the extent consistent with applicable law, the Company will not withhold any amounts payable to Consultant as federal income tax withholding from wages or as employee contributions under the Federal Insurance Contributions Act or any other state or federal laws.

9. Insurance. While this Agreement remains in effect, Consultant will maintain in force or cause to be maintained in force with respect to any automobile operated by Consultant automobile liability insurance with limits of not less than $100,000 for any one person for bodily injury or death, $300,000 for any one accident for bodily injury or death and $50,000 for property damage. Consultant will provide the Company evidence of such insurance upon its request.

10. Work Product. Consultant agrees that all inventions, drawings, improvements, developments, methods, processes, programs, designs and all similar or related information which relates to the Company’s or any of its subsidiaries’ actual or anticipated business or research and development or existing or future products or services and which are conceived, developed, contributed to or made by Consultant (either solely or jointly with others) during the term of this Agreement or during his prior employment with the Company (“Work Product”) will be the sole and exclusive property of the Company or any such subsidiary. Consultant will promptly disclose such Work Product to the Company and perform all actions requested by the Company (whether during or after the term of this Agreement) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

11. Confidential Information.

(a) Consultant acknowledges that:

(i) the Work Product, artificial intelligence systems, information, customer lists, goodwill, observations and data disclosed to, developed by or obtained by him during the term of this Agreement or during his prior employment with the Company concerning the business or affairs of the Company or any such subsidiary (including without limitation the Company’s and its subsidiaries’ technology, methods of doing

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business and supplier and customer information) (collectively, “Confidential Information”) are highly confidential and uniquely valuable to the Company and its subsidiaries;

(ii) such Confidential Information is and will continue to be the property of the Company or any such subsidiary;

(iii) the Company and each of its subsidiaries has a proprietary interest in their respective Confidential Information, including without limitation the identity of their respective customers and suppliers, solicited customers, customer and supplier lists;

(iv) the continued success of the Company and its subsidiaries depends in large part on keeping the Confidential Information from becoming known to competitors of the Company and its subsidiaries; and

(v) the Company and its subsidiaries will be irreparably harmed by disclosure of any Confidential Information.

(b) Therefore, Consultant agrees:

(i) That, during the term of this Agreement and for all times thereafter, except as required by law or court order, he will not directly or indirectly disclose to any unauthorized person or use for his own account any Confidential Information without the prior written consent of the Company, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of Consultant’s acts or omissions to act;

(ii) To use his best efforts and diligence to safeguard the Confidential Information and to protect it against disclosure, misuse, espionage, loss or theft;

(iii) That upon the expiration of the term of this Agreement or at any other time the Company may request, for whatever reason, Consultant will deliver (and in the event of Consultant’s death or incapacity, his representative will deliver) to the Company all computer equipment or backup files of or relating to the Company and its subsidiaries, all memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, the Work Product or the business of the Company or any of its subsidiaries which he may then possess or have under his control; provided that after removal by the Company of Confidential Information, if any, Consultant’s portable computer shall be returned to Consultant pursuant to Paragraph 7 of this Agreement. If the Company requests, Consultant (or his representative) agrees to provide written confirmation that Consultant has returned all such materials to the Company or one of its subsidiaries; and

(iv) That upon the expiration of the term of this Agreement or at any other time the Company may request, for whatever reason, Consultant will assign all rights, title and interest in the Confidential Information, the Work Product, all computer equipment or backup files of or relating to the Company or any of its subsidiaries, all

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memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, the Work Product or the business of the Company or any of its subsidiaries which Consultant may then possess, has under his control, or has ever developed, obtained, or contributed to during his tenure with the Company.

12. Noncompete; Nonsolicitation.

(a) Consultant agrees that, during the term of this Agreement (the “Restricted Period”), he will not directly or indirectly own, operate, manage, control, participate in, consult with, advise, provide services for, or in any manner engage in any business (including by himself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with the businesses of the Company or any of its subsidiaries as such businesses exist during the term of this Agreement, within the United States or any other geographical area in which the Company or any of its subsidiaries engages in such businesses. Nothing herein will prohibit Consultant from being a passive owner of not more than 2% of the outstanding stock of a corporation which is publicly traded, so long as Consultant has no active participation in the business of such corporation.

(b) During the Restricted Period, Consultant will not directly or indirectly through another entity (i) induce or attempt to induce any employee of the Company or any of its subsidiaries to leave the employ of the Company or any such subsidiary, or in any way interfere with the relationship between the Company or any of its subsidiaries and any employee thereof, including without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the business or operations of the Company or any of its subsidiaries, (ii) hire any person who was an employee of the Company or any of its subsidiaries at any time during Consultant’s employment period, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of the Company or any of its subsidiaries to cease doing business with the Company or any such subsidiary, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and the Company or any of its subsidiaries.

(c) Consultant agrees that: (i) the covenants set forth in this Section 12 are reasonable in geographical and temporal scope and in all other respects, (ii) the Company would not have entered into this Agreement but for the covenants of Consultant contained herein, and (iii) the covenants contained herein have been made in order to induce the Company to enter into this Agreement.

(d) If, at the time of enforcement of this Section 12, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances will be substituted for the stated duration, scope or area and that the court will be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law.

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13. Remedies. Consultant recognizes and affirms that in the event of his breach of any provision of Section 10, 11 or 12 hereof, money damages would be inadequate and the Company would have no adequate remedy at law. Accordingly, Consultant agrees that in the event of a breach or a threatened breach by Consultant of any of the provisions of Section 10, 11 or 12 hereof the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

14. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, sent via a nationally recognized overnight courier, charges prepaid, or sent via facsimile. Such notices, demands and other communications will be sent to the address indicated below:

To the Company:

Global Power Equipment Group Inc.

6120 South Yale, Suite 1480

Tulsa, OK 74136

Attention: General Counsel

Facsimile No.: (918) 274-2367

To the Consultant:

Gary J. Obermiller

825 Brockton Lane

Plymouth, Minnesota 55447

or such other address or to the attention of such other person as the recipient party will have specified by prior written notice to the sending party. Any such notice, demand or other communication will be deemed to have been received (a) when delivered, if personally delivered, or sent by nationally-recognized overnight courier or sent via facsimile or (b) on the third business day following the date on which the piece of mail containing such notice, demand or other communication is posted if sent by certified or registered mail.

15. Severability. If any provision or clause of this Agreement, or portion thereof shall be held by any court or other tribunal of competent jurisdiction to be illegal, invalid, or unenforceable in such jurisdiction, the remainder of such provision will not be thereby affected and will be given full effect, without regard to the invalid portion. It is the intention of the parties that, if any court construes any provision or clause of this Agreement, or any portion thereof, to be illegal, void or unenforceable because of the duration of such provision or the area matter covered thereby, such court will reduce the duration, area, or matter of such provision, and, in its reduced form, such provision will then be enforceable and will be enforced.

16. Assignment. All rights and obligations herein contained will inure to the benefit of and be binding upon the Company, Consultant, their successors and their permitted assigns. Consultant will not assign any rights or obligations under this Agreement without the prior written consent of the Company. The Company may assign the rights or obligations under this Agreement to any successor in interest to the Company.

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17. Governing Law. Except as otherwise provided below, this Agreement shall be governed in all respects, including validity, interpretation and effect, by the laws of the State of Minnesota, regardless of the laws that might otherwise govern under applicable principles of conflicts of laws thereof. It is acknowledged, however, that the terms and provisions of this Agreement have been arrived at in good faith by the parties hereto, and the parties intend that this Agreement shall be fully enforceable. To that end the parties agree that to the extent that this Agreement or some aspect thereof or the performance or breach thereof bears a reasonable relationship to a jurisdiction other than the State of Minnesota and if the same shall be enforceable under the laws of such jurisdiction but not the State of Minnesota, the laws of the jurisdiction in which such enforceability prevails shall govern their rights and duties in that regard.

18. Entire Agreement and Waiver. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes any other understanding entered into by or on account of the parties with respect to the subject matter hereof to the extent inconsistent herewith. This Agreement may not be changed, modified or amended except in writing signed by the parties hereto. The failure of either party to exercise any rights under this Agreement for a breach thereof will not be deemed to be a waiver of such rights or a waiver of any subsequent breach.

19. Effectiveness; Counterparts. This Agreement shall be void and of no force or effect if Consultant does not execute and deliver this Agreement and the Separation Agreement to the Company on or before January 30, 2004 or revokes the Release (as defined in the Separation Agreement). This Agreement may be executed in one or more counterparts, which shall, collectively and separately, constitute one agreement.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the applicable date set forth below.

“Company”		“Consultant”
Global Power Equipment Group Inc.
By:	/s/ John M. Matheson	/s/ Gary J. Obermiller
	John M. Matheson	Gary J. Obermiller
	Vice President and General Counsel	Date of Signature: January 30, 2004
	Date of Signature: January 30, 2004

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EX-10.3

EXHIBIT 10.3

EMPLOYMENT AGREEMENT

This EMPLOYMENT AGREEMENT (this “Agreement”) is dated as of February 12, 2004 (the “Effective Date”), by and among Global Power Equipment Group Inc., a Delaware corporation (“Holdings”), Deltak, L.L.C., a Delaware limited liability company (the “Company”) and Monte E. Ness (the “Executive”). Capitalized terms used but not otherwise defined herein shall have the respective meanings assigned to such terms in Section 1 of this Agreement.

WHEREAS, Holdings, the Company and the Executive desire to enter into an agreement regarding the employment by the Company of the Executive effective as of the Effective Date; and

WHEREAS, the Company is a wholly owned subsidiary of Holdings; and

WHEREAS, the Executive is entrusted with knowledge of the particular business methods of Holdings and the Company and is trained and instructed in the particular operation methods of Holdings and the Company, and the relationship among Holdings, the Company and the Executive is one in which Holdings and the Company places special trust and confidence in the Executive.

NOW, THEREFORE, in consideration of employment and in further consideration of these mutual covenants and agreements, the parties hereto, each intending to be bound, covenant and agree as follows:

1. Definitions. As used herein, the following terms shall have the following meanings:

“Additional Employment Term” has the meaning set forth in Section 2(d)(i) of this Agreement.

“Affiliate” means, when used with reference to a specified Person, any Person that directly or indirectly controls or is controlled by or is under common control with the specified Person. As used in this definition, “control” (including, with its correlative meanings, “controlled by” and “under common control with”) shall mean possession, directly or indirectly, of power to direct or cause the direction of management or policies (whether through ownership of securities or partnership or other ownership interests, by contract or otherwise). With respect to any Person who is an individual, “Affiliates” shall also include, without limitation, any member of such individual’s Family Group.

“Base Salary” has the meaning set forth in Section 2(c)(i) of this Agreement.

“Benefits” has the meaning set forth in Section 2(c)(ii) of this Agreement.

“Board” means Holdings’ Board of Directors.

“Bonus” means awards under the MIC Plan or a New MIC Plan.

“Bonus Year” means an annual bonus period under the MIC Plan or a New MIC Plan.

“Businesses” has the meaning set forth in Section 5(a) of this Agreement.

“Cause” means the occurrence of any one of the following as determined by the Board: (i) a material breach of the Executive’s covenants under Section 4 or Section 5 of this Agreement; (ii) the commission by the Executive of a felony, or any crime involving theft, dishonesty or moral turpitude; (iii) the commission by the Executive of act(s) or omission(s) which are willful and deliberate acts intended to harm or injure the business, operations, financial condition or reputation of Holdings or the Company or any Affiliate of Holdings or the Company; (iv) the Executive’s disregard of the directives of the Board; (v) the Executive’s drunkenness or use of drugs which interferes with the performance of the Executive’s duties under this Agreement, which drunkenness or use of drugs continues after receipt of notice to the Executive from the Company of his violation of this provision; or (vi) any attempt by the Executive to secure any personal profit in connection with the business of the Company unless given prior written approval by unanimous consent of the Board.

“Confidential Information” has the meaning set forth in Section 4(a)(i) of this Agreement.

“Disability” means the inability, due to illness, accident, injury, physical or mental incapacity or other disability, of the Executive to carry out effectively his duties and obligations to the Company or to participate effectively and actively in the management of the Company for a period of at least 90 consecutive days or for shorter periods aggregating at least 150 days (whether or not consecutive) during any twelve-month period, as determined in the judgment of the Board.

“Effective Date” means February 12, 2004.

“Employment Period” has the meaning set forth in Section 2(d)(ii) of this Agreement.

“Employment Term” has the meaning set forth in Section 2(d)(i) of this Agreement.

“Family Group” means, with respect to any Person who is an individual: (i) such Person’s spouse, former spouse and descendants (whether natural or adopted), parents and their descendants and any spouse of the foregoing persons (collectively, “relatives”) or (ii) the trustee, fiduciary or personal representative of such Person and any trust solely for the benefit of such Person and/or such Person’s relatives.

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“Geographical Area” has the meaning set forth in Section 5(a) of this Agreement.

“Good Reason” for resignation by the Executive means his resignation because of: (i) a reduction in the annual base salary of the Executive, a material reduction in the employee benefits granted to the Executive, or a reduction in the Executive’s percentage participation in the MIC Plan prior to the approval and adoption of a New MIC Plan or a reduction in the Executive’s percentage participation in any New MIC Plan from the percentage previously awarded to the Executive if and when a New MIC Plan is approved and adopted, (ii) a material modification to the MIC Plan as in effect on the date hereof which adversely affects the determination of the Executive’s bonus with respect to the 2004 calendar year or thereafter if the MIC Plan continues to be in effect for any calendar year after the 2004 calendar year unless such modification is generally applicable to all participants in the MIC Plan and such modification has been approved by (x) if the Board has less than three Management Board Members, then all such Management Board Members or (y) if the Board has three or more Management Board Members, then any two of such Management Board Members, (iii) a material modification to a New MIC Plan, which modification adversely affects the determination of the Executive’s bonus for any calendar year for which such New MIC Plan is applicable, unless such modification is generally applicable to all participants in the New MIC Plan and such modification has been approved by (x) if the Board has less than three Management Board Members, then all such Management Board Members or (y) if the Board has three or more Management Board Members, then any two of such Management Board Members, (iv) a requirement that the Executive be based at any office or location more than 50 miles from Plymouth, Minnesota, (v) a removal of the Executive as President of the Company or as a Senior Vice President of Holdings by action of the Board, or (vi) an assignment, by action of the Board, to the Executive of any duties and responsibilities that are substantially inconsistent with or materially diminish the Executive’s position, in each case, other than with the consent of the Executive.

“Initial Employment Period” has the meaning set forth in Section 2(d)(i) of this Agreement.

“Management Board Member” means any member of the Board who is also a full-time employee of Holdings or any of its Subsidiaries.

“MIC Plan” means Holdings’ and its Subsidiaries’ Management Incentive Compensation Plan for the 2004 calendar year and thereafter until a New MIC Plan is approved and adopted.

“New MIC Plan” means Holdings’ and its Subsidiaries’ Management Incentive Compensation Plan approved and adopted by the Board to be effective for any calendar year after 2004.

“Noncompete Period” has the meaning set forth in Section 5(a) of this Agreement.

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“Person” means an individual, a partnership, a corporation, an association, a limited liability company, a joint stock company, a trust, a joint venture, an unincorporated organization or a governmental entity or any department, agency or political subdivision thereof.

“Post-Termination Period” has the meaning set forth in Section 5(a) of this Agreement.

“Subsidiary” means, with respect to any Person, any corporation, partnership, limited liability company, association or other business entity of which (i) if a corporation, a majority of the total voting power of shares of stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is at the time owned or controlled, directly or indirectly, by that Person or one or more of the other Subsidiaries of that Person or a combination thereof, or (ii) if a partnership, limited liability company, association or other business entity, a majority of the partnership or other similar ownership interest thereof is at the time owned or controlled, directly or indirectly, by any Person or one or more Subsidiaries of that Person or a combination thereof. For purposes hereof, a Person or Persons shall be deemed to have a majority ownership interest in a partnership, limited liability company, association or other business entity if such Person or Persons shall be allocated a majority of partnership, limited liability company, association or other business entity gains or losses or shall be or control the managing director, manager or a general partner of such partnership, limited liability company, association or other business entity.

“Termination Date” means the date that the Executive ceases to be employed by Holdings or any of its Subsidiaries for any reason.

“Work Product” has the meaning set forth in Section 3 of this Agreement.

2. Employment.

(a) Employment. The Company agrees to employ the Executive, and the Executive hereby accepts employment with the Company, upon the terms and conditions set forth in this Agreement for the Employment Period (as herein defined).

(b) Positions and Duties.

(i) Commencing on the date hereof and continuing during the Employment Period, the Executive shall serve as an employee and the President of the Company under the supervision and direction of the Board and shall have the normal duties, responsibilities and authority of a President of a corporation and such other duties as shall be assigned to the Executive by the Board from time to time. In addition, the Executive shall serve as a Senior Vice President of Holdings under the supervision and direction of the Board and shall have the normal duties, responsibilities, and authority of a Senior Vice President of a corporation.

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(ii) The Executive shall devote his best efforts and his full business time and attention (except for permitted vacation periods and reasonable periods of illness or other incapacity which does not constitute Disability) to the business and affairs of the Company. The Executive shall perform his duties and responsibilities to the best of his abilities in a diligent, trustworthy, businesslike and efficient manner. The foregoing shall not preclude the Executive from devoting reasonable time to civic and charitable affairs and with the consent of the Board serving on a maximum of one board of for-profit entities other than the Board or the board of directors of any Subsidiary of Holdings, provided that such activities do not interfere in any material respect with the performance of his duties hereunder. The Executive shall perform all services in accordance with the policies, procedures and rules established by Holdings or the Company. In addition, the Executive shall comply with all laws, rules and regulations that are generally applicable to Holdings, its Subsidiaries and their employees, directors and officers.

(c) Base Salary and Benefits.

(i) Base Salary. During the Employment Period, the Executive’s base salary shall be in an amount set by the Board, but under no circumstances will be less than $164,682 per annum (the “Base Salary”), which salary shall be paid by the Company in regular installments in accordance with the Company’s general payroll practices and shall be subject to customary withholding. On an annual basis, the Board shall review and determine the appropriateness of an increase in the Base Salary as in effect as of the date of such review.

(ii) Benefits. During the Employment Period, in addition to the Base Salary payable to the Executive pursuant to Section 2(c)(i) hereof, the Executive shall be entitled to participate in the following employee benefit programs, plans and policies (collectively, the “Benefits”):

(A) The employee benefit programs (including, but not limited to, option plans and benefit programs which provide group pension, life and health insurance and other medical benefits) that Holdings and the Company, with the approval of the Board, now or hereafter makes available generally to its management as well as the employee benefits listed on Exhibit A hereto; provided that any awards under any option plans shall be set by the Board, in its sole discretion;

(B) During calendar year 2004 and thereafter, the MIC Plan or any New MIC Plan, with any awards thereunder to be set by the Board at a level of no less than a 55% target bonus (with the actual bonus ranging from 0% to 200% of such target), it being understood and agreed that if the MIC Plan or a New MIC Plan is not in place during any calendar year, the Executive will have substantially the same bonus opportunities as existed under the MIC Plan or a New MIC Plan during the prior calendar year;

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(C) Holdings’ Club Membership Policy (including without limitation payment of an initiation fee and the monthly fees of a country club located in Minnesota of the Executive’s choice).

(iii) Expenses. The Company shall reimburse the Executive for all reasonable and necessary business expenses incurred by the Executive in performing his duties under this Agreement which are consistent with the Company’s policies in effect from time to time with respect to travel, entertainment and other business expenses subject to the Company’s receipt of supporting documentation in accordance with the Company’s customary reporting and documentation provisions.

(d) Term.

(i) This Agreement is an employment contract for a term of two (2) years beginning as of the Effective Date and ending on the second anniversary of the Effective Date (the “Initial Employment Term”). At the end of the Initial Employment Term, and at the end of each Additional Employment Term (as herein defined), unless the Company (with the approval of the Board) has provided the Executive with at least sixty (60) days advance written notice, so long as the Executive continues to be employed by the Company, this employment contract shall automatically renew for a term of one (1) year (each such additional term, an “Additional Employment Term”). The Initial Employment Term and each Additional Employment Term shall be referred to herein as an “Employment Term.” Notwithstanding the foregoing, each Employment Term is subject to early termination (x) by reason of the Executive’s death or Disability, (y) by resolution of the Board with or without Cause, or (z) upon the Executive’s voluntary resignation with or without Good Reason. For all purposes under this Agreement, a delivery of a notice by the Company to the Executive pursuant to this Section 2(d)(i) to avoid an Additional Employment Term shall be treated as if an Employment Term has been terminated early by resolution of the Board without Cause.

(ii) The period of the Initial Employment Term together with each Additional Employment Term, if any, shall be referred to herein as the “Employment Period.” Notwithstanding any termination of the Executive’s employment by the Company (such termination, an “Employment Termination”), this Agreement shall remain a valid and enforceable contract between the parties, including without limitation Sections 3, 4 and 5 hereof.

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(e) Employment Termination.

(i) If any Employment Term is terminated early by resolution of the Board with Cause or by reason of the Executive’s voluntary resignation without Good Reason, then the Executive shall be entitled to receive only all previously earned and accrued but unpaid Base Salary and vacation time up to the date of the Employment Termination (and not any accrued but unpaid Bonus as of the date of the Employment Termination).

(ii) If any Employment Term is terminated early by reason of the Executive’s death or Disability, then the Executive shall be entitled to receive only (x) all previously earned and accrued but unpaid Base Salary and vacation time up to the date of the Employment Termination, (y) if the date of the Employment Termination is 3 months after the commencement of a Bonus Year, then a portion of the Bonus earned by the Executive during such Bonus Year in which such termination occurs determined on a pro rated basis based on the number of days of the applicable Bonus Year prior to the date of the Employment Termination as compared to the number of days in such Bonus Year, which payment will be made when such Bonus for such Bonus Year would otherwise be payable and (z) any Bonus earned by the Executive during any Bonus Year which ended prior to the date of the Employment Termination and which has not been paid as of such date, which payment will be made when such Bonus for such Bonus Year would otherwise be payable.

(iii) If any Employment Term is terminated early by reason of the Executive’s voluntary resignation with Good Reason or by resolution of the Board without Cause, then, subject to the last sentence of this section (iii), the Executive shall be entitled to receive only the following: (v) all previously earned and accrued but unpaid Base Salary and vacation time up to the date of the Employment Termination, (w) his Base Salary and the Benefits marked on Exhibit A with an “#” for the twelve-month period beginning on the date of the Employment Termination; provided, however, that such twelve-month period shall be extended until the date on which the Initial Employment Term would have ended if more than twelve months remained in the Initial Employment Term on the date of the Employment Termination; provided, further, that in lieu of providing such benefits, the Company may elect to pay to the Executive the cost of premiums for such benefits, (x) the Benefits referred to in Section 2(c)(ii)(C) hereof for the three-month period beginning on the date of the Employment Termination, (y) if the date of the Employment Termination is 3 months after the commencement of a Bonus Year, then a portion of the Bonus earned by the Executive during such Bonus Year in which such termination occurs determined on a pro rated basis based on the number of days of the applicable Bonus Year prior to the date of the Employment Termination as compared to the number of days in such Bonus Year, which payment will be made when such Bonus for such Bonus Year would otherwise be payable and (z) any Bonus earned by the Executive during any Bonus Year which ended prior to the date of the

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Employment Termination and which has not been paid as of such date, which payment will be made when such Bonus for such Bonus Year would otherwise be payable. Notwithstanding these payments or benefits, the period for which the Executive is entitled to health care continuation coverage under Section 4980B of the Internal Revenue Code of 1986, as amended, shall begin to run on the date of the Executive’s termination. As a condition to receiving any payments pursuant to this section 2(e)(iii), the Executive shall execute and deliver to the Company a general release (with ancillary covenants not to sue and other similar standard provisions) of Holdings and its Affiliates and their respective officers, directors and employees from all claims of any kind whatsoever arising out of the Executive’s employment or termination thereof (including without limitation, civil rights claims), in such form as reasonably requested by the Company; provided, however, that the release will not affect any contractual rights the Executive may otherwise have under any stock option plans of Holdings or option agreements thereunder; and provided further that the release shall not apply to any rights to which the Executive is entitled in accordance with plan provisions under any employee benefit plan or fringe benefit plan or program of Holdings or the Company and its Affiliates.

(iv) Except as expressly provided in this Section 2(e), the Executive hereby agrees that upon and after the Employment Termination, no severance compensation of any kind, nature or amount (including by operation of law) shall be payable by Holdings, the Company or any of their respective Subsidiaries or Affiliates to the Executive and the Executive hereby irrevocably waives any claim for severance compensation of any kind, nature or amount (including by operation of law).

(v) Except as expressly provided in this Section 2(e), upon the Employment Termination, except as required by law, all of the Executive’s rights to Benefits hereunder (if any) shall cease.

(vi) Subject to restrictive covenants contained in Section 5 hereof, the Executive may obtain other engagements or employment after the date of an Employment Termination, and any compensation received or receivable by the Executive shall not reduce any amounts which the Company is required to pay to the Executive pursuant to this Agreement.

3. Work Product. The Executive agrees that all inventions, drawings, improvements, developments, methods, processes, programs, designs and all similar or related information which relates to Holdings’ or any of its Subsidiaries’ actual or anticipated business or research and development or existing or future products or services and which are conceived, developed, contributed to or made by the Executive (either solely or jointly with others) while employed by Holdings or any of its Subsidiaries (“Work Product”) shall be the sole and exclusive property of Holdings or any such Subsidiary. The Executive will promptly disclose such Work Product to Holdings and perform all actions requested by Holdings (whether during or after employment) to establish and confirm such ownership (including, without limitation, assignments, consents, powers of attorney and other instruments).

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4. Confidential Information.

(a) The Executive acknowledges:

(i) That the Work Product, artificial intelligence systems, information, customer lists, goodwill, observations and data disclosed to, developed by or obtained by him while employed by Holdings or any of its Subsidiaries concerning the business or affairs of Holdings or any such Subsidiary (including without limitation Holdings’ and its Subsidiaries’ technology, methods of doing business and supplier and customer information) (collectively, “Confidential Information”) are highly confidential and uniquely valuable to Holdings and its Subsidiaries;

(ii) That such Confidential Information is and shall continue to be the property of Holdings or any such Subsidiary;

(iii) That Holdings and each of its Subsidiaries has a proprietary interest in their respective Confidential Information, including without limitation the identity of their respective customers and suppliers, solicited customers, customer and supplier lists;

(iv) That the continued success of Holdings and its Subsidiaries depends in large part on keeping the Confidential Information from becoming known to competitors of Holdings and its Subsidiaries; and

(v) That Holdings and its Subsidiaries will be irreparably harmed by disclosure of any Confidential Information.

(b) Therefore, the Executive agrees:

(i) That, during his employment and for all times thereafter, except as required by law or court order, he shall not directly or indirectly disclose to any unauthorized person or use for his own account any Confidential Information without the prior written consent of Holdings, unless and to the extent that the aforementioned matters become generally known to and available for use by the public other than as a result of the Executive’s acts or omissions to act;

(ii) To use his best efforts and diligence to safeguard the Confidential Information and to protect it against disclosure, misuse, espionage, loss or theft;

(iii) That upon the Employment Termination or at any other time Holdings may request, for whatever reason, the Executive shall deliver (and in the event of the Executive’s death or Disability, his representative shall deliver) to

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Holdings all computer equipment or backup files of or relating to Holdings and its Subsidiaries, all memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, the Work Product or the business of Holdings or any of its Subsidiaries which he may then possess or have under his control. If Holdings requests, the Executive (or his representative) agrees to provide written confirmation that the Executive has returned all such materials to Holdings or one of its Subsidiaries; and

(iv) That upon the Employment Termination or at any other time Holdings may request, for whatever reason, the Executive shall assign all rights, title and interest in the Confidential Information, the Work Product, all computer equipment or backup files of or relating to Holdings or any of its Subsidiaries, all memoranda, correspondence, customer data, notes, plans, records, reports, manuals, photographs, computer tapes and software and other documents and data (and copies thereof) relating to the Confidential Information, the Work Product or the business of Holdings or any of its Subsidiaries which the Executive may then possess, has under his control, or has ever developed, obtained, or contributed to during his tenure with Holdings.

5. Noncompete, Nonsolicitation.

(a) The Executive agrees that, during the time he is employed by Holdings or any of its Subsidiaries and during any applicable Post-Termination Period (as herein defined) (the “Noncompete Period”), he shall not directly or indirectly own, operate, manage, control, participate in, consult with, advise, provide services for, or in any manner engage in any business (including by himself or in association with any person, firm, corporate or other business organization or through any other entity) in competition with, or potential competition with, the businesses of Holdings or any of its Subsidiaries as such businesses (the “Businesses”) exist during the Executive’s employment by the Company, within the United States or any other geographical area in which Holdings or any of its Subsidiaries engages or plans to engage in the Businesses (the “Geographical Area”). Nothing herein shall prohibit the Executive from being a passive owner of not more than 2% of the outstanding stock of a corporation which is publicly traded, so long as the Executive has no active participation in the business of such corporation. For purposes of this Section 5, “Post-Termination Period” means the twelve (12) month period beginning on the Termination Date.

(b) During the Noncompete Period, the Executive shall not directly or indirectly through another entity (i) induce or attempt to induce any employee of Holdings or any of its Subsidiaries to leave the employ of Holdings or any such Subsidiary, or in any way interfere with the relationship between Holdings or any of its Subsidiaries and any employee thereof, including without limitation, inducing or attempting to induce any union, employee or group of employees to interfere with the business or operations of Holdings or any of its Subsidiaries, (ii) hire any person who was an employee of Holdings or any of its Subsidiaries at any time during the Executive’s

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employment period, or (iii) induce or attempt to induce any customer, supplier, distributor, franchisee, licensee or other business relation of Holdings or any of its Subsidiaries to cease doing business with Holdings or any such Subsidiary, or in any way interfere with the relationship between any such customer, supplier, distributor, franchisee, licensee or business relation and Holdings or any of its Subsidiaries.

(c) The Executive agrees that: (i) the covenants set forth in this Section 5 are reasonable in geographical and temporal scope and in all other respects, (ii) Holdings and the Company would not have entered into this Agreement but for the covenants of the Executive contained herein, and (iii) the covenants contained herein have been made in order to induce Holdings and the Company to enter into this Agreement.

(d) If, at the time of enforcement of this Section 5, a court shall hold that the duration, scope or area restrictions stated herein are unreasonable under circumstances then existing, the parties agree that the maximum duration, scope or area reasonable under such circumstances shall be substituted for the stated duration, scope or area and that the court shall be allowed to revise the restrictions contained herein to cover the maximum period, scope and area permitted by law.

(e) The Executive recognizes and affirms that in the event of his breach of any provision of this Section 5, money damages would be inadequate and Holdings and the Company would have no adequate remedy at law. Accordingly, the Executive agrees that in the event of a breach or a threatened breach by the Executive of any of the provisions of this Section 5, Holdings and the Company, in addition and supplementary to other rights and remedies existing in its favor, may apply to any court of law or equity of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce or prevent any violations of the provisions hereof (without posting a bond or other security).

6. Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and delivered personally, mailed by certified or registered mail, return receipt requested and postage prepaid, sent via a nationally recognized overnight courier, charges prepaid, or sent via facsimile. Such notices, demands and other communications will be sent to the address indicated below:

To Holdings or the Company:

Global Power Equipment Group Inc.

6120 South Yale, Suite 1480

Tulsa, OK 74136

Attention: Secretary

Facsimile No.: (918) 274-2367

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To the Executive:

at the Executive’s last address or facsimile

number on the records of the Company

or such other address or to the attention of such other Person as the recipient party shall have specified by prior written notice to the sending party; provided, that the failure to deliver copies of notices as indicated above shall not affect the validity of any notice. Any such notice, demand or other communication shall be deemed to have been received (i) when delivered, if personally delivered, or sent by nationally-recognized overnight courier or sent via facsimile or (ii) on the third business day following the date on which the piece of mail containing such notice, demand or other communication is posted if sent by certified or registered mail.

7. Miscellaneous.

(a) Warranty by the Executive. The Executive represents and warrants to Holdings and the Company that he is not a party to any agreement containing a noncompetition provision or other restriction with respect to (i) the nature of any services or business which he is entitled to perform or conduct for Holdings or the Company under this Agreement, or (ii) the disclosure or use of any information which directly or indirectly relates to the nature of the business of Holdings or any of its Subsidiaries or the services to be rendered by the Executive under this Agreement.

(b) Severability. If any provision or clause of this Agreement, or portion thereof shall be held by any court or other tribunal of competent jurisdiction to be illegal, invalid, or unenforceable in such jurisdiction, the remainder of such provision shall not be thereby affected and shall be given full effect, without regard to the invalid portion. It is the intention of the parties that, if any court construes any provision or clause of this Agreement, or any portion thereof, to be illegal, void or unenforceable because of the duration of such provision or the area matter covered thereby, such court shall reduce the duration, area, or matter of such provision, and, in its reduced form, such provision shall then be enforceable and shall be enforced.

(c) Complete Agreement. This Agreement shall embody the complete agreement and understanding among the Executive, Holdings and/or any of its Subsidiaries and supersedes and preempts any prior understandings, agreements or representations by or among such parties, written or oral, which may have related to the subject matter hereof in any way, including, but not limited to, the Old Employment Agreement. This Agreement does not supersede any agreements evidencing the grant of options to the Executive under Holdings’ 2000 Option Plan, Holdings’ 2001 Option Plan or any future option plan of Holdings.

(d) Counterparts. This Agreement may be executed in separate counterparts, each of which is deemed to be an original and all of which taken together constitute one and the same agreement.

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(e) Successors and Assigns, Transfer. This Agreement is intended to bind and inure to the benefit of and be enforceable by the Executive, Holdings and the Company and their respective successors, heirs and assigns.

(f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the state of Delaware, without giving effect to any rules, principles or provisions of choice of law or conflict of laws.

(g) Remedies. Holdings, the Company and the Executive will be entitled to enforce its or his respective rights under this Agreement specifically, to recover damages and costs (including reasonable attorneys’ fees and expenses) caused by any breach of any provision of this Agreement and to exercise all other rights existing in its or his favor. The parties hereto agree and acknowledge that Holdings and the Company will suffer irreparable harm and money damages may not be an adequate remedy for any breach of the provisions of this Agreement by the Executive and that any such party may in its sole discretion apply to any court of law or equity of competent jurisdiction (without posting any bond or deposit) for specific performance and/or other injunctive relief in order to enforce or prevent any violations of the provisions of this Agreement.

(h) Amendment and Waiver. The provisions of this Agreement may be amended and waived only with the prior written consent of Holdings (with the approval of the Board) and the Executive.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the Effective Date.

GLOBAL POWER EQUIPMENT GROUP INC.
By:	/s/ Larry Edwards
Name:	Larry Edwards
Title:	President and Chief Executive Officer
DELTAK, L.L.C.
By:	/s/ Larry Edwards
Name:	Larry Edwards
Title:	Chief Executive Officer
/s/ Monte E. Ness
Monte E. Ness

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Exhibit A

Benefits Schedule

Monte E. Ness

#	Medical Insurance
#	Dental Insurance
	Short Term Disability
	Long Term Disability
	Salary Continuation*
#	Life Insurance
	Accidental Death & Dismemberment
#	Travel Accident Insurance
	9 Paid Holidays Per Year
	4 Weeks Paid Vacation Per Year
	Profit Sharing Plan
	401(k) Plan
	Flexible Benefit Plan
	Preparation of Annual Taxes

* If disabled, the Company would pay the difference between his regular salary and the benefit Short Disability would pay for up to six months.

EX-31.1

Exhibit 31.1

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Larry Edwards, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Global Power Equipment Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2004

/s/ Larry Edwards

Larry Edwards

Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certifications pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, James P. Wilson, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Global Power Equipment Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an Annual Report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 6, 2004

/s/ James P. Wilson

James P. Wilson

Chief Financial Officer and

Vice President of Finance

EX-32.1

Exhibit 32.1

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q for the quarter ended March 27, 2004, of Global Power Equipment Group Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Larry Edwards, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Larry Edwards

Larry Edwards

Chairman, President and Chief Executive Officer

May 6, 2004

EX-32.2

Exhibit 32.2

Certification pursuant to 18 U.S.C. Section 1350,

as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

In connection with the Form 10-Q for the quarter ended March 27, 2004, of Global Power Equipment Group Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James P. Wilson, Chief Financial Officer and Vice President of Finance of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James P. Wilson

James P. Wilson

Chief Financial Officer and

Vice President of Finance

May 6, 2004