<PAGE> 1
REGISTRATION NO. 333-12301
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 29, 1996
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------
ENSTAR INC.
(Exact Name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3661 41-1831611
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
6479 CITY WEST PARKWAY PETER E. FLYNN
EDEN PRAIRIE, MINNESOTA 55344 EXECUTIVE VICE PRESIDENT
(612) 941-3200 6479 CITY WEST PARKWAY
(Address, including zip code, and telephone EDEN PRAIRIE, MINNESOTA 55344
number, including area code, of Registrant's (612) 941-3200
principal executive offices) (Name, address, including zip code, and
telephone number,
including area code, of agent for service)
</TABLE>
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Copies to:
J. Andrew Herring
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, MN 55402-1498
(612) 340-2600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
-------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earliest effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
Subject to completion, dated , 1996
$10,000,000
ENSTAR INC.
8.00% TWO YEAR
9.75% FIVE YEAR
11.00% TEN YEAR
SUBORDINATED DEBENTURES
MINIMUM INVESTMENT OF $1,000
-------------------------
ENStar Inc. ("ENStar" or the "Company") is offering hereby Subordinated
Debentures in the aggregate principal amount of $10 million. The Subordinated
Debentures are unsecured obligations subordinated to all Senior Indebtedness (as
defined in the Indenture pursuant to which the Debentures will be issued) of the
Company, which may vary from time to time. The Debentures are pari passu with
all other unsecured indebtedness of the Company, unless such indebtedness is
specifically subordinated to the Debentures. The Indenture does not limit the
amount of Senior Indebtedness or other indebtedness of the Company. As of
September 30, 1996, the Company had no outstanding Senior Indebtedness or other
indebtedness. The Company is a holding company. Accordingly, to pay the
principal and interest on the Debentures, the Company will be dependent on
dividends or other transfers from its subsidiaries or it will be required to
issue additional indebtedness or additional equity securities or to sell certain
of its assets.
The interest rates at which the Subordinated Debentures will be offered are
expected to change by order of the Company from time to time based on the
Company's financial needs and current market conditions, but any such change
will not affect the interest rate of any Subordinated Debentures purchased prior
to the effective date of such change. Any changes in the interest rates at which
the Subordinated Debentures will be offered will be made by post-effective
amendment to this Prospectus setting forth such changes to the interest rates.
Interest on each Debenture will be payable, at the election of the initial
purchaser, quarterly, at maturity, or, if the Debenture is in a denomination of
$5,000 or more, monthly.
The Company may, at its option, redeem any or all of the Debentures prior
to maturity on at least 30 days (but not more than 60 days) notice to each
holder of Debentures to be redeemed, without a premium, at a price of 100% of
the principal amount of the Debentures, plus accrued interest on a daily basis
to the redemption date. The Company may not reissue redeemed Debentures.
The Subordinated Debentures are offered by officers and employees of the
Company directly without an underwriter and on a continuous basis with an
expected termination date in October 1998; however, the Company reserves the
right to terminate this offering at any time prior to such date. No minimum
amount of Subordinated Debentures must be sold in order for the Company to
accept and deposit the proceeds of this offering. There is no assurance that all
or any portion of the offered Subordinated Debentures will be sold. It is
unlikely that any trading market for the Subordinated Debentures will develop,
or, if developed, will be sustained, or that the Debentures may be resold at any
price. The Company reserves the right to reject any subscription, in whole or in
part.
The Subordinated Debentures offered hereby are not deposits or accounts
with a bank, savings and loan association or other financial institution
regulated by federal or state banking authorities and such securities are not
entitled to any of the regulatory protections applicable to deposits or accounts
with such regulated financial institutions, including deposit insurance or
governmental guarantees.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
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<S> <C> <C> <C>
Per Debenture................................... 100% None 100%
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Total........................................... $10,000,000 None $10,000,000
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</TABLE>
(1) Before deducting expenses payable by the Company estimated at $60,449
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE> 3
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Debentures offered hereby has been filed with the Securities and
Exchange Commission (the "Commission"). This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to are not necessarily complete, and
in each instance reference is made to the copy of such contract or documents
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. For further information with
respect to the Company and the Debentures offered hereby, reference is made to
the Registration Statement and the exhibits and schedules thereto. A copy of the
Registration Statement, including exhibits and schedules thereto, may be
inspected by anyone without charge at the Commission's principal office in
Washington, D.C. and copies of all or any part thereof may be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of certain fees prescribed by the Commission. A copy of
the Registration Statement is also available on the Commission's Edgar site on
the World Wide Web at: http://www.sec.gov.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by and should be read in
conjunction with the more detailed information and Financial Statements and the
Notes thereto appearing elsewhere in this Prospectus. References to ENStar in
this Prospectus refer to ENStar as organized by NSU as a wholly owned subsidiary
in September 1996 and, prior to such organization, as an operating unit of NSU.
THE COMPANY
ENStar, a Minnesota corporation formed in 1995, is a wholly owned
subsidiary of North Star Universal ("NSU"). ENStar is a holding company. Its
principal subsidiaries are Americable, Inc. ("Americable") and Transition
Networks, Inc. ("Transition"). Americable is a provider of connectivity and
networking products and services. Transition is a manufacturer of connectivity
devices used in local area network ("LAN") applications. ENStar also owns
1,225,000 shares of common stock of CorVel Corporation ("CorVel"), or an
approximate 26% interest in CorVel, a provider of cost containment and managed
care services designed to address the medical costs of workers' compensation.
Americable is a provider of networking and connectivity products and
services used in providing solutions for customers operating a wide range of
data communications systems. Through Americable Network Technologies, Americable
provides products and services designed to build and manage LANs and wide area
network ("WAN") infrastructures for large and medium sized organizations.
Americable also supplies a wide array of voice and data communications related
products such as cable (both copper and fiber optic), cable assemblies,
components (blocks, jacks, connectors, patch cords, patch panels) and networking
hardware. Through American Custom Products, Americable provides a manufacturing
capability to satisfy the needs of customers that require custom or specialty
cable assemblies.
Transition develops, manufactures, markets and supports a broad line of
data networking hardware products that provide physical connectivity for LANs
and mini- and mainframe networks. Physical connectivity devices enable computing
and other electronic devices to communicate over a LAN. These devices include
high-speed switches, managed and unmanaged hubs, transceivers, media converters
and other related networking devices. Transition's products include intelligent
hubs and switches and passive and active terminal and related products.
Transition sells its products to a number of volume distributors and value added
resellers ("VARs") throughout the United States and certain countries worldwide.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address escalating medical costs. CorVel's
services include preferred provider organizations, automated medical fee
auditing, medical case management, independent medical examinations, utilization
review and vocational rehabilitation services. Such services are provided to
insurance companies, third party administrators and employers to assist them in
managing the medical costs and monitoring the quality of care associated with
medical claims. The common stock of CorVel is included on the Nasdaq National
Market under the symbol CRVL.
ENStar was formed in 1995 by NSU as a wholly owned subsidiary for the
purpose of holding the operating assets of NSU (Americable and Transition) and
the shares of common stock of Corvel owned by NSU, all of which were transferred
to ENStar on , 1996. The remaining assets of NSU after such transfer
consist primarily of 7,354,950 shares of common stock of Michael Foods., Inc.
("Michael"), cash and certain other assets. Michael is a diversified food
processor whose principal products include egg products, refrigerated grocery
products, frozen and refrigerated potato products and specialty dairy products.
NSU also had outstanding approximately $ aggregate principal amount of
subordinated indebtedness as of September 30, 1996. Pursuant to an Agreement and
Plan of Reorganization (the "Reorganization Agreement") entered into on December
21, 1995 between NSU and Michael: (i) Michael will be merged into a wholly owned
subsidiary of NSU (the "Merger"); (ii) NSU will change its name to Michael
Foods, Inc. and will continue the business previously conducted by Michael; and
(iii) the outstanding common stock of ENStar (the "ENStar Common Stock") will be
distributed (the "Distribution") pro rata to the shareholders of NSU. Upon the
Distribution, ENStar will cease to be a subsidiary of NSU and will instead be a
publicly owned
3
<PAGE> 5
company whose stock will be held by the shareholders of NSU. It is anticipated
that the ENStar Common Stock will be quoted on the Nasdaq National Market. To
that end, ENStar has applied to have the ENStar Common Stock approved for
quotation on the Nasdaq National Market under the symbol "ENSR." In connection
with the Distribution, ENStar intends to transfer all of its CorVel Common Stock
to Americable to satisfy certain federal income tax requirements relating to the
Merger and Distribution. The transactions contemplated by the Reorganization
Agreement described above, including the Distribution, are conditioned upon
consummation of the Merger; however, the offering of the Debentures made hereby
is not conditioned upon consummation of the transactions contemplated by the
Reorganization Agreement. See "BUSINESS -- The Distribution."
The Distribution will be effected pursuant to a Distribution Agreement to
be entered into between NSU and ENStar (the "Distribution Agreement"). The
Distribution Agreement will require ENStar to indemnify Michael and NSU against
certain losses arising from the Merger and the Distribution and to assume
certain liabilities of NSU. See "BUSINESS -- The Distribution."
The mailing address of ENStar's principal executive office is 6479 City
West Parkway, Eden Prairie, Minnesota, 55344; its telephone number is (612)
941-3200.
4
<PAGE> 6
THE OFFERING
Securities Offered............ The Company is offering up to $10,000,000
principal amount Subordinated Debentures (the
"Debentures"). The Two, Five and Ten Year
Debentures have maturities of two, five and ten
years, respectively, and mature on the first
day of the month immediately following the
second, fifth and tenth anniversary of the date
of issuance, respectively. Of the $10 million
of Debentures offered pursuant to this
Prospectus, unless and until such time as
ENStar Common Stock is quoted on the Nasdaq
National Market, at the end of each calendar
quarter of the Company, not more than 25% of
the principal amount of the Debentures
outstanding will have a 10-year maturity and
not more than 35% of the principal amount of
the Debentures outstanding will have a 5-year
maturity. There can be no assurance that the
ENStar Common Stock will ever be quoted on the
Nasdaq National Market. See "DESCRIPTION OF
DEBENTURES -- General."
Interest Rate and Payment..... Interest on the Debentures will accrue from the
date of issuance. Interest will be payable
quarterly or at maturity at the option of the
Debenture holder. If the interest is paid at
maturity only, it will be compounded quarterly.
Additionally, holders of Debentures in
denominations of $5,000 or more may elect to
receive interest payments monthly. Once issued,
the interest rate applicable to a Debenture
will not adjust prior to maturity. See
"DESCRIPTION OF DEBENTURES -- Interest."
Redemption.................... The Debentures are redeemable at the Company's
option, in whole or in part, at any time prior
to maturity on at least 30 days (but not more
than 60 days) notice to each holder of
Debentures to be redeemed, without a premium,
at a price of 100% of the principal amount of
the Debentures, plus accrued interest on a
daily basis to the redemption date. See
"DESCRIPTION OF DEBENTURES -- Redemption at the
Option of the Company."
Repayment upon Death.......... Under certain circumstances, the Company will
repay up to $25,000 in aggregate principal
amount of Debentures at par upon the death of a
Debenture holder. See "DESCRIPTION OF
DEBENTURES -- Redemption by the Holder Upon
Death."
Subordination................. The Debentures are unsecured obligations of the
Company and subordinated to all present and
future Senior Indebtedness of the Company, as
defined in the Indenture. The Debentures are
pari passu with all other unsecured
indebtedness of the Company, unless such
indebtedness is specially subordinated to the
Debentures. There are no restrictions in the
Indenture on incurring additional Senior
Indebtedness or other indebtedness. As of
September 30, 1996, the Company had no
outstanding Senior Indebtedness or other
indebtedness. See "DESCRIPTION OF DEBENTURES --
Subordination."
5
<PAGE> 7
SELECTED HISTORICAL AND UNAUDITED COMBINED FINANCIAL INFORMATION
The following table sets forth certain selected historical combined
financial information of ENStar that has been derived from and should be read in
conjunction with ENStar's Combined Financial Statements, including the Notes
thereto, which are included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1)
Revenues........................ $31,793 $26,254 $54,891 $47,193 $46,756 $42,025 $37,007
Operating income (loss)......... 167 474 1,033 (702) (1,978) (1,151) (666)
Interest expense, net........... (139) (148) (247) (348) (361) (373) (415)
Income (loss) before income
taxes and equity in earnings
of unconsolidated
subsidiary.................... 28 326 786 (1,050) (2,339) (1,524) (1,081)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $ 602 $ 715 $ 1,572 $ 286 $(1,524) $ (550) $ (302)
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share(2)...................... $ 0.18 $ 0.22 $ 0.49 $ 0.09 $ (0.48) $ (0.17) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Pro forma net weighted average
shares outstanding(2)......... 3,304 3,279 3,217 3,235 3,146 3,296 3,261
BALANCE SHEET DATA (END OF
PERIOD)(1)
Total assets.................... $35,770 $33,034 $35,251 $32,243 $30,222 $30,318 $29,497
Long-term debt, including
current maturities............ 167 2,011 1,246 3,607 3,443 3,898 3,323
Operating unit equity........... 19,603 19,057 19,694 18,176 17,035 17,262 16,737
</TABLE>
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(1) See Notes 1 and 2 to Notes to ENStar's Combined Financial Statements for a
description of the entities included in the combined financial statements
and the basis on which the combined financial statements were prepared.
(2) Pro forma net income (loss) per share was computed using the weighted
average number of outstanding shares of NSU Common Stock during each period
presented and assuming that, in the Distribution, one share of ENStar Common
Stock was distributed for every three shares of the weighted average
outstanding NSU Common Stock, without taking into account any fractional
shares.
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following risk
factors should be considered carefully in evaluating an investment in the
Debentures.
ABSENCE OF INSURANCE AND GUARANTEES
The Debentures are not insured or guaranteed by any governmental agency or
any public or private entity as are certificates of deposit or other accounts
offered by banks, savings and loan associations or credit unions. In these
respects, the Debentures are similar to the subordinated unsecured debt
securities of other commercial entities, but are unlike certificates of deposits
or other similar accounts offered by banks and savings institutions. The
Debentures are not guaranteed by NSU, and NSU is under no obligation to make
payments on the Debentures.
LIMITED COVENANTS; ABSENCE OF SINKING FUND
The Debentures do not have the benefit of extensive covenants. The
covenants in the Indenture are not designed to protect holders of the Debentures
in the event of a material adverse change in the Company's financial condition
or results of operations. These covenants do not place any restriction on the
Company's ability, among other things, to create or incur Senior Indebtedness or
other indebtedness or to pay dividends. The Indenture does not contain
provisions that permit the holders of Debentures to require that the Company
repurchase or redeem the Debentures in the event of a takeover, redemption,
recapitalization or similar restructuring, and the Indenture does not contain
covenants specifically designed to protect holders of the Debentures in the
event of a highly leveraged transaction involving the Company. In addition, the
Debentures will not have the benefit of sinking fund payments by the Company.
NO MARKET FOR THE DEBENTURES
The Debentures will not be listed on a national securities exchange or
authorized for quotation on the Nasdaq National Market. It is unlikely that any
trading market for the Debentures will develop, or if developed, will be
sustained, or that the Debentures may be resold at any price. In addition, the
Debentures may be issued in uneven amounts which could further restrict the
ability to trade the Debentures.
LIMITED HISTORY OF PROFITABILITY; UNCERTAINTY OF FUTURE RESULTS
ENStar has a limited history of profitability. ENStar experienced operating
losses during 1991, 1992, 1993 and 1994. During 1995, ENStar generated operating
income of approximately $1.0 million. Americable derives its revenues from three
primary lines of business: networking products and services, cable and
connectivity products and cable assemblies. Americable has recently increased
the focus of its business on network services, which are generally more
profitable. No assurance can be made, however, that Americable will be
successful in increasing revenues from its network services. In addition,
Americable continues to make significant investments in new sales, engineering
and technical personnel.
Transition's ability to maintain its present level of sales and its
historical sales growth is highly dependent upon its ability to offer new
products that meet customer's demands in a rapidly changing market, particularly
in light of the relatively short life cycle of its products. In order to achieve
market acceptance of new products, Transition plans to continue its investment
in research and development. Transition had research and development expenses of
approximately $1.2 million (10% of net sales) in 1994, $1.0 million (7% of net
sales) in 1995 and $1.2 million (9% of net sales) for the nine months ended
September 30, 1996. See "BUSINESS -- Research and Development." There can be no
assurance, however, that its research and development efforts will result in
commercially successful new products in the future. In addition, Transition
believes that sales and marketing expenses will continue to increase in terms of
absolute dollars in an effort to differentiate its products and enhance its
competitive position.
These anticipated increases in operating expenses at both Americable and
Transition may result in lower operating profit at ENStar, if the companies are
unable to maintain their respective current gross profit
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<PAGE> 9
margins and continued sales growth. Further, if Americable is not successful in
generating higher volumes of service revenues, its operating margins could
decline and its ability to maintain its current operating profitability could be
materially adversely affected. Based on the above factors, there can be no
assurance that ENStar will be able to increase or sustain its profitability on a
quarterly or annual basis in the future.
Failure to sustain profitability could lead to cash flow shortages, which
in turn could materially adversely affect ENStar's ability to make scheduled
payments on its indebtedness, including the Debentures. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL
CONDITION -- Results of Operations."
CASH FLOW DEFICITS
ENStar has experienced cash flow deficits from operations in certain prior
years and the six months ended June 30, 1996. ENStar's ratio of earnings to
fixed charges for each of the five fiscal years ended December 31, 1995, 1994,
1993, 1992 and 1991 was 2.54, (0.72), (2.68), (1.46) and (0.62), respectively.
For the six month periods ending June 30, 1996 and 1995, the ratio of earnings
to fixed charges was 1.1 and 2.18, respectively. During the years 1994, 1993,
1992 and 1991, the Company's earnings were inadequate to cover its fixed
charges. The coverage deficiency was approximately $1,050,000, $2,339,000,
$1,524,000 and $1,081,000 for the fiscal years ended December 31, 1994, 1993,
1992 and 1991, respectively. Based on the Company's recent cash flow deficits
and its historically high debt to equity ratio, the Company does not expect its
fixed charges to decrease significantly or for its earnings from its operating
subsidiaries to improve significantly. The Company's ability to repay the
Debentures could be adversely affected if its cash flow deficits continue and
the Company were unable to raise additional funds through the issuance of new
debt or equity securities or the sale of assets of the Company. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- Capital Resources and Liquidity."
SUBORDINATION OF DEBENTURES; NO LIMITATION ON INDEBTEDNESS OF THE COMPANY
The Debentures are subordinate and junior to any and all Senior
Indebtedness of the Company, as defined in the Indenture and rank pari passu
with all other unsecured indebtedness of the Company not expressly subordinated
to the Debentures. There are no restrictions in the Indenture regarding the
amount of Senior Indebtedness or other indebtedness of the Company, which may
fluctuate. In the event of a default on the Senior Indebtedness or the
liquidation of the Company, all Senior Indebtedness must be paid prior to any
payment of principal or interest on the Debentures. As of September 30, 1996,
the Company had no outstanding Senior Indebtedness or other indebtedness. See
"DESCRIPTION OF THE DEBENTURES -- Subordination."
NO SECURITY FOR PAYMENT
The Debentures offered hereby are unsecured and do not have the benefit of
a sinking fund or other similar provision providing for retirement of the
Debentures at their maturity. The Company is a holding company. Accordingly, to
pay the principal and interest on the Debentures, the Company will be dependent
on dividends or other transfers from its subsidiaries or it will be required to
issue additional indebtedness or additional equity securities or to sell certain
of its assets. The ability of the Company's subsidiaries to pay dividends or
make other transfers to the Company may be restricted by their respective
operating performances, cash flows and covenants with such subsidiaries' lender.
Further, no assurance can be made that the Company will be able to issue
additional indebtedness, additional equity securities or sell any of its assets
on favorable terms or at all. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION -- Capital Resources and
Liquidity."
REDEMPTION
The Company, at its option, may at any time redeem all or a portion of the
outstanding Debentures at any time prior to maturity on at least 30 days (but
not more than 60 days) notice to each holder of Debentures to
8
<PAGE> 10
be redeemed. If the Company redeems less than all of the outstanding Debentures,
the Company will redeem the Debentures by interest rate or maturity. The
Debentures will be redeemed without a premium at a price of 100% of the
principal amount plus accrued but unpaid interest. Upon redemption, former
holders of Debentures redeemed will no longer have rights under the Indenture.
See "DESCRIPTION OF DEBENTURES -- Redemption at the Option of the Company."
NO FIRM UNDERWRITING COMMITMENT
The Debentures are being offered by officers and employees of the Company
without a firm underwriting commitment. While the Company intends to seek to
sell $10 million principal amount of Debentures, the Company has not established
a minimum amount of proceeds that must be received from the sale of Debentures
in order to accept proceeds from Debentures actually sold. Accordingly, no
assurance can be given as to the principal amount of Debentures that will be
sold. See "USE OF PROCEEDS."
CERTAIN RISKS PERTAINING TO THE CORVEL COMMON STOCK
Because CorVel is not a wholly owned subsidiary, the Company does not have
the ability to utilize cash flows from CorVel in connection with its wholly
owned operating subsidiaries or to repay its indebtedness, including the
Debentures. The only cash the Company can obtain from CorVel is cash dividend
payments made to all CorVel shareholders. Since its initial public offering,
CorVel has not paid any dividends and it has indicated that it does not
anticipate doing so during the foreseeable future. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS -- Capital
Resources and Liquidity."
ENStar does not have any agreement with CorVel requiring CorVel to register
the shares of CorVel Common Stock currently held by ENStar for sale under
federal or state securities laws. In the absence of registration of its CorVel
Common Stock, the ability of ENStar or, after the Distribution, Americable to
sell the CorVel Common Stock will be limited to sales pursuant to Rule 144 of
the Securities Act of 1933, as amended (the "Securities Act"), and the volume
limitations thereof, and to private negotiated sales, which may adversely affect
the ability of ENStar and Americable to sell a large portion of the holdings of
CorVel Common Stock at a given time.
NSU has indicated to the Company that prior to the Distribution it may
cause the Company to seek to sell up to 200,000 shares of CorVel Common Stock
and to distribute the after-tax net proceeds from such sale to NSU as a dividend
in order to fund NSU's operating expenses and maturing indebtedness prior to the
Merger and to reduce the amount of NSU's net indebtedness at the time of the
Merger. The simultaneous sale of all 200,000 shares of CorVel Common Stock would
require CorVel to register the sale of such shares with the Commission. ENStar
does not have an agreement with CorVel requiring CorVel to register any of the
shares of CorVel Common Stock held by ENStar. If all 200,000 shares were sold,
ENStar would own 1,025,000 shares of CorVel Common Stock, or approximately 22%
of the outstanding shares of CorVel as of June 30, 1996.
PRODUCT AND SERVICE DEVELOPMENT RISKS
With respect to Transition, the market for networking products is subject
to rapid technological change, evolving industry standards and frequent new
product introductions and, therefore, requires a high level of expenditures for
research and development. Transition may be required to incur significant
expenditures to develop such product offerings. There can be no assurance that
Transition will be successful in identifying, sourcing, developing and marketing
product enhancements or new products that respond to this rapidly changing
market. Also, there can be no assurance that its product enhancements and new
products will adequately meet the requirements of the marketplace and achieve
market acceptance. A critical factor in market acceptance of product
enhancements and new products is the timely introduction of such products and
enhancements in order to take advantage of existing market opportunities.
Transition has, in the past, experienced delays in the introduction of certain
of its new products and enhancements. See "BUSINESS -- Business
Strategy -- Transition" and "-- Products and Services -- Transition."
9
<PAGE> 11
The markets for Americable's products and services are also characterized
by rapidly changing technology and frequent new product and service offerings by
its competitors. The introduction of new technologies can render existing
products and services obsolete or unmarketable. Americable's continued success
will depend on its ability to enhance existing products and services and to
develop and introduce, on a timely and cost-effective basis, new products and
services that keep pace with technological developments and address increasingly
sophisticated customer requirements. See "BUSINESS -- Business Strategy --
Americable" and "-- Products and Services -- Americable."
ENStar's business, financial condition and results of operations could be
materially adversely affected if Transition were to incur delays in developing
or introducing new products or product enhancements or if such new products or
product enhancements did not gain market acceptance or in the event that
Americable were to incur delays in sourcing and developing new products and
services or that these products and services would achieve market acceptance.
EXPANSION STRATEGY
ENStar's expansion strategy includes both internal growth and the
identification and pursuit of acquisition opportunities at Americable.
Americable currently operates in six locations and the success and the rate of
Americable's expansion into new geographical markets will depend on a number of
factors, including general economic and business conditions affecting the
industries of Americable's customers in such markets, competition, the
availability of sufficient capital, the availability of sufficient inventory to
meet customer demand, and the ability to attract and retain qualified personnel
and operate effectively in geographic areas in which Americable has no prior
experience. As a result, there can be no assurance that Americable will be able
to achieve its planned expansion on a timely or profitable basis.
Americable intends to identify and pursue acquisition opportunities as a
means to expand its geographic coverage and enhance service capabilities offered
to its customers. However, viable acquisition candidates may not be available to
Americable on acceptable terms or at all. Furthermore, Americable has not
engaged in any significant acquisitions recently, and no assurance can be made
that Americable will be able to successfully acquire or integrate the operations
of another business into the operations and business of Americable. Americable
has no present commitments, agreements or understandings with respect to any
acquisitions.
If Americable continues to grow, it may be required to make further
investments in personnel and information technology systems. Failure to
successfully hire or retain such personnel or implement such systems could have
a material adverse effect on ENStar's results of operations and financial
condition. There can be no assurance that Americable will be able to manage its
expanding operations effectively, that it will be able to maintain or accelerate
its recent growth or that Americable will be able to continue to operate
profitably. See "BUSINESS -- Business Strategy."
FLUCTUATIONS IN QUARTERLY RESULTS
ENStar's quarterly revenues and operating results have varied significantly
in the past and will likely continue to do so in the future. Quarterly revenues
and operating results may fluctuate as a result of the demand for Americable's
and Transition's products and services, the introduction of new hardware and
software technologies offering improved features, the introduction of new
products and services by competitors, changes in the level of operating
expenses, competitive conditions and economic conditions generally. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION AND FINANCIAL
CONDITION."
At Americable, the purchase of its products and services generally involves
a significant commitment of capital, with the delays frequently associated with
large capital expenditures and required authorization procedures within an
organization. Such expenditures by customers can range from $50,000 to over
$500,000. The sales cycle for Americable's products and services generally
ranges from three to nine months depending on the size of the project, extent of
competition and degree of the customer's technical expertise. For these and
other reasons, Americable's operating results are subject to a number of risks
over which it has little or no control, including customers' technology life
cycle needs, budgetary constraints and internal authorization
10
<PAGE> 12
reviews. Further, Americable is increasing its operating expenses, including an
increase in personnel, based on anticipated revenue growth in its networking
line of business.
A variety of factors may cause period-to-period fluctuations in the
operating results of Transition. Such factors include, but are not limited to,
product mix, competitive pricing pressures, material costs and timely
availability, revenue and expenses related to new product introductions, as well
as delays in customer purchases in anticipation of new products or enhancements
by Transition or its competitors. Further, Transition plans to continue to
invest in research and development, sales and marketing and technical support
staff.
ENStar's operating results also could be adversely affected if it is unable
to adjust spending sufficiently in a timely manner to compensate for any
unexpected revenue shortfall.
DEPENDENCE ON AND NEED TO RECRUIT AND RETAIN KEY PERSONNEL
ENStar's success depends to a significant extent on its ability to attract
and retain key personnel. In particular, Americable and Transition are dependent
on their respective engineering and technical personnel. Competition for such
technical personnel is intense and no assurance can be given that ENStar will be
able to recruit and to retain such personnel. The failure to recruit and to
retain management and technical personnel could have a material adverse effect
on ENStar's anticipated growth, revenues and results of operations.
CONCENTRATION OF REVENUES
During 1995 and the first six months of 1996, Mayo Foundation accounted for
approximately 11% and 18%, respectively, of Americable's net sales, and Georgia
Pacific Corporation accounted for approximately 9% and 11%, respectively, of net
sales. No other customers accounted for more than 10% of Americable's revenues.
In addition, Americable derived approximately 61% of its revenues from its 100
largest customers in 1995, and 67% of its revenues from its 100 largest
customers in the first half of 1996. While Americable seeks to build long-term
customer relationships, revenues from any particular customer can fluctuate from
period to period due to such customer's purchasing patterns.
Transition distributes its products through an expanding network of
reseller channels, which include a number of regionally based domestic and
international volume distributors and, to a lesser extent, VARs. In 1995 and the
first half of 1996, Americable was Transition's largest domestic customer
accounting for approximately 14% and 15%, respectively, of domestic net sales
(9% and 10%, respectively, overall). During 1995 and the first half of 1996,
Transition's largest international customer accounted for approximately 11% and
13%, respectively, of international net sales (4% and 5%, respectively,
overall). Moreover, the ten distributors that sold the largest amount of
Transition's products accounted for approximately 39% and 42%, respectively, of
Transition's net sales for 1995 and the first half of 1996.
Any termination or significant disruption of the companies' relationships
with a number of its principal customers could have a material adverse effect on
ENStar's business, financial condition and results of operations. In addition, a
deterioration in the financial condition of any of its principal customers could
expose ENStar to the possibility of large accounts receivable write-offs, which
would adversely affect ENStar's financial condition and results of operations.
See "BUSINESS -- Marketing and Customers."
DEPENDENCE ON KEY SUPPLIERS AND PRODUCT SUPPLY
The networking industry has experienced product supply shortages and
customer order backlogs due to the inability of certain manufacturers to supply
certain products on a timely basis. In addition, certain suppliers have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that suppliers will be able
to maintain an adequate supply of products to fulfill Americable's and
Transition's customer orders on a timely basis. Both Americable and Transition
have experienced product supply shortages in the past and expect to experience
such shortages from time to time in the future. Failure to obtain adequate
product supplies or fulfill customer orders on a timely basis or substantial
change in the cost of components could affect the companies' ability to deliver
products in a timely
11
<PAGE> 13
and cost-effective manner and could have a material adverse effect on ENStar's
business, financial condition, and results of operations.
Transition's products include certain components, including some produced
by Novacom Technologies, Ltd., that are currently available from single or
limited sources, some of which require long order lead times. Although
Transition believes that it would be able to obtain alternative sources of
supply for the components included in its products if required, there can be no
assurance that Transition will be able to locate any such sources or will be
able to obtain alternative sources of supply on a timely and economic basis, if
at all. Any reduction in supply, interruption or extended delay in timely supply
or change in costs of components could materially adversely affect Transition's
business and results of operations and, consequently, the business, financial
condition and results of operations of ENStar.
A significant portion of Americable's revenues is derived from sales of
network hardware, including products of various major suppliers. During 1995
approximately 19% of the Americable's sales represented products manufactured by
Bay Networks, Inc. Americable's agreements with those suppliers from which it
purchases products directly generally contain provisions for periodic renewals
and for termination by the supplier without cause, generally upon relatively
short notice. Although Americable believes its supplier relationships are good,
there can be no assurance that Americable's relationships will continue as
presently in effect. Although Americable believes that it would be able to
obtain alternative sources of supply for its products if required, there can be
no assurance that Americable will be able to locate any such sources or will be
able to obtain alternative sources of supply on a timely and economic basis, if
at all. The loss of a major supplier, including Bay Networks, Inc., the
deterioration of Americable's relationship with a major supplier or the failure
of Americable to establish good relationships with major new suppliers as they
develop could have a material adverse effect on ENStar's business.
INVENTORY MANAGEMENT
The networking industry is characterized by rapid product improvement and
technological change resulting in relatively short product life cycles and rapid
product obsolescence, which can place inventory at considerable valuation risk.
The typical life cycle of Transition's products ranges from 18 months to three
years for its basic LAN and terminal products and from 12 to 18 months for its
advanced LAN products. Some of Transition's products include components that are
currently available from limited sources and require long order lead times.
Because of the long lead times and Transition's desire to be responsive to
customer demand, Transition has maintained higher inventory levels compared to
other networking manufacturers. Transition's inventories are valued at the lower
of cost or market and management periodically assesses the appropriateness of
the inventory valuations giving consideration to any slow-moving and nonsalable
inventory relative to current market selling prices of comparable products.
Provisions for inventory obsolescence are recorded in the period any valuation
impairments are identified. For 1995 and the six month period ended June 30,
1996, total inventory write-offs as a percentage of net sales were approximately
1%. Due to the ongoing risk of product obsolescence and changes in customer
demand, there can be no assurances that Transition will be able to successfully
manage its existing and future inventories.
Although it is industry practice for Americable's suppliers to provide
price protection to VARs such as Americable in order to reduce the risk of
inventory devaluation, such policies are subject to change. Americable also has
the option of returning, subject to certain limitations, a percentage of its
current product inventories each quarter to certain manufacturers as it assesses
each product's current and forecasted demand. The amount of inventory that can
be returned to suppliers varies under Americable's agreements and such return
policies may provide only limited protection against excess inventory. There can
be no assurance that suppliers will continue such policies, that unforeseen new
product developments will not affect Americable adversely or that Americable can
successfully manage its existing and future inventories. Any inventory
adjustments could adversely affect ENStar's financial condition and results of
operations.
12
<PAGE> 14
COMPETITION
Each of ENStar's businesses faces substantial competition from a large
number of companies, some of which are larger, have greater financial resources,
broader name recognition and, in many cases, lower product and operating costs
than ENStar.
The industry in which Transition operates is highly competitive, and
Transition believes that such competition will continue to intensify. The
industry is characterized by rapid technological change, short product life
cycles, frequent product introductions and evolving industry standards.
Transition competes with a number of independent companies focused on the LAN
market, including companies with significantly greater financial resources, more
extensive business experience, and greater market and service capabilities than
Transition. Transition competes with a number of companies focused on designing
and manufacturing products for the LAN market, including, among others, 3Com
Corp., Bay Networks, Inc., Cabletron System, Inc. Allied Telesyn International
and Digi International. Americable faces competition from large system
integrators such as AmeriData Technologies, Inc., Vanstar Corporation and a
significant number of smaller regional VARs and network integrators. Additional
competitors within Americable's distribution business include, among others,
Anixter International Inc., and Graybar Electric Co., Inc. See "BUSINESS --
Competition." There can be no assurance that ENStar will be able to compete
successfully.
ENStar expects to face further competition from new market entrants and
possible alliances between competitors in the future. Certain of ENStar's
current and potential competitors have greater financial, technical, marketing
and other resources than ENStar. As a result, they may be able to respond more
quickly to new or emerging technologies and changes in customer requirements or
to devote greater resources to the development, promotion and sale of their
products and services than ENStar. No assurance can be given that ENStar will be
able to compete successfully against current and future competitors. See
"BUSINESS -- Competition."
13
<PAGE> 15
THE COMPANY
ENStar, a Minnesota corporation formed in 1995, is a wholly owned
subsidiary of NSU. On , 1996 NSU contributed its stock of
Americable, Transition and CorVel to ENStar. ENStar is a holding company. Its
principal subsidiaries are Americable and Transition. ENStar also owns 1,225,000
shares of common stock of CorVel, or an approximate 27% interest in CorVel, a
provider of cost containment and managed care services designed to address the
medical costs of workers' compensation.
Americable was organized as a Minnesota corporation in 1981 and was
acquired by NSU in 1986. Americable is a provider of networking and connectivity
products and services used in providing solutions for customers operating a wide
range of data communications systems. Through Americable Network Technologies,
Americable provides products and services designed to build and manage LANs and
WAN infrastructures for large and medium sized end-users. Americable also
supplies a wide array of voice and data communications related products such as
cable (both copper and fiber optic), cable assemblies, components (blocks,
jacks, connectors, patch cords, patch panels) and networking hardware. Through
American Custom Products, Americable provides a manufacturing capability to
satisfy the needs of customers that require custom or specialty cable
assemblies.
Transition develops, manufactures, markets and supports a broad line of
data networking hardware products that provide physical connectivity for LANs
and mini- and mainframe networks. Physical connectivity devices enable computing
and other electronic devices to communicate over a LAN. These devices include
high-speed switches, managed and unmanaged hubs, transceivers, media converters
and other related networking devices. Transition's products include intelligent
hubs and switches and passive and active terminal and related products.
Transition sells its products to a number of volume distributors and VARs
throughout the United States and certain countries worldwide.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address escalating medical costs. CorVel's
services include preferred provider organizations, automated medical fee
auditing, medical case management, independent medical examinations, utilization
review and vocational rehabilitation services. Such services are provided to
insurance companies, third party administrators and employers to assist them in
managing the medical costs and monitoring the quality of care associated with
medical claims.
NSU, ENStar's parent, is a party to the Reorganization Agreement between
NSU and Michael. Pursuant to the Reorganization Agreement: (i) Michael will
merge with and become a wholly owned subsidiary of NSU; (ii) NSU will change its
name to Michael Foods, Inc. and will continue the business previously conducted
by Michael; and (iii) the outstanding common stock of ENStar will be distributed
pro rata to the shareholders of NSU of record as of a record date prior to the
date the Merger becomes effective (the "Effective Date"). Upon the Distribution,
ENStar will cease to be a subsidiary of NSU and will instead be a publicly owned
company whose stock will be held by the shareholders of NSU. It is anticipated
that ENStar Common Stock will be quoted on the Nasdaq National Market. To that
end, ENStar has applied to have the ENStar Common Stock approved for quotation
on the Nasdaq National Market under the symbol "ENSR." In connection with the
Distribution, ENStar intends to transfer all of its CorVel Common Stock to
Americable to satisfy certain federal income tax requirements relating to the
Merger and Distribution. The events described above, including the Distribution,
are conditioned upon consummation of the Merger; however, the offering of the
Debentures made hereby is not conditioned upon consummation of the transactions
contemplated by the Reorganization Agreement. See "BUSINESS -- The
Distribution."
The Distribution will be effected pursuant to a Distribution Agreement to
be entered into between NSU and ENStar (the "Distribution Agreement"). The
Distribution Agreement requires ENStar to indemnify Michael and NSU against
certain losses and to assume certain liabilities of NSU. See "BUSINESS -- The
Distribution." As consideration for the transfer by NSU to ENStar of the common
stock of Americable, Transition and Corvel, ENStar has agreed to enter into the
Distribution Agreement substantially in the form set forth as an exhibit to the
registration statement of which this Prospectus forms a part, but with such
changes as may be agreed by the parties or required pursuant to the
Reorganization Agreement.
14
<PAGE> 16
The mailing address of ENStar's principal executive office is 6479 City
West Parkway, Eden Prairie, Minnesota, 55344; its telephone number is (612)
941-3200.
RECENT DEVELOPMENTS
The following Combined Statements of Operating Unit Income are presented as
additional information. The complete Combined Financial Statements and related
notes will not be available until approximately November 15, 1996. The following
information should be read in conjunction with ENStar's Combined Financial
Statements and notes thereto included elsewhere herein.
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1996 1995
------- -------
(IN THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Revenues................................................................. $49,151 $40,593
Operating and product costs.............................................. 36,147 29,075
------- -------
Gross profit........................................................... 13,004 11,518
Selling, general, and administrative expenses............................ 12,594 10,900
------- -------
Operating income....................................................... 410 618
Interest expense, net.................................................... (191) (210)
------- -------
Income before taxes and equity in earnings of unconsolidated
subsidiary............................................................. 219 408
Income tax provision..................................................... 122 230
------- -------
Income before equity in earnings of unconsolidated subsidiary............ 97 178
Equity in earnings of unconsolidated subsidiary.......................... 956 872
------- -------
Net income............................................................. $ 1,053 $ 1,050
======= =======
Pro forma income per share............................................... $ 0.32 $ 0.32
======= =======
Weighted average shares outstanding...................................... 3,307 3,284
======= =======
</TABLE>
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------- ---------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ----- ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges...... 1.1 2.18 2.54 (0.72) (2.68) (1.46) (0.62)
Deficiency in earnings to fixed
charges............................... $ -- $ -- $ -- $1,050 $2,339 $1,524 $1,081
</TABLE>
For purposes of calculating the ratios of earnings to fixed charges,
earnings are defined as income (loss) before income taxes plus fixed charges.
Fixed charges consist of interest expense and the estimated interest portion on
rental payments.
15
<PAGE> 17
USE OF PROCEEDS
The primary purposes of this offering are to provide additional financing
for the Company's growth and to increase the Company's financial flexibility.
Net proceeds, including interest earned thereon, to the Company from the sale of
the Debentures will be used for general corporate purposes and investment in
ENStar's operating companies. In addition, proceeds from the sale of the
Debentures may be used to fund future acquisitions at Americable, although the
Company has no present commitments, agreements or understandings with respect to
any such acquisitions.
There is no minimum number or amount of Debentures required to be sold in
order to deposit and use the proceeds from sale of Debentures, and there can be
no assurance that all or any portion of the Debentures will be sold.
Accordingly, the amount of Debentures sold may be substantially less than the
maximum offered hereby. In such event, the net proceeds from the sale of the
Debentures will be used for the purposes set forth above.
PLAN OF DISTRIBUTION
The Company is offering hereby up to $10 million aggregate principal amount
of the Debentures. The Debentures will be offered by authorized officers and
employees of the Company directly without an underwriter and on a continuous
basis with an expected termination date in October 1998; however, the Company
reserves the right to terminate this offering of Debentures at any time prior to
such date. In compliance with Rule 3a4-1 of the Exchange Act of 1934, the
officers and employees of the Company will limit their participation in the
offering of Debentures to preparation of written communication or delivery of
communication through the mail or other means that do not involve oral
solicitation by the officer or employee, responding to inquiries of a potential
purchaser in a communication initiated by the potential purchaser, or performing
ministerial and clerical work related to the offering. No underwriting discounts
or commissions of any kind will be paid to such officers or employees in
connection with this offering. No minimum amount of the Debentures must be sold
in order for the Company to accept and deposit the proceeds of this offering.
The Debentures only may be purchased by means of the offer to purchase
Debentures contained in the form of Subscription Agreement provided by the
Company (the "Subscription Agreement"). The Company will not accept an offer to
purchase Debentures or negotiate checks delivered for payment on the sale of
Debentures unless the prospective purchaser has previously received this
Prospectus. In the event that the Company receives a properly executed
Subscription Agreement and payment for the purchase of Debentures from any
person who has previously received this Prospectus, but who has not received a
current post-effective amendment thereto, the Company will not accept the
Subscription Agreement nor accept any payment therefor until the lapse of five
business days following the mailing of a confirmation of sale and current post-
effective amendment to such prospective purchaser. During this five business day
period, any prospective purchaser of Debentures may revoke his or her offer,
orally or in writing, and the Company will promptly return any checks or funds
previously delivered to it. Once the Company accepts an offer, however, orders
to purchase Debentures and the issuance of such certificates will be deemed to
have occurred as of the date of receipt by the Company of a Subscription
Agreement and payment. The Company reserves the right to reject any offer to
purchase in whole or in part.
Of the $10 million of Debentures offered pursuant to this Prospectus,
unless and until such time as ENStar Common Stock is quoted on the Nasdaq
National Market, at the end of each calendar quarter of the Company, not more
than 25% of the principal amount of Debentures outstanding will have a 10-year
maturity and not more than 35% of the principal amount of Debentures outstanding
will have a 5-year maturity. There can be no assurance that the ENStar Common
Stock will ever be quoted on the Nasdaq National Market.
Prospective purchasers who have submitted Subscription Agreements and
payment of the purchase price for Debentures may revoke their offer by writing
the Company at 6479 City West Parkway, Eden Prairie, Minnesota 55344, Attention:
Investment Department, or by calling (612) 941-3200. Investors seeking
information as to the current interest rates for the Debentures may contact the
Company at (800) 247-1246 to receive a current quote as to such rates.
16
<PAGE> 18
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected financial data of the Company are qualified by
reference to and should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Combined
Financial Statements and the Notes thereto included elsewhere herein. (See Notes
1 and 2 to Notes to Combined Financial Statements for a description of the
entities included in the combined financial statements and the basis on which
the combined financial statements were prepared.) The combined statements of
operations data for the six-month periods ending June 30, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993, and the combined balance sheet
data at June 30, 1996 and December 31, 1995 and 1994 are derived from, and are
qualified by reference to, the audited and unaudited combined financial
statements included elsewhere in this Prospectus and should be read in
conjunction with those combined financial statements and notes thereto. The
combined statements of operations data for the years ended December 31, 1992 and
1991 and the combined balance sheet data at December 31, 1993, 1992 and 1991 are
derived from audited combined financial statements not included herein. The
selected financial data as of and for the six-month periods ended June 30, 1995
and 1996 have been derived from unaudited combined financial statements of the
Company which, in the opinion of management, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair presentation of the
financial information set forth therein. The results for the six months ended
June 30, 1996 are not necessarily indicative of the results to be expected for
the entire year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
----------------- -----------------------------------------------
1996 1995 1995 1994 1993 1992 1991
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
COMBINED STATEMENT OF OPERATIONS
DATA
Revenues.......................... $31,793 $26,254 $54,891 $47,193 $46,756 $42,025 $37,007
Operating income (loss)........... 167 474 1,033 (702) (1,978) (1,151) (666)
Interest expense, net............. (139) (148) (247) (348) (361) (373) (415)
Income (loss) before income taxes
and equity in earnings of
unconsolidated subsidiary....... 28 326 786 (1,050) (2,339) (1,524) (1,081)
------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $ 602 $ 715 $ 1,572 $ 286 $(1,524) $ (550) $ (302)
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share(1)........................ $ 0.18 $ 0.22 $ 0.49 $ 0.09 $ (0.48) $ (0.17) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Pro forma net weighted average
shares outstanding(1)........... 3,304 3,279 3,217 3,235 3,146 3,296 3,261
COMBINED BALANCE SHEET DATA (END
OF PERIOD)
Total assets...................... $35,770 $33,034 $35,251 $32,243 $30,222 $30,318 $29,497
Long-term debt, including current
maturities...................... 167 2,011 1,246 3,607 3,443 3,898 3,323
Operating unit equity............. 19,603 19,057 19,694 18,176 17,035 17,262 16,737
</TABLE>
- -------------------------
(1) Pro forma net income (loss) per share was computed using the weighted
average number of outstanding shares of NSU Common Stock during each period
presented and assuming that, in the Distribution, one share of ENStar Common
Stock was distributed for every three shares of the weighted average
outstanding NSU Common Stock, without taking into account any fractional
shares.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. This
Prospectus contains, in addition to historical information, forward-looking
statements that involve risks and uncertainties. The Company's actual results
could differ materially from the results discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include
those discussed below, as well as those discussed elsewhere in this Prospectus.
See "RISK FACTORS."
GENERAL
ENStar is currently a subsidiary of NSU. On , 1996, NSU
contributed its stock of Americable, Transition and CorVel to ENStar. At
, 1996, NSU owned a 26% ownership interest in CorVel. The financial
statements of ENStar reflect the investment in CorVel assuming ENStar owned a
26% ownership interest for all periods presented. ENStar's investment in CorVel
is accounted for as an unconsolidated subsidiary using the equity method of
accounting. The common stock of CorVel is included on the Nasdaq National Market
under the symbol CRVL. In connection with the Distribution, ENStar intends to
transfer all of its CorVel Common Stock to Americable to satisfy certain federal
income tax requirements relating to the Merger and Distribution. See "THE
COMPANY."
Americable has historically been a distributor of connectivity and
networking products. As part of its business strategy, Americable has recently
focused on increasing its level of service revenues, which are generally more
profitable. Service revenue is primarily derived from network integration
services such as network management, maintenance, design and implementation.
Americable intends to implement this strategy through continued internal
investments in additional sales, engineering and technical personnel at existing
and new geographic locations in order to enhance its ability to satisfy the
changing technology requirements of its customers. Americable expects that
increased operating expenses resulting from these investments will reduce its
profitability over the next twelve months to the extent it is unable to maintain
its gross margins or continued sales growth.
Historically, in excess of 90% of Transition's revenues have been derived
from the sale of its terminal and basic LAN products. These products have life
cycles of 18 to 36 months and are generally sold based on price, availability
and functionality. More recently, Transition has focused its product development
and marketing efforts on expanding its advanced LAN products in an effort to
increase sales with existing customers and participate in broader market
opportunities. Due to the increasing design and manufacturing complexities
associated with the integration of technologies, the development of advanced LAN
products requires a more substantial investment in engineering personnel and
related costs. As a result, Transition's future operations are highly dependent
on its ability to introduce advanced LAN products on a timely basis that meet
customer demands.
As described in Note 2 to the Combined Financial Statements of ENStar, the
Combined Statements of Income of ENStar include an allocation of general and
administrative costs incurred by NSU in the management of the operating
companies, investment holding and other assets of ENStar. Management believes
these allocations are reasonable and present the operations of ENStar as though
it has been operated on a stand alone basis prior to that time.
18
<PAGE> 20
The following are unaudited summarized operating results for ENStar's two
operating subsidiaries for the six months ended June 30, 1996 and June 30, 1995,
and each of the three years ended December 31, 1995 (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Americable................................... $24,920 $19,769 $42,160 $36,940 $38,266
Transition................................... 7,643 7,089 14,266 11,779 10,025
Eliminations................................. (770) (604) (1,535) (1,526) (1,535)
------- ------- ------- ------- -------
$31,793 $26,254 $54,891 $47,193 $46,756
======= ======= ======= ======= =======
Gross Profit
Americable................................... $ 5,484 $ 4,998 $ 9,979 $ 8,262 $10,254
Transition................................... 2,806 2,590 5,387 4,603 3,903
------- ------- ------- ------- -------
$ 8,290 $ 7,588 $15,366 $12,865 $14,157
======= ======= ======= ======= =======
Selling, General and Administrative Expenses
Americable................................... $ 4,973 $ 4,391 $ 8,814 $ 8,220 $10,075
Transition................................... 2,656 2,152 4,465 4,252 2,985
Restructuring charges........................ -- -- -- -- 1,953
Allocable corporate expenses................. 494 571 1,054 1,095 1,122
------- ------- ------- ------- -------
$ 8,123 $7,114.. $14,333 $13,567 $16,135
======= ======= ======= ======= =======
Operating Income (Loss)
Americable................................... $ 511 $ 607 $ 1,165 $ 42 $ 179
Transition................................... 150 438 922 351 918
Restructuring charges........................ -- -- -- -- (1,953)
Allocable corporate expenses................. (494) (571) (1,054) (1,095) (1,122)
------- ------- ------- ------- -------
$ 167 $ 474 $ 1,033 $ (702) $(1,978)
======= ======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1996 VERSUS SIX MONTHS ENDED JUNE 30, 1995
Consolidated revenues increased $5.5 million, or 21%, to $31.8 million from
$26.3 million in 1995.
Revenues at Americable increased approximately $5.1 million, or 26%, to
$24.9 million. Increased sales of networking products of approximately $6.3
million and increased revenues from installation and services of approximately
$470,000, both due primarily to higher demand, contributed to the increase in
sales at Americable. Included in these amounts is approximately $3.2 million of
higher sales of networking products to two customers, which is not expected to
continue during the remainder of the year. For the period, sales of networking
products and services were approximately $15.2 million, or 61%, of Americable's
revenues. Sales of cable and other connectivity products decreased approximately
$1.1 million, due primarily to lower volume to contractors and resellers and
lower demand for certain types of bulk cable due to increased market supply of
such product during the period. In addition, sales of cable assemblies decreased
approximately $500,000, due to competitive pressures and technological changes
within modular assembly applications.
Revenues at Transition increased approximately $554,000, or 7.8%, to $7.6
million. Sales of Transition's advanced LAN products increased approximately 71%
to $1.0 million, reflecting additional revenues from new products introduced
during 1995. Sales from new product introductions and enhancements accounted for
approximately 1% of net sales for the six months ended June 30, 1996 versus 24%
for the comparable period in 1995. Sales of basic LAN and terminal products
increased approximately 2% to $6.6 million. Sales to
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<PAGE> 21
domestic customers increased approximately $390,000, or 9%, to $4.8 million,
which primarily reflects higher demand for Transition's advanced LAN products.
Sales to international customers increased approximately $164,000, or 6%, to
$2.8 million, which was primarily a result of the addition of new customers.
Transition's ability to maintain its present level of sales and its continued
sales growth is highly dependent upon its ability to offer new products that
meet customer's demands in a rapidly changing market, particularly in light of
the relatively short life cycle of its products.
Consolidated gross profit, as a percent of revenues, decreased to 26.1% in
1996 as compared to 28.9% in 1995. Decreased margins at Americable are primarily
attributable to a higher volume of lower margin networking products and lower
pricing on cable due to competition and overall higher market supply on certain
types of bulk cable. Margins at Transition were relatively unchanged between
years. ENStar expects its gross profit margins to decline due to expected
competitive pricing pressures on products sold by both Americable and
Transition.
ENStar's selling, general and administrative expenses increased
approximately $1 million or 14.2%, to $8.1 million from $7.1 million in 1995.
The increase in operating expenses at Americable reflects increased expenses of
approximately $385,000 due to higher sales salaries and commissions, increased
expenses of approximately $187,000 due to the addition of technical and
engineering personnel and costs associated with the release of a new catalog in
the first quarter of 1996. Overall, general and administrative expenses of
Americable were relatively unchanged between years. Americable expects that its
sales and marketing expenses, as a percentage of revenues, may increase during
the remainder of 1996 as the result of the addition of sales and technical
personnel in new geographic locations. If the company is unable to maintain
current gross profit margins and continued sales growth, the anticipated
increases in operating expenses may result in a further reduction in operating
profits at Americable.
ENStar's research and development expenses (incurred exclusively within
Transition) were approximately $742,000 and $455,000 for the six months ended
June 30, 1996 and 1995.
Transition had increased operating expenses of approximately $504,000, or
23%, which reflects increased engineering expenses of approximately $287,000 due
to the addition of engineering personnel associated with new product
development. This increase also reflects higher sales and marketing expenses of
approximately $138,000, associated with advertising, participation in trade
shows, and other promotional expenses. In an effort to successfully develop and
launch new advanced LAN products, Transition anticipates the increased levels of
spending on engineering, marketing and promotional costs to continue throughout
1996. If such increased level of spending does not result in the timely
introduction of commercially successful products, Transition may experience
significantly reduced levels of sales growth and operating results.
Corporate expenses decreased approximately $77,000, or 13.5% primarily due
to lower professional fees.
Net interest expense decreased $9,000 to $139,000 from $148,000 in 1995,
due primarily to lower interest rates between years under the Americable and
Transition revolving credit facility.
The income tax provision in 1996 and 1995 reflects ENStar's estimated
effective annual tax rate. See Note 7 to Combined Financial Statements of
ENStar.
Equity in earnings of unconsolidated subsidiaries increased $63,000 to
$627,000 from $564,000 in 1995, which is a result of higher earnings at CorVel.
Further information with respect to the results of operations of CorVel is
contained in the Management's Discussion and Analysis of Financial Condition and
Results of Operation section of CorVel's annual and quarterly reports as filed
on Forms 10-K and 10-Q with the Commission.
1995 VERSUS 1994
Revenues at Americable increased approximately $5.2 million, or 14.1%, to
$42.1 million. This includes increased revenues of $4.5 million resulting from
higher demand for networking products. Of this amount, approximately $3.1
million of sales were attributable to higher volume of networking products with
a large end-user customer which is not expected to continue during 1996. The
increase in revenue of Americable also
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<PAGE> 22
includes approximately $650,000 of higher volume of service revenues due to
increased focus on services and the addition of technical personnel. In
addition, sales of cable assemblies increased by approximately $100,000,
primarily a result of higher demand of OEM assemblies offset by reduced pricing
within modular assembly applications due to technological changes.
Revenues at Transition increased approximately $2.5 million, or 21%, which
includes increased sales of approximately $1.1 million, or 25%, to international
customers and approximately $1.4 million, or 19% higher sales to domestic
customers. Sales to international customers consisted of 37% and 35% of
Transition's revenues in 1995 and 1994, respectively. This growth was due to
increased unit sales of its terminal products and both its basic and advanced
LAN product groups. Overall, these increases are primarily a result of new
product introductions during the end of 1994 and throughout 1995. During 1995,
new product introductions and enhancements accounted for $1.1 million, or 9% of
net sales. Transition's ability to maintain its present level of sales and its
continued sales growth is highly dependent upon its ability to offer new
products that meet customer's demands in a rapidly changing market, particularly
in light of the relatively short life cycle of its products.
Combined gross profit, as a percentage of revenues, increased to 28% in
1995 as compared to 27.3% in 1994. Increased margins at Americable were
primarily attributable to a higher mix of value-added service revenue and, to a
lesser extent, improved pricing and improved manufacturing efficiencies within
its cable assembly operations. Decreased margins at Transition were a result of
lower pricing on certain product lines due to increased competition. For 1996,
ENStar expects its gross profit margins to decline due to expected competitive
pricing pressures on products sold by both Americable and Transition.
ENStar's selling, general and administrative expenses increased $766,000,
or 5.6% to $14.3 million from $13.6 million in 1994. Operating expenses at
Americable increased approximately $600,000, or 7%. This increase reflects
higher selling expenses of approximately $700,000, primarily a result of higher
sales commissions and the addition of technical and engineering personnel, along
with additional expense for amounts earned under its incentive compensation
program of approximately $200,000. These increases were offset by the impact of
approximately $300,000 of annualized savings realized through reorganizations
effected within its U.S. operations in the third quarter of 1994 and the first
quarter of 1995. Americable expects that its selling expenses, as a percentage
of revenues, may increase during 1996 through the addition of sales and
technical personnel in new geographic locations in addition to costs associated
with a new catalog released in April 1996. These anticipated increases in
operating expenses may result in lower operating profits at Americable, if the
company is unable to maintain current gross profit margins and continued sales
growth.
ENStar's research and development expenses (incurred exclusively within
Transition) were approximately $1.0 million in 1995, compared to approximately
$1.2 million in 1994.
Transition increased operating expenses approximately $213,000 or 5%. This
includes approximately $125,000 of increased sales and marketing expenses due to
higher promotional and advertising expenses associated with new product
introductions and the company's name change, and approximately $220,000 of
increased engineering expenses associated with the additional personnel to
support new product development. In addition, this increase reflects higher
expenses of approximately $175,000 related to moving to a new facility and the
addition of administrative personnel and related facility expenses needed to
support its overall growth. These increases were offset by a decrease in
engineering expenses of approximately $300,000 due to lower spending on parts,
equipment, and other costs related to hardware development projects. This
reflects a shift towards higher software development associated with its
advanced LAN products. Transition expects that its research and development
expenses will increase in 1996 based on the planned addition of engineering
personnel for new product development. There can be no assurances, however, that
its research and development efforts will result in commercially successful new
products in the future. In addition, Transition believes that sales and
marketing expenses may continue to increase in terms of absolute dollars in an
effort to differentiate Transition's products and enhance its competitive
position. These anticipated increases in operating expenses are expected to
result in lower operating profit at Transition, particularly if the company is
unable to maintain its current gross profit margins and continued sales growth.
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<PAGE> 23
Net interest expense decreased by approximately $100,000 due primarily to
lower outstanding borrowings under Americable's revolving credit facility.
ENStar's effective combined income tax rate was 51.5% in 1995 and (32.4%)
in 1994. See Note 7 to the Combined Financial Statements of ENStar.
Equity in earnings of the Company's unconsolidated subsidiary increased
$195,000 to approximately $1.2 million in 1995 from approximately $1.0 million
in 1994, which is a result of higher earnings at CorVel. CorVel's net earnings
for the twelve months ended December 31, 1995 were approximately $7.0 million,
an increase of approximately $1.5 million or 27% from the previous year.
1994 VERSUS 1993
Revenues at Americable, excluding approximately $4.6 million of revenue in
1993 from its Canadian operations, which were closed in December 1993, increased
$3.3 million, or 9.8%, to $36.9 million. This includes increased revenues of $5
million resulting from higher demand for value-added networking products and
services offset by decreased sales of bulk cable and other connectivity products
of $1.2 million due primarily to lower volume of sales to contractors and
resellers. In addition, sales of cable assemblies decreased by approximately
$500,000 as a result of reduced pricing within modular assembly applications due
to technological changes.
Revenues at Transition increased approximately $1.8 million, or 18% which
includes increased sales of approximately $1.1 million, or 33%, to international
customers and approximately $700,000, or 10% higher sales to domestic customers.
Sales to international customers consisted of 35% and 31% of Transition's
revenues in 1994 and 1993, respectively. Overall, these increases are primarily
a result of new product introductions during the end of 1993 and throughout
1994. During 1994, new product introductions and enhancements accounted for $3.3
million, or 28% of net sales.
Combined gross profit, as a percentage of revenues, decreased to 27.3% in
1994 as compared to 30.3% in 1993. Margins at Americable decreased due to
overall lower pricing resulting from increased competition. Margins at
Transition were unchanged in 1994 from 1993.
ENStar's selling, general and administrative expenses, excluding
restructuring charges, decreased $615,000, or 4.3% to $13.6 million from $14.2
million in 1993. Operating expenses at Americable decreased approximately $1.9
million, which reflects approximately $1.2 million of expenses eliminated
through the closure of its Canadian facilities effected in December 1993, and
$700,000 of other savings realized through a reorganization effected within its
U.S. operations in the third quarter. These decreases were offset by increased
expenses of $1.3 million at Transition due to the addition of sales and
engineering personnel and increased research and development expenses related to
new product introductions and additional administrative and support personnel
needed to support overall growth.
ENStar's research and development expenses (incurred exclusively within
Transition) were approximately $1.2 million in 1994, compared to approximately
$822,000 in 1993.
Net interest expense was relatively unchanged between 1994 and 1993.
ENStar's effective combined income tax benefit rate was 32.4% in 1994 and
3.0% in 1993. See Note 7 to the Combined Financial Statements.
Equity in earnings of unconsolidated subsidiary increased $251,000 to
approximately $1 million in 1994 from $745,000 in 1993 which is a result of
higher earnings at CorVel. CorVel's net earnings for 1994 were approximately
$5.5 million, an increase of approximately $1.7 million or 43% from the previous
year.
CAPITAL RESOURCES AND LIQUIDITY
ENStar has experienced cash flow deficits from operations in certain prior
years and the six months ended June 30, 1996, and has experienced fluctuations
in its working capital which are primarily attributable to the increase in
receivables and inventories associated with growth in sales and timing of
payments on
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accounts payable. Cash used in operations was approximately $1 million in 1994,
versus net cash provided from operations of approximately $1.1 million in 1995.
Cash used in operations was $968,000 for the six months ended June 30, 1996,
versus net cash provided from operations of approximately $1.4 million in 1995.
Since CorVel's initial public offering in July 1991, neither NSU nor ENStar
has had the use of cash generated by CorVel and its subsidiaries. Also, since
its initial public offering, CorVel has not declared any dividends and has
indicated that it does not anticipate doing so for the foreseeable future.
ENStar or, after the Distribution, Americable may from time to time, depending
on market conditions and other factors, sell a portion of its CorVel holdings.
The ability of ENStar or Americable to sell its CorVel holdings is limited,
however, to sales pursuant to Rule 144 of the Securities Act and the volume
limitations thereof, and to private negotiated sales, which may adversely affect
the ability of ENStar and Americable to sell a large portion of the CorVel
holdings at a given time.
NSU has indicated to the Company that prior to the Distribution it may
cause the Company to seek to sell up to 200,000 shares of CorVel Common Stock
and to distribute the after-tax net proceeds from such sale to NSU as a dividend
in order to fund NSU's operating expenses and maturing indebtedness prior to the
Merger and to reduce NSU's net indebtedness at the time of the Merger. The
simultaneous sale of 200,000 shares of CorVel Common Stock would require CorVel
to register the sale of such shares with the Commission. ENStar does not have an
agreement with CorVel requiring CorVel to register any of its shares of CorVel
Common Stock. If all 200,000 shares were sold, ENStar would own 1,025,000 shares
of CorVel Common Stock, or approximately 22% of the outstanding shares of CorVel
as of June 30, 1996.
On August 9, 1996, Americable and Transition amended the terms of their
revolving credit facility with First Bank National Association to provide
borrowings up to $4 million and $2 million, respectively, due in June 1998.
Borrowings under the amended revolving credit facility are based on eligible
accounts receivable and inventory with interest at prime (8.25% at September 30,
1996), with optional fixed rate advances at the London Interbank Offered Rate
("LIBOR") plus 2.5%. At September 30, 1996, there were outstanding borrowings of
approximately $1.1 million under the revolving line of credit, including
$857,000 of amounts transferred from the companies' previous term loan facility
which matured in May 1996. In addition, there were approximately $4.9 million of
available borrowings under this credit facility at September 30, 1996.
Previously, Americable and Transition maintained a revolving line of credit with
interest at prime plus 1.5%, and term loan facility with interest at 10.665%.
ENStar expects to be able to fund its working capital and capital
expenditure requirements for 1996 with cash flow from operations along with the
amounts available under the credit facilities of its operating companies. During
1996, ENStar's operating plans call for approximately $1 million in capital
expenditures.
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BUSINESS
GENERAL
ENStar was formed on December 21, 1995, as a wholly owned subsidiary of
NSU. On , 1996, NSU contributed its stock of Americable, Transition
and CorVel to ENStar.
ENStar's operations consist of the operations of Americable and Transition.
Following the Distribution, it is currently expected that ENStar will directly
employ six management and administrative employees. In addition, at
, 1996, ENStar owned 1,225,000 shares of CorVel common stock, which
represents approximately 26% of the outstanding shares of CorVel common stock.
The CorVel common stock is traded on the Nasdaq National Market under the Symbol
CRVL. The closing price per share of the CorVel common stock on ,
1996 was $ . In connection with the Distribution, ENStar intends to
transfer all of its CorVel Common Stock to Americable to satisfy certain federal
income tax requirements relating to the Merger and Distribution.
ENStar or, after the Distribution, Americable may sell from time to time
some of its CorVel common stock pursuant to Rule 144 of the Securities Act, or
in a registered public offering. Although neither ENStar nor Americable has any
contractual right to require CorVel to register its shares of CorVel common
stock, CorVel has indicated that it is generally willing to register the shares
currently held by ENStar.
NSU has indicated to the Company that prior to the Distribution it may
cause the Company to seek to sell up to 200,000 shares of CorVel Common Stock
and to distribute the after-tax net proceeds from such sale to NSU as a dividend
in order to fund NSU's operating expenses and maturing indebtedness prior to the
Merger and to reduce the amount of NSU's indebtedness at the time of the Merger.
The simultaneous sale of all 200,000 shares of CorVel Common Stock would require
CorVel to register the sale of such shares with the Commission. ENStar does not
have an agreement with CorVel requiring CorVel to register any of the shares of
CorVel Common Stock held by ENStar. If all 200,000 shares were sold, ENStar
would own 1,025,000 shares of CorVel Common Stock, or approximately 22% of the
outstanding shares of CorVel as of June 30, 1996.
THE DISTRIBUTION
NSU, ENStar's parent, is a party to the Reorganization Agreement between
NSU and Michael pursuant to which (i) Michael will merge with a special purpose
subsidiary of NSU ("Merger Co.") and become a wholly owned subsidiary of NSU;
(ii) NSU will change its name to Michael Foods, Inc. and will continue the
business previously conducted by Michael; and (iii) the outstanding common stock
of ENStar will be distributed pro rata to the shareholders of NSU. Upon the
Distribution, ENStar will cease to be a subsidiary of NSU and will instead be a
publicly owned company whose stock will be held by the shareholders of NSU. It
is anticipated that ENStar Common Stock will be quoted on the Nasdaq National
Market. To that end, ENStar has applied to have the ENStar Common Stock approved
for quotation on the Nasdaq National Market under the symbol "ENSR." The events
described above, including the Distribution, are conditioned upon consummation
of the Merger; however, the offering of the Debentures made hereby is not
conditioned upon consummation of the transactions contemplated by the
Reorganization Agreement.
As consideration for the transfer by NSU to ENStar of the common stock of
Americable, Transition and CorVel, ENStar has agreed to enter into the
Distribution Agreement whereby NSU will contribute and transfer to ENStar all of
NSU's right, title and interest in and to all of NSU's assets not previously
transferred to ENStar, except for the following: (i) substantially all cash held
by NSU, except up to $1.0 million, (ii) the 7,345,950 shares of Michael common
stock owned by NSU, (iii) the capital stock of Merger Co., (iv) the rights of
NSU under the Reorganization Agreement, the Distribution Agreement and the
Orderly Disposition Agreement between NSU, James H. Michael and Jeffrey J.
Michael and two limited partnerships controlled by Messrs. James and Jeffrey
Michael (the "Orderly Disposition Agreement") which obligates the Michaels and
the partnerships to, among other things, vote the shares held by them in favor
of the Merger and (v) all net operating loss carryforwards and other tax
attributes properly allocable to NSU following the Effective
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<PAGE> 26
Date. In addition, under the Distribution Agreement, ENStar will assume and
agree to pay, perform and discharge all liabilities of NSU arising at any time
prior to the time that the Merger becomes effective (the "Effective Time"),
other than the following liabilities retained by NSU: (i) liabilities arising
from the assertion of dissenters rights by NSU shareholders in connection with
the Merger, (ii) obligations under the Reorganization Agreement, the
Distribution Agreement and the Orderly Disposition Agreement, and (iii) NSU's
indebtedness represented by NSU's outstanding subordinated debentures,
subordinated extendible time certificates, subordinated fixed time certificates
and bank debt. Such indebtedness will remain outstanding under indentures with
respect to which ENStar is the obligor; however, under the Distribution
Agreement, NSU (Michael after the Merger) will be obligated to pay such
indebtedness in accordance with its terms and, in all events, in full within six
months following the Merger.
Pursuant to the Distribution Agreement ENStar will also indemnify NSU and
Michael and any subsidiaries of Michael against certain liabilities including:
(i) all liabilities (other than the liabilities assumed by NSU) of NSU or any
NSU subsidiary (other than Michael and its subsidiaries), arising out of: (a)
the liabilities transferred to ENStar by NSU and (b) the transactions
contemplated by the Distribution Agreement, including the Distribution and any
taxes as a result of the Distribution (other than (X) any liabilities resulting
from any breach by NSU, after the Effective Date, of the Distribution Agreement,
(Y) any liability of NSU for taxes resulting from a breach by NSU of certain
restrictions on merger of Michael with other entities for two years after the
Effective Date, and (Z) obligations, after the Effective Date, expressly assumed
by NSU under the Distribution Agreement); (ii) all liabilities arising from any
claim made by any shareholder of ENStar on or after the Effective Date or by any
shareholder or former shareholder of NSU prior to the Effective Date relating to
any act or omission of NSU on or prior to the Effective Date in connection with
the Merger or any of the other transactions as contemplated by the
Reorganization Agreement; (iii) all liabilities assumed by ENStar in the
Distribution Agreement relating to the employee benefit plans of NSU; (iv) all
liabilities of ENStar or any subsidiary of ENStar arising out of transactions or
events entered into or occurring after the Effective Date, or any action or
inaction, including but not limited to, contracts, commitments and litigation,
with respect to, entered into or based upon transactions or events occurring
after the Effective Date with respect to ENStar or any subsidiary of ENStar
(other than liabilities assumed by NSU); (v) any breach of the Distribution
Agreement by ENStar or any subsidiary of ENStar after the Effective Date; and
(vi) damages, costs, and expenses including attorney's fees incurred in
defending and settling claims for such liabilities.
From and after the Effective Date, NSU will indemnify ENStar and any ENStar
subsidiary against: (i) all liabilities of NSU, Michael or any subsidiary of NSU
or Michael arising out of transactions or events entered into or occurring after
the Effective Date, or any action or inaction, including but not limited to,
contracts, commitments and litigation, with respect to, entered into or based
upon transactions or events occurring after the Effective Date with respect to
NSU, Michael, any subsidiary of NSU after the Effective Date or any subsidiary
of Michael, other than any liability arising out of liabilities transferred to
ENStar by NSU; (ii) all liabilities relating to liabilities assumed by NSU;
(iii) all liabilities of Michael or any subsidiary of Michael arising before, on
or after the Effective Date; (iv) all liabilities arising from any claim made by
any current or former Michael stockholder or shareholder of NSU after the
Effective Date who was a Michael stockholder or NSU shareholder immediately
prior to the Effective Date relating to any act or omission of Michael in
connection with the Merger or any of the other transactions contemplated in the
Reorganization Agreement or the Distribution Agreement; (v) any breach of the
Distribution Agreement by NSU after the Merger Effective Date; and (vi) damages,
costs and expenses including attorney's fees incurred in defending and settling
claims for such obligations, expenses or liabilities.
The Distribution Agreement provides for certain procedures for the parties
to assert claims for indemnification thereunder, including the mediation and
arbitration of disputes arising under the Distribution Agreement. In the event
that NSU realizes a benefit in the form of a reduction in the federal or state
income taxes which NSU would otherwise be obligated to pay, as a result of the
net operating loss carryforwards properly allocable to NSU from all tax periods
prior to or ending on the Effective Date, ENStar has the right to set-off the
amount of any such tax savings against any liability of ENStar under the
Distribution Agreement (including the indemnification obligations described
above).
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<PAGE> 27
The Distribution is expressly conditioned on the prior consummation of the
Merger and the satisfaction of certain other conditions set forth in the
Distribution Agreement. In the Distribution, each NSU shareholder of record on
the record date for the Distribution will receive one share of ENStar common
stock for every three shares of NSU common stock held by such holder on such
date.
UNCONSOLIDATED SUBSIDIARY
CorVel. Since its initial public offering in June 1991, CorVel has been
operated as an independent company. As a less-than-majority-owned subsidiary of
NSU, CorVel's operations have not been consolidated with ENStar, and ENStar's
investment in CorVel is accounted for under the equity method of accounting. The
following summary of CorVel's business has been prepared from information
reported by CorVel. Additional information regarding CorVel is available from
the reports and other documents prepared and filed by CorVel with the
Commission.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address escalating medical costs. CorVel's
services include preferred provider organizations, automated medical fee
auditing, medical case management, independent medical examinations, utilization
review and vocational rehabilitation services. Such services are provided to
insurance companies, third party administrators and employers to assist them in
managing the medical costs and monitoring the quality of care associated with
medical claims.
Since its initial public offering in June 1991, Jeffrey J. Michael and
Peter E. Flynn, NSU have been members of the Board of Directors of CorVel. Based
on the past service of Messrs. Michael and Flynn on CorVel's Board of Directors
and the Company's position as a significant shareholder of CorVel, the Company
believes that Messrs. Michael and Flynn will continue to serve as members of the
CorVel Board of Directors and be nominated for re-election to the CorVel Board
at the next annual meeting of stockholders of CorVel. There are no agreements,
however, between ENStar and CorVel or any of CorVel's stockholders requiring the
nomination of Messrs. Michael and Flynn or any designees of NSU for election as
directors of CorVel.
In connection with the Distribution, ENStar intends to transfer all of its
CorVel Common Stock to Americable to satisfy certain federal income tax
requirements relating to the Merger and Distribution. Neither ENStar nor
Americable has any agreement with CorVel requiring CorVel to register the shares
of CorVel Common Stock currently held by ENStar. In the absence of registration
of its CorVel Common Stock, the ability of ENStar or, after the Distribution,
Americable to sell the holdings of CorVel Common Stock will be limited to sales
pursuant to Rule 144 of the Securities Act, and the volume limitations thereof,
and to private negotiated sales, which may adversely affect the ability of
ENStar and Americable to sell a large portion of holdings of CorVel Common Stock
at a given time.
OPERATING SUBSIDIARIES
GENERAL
Americable. Americable was organized as a Minnesota corporation in 1981 and
was acquired by NSU in December 1986. Americable is a provider of networking and
connectivity products and services used in providing solutions for customers
operating a wide range of data communications systems. Americable's operations
are organized into three business units, Americable Network Technologies,
National Distribution Sales and Americable Custom Products, which are described
in more detail below.
Americable Network Technologies provides products and services designed to
build and manage LAN and WAN infrastructures for large and medium sized
end-users. As a network integrator, Americable offers customized, integrated
solutions to meet its customers' LAN/WAN needs through a combination of a broad
range of network electronics and software from leading manufacturers and through
high-quality technical services.
Americable supplies a wide array of voice and data communication related
products such as cable (both copper and fiber optic), cable assemblies,
components (blocks, jacks, connectors, patch cords, patch panels) and networking
hardware. The principal focus of Americable's distribution business, conducted
primarily
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through National Distribution Sales in Minneapolis, Minnesota, is to provide
quality products, prompt reliable delivery of such products and strong customer
service both before and after the products are sold. Americable sells to a wide
range of customers throughout the United States in the voice and data
communications aftermarket, including resellers, other distributors, systems
integrators, installers and end-users.
Through Americable Custom Products, Americable manufactures a wide variety
of cable assemblies, subassemblies and specialty products for its customers.
While some of these products are manufactured to standard specifications for
sale by Americable through its distribution business, most are custom designed
and manufactured by Americable to customer specifications. These customer
designed products are manufactured for both end-users and OEMs.
Americable has historically been a distributor of connectivity and
networking products. As part of its business strategy, Americable has recently
focused on increasing its level of service revenues, which are generally more
profitable. Service revenue is primarily derived from network integration
services such as network management, maintenance, design and implementation.
Americable intends to implement this strategy through continued internal
investments in additional sales, engineering and technical personnel at existing
and new geographic locations in order to enhance its ability to satisfy the
changing technology requirements of its customers.
Transition. Transition develops, manufactures, markets and supports a broad
line of data networking hardware products that provide physical connectivity for
LANs and mini- and mainframe networks. Physical connectivity devices enable
computing and other electronic devices to communicate over a LAN. These devices
include high-speed switches, managed and unmanaged hubs, transceivers, media
converters and other related networking devices.
Transition's products include intelligent hubs and switches, passive and
active terminal network products, including baluns, media converters and
transceivers, unmanaged Ethernet and Token Ring hubs and related host modules,
multi-port multi-media repeaters, network adapter cards and other passive
devices. Transition sells its products to a number of volume distributors and
VARs throughout the United States and certain countries world-wide. The
customers that purchase Transition products through its network of distributors
and VARs include system integrators, installers and end-users.
Historically, in excess of 90% of Transition's revenues have been derived
from the sale of its terminal and basic LAN products. These products have life
cycles of 18 to 36 months and are generally sold based on price, availability
and functionality. More recently, Transition has focused its product development
and marketing efforts on expanding its advanced LAN products in an effort to
increase sales with existing customers and participate in broader market
opportunities. Due to the increasing design and manufacturing complexities
associated with the integration of technologies, the development of advanced LAN
products require a more substantial investment in engineering personnel and
related costs. As a result, Transition's future operations are highly dependent
on its ability to introduce advanced LAN products on a timely basis that meet
customer demands.
INDUSTRY
A growing number of organizations are re-engineering their businesses and
are using PC-based network technology to enhance productivity. PC networks
increase speed and flexibility, provide improved functionality to end-users and
provide greater productivity, often at lower costs. The growth in demand for
personal computers, along with recent advances in networking technology, have
led to an increase in demand for interconnected LANs and WANs. Such networks
facilitate efficient and rapid data communications among connected work groups
and departments providing for more effective utilization of information and
computing resources. As LANs have proliferated, demand for multi-vendor
interoperability has led to industry standard network protocols and access
methods such as Ethernet and Token-Ring.
More recently there has been an increasing demand to connect users of LANs
in other geographic areas using WANs. Applications such as online services,
electronic mail, sharing of databases, multi-site product development and
transaction processing are leading the demand for the inter-networking of LANs
and
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WANs. The integration of LANs and WANs requires data communication products
which efficiently, reliably and quickly transmit data to appropriate locations.
In the face of this rapidly changing technological environment, the
decision-making process that organizations face when planning, selecting and
implementing information technology solutions is growing more complex.
Organizations must select from numerous product options with shortening life
cycles. Although networks enhance business productivity, they typically present
complex management problems and increased administrative costs. Thus, many
organizations find it increasingly difficult and costly to maintain the internal
infrastructure needed to support their networks. As a result of these trends,
companies increasingly seek to outsource the management and support of their PC
network infrastructure.
According to Data Com Market Forecast, it is estimated that in 1995 the
overall market in the United States for networking products and services was
approximately $50 billion.
BUSINESS STRATEGY
Americable. Americable's objective is to be a leading provider of a
complete range of network products and services to medium to large sized
enterprises throughout the United States. To meet this goal, Americable believes
it must seek to maintain its current customer relationships and continually
expand its customer base in the regions in which it operates, continue to
develop strong relationships with its key suppliers, look for opportunities to
expand its branch locations and develop and enhance its value-added service
offerings.
During 1995, approximately 5,200 customers purchased products or services
from Americable. Management at Americable believes that preserving and enhancing
these relationships is a constant priority. Continuous quality improvement in
its operations along with expansion and enhancement of its product and service
offerings are some of the means that Americable utilizes to enhance its customer
relationships.
Management at Americable also believes that developing strong relationships
with the leading manufacturers of networking products allows Americable to offer
its customers name brand products that provide the best value in meeting their
networking needs. Americable has developed relationships with leading
manufacturers within each of its principal product lines, such as Bay Networks,
Inc., AMP Incorporated and Berk-Tek Inc. and seeks to add new relationships to
expand its value-added service capabilities. Americable believes that utilizing
a select range of suppliers allows it to provide superior customer service
because its technical personnel are more familiar with the products sold and
because such high quality products are generally more reliable. Further, such
strong relationships result in greater continuity of product supply.
From 1991 to 1995, Americable's domestic sales have increased from $27.6
million to $42.2 million. This increase in sales has been generated through
internal growth at Americable's four principal locations in Atlanta, Chicago,
Dallas and Minneapolis, primarily as a result of the addition of new sales,
engineering and technical personnel. Also during 1995, Americable opened smaller
satellite offices in Milwaukee, Wisconsin and Fargo, North Dakota. Americable
plans to continue its growth strategy through the addition of new sales,
engineering and technical personnel in both existing locations and new
geographic markets. Americable also intends to look for opportunities to acquire
businesses in the same or related industries in an effort to expand
geographically or enhance its value-added service offerings.
Since 1989, Americable has made substantial investments in the development
of its value-added networking capabilities primarily through the addition of
engineering and technical personnel. During 1995, Americable introduced a number
of service offerings designed to provide its customers with customized
integrated solutions to meet their unique network computing needs. Revenues from
technical services and installation in 1995 represented 7% of Americable's total
revenues, of which approximately 1% represents services performed by Americable
personnel. The remaining portion of these services are rendered primarily
through subcontractors engaged by Americable. Americable expects to continue
utilizing the services of outside contractors in addition to its internal
personnel in meeting its customers' needs. Americable believes there are
opportunities to increase Americable's overall gross margins by increasing the
volume of services that it currently offers to its customers and intends to
focus on increasing its service revenues.
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Transition. The market for Transition's products is characterized by rapid
technological change, constantly evolving industry standards and rigorous
competition with respect to timely product innovation. Because the introduction
of products embodying new technology and the emergence of new industry standards
can render existing products obsolete and unmarketable, Transition believes that
its future success will depend upon its ability to develop, manufacture and
market new products and enhancements to existing products on a cost-effective
and timely basis. Transition seeks to identify niche market opportunities for
new or enhanced products and quickly respond by offering a new or enhanced
product that may have greater capabilities, better functionability or
flexibility, greater ease of use or equivalent capabilities or functionability
but a lower price point than other competitive products.
As LANs have proliferated, demand for multi-vendor interoperability has led
to industry standard network protocols and access methods such as Ethernet,
Token-Ring and Fiber Distributed Data Interface ("FDDI"). Transition has
developed the majority of its LAN products using industry standards, primarily
Ethernet. Ethernet's cabling media has evolved from coaxial cable to its
associated 10BaseTL fiber optic cabling. Management at Transition believes that
the LAN/WAN products market will continue to be driven by the migration of
end-users to new applications that demand more speed and flexibility.
Accordingly, Transition's research and development efforts have been targeted at
high speed (100Mbs+) LANs and the integration of LANs and WANs into a single
platform.
PRODUCTS AND SERVICES
Americable. The following is a summary of Americable's consolidated sales
by principal product group for 1995:
<TABLE>
<CAPTION>
AS A PERCENT OF SALES
---------------------
<S> <C>
Networking
Products.................................... 41%
Services/Installation....................... 7%
Cable Assemblies.............................. 18%
Bulk Cable.................................... 18%
Other Connectivity Products................... 16%
</TABLE>
In an effort to offer its customers a "One Company, One Call" solution,
each of the above products and service groups is delivered through one or more
of Americable's operating units. Each unit works in concert with the others to
leverage Americable's product and service offerings across its broad customer
base. Set forth below is a description of each unit's operations and market
focus.
Americable Network Technologies
Through Americable Network Technologies, Americable provides products and
services designed to build and manage LAN and WAN infrastructures for large and
medium sized enterprises. As a network integrator, Americable offers the
following customized, integrated LAN/WAN solutions:
- Network Electronics -- Americable supplies, implements and supports a
select range of suppliers of electronics and software platforms from
manufacturers such as Bay Networks, Inc., 3Com Corp., Cisco Systems Inc.,
Shiva Corp., Novell Inc., Microsoft Corp., Sun Microsystems Inc. and
Compaq Computer Corporation. Americable's line of network products include
concentrators, hubs, switches and routers for both existing and emerging
technologies such as Ethernet, Token Ring, FDDI, Fast Ethernet and
Asynchronous Transfer Mode ("ATM").
- Network Integration -- Americable's advanced engineering group utilizes
network management and routing solutions in providing customers a range of
options from simple remote access solutions to the largest multi-protocol
inter-networking routers currently available.
- Network Management -- Americable's network management solutions provide
customers assistance with network troubleshooting, diagnostics, security,
optimization and proactive network maintenance.
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<PAGE> 31
Americable installs Bay Networks, Inc.'s Optivity network management
software, one of the leading network management software systems in the
industry. Americable can also supply each of the four industry-leading
network management system (NMS) platforms including: Hewlett Packard's
OpenView/UNIX and OpenView/DOS, Sun Microsystems' SunNet Manager, IBM's
NetView/6000 and Novell's NetWare Management System (NMS).
- Network Applications -- Americable offers remote access products and
services that allow the end-user to operate outside of his or her office
while still being able to connect to his or her LAN.
- Structured Wiring Systems -- Americable provides project management,
design and implementation of structured wiring systems for data
communications.
- Network Maintenance Services -- Americable provides a broad line of
maintenance services including fixed fee network support, telephone
support, guaranteed response times, next business day on-site response for
problem resolution, "spare-in-the-air" hardware replacement and cabling
system diagnosis and repair. In addition, Americable offers several fixed
price service offerings for preventative maintenance such as CASE (Cable
Analysis Service) and EASE (Enterprise Analysis Service).
- Network Security -- Americable is capable of providing security services
for customers with Internet and intranetwork applications. Americable is
an authorized reseller of the Check-Point Fire Wall - 1, a security
product offered by Checkpoint Software Technologies, Ltd.
Americable is committed to providing networking products, services and
systems to customers of all sizes in the geographic areas served by its four
principal regional offices. Sales from Americable Network Technologies
constituted approximately 74% of Americable's net sales in 1995. In addition to
value-added distribution sales, Americable Network Technologies will oversee the
design and implementation of projects involving multiple LANs across a wide area
network, consisting of multi-vendor hardware products and several thousand
nodes. Value-added projects generally range in size from $10,000 to $500,000.
During 1995, sales derived from value-added projects and services consisted of
approximately 18% of Americable's net sales. Value-added projects and services
sales include sales of products such as bulk cable, cable assemblies and
networking devices and services such as training, installation and maintenance.
National Distribution Sales
Through its distribution business, operated principally through National
Distribution Sales, Americable maintains a wide variety of high-quality products
in its inventory. Product inventory ranges from connectivity products such as
bulk cable, connectors, patch panels, racks and other cable accessories to more
complex networking electronic devices such as concentrators, hubs, switches and
routers. As a distributor, Americable generally inventories products from
multiple manufacturers. Principal manufacturers of connectivity products include
Berk-Tek, Inc., Amp Incorporated, General Cable Corp., The Siemon Company and
Leviton Manufacturing, Inc. In addition, in an effort to reduce its inventory
levels, Americable purchases a number of networking products through large
distributors such as Tech Data Corporation, Gates/Arrow and Ingram Micro, Inc.
Americable also maintains an integrated, real-time, on-line computerized
system for order entry, fulfillment and inventory control. This on-line computer
system allows sales personnel to advise customers over the phone of product
specifications, availability and order status. All orders are normally shipped
within 24 hours of receipt and, when necessary, can be shipped on a "same-day"
basis.
National Distribution Sales seeks to add value for its customers by
providing superior customer service. All of Americable's sales representatives
and other sales and marketing personnel are trained to assist customers in
product selection, implementation and system upgrading and expansion. The
National Distribution Sales sales representatives are supported by the technical
staff of Americable Network Technologies, who have a broad range of expertise in
various networking technologies.
National Distribution Sales services customers of all sizes in the voice
and data communications aftermarket. Customer orders range in size from under
$50 to several hundred thousand dollars. Average order
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size of the division during 1995 was approximately $600. The distribution
business of Americable (including sales of cable assemblies) constituted
approximately 26% of Americable's net sales in 1995.
Americable Custom Products
As a natural extension of its distribution business, and consistent with
Americable's marketing strategy to be a single-source provider for its
customers, Americable Custom Products provides a manufacturing capability to
satisfy the individual needs of those customers that may require custom or
specialty cable assemblies. Americable, working to its customers'
specifications, can manufacture custom designed products such as copper,
fiber-optic, small computer system interface (SCSI) and AS/400 cable assemblies
and subassemblies.
All Americable manufactured products are subject to strict quality control
standards to insure that they are of the same high quality as other, vendor
manufactured, distributed products. During 1997, Americable expects to complete
the process of implementing the quality standards of ISO 9002 for its
manufacturing and primary distribution operation in Minneapolis. ISO 9002 is an
international protocol for documenting processes and procedures used in
establishing a consistent manufacturing quality system.
Sales from Americable Custom Products are generated from both end-user and
OEM customers. For 1995, sales to OEM customers constituted approximately 26% of
total cable assembly sales and approximately 5% of Americable net sales.
Transition. Transition's products encompass three inter-networking and
physical connectivity product families, which include (i) passive and active
terminal network products, (ii) basic LAN products and (iii) advanced LAN
products. These products encompass LAN and WAN Components, which allow
Transition to offer work-group and enterprise-wide networking solutions. The
following table sets forth the percentage of sales attributable to each product
family:
<TABLE>
<CAPTION>
AS A PERCENT OF SALES
---------------------
<S> <C>
Terminal network products................................... 27%
Basic LAN products.......................................... 63%
Advanced LAN products....................................... 10%
</TABLE>
The terminal products family of products includes both passive and active
connectivity devices such as baluns, media converters, and transceivers that
attach personal computers to a network, thereby enabling the user to communicate
with other users in the LAN. In addition, Transition's "PowerStar" line of
active hubs provide cost-effective solutions for converting a S/3X or AS/400
Twinax daisy chain topology to an unshielded twisted pair star topology, thereby
improving network reliability and flexibility. During 1995, the terminal
products family comprised approximately 27% of Transition's net sales.
Transition's basic LAN product line includes unmanaged Ethernet and Token
Ring hubs and related host modules; multi-port multi-media repeaters that
regenerate the signal, thereby allowing expansion capabilities and providing
connectivity and management of the different cabling schemes used throughout a
LAN; network adapter cards that provide direct connection from the personal
computer to a LAN; and other passive devices that provide a structured wiring
system for mini- and mainframe computer environments. Transition has developed
its Ethernet and Token Ring LAN products using industry standards. During 1995,
the basic LAN product line comprised approximately 63% of Transition's net
sales.
The advanced LAN product family of Transition is a potentially high growth
product area with devices that utilize computer processors and sophisticated
internal software to manage and direct information across complex networks.
Transition's advanced LAN products are led by a multi-function hybrid
bridge/router that allows high speed switching across networks. This group of
products also includes manageable, stackable Ethernet and Token Ring hubs.
Transition believes that as network centric systems continue to grow in
sophistication, this product area will provide additional revenue opportunities.
The majority of Transition's research and development has been concentrated in
advanced LAN products with new offerings planned for 1996. During 1995, the
advanced LAN product family comprised approximately 10% of Transition's net
sales.
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<PAGE> 33
Transition expects a significant portion of its sales growth in the future will
be derived from the introduction of new advanced LAN products; provided,
however, that there can be no assurance that Transition will be able to develop
and introduce new LAN products in a timely manner or at all or that any such
products will gain market acceptance and, accordingly, that the sales growth
will be achieved, if at all.
MARKETING AND CUSTOMERS
Americable. Americable provides its products and services to customers in
various industries including health care, financial services, manufacturing and
education. Americable also sells products to a number of installers, resellers,
other distributors and system integrators. Customer relationships are developed
both face-to-face and via the telephone.
Americable's marketing strategy is two-tiered. A national effort is
centered on telemarketing through National Distribution Sales in Minneapolis,
Minnesota. Additionally, Americable operates each of its business units from its
four principal regional offices in order to provide its customers in each region
the full array of value-added networking products and services offered by the
company.
Americable employs 20 outside sales representatives in addition to 40
telemarketing and sales support representatives. The sales force is supplemented
by 30 regional technical service engineers and technicians and two corporate
product managers. Americable sales representatives undergo continuous training
and attend company-sponsored classes in order to enhance their technical
expertise and marketing techniques. Also, many of Americable sales and technical
personnel attend vendor-sponsored training and education programs mandated by
such vendors in order for Americable to qualify as a licensed reseller of their
products.
Americable also uses direct mailings, brochures and catalogs in marketing
the products that it distributes. Americable's catalog, which generally is
published every 18 months, is designed to provide end-users with not only
product specifications, but additional technical information to assist them in
connection with their system design. Americable's latest catalog was released in
April 1996.
During 1995 and the first half of 1996, Mayo Foundation accounted for
approximately 11% and 18%, respectively, of net sales and Georgia Pacific
Corporation accounted for approximately 9% and 11%, respectively, of net sales.
In addition, in 1995 and the first half of 1996, Americable derived
approximately 61% and 67%, respectively, of its sales from its largest 100
customers.
Transition. Transition distributes its products through a number of volume
distributors and VARs throughout the United States and in over 50 countries
worldwide. Distributors and VARs purchase Transition's products at standard
discounts based on certain volume-based incentive programs. Transition's
international sales have accounted for a substantial portion of its sales
growth, coming primarily from the United Kingdom, South Africa, Australia and
Sweden. During 1995 and the first half of 1996, revenues from outside the United
States accounted for approximately 37% and 38%, respectively, of net sales.
Transition's continued growth will be dependent, in part, upon its ability
to expand its domestic and international distributor base with high quality
VARs. A significant benefit for a distributor or VAR is that Transition does not
sell directly to end-users. Transition's distributors and VARs carry other
products that are complementary to, and compete with those of Transition, and
these non-exclusive distributors and VARs may choose to give higher priority to
products of other suppliers or competitors.
Transition has several marketing programs to support the sale and
distribution of its products. Its marketing programs are designed to generate
sales leads for its distribution channels, as well as to enhance brandname
recognition. Transition's marketing activities include frequent participation in
industry trade shows, advertising in major trade publications, public relations
campaigns, the distribution of sales literature and product specifications, and
ongoing communications with its distributors. In addition, Transition offers
comprehensive pre- and post-sales technical support, distributor/VAR product
training, and a strategic test partner program. Transition utilizes reseller
incentive programs such as co-op funds to increase localized print advertising
and name recognition. The marketing budget has been increased for both 1995 and
1996 to enhance Transition's image and name recognition.
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<PAGE> 34
RESEARCH AND DEVELOPMENT
Transition. Transition performs all of its research and development
activities at its headquarters in Eden Prairie, Minnesota. Transition believes
that its future success depends on its ability to achieve market acceptance of
new product offerings, especially in the advanced LAN products area. The
engineering staff has increased by 36% since the end of 1994, to accelerate
development in this area. Although there can be no assurance that its
development efforts will result in commercially successful products, Transition
intends to continue to make substantial investments in the development of new
and enhanced products. Research and development expenses were approximately $1.2
million (10% of net sales) in 1994, $1.0 million (7% of net sales) in 1995 and
$1.2 million (9% of net sales) for the nine months ended September 30, 1996.
MANUFACTURING
Americable. Americable's manufacturing operations consist of the
manufacture of custom or specialty cable assemblies including copper,
fiber-optic, small computer system interface (SCSI) and AS/400 cable assemblies
and subassemblies through its Americable Custom Products division.
Transition. Transition's manufacturing operations consist primarily of the
final assembly and quality control testing of materials, components and
subassemblies. Transition uses third parties to perform printed circuit board
assembly. Transition's products include certain components that are currently
available from single or limited sources and may require long order lead times.
Any reduction in supply or substantial change in costs of components could
affect Transition's ability to deliver its products in a timely and
cost-effective manner and may adversely impact Transition's operating results.
COMPETITION
Americable. Americable faces substantial competition within each of its
business segments from a large number of companies, some of which are larger,
have greater financial resources, broader name recognition and, in many cases,
lower product and operating costs than Americable. Americable Network
Technologies faces competition from large system integrators such as AmeriData
Technologies, Inc., Vanstar Corporation and a significant number of smaller
regional and network integrators. Significant competitors in the National
Distribution Sales unit's business include Anixter International, Inc. and
Graybar Electric Co., Inc. The products of Americable Custom Products are not
protected from competition by virtue of any proprietary rights such as trade
secrets or patents. Americable Custom Products encounters competition from
domestic companies such as Kent Electronics Corporation and a number of smaller
domestic companies, in addition to a number of products manufactured outside the
United States.
Transition. The industry in which Transition operates is highly
competitive, and Transition believes that such competition will continue to
intensify. The industry is characterized by rapid technological change, short
product life-cycles, frequent product introductions and evolving industry
standards. Transition competes with a number of independent companies focused on
designing and manufacturing products for the LAN market, including, among
others, 3Com Corp., Bay Networks, Inc., Cabletron System, Inc., Allied Telesyn
International, and Digi International. Most of Transition's competitors are
established companies with significantly greater financial resources, more
extensive business experience, and greater market and service capabilities than
Transition. There can be no assurance that Transition will be able to compete
successfully.
Transition's ability to compete successfully depends upon its ability to
adapt to market changes on a timely basis. There are many networking products
currently being offered in the market segments in which Transition competes.
Transition believes that customers evaluate competing products on the basis of
required product features for a particular installation, performance, price and
ease of use. In addition, after installation, customers evaluate the suppliers'
ability to provide readily accessible on-site/remote technical support, if
required, and its reliability when deciding on future orders for additional
equipment. Failure to obtain significant customer satisfaction or market share
could have a material adverse effect on Transition.
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PROPERTIES
Americable. Americable's headquarters are located in a 20,000 square foot
facility in a suburb of Chicago, Illinois. Americable's principal distribution
and manufacturing operations are located in Minneapolis, Minnesota (39,000
square feet). This facility includes office, warehouse and production space.
Americable also has branch operations in Dallas, Texas (10,000 square feet), and
Atlanta, Georgia (9,900 square feet) in addition to satellite offices in
Milwaukee, Wisconsin and Fargo, North Dakota. All of Americable's facilities are
leased.
Transition. Transition's headquarters, including its executive and
corporate administration offices, manufacturing, sales and technical support are
located in Eden Prairie, Minnesota, which consists of approximately 24,000
square feet of leased space.
LEGAL PROCEEDINGS
Americable and Transition are engaged in routine litigation incidental to
their respective businesses, which management believes will not have a material
adverse effect upon the business or consolidated financial position of either
company.
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<PAGE> 36
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS OF ENSTAR
The directors and executive officers of ENStar are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------
<S> <C> <C>
James H. Michael............ 75 Chairman of the Board of Directors
Miles E. Efron.............. 69 Director
Richard J. Braun............ 51 Director
Jeffrey J. Michael.......... 39 Director, President and Chief Executive
Officer
Peter E. Flynn.............. 36 Executive Vice President
Thomas S. Wargolet.......... 33 Chief Financial Officer and Secretary
Gary L. Eizenga............. 49 President and Chief Executive Officer,
Americable
C.S. Mondelli............... 45 President and Chief Executive Officer,
Transition
</TABLE>
Except as noted below, each of the directors and executive officers of
ENStar has served in the capacity or capacities indicated above since March
1996.
Mr. James H. Michael has served as Chairman of the Board of NSU since July
1991. Mr. Michael is Chairman of the Board of Michael, and is the father of
Jeffrey J. Michael, ENStar's and NSU's President and Chief Executive Officer.
Mr. Miles E. Efron has served on the Board of Directors of NSU since July
1991 and is a senior advisor to NSU. Mr. Efron was President and Chief Executive
Officer of NSU from October 1988 to December 31, 1990, and was Senior Vice
President of NSU from 1985 until October of 1988. Mr. Efron also is a director
of Michael.
Mr. Richard J. Braun currently serves as Chief Executive Officer of Silicon
Biology, Inc., a technology company specializing in generic classification
technology, and as a principal of Excelsior Investment Group Ltd. Mr. Braun was
the Managing Director of Headwaters Capital Management L.L.C. during 1995. From
1992-1994, Mr. Braun served as Chief Operating Officer and a Director of
Employee Benefit Plans, Inc., and from 1989-1991 was Executive Vice President,
Chief Operating Officer and a Director of Reich and Tang L.P., a publicly held
investment advisor and broker-dealer. From 1988-1989, Mr. Braun served as
President and Chief Executive Officer of Super Cycle, Inc., a former subsidiary
of NSU. Mr. Braun is a director of RSI Systems, Inc.
Mr. Jeffrey J. Michael has served as President and Chief Executive Officer
of NSU since December 1990. Mr. Michael served as Vice President-Finance from
April 1989 to December 1990. Prior to April 1989, Mr. Michael was employed by
NSU in various capacities. Jeffrey J. Michael is the son of James H. Michael.
Mr. Michael is also a director of Michael and CorVel.
Mr. Peter E. Flynn has served as Executive Vice President, Chief Financial
Officer and Secretary of NSU since December 1990. In December 1992, he also
became the President and Chief Operating Officer of Transition. Mr. Flynn served
as Treasurer of NSU from April 1989 to December 1990. Prior to joining NSU in
1990, Mr. Flynn was an Audit Manager with Arthur Andersen & Co. Mr. Flynn was
elected to the Board of Directors in July 1991, and also serves as a director of
CorVel.
Mr. Thomas Wargolet joined NSU in September 1989 and has been its
Controller since that time. Mr. Wargolet was also the Director of Finance of
Americable from September 1991 until January 1995. Since January 1995, Mr.
Wargolet has been the Vice President of Finance and Operations of Americable.
Prior to joining NSU in 1989, Mr. Wargolet was an Audit Senior with Arthur
Andersen & Co.
Mr. Gary Eizenga joined Americable in September 1989 as Chief Operating
Officer and held that position until January 1991, at which time Mr. Eizenga
became President and Chief Executive Officer of
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Americable. Prior to joining Americable, Mr. Eizenga held various positions with
American Hospital Supply, a division of Baxter International.
Mr. C.S. (Sal) Mondelli joined Transition in February 1995 as Vice
President of Sales and Marketing, prior to becoming President and Chief
Executive Officer of Transition in July 1996. Prior to joining Transition Mr.
Mondelli was an Executive Vice President with Prodea Software Corporation and
served in a variety of marketing and management positions with IBM Corporation.
Officers of ENStar will be elected annually by the Board of Directors.
COMPENSATION OF EXECUTIVE OFFICERS OF ENSTAR
ENStar relies on the Compensation Committee of the Board of Directors
(composed of non-employee members) (the "Compensation Committee") to recommend
the form and amount of compensation to be paid to ENStar executive officers.
At the Compensation Committee meeting held on March 5, 1996, base annual
salaries for Messrs. Jeffrey J. Michael, Flynn and Wargolet of $175,000,
$150,000 and $90,000, respectively, were established by the Compensation
Committee and approved by the ENStar Board of Directors, subject to consummation
of the Reorganization. The Compensation Committee also discussed a proposed
bonus program that would provide for the payment of certain cash bonuses to the
ENStar officers based on ENStar's financial performance. Similar to the cash
bonus arrangements that NSU has established from time to time in the past, cash
bonuses for officers of ENStar would be earned based on a structured formula.
Performance targets would be established based on budgeted annual operating
results and cash bonuses would be calculated as a percentage of such officers'
base salary depending on actual financial performance compared to the
performance targets. It is anticipated that such bonuses will range from 0% to
75% of the officers' base salaries, depending upon the officer's position with
the Company. The establishment of the bonus program, the performance targets
relating thereto and the percentage of an officer's salary subject to such bonus
will be determined subsequent to the consummation of the Reorganization.
Mr. Eizenga will continue to receive the same base compensation and
participate in the incentive compensation program at Americable. Mr. Eizenga was
paid a base salary of $162,500 in 1995, and received a bonus of $65,000, based
on Americable's 1995 financial performance.
Mr. Mondelli will be paid a base salary of $120,000 in 1996 and is eligible
to receive a bonus based on Transition's 1996 financial performance.
The Compensation Committee also approved the granting of non-qualified
stock options under the ENStar 1996 Stock Incentive Plan to each of Messrs.
Jeffrey J. Michael, Flynn and Wargolet at its March 5, 1996 meeting. Such
options provide for the purchase of 28,500, 23,500 and 14,250 shares of ENStar
Common Stock, respectively, at an exercise price per share of $9.00. The options
granted to Messrs. Jeffrey J. Michael, Flynn and Wargolet vest 25% per year over
four years and have a term of ten years. Such options terminate automatically if
the Reorganization is not consummated prior to the first anniversary of the date
of grant. The Compensation Committee currently does not plan to issue ENStar
stock options to Mr. Eizenga or Mr. Mondelli.
The Compensation Committee intends to generally adhere to compensation
policies that reflect the belief that ENStar must attract and retain individuals
of outstanding ability and motivate and reward such individuals for sustained
performance. The Committee also believes the ENStar levels of compensation
should generally be in line with what the executive officers of ENStar were
offered in their capacities as executive officers of NSU. On an ongoing basis,
the type and amount of compensation to be paid by ENStar to its officers will be
entirely discretionary and within the subjective judgment of the Compensation
Committee. It is currently anticipated that none of the officers of ENStar,
other than Mr. Eizenga, will have employment agreements with ENStar.
36
<PAGE> 38
COMPENSATION OF DIRECTORS OF ENSTAR
Directors who are not officers or employees of ENStar receive an annual
retainer of $8,000. Such directors also receive $300 per meeting for each
meeting of a committee of the Board of Directors that they attend. Directors
incurring travel expenses to attend meetings are reimbursed in full. ENStar
non-employee directors are eligible to receive certain stock options pursuant to
the ENStar 1996 Stock Incentive Plan discussed below.
COMMITTEES OF THE BOARD OF ENSTAR
Audit Committee. ENStar has established a standing Audit Committee, which
consists of Mr. Efron and Mr. Braun with Mr. Braun serving as Chairman. The
Audit Committee will review and make recommendations and reports to the Board
with respect to (i) the independent auditors, (ii) the quality and effectiveness
of internal controls, (iii) engagement or discharge of the independent auditors,
(iv) professional services provided by the independent auditors, and (v) the
review and approval of major changes in NSU's accounting principals and
practices.
Compensation Committee. ENStar has a standing Compensation Committee which
consists of Mr. Efron as Chairman and Mr. Braun. The Compensation Committee will
consider and recommend to the Board salary schedules and other remuneration for
ENStar's executive officers. This committee will also administer the ENStar 1996
Stock Incentive Plan.
1996 STOCK INCENTIVE PLAN
On March 5, 1996, the Board of Directors of ENStar approved and adopted,
and NSU, as sole shareholder of ENStar, approved the ENStar 1996 Stock Incentive
Plan (the "Plan"). The Plan permits the granting of a variety of different types
of awards: (i) stock options, including incentive stock options and non-
qualified stock options; (ii) stock appreciation rights (SARs); (iii) restricted
stock and restricted stock units; (iv) performance awards; (v) dividend
equivalents; and (vi) other awards valued in whole or in part by reference to or
otherwise based upon ENStar Common Stock. The Plan contains limitations on the
number of shares an employee may be granted annually and on assignment or
transfer of awards. The aggregate number of shares of ENStar Common Stock that
may be issued under all awards granted under the Plan is 300,000 (subject to
adjustment in certain circumstances). The Compensation Committee has the
authority to select the individuals to whom awards under the Plan are granted
and to determine the terms and types of awards to be granted.
Any employee, officer, consultant or independent contractor of ENStar and
its affiliates selected by the Committee is eligible to receive an award under
the Plan. Each non-employee director of ENStar, upon his or her initial election
as a director, shall be granted an option to purchase 4,000 shares of ENStar
Common Stock. Commencing with the 1997 Annual Meeting, each non-employee
director of ENStar also shall be granted an option to purchase 1,000 shares of
ENStar Common Stock on the date of the annual meeting of shareholders each year
if the director will remain in office immediately following such meeting. The
exercise price of each option shall be equal to 100 percent of the fair market
value per share on the date of grant. Such options shall be non-qualified stock
options, shall become exercisable six months after the date of grant, and shall
terminate on the fifth anniversary of the date of grant or earlier, under
certain circumstances.
In connection with their election as directors and the adoption of the
Plan, each of Messrs. James H. Michael, Miles E. Efron and Richard J. Braun were
granted an option to purchase 4,000 shares of ENStar Common Stock. The exercise
price of such options is at $9.00 per share. The options are expressly subject
to the consummation of the Reorganization.
EIZENGA AGREEMENT
Gary L. Eizenga is a party to a Stock Option Agreement, dated September 27,
1989, pursuant to which he was granted an option to purchase from NSU up to 500
shares of the common stock of Americable, or approximately 2.5% of the
outstanding shares of Americable, subject to adjustment in the event of a
37
<PAGE> 39
recapitalization, stock-split or stock dividend, at a price per share equal to
the book value per share as of September 30, 1989, which was $873.12. Such
option is exercisable through October 1, 1999, except that in the event of
termination of Mr. Eizenga's employment, the option may be exercised only for a
period of 90 days after such termination. The option may terminate as of an
earlier date in the event of dissolution or liquidation of Americable. Mr.
Eizenga and NSU are currently discussing a possible restructuring of Mr.
Eizenga's option in connection with the Reorganization.
MONDELLI AGREEMENT
In connection with C.S. Mondelli's employment by Transition in 1995,
Transition agreed to award Mr. Mondelli an option to purchase up to 2% of
Transition's outstanding common stock, on terms and conditions to be determined
later. The terms of the grant have not yet been finalized.
38
<PAGE> 40
PRINCIPAL SHAREHOLDERS
NSU currently holds 100% of the outstanding capital stock of ENStar. After
the Merger of Michael into a wholly-owned subsidiary of NSU and the subsequent
Distribution of ENStar Common Stock to the holders of common stock of NSU,
ENStar will be a publicly owned company whose stock will be held by the persons
holding common stock of NSU prior to the Merger.
The following table sets forth certain information with respect to the
beneficial ownership of the common stock of NSU as of August 30, 1996, by each
shareholder who is known by NSU to own beneficially more than 5 percent of the
outstanding common stock of NSU, and by all officers and Directors of NSU as a
group. These individuals and groups will own shares of ENStar Common Stock after
the Distribution in amounts proportionate to the number of shares of common
stock of NSU owned by each immediately prior to the Merger and Distribution.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
- ------------------------------------------------------------------ -------------------- --------
<S> <C> <C>
James H. Michael.................................................. 3,084,400(1) 32.65%
142 North Mississippi River Blvd.
St. Paul, Minnesota 55104
Jeffrey J. Michael................................................ 2,600,700(2) 27.53%
5745 Seven Oaks Court
Minnetonka, Minnesota 55345
Heartland Advisors, Inc........................................... 994,300(3) 10.52%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
All officers and directors as a group (6 persons)................. 6,259,750(4) 62.72%
</TABLE>
- -------------------------
(1) Includes 2,826,494 shares of Common Stock held by 4J2R1C Limited
Partnership, as to which Mr. James H. Michael, as managing general partner,
exercises sole voting and dispositive power. Mr. James H. Michael has
disclaimed any beneficial ownership of the shares beneficially owned by Mr.
Jeffrey J. Michael.
(2) Includes 2,597,000 shares of Common Stock held by 3J2R Limited Partnership,
as to which Mr. James H. Michael, as general partner, exercises sole voting
and dispositive power. Mr. Jeffrey J. Michael has disclaimed any beneficial
ownership of the shares beneficially owned by Mr. James H. Michael.
(3) Based on information in a Schedule 13D Report delivered to NSU showing
information as of February 9, 1996 and indicating that Heartland Advisors,
Inc. is an investment adviser registered under Section 203 of the Investment
Advisers Act of 1940, and that Heartland Advisors, Inc. has sole voting
power over 872,000 of such shares and sole dispositive power over all such
shares.
(4) Shares shown as beneficially owned include 134,500 shares not outstanding,
but which may be acquired within 60 days through the exercise of stock
options by all officers and Directors as a group.
39
<PAGE> 41
DESCRIPTION OF DEBENTURES
GENERAL
The Debentures will be issued under an Indenture, dated as of ,
1996 between the Company and National City Bank of Minneapolis, as Trustee (the
"Trustee"). The Indenture has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part, and a copy is available for
inspection at the principal executive offices of the Trustee. The following
discussion summarizes certain provisions of the Indenture and is subject to, and
is qualified in its entirety by reference to all of the provisions of the
Indenture, including the definitions therein of certain terms. Whenever
particular provisions of or terms defined in the Indenture are referred to in
this Prospectus, such provisions or defined terms are incorporated herein by
reference. Section and article references appearing below are to the Indenture.
The Debentures are unsecured obligations of the Company and will rank on a
parity with other outstanding unsecured obligations of the Company with the
exception of Senior Indebtedness. See "-- Provisions Relating to
Debentures -- Subordination." There is no sinking fund or similar provision for
payment of the Debentures at maturity. Maturing Debentures will be paid from
general funds of the Company or from the sale of new Debentures.
The interest rates payable on sold Debentures will be subject to change by
the Company from time to time based on market conditions and the Company's
financial requirements, but no such change will affect the interest rate on any
Debentures purchased prior to the effective date of such change. (Section
2.02(b)). The interest rate applicable to the Debentures will be the rate set
forth in this Prospectus or in a post-effective amendment to this Prospectus, if
any, in effect as of the date of the issuance of such Debenture. (Section
2.02(b)). The Debentures will mature on the first day of the month immediately
following the second, fifth and tenth anniversary of their respective dates of
issue, unless previously redeemed at the option of the Company. Interest payable
on the Debentures will be calculated based on a 365 day year.
The Debentures will be issued only in registered form, without coupons, in
any amount of $1,000 or more. (Section 2.02(c)).
Of the $10 million of Debentures offered pursuant to this Prospectus,
unless and until such time as ENStar Common Stock is quoted on the Nasdaq
National Market, at the end of each calendar quarter of the Company, not more
than 25% of the principal amount of the Debentures outstanding will have a
10-year maturity and not more than 35% of the principal amount of the Debentures
outstanding will have a 5-year maturity. There can be no assurance that ENStar
Common Stock will ever be quoted on the Nasdaq National Market.
PROVISIONS RELATING TO DEBENTURES
Subordination. Payment of principal and interest on the Debentures is
subordinated and subject to the prior payment in full of all Senior
Indebtedness. (Section 10.01). Upon (i) the maturity of such Senior
Indebtedness, including by lapse of time, acceleration or otherwise, (ii) the
happening of an event of default with respect to any Senior Indebtedness
permitting the holders thereof to accelerate the maturity thereof, or (iii) any
distribution of the assets of the Company upon the dissolution, winding up,
liquidation or reorganization of the Company, the holders of such Senior
Indebtedness will be entitled to receive payment in full before the holders of
the Debentures are entitled to receive any payment. (Article 10).
Under the Indenture, "Senior Indebtedness" means all Indebtedness (other
than the Debentures), whether outstanding on the date of execution of the
Indenture or thereafter created, incurred, assumed, or guaranteed by the Company
(and all renewals, extensions or refunding thereof), unless the instrument under
which such Indebtedness is created, incurred, assumed or guaranteed expressly
provides that such Indebtedness is not senior or superior in right of payment to
the Debentures. (Section 10.02). "Indebtedness" means any indebtedness,
contingent or otherwise, in respect of borrowed money, or evidence by bonds,
notes, debentures or similar instruments or letters of credit, or representing
the balance deferred and unpaid of the purchase price of any property or
interest therein, except any such balance that constitutes a trade payable.
(Section 10.02).
40
<PAGE> 42
The Indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company or any subsidiary can create,
incur, assume or guarantee. As a result of these subordination provisions,
holders of the Debentures may recover less ratably than holders of Senior
Indebtedness of the Company, in the event of insolvency. As of September 30,
1996, the Company had no outstanding Senior Indebtedness or other indebtedness.
The Debentures to be sold pursuant to this offering rank in parity with
each other. The Company may sell, and is permitted pursuant to the Indenture to
sell, additional subordinated debentures ranking in parity with the Debentures
being offered hereby.
Interest. Interest on each Debenture will accrue from the date of issuance
and will be payable, at the election of the initial purchaser, quarterly, at
maturity, or if the Debenture is in a denomination of $5,000 or more, monthly.
If interest is paid at maturity only, it will be compounded quarterly.
The election by the purchaser at the time of the purchase for payment of
interest at maturity may be changed only once to provide for the payment either
quarterly or monthly. Accrued and unpaid interest as of the effective date of
the change will be added to the principal amount of the Debenture and simple
interest will be paid thereafter on the new principal amount. To change the
payment option a holder of a Debenture must: (a) furnish the Company with a
written notice of such election; (b) forward the actual certificate evidencing
the Debenture to the Company for notation of current value and change in
interest payment; and (c) provide such additional documentation and other
materials as the Company deems necessary.
Interest Accrual Date. Interest on the Debentures accrues from the date of
issuance, which is deemed to be the date the Company receives a properly
executed Subscription Agreement and appropriate funds, provided such are
received prior to 3:00 p.m. on a business day. Otherwise, if the Company
receives such funds on a nonbusiness day or after 3:00 p.m. on a business day,
then the date of issuance will be deemed to be the next business day. For this
purpose, the Company's business days will be deemed to be Monday through Friday,
except for Minnesota legal holidays. (Sections 1.01 and 2.02(b)).
Taxes. The following discussion is based on provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable regulations
thereunder, judicial authority and current administrative ruling, all of which
may be retroactively subject to change. Each prospective purchaser of Debentures
is advised to consult his or her own tax advisor. Interest on the Debentures is
taxable as it accrues, including interest on Debentures which is payable only at
maturity. As a consequence, a holder of a Debenture who elects payment of
interest at maturity is required to recognize the interest income on such
Debenture as it accrues although payment of such interest is deferred until
maturity. Under the Code, the Company is required to report the interest earned
on Debentures with respect to each holder to the Internal Revenue Service. No
portion of interest will be withheld for holders providing the Company with a
taxpayer identification number on Forms W-8 or W-9, except on accounts held by
foreign business entities. With respect to those investors who do not provide
the Company with a taxpayer identification number on Forms W-8 or W-9, the
Company will withhold 31% of any interest paid. It is the Company's policy that
no sale will be made to anyone refusing to provide a taxpayer identification
number on Forms W-8 or W-9.
Additional Interest. In addition to the interest rates payable as set forth
above, the Company may make such additional payments of interest, premiums or
other benefits on such of the Debentures, in such amounts, in such form, on such
terms and at such times as shall be determined from time to time by the Company
("Additional Interest"). (Section 2.02(b)). Such Additional Interest payments
may be modified or discontinued at any time. (Section 2.02(b)). For example,
such Additional Interest payments may be limited to new investors, or to current
investors increasing or renewing their investments in the Company's Debentures.
Also, such Additional Interest payments may be limited to current or new
investors residing in a particular geographic area.
Redemption at the Option of the Company. The Company may, at its option,
redeem any or all of the Debentures on at least 30 days notice to each holder of
Debentures to be redeemed at his or her registered address at a price of 100% of
the principal amount of the Debentures, plus accrued interest on a daily basis
to the redemption date. (Section 3.04). The Company may select Debentures for
redemption by interest rate or
41
<PAGE> 43
maturity. (Section 3.03). In the event of redemption of less than all of a
series or class of Debentures selected for redemption by the Company, the
Debentures will be chosen for redemption by the Trustee as provided in the
Indenture, generally pro rata or by lot. (Section 3.03). On and after the
redemption date, interest ceases to accrue on Debentures or portions of them
called for redemption. (Article 3).
Redemption by the Holder Upon Death; Offers by the Company to Repurchase
Debentures. A maximum principal amount of $25,000 in one or more Debentures may
be redeemed at the election of the estate of the original owner (if such person
was still the holder) following such person's death, as established to the
satisfaction of the Company. (Section 3.08(a)). The redemption price, in the
event of such a death, will be the principal amount of the Debenture, plus
interest accrued and not previously paid, to the date of redemption. (Section
3.08(a)). If two or more persons are joint record owners of a Debenture, the
election to redeem will not apply until all record owners are deceased, except
that, if the joint owners are husband and wife, the election may be made after
the death of either spouse. (Section 3.08(d)). Except as described above,
Debenture holders have no right to require redemption of amounts under the
Debenture. Any offer to repurchase Debentures made by the Company at the
holders' option will be made in compliance with any applicable tender offer
rules under the Securities Exchange Act of 1934, as amended, including Rule
14e-1 thereunder. (Article 3).
Modification of Indenture. The Indenture may be modified by the Company and
the Trustee at any time or times with the consent of the holders of not less
than a majority in principal amount of the Debentures that are then outstanding,
but no modification of the Indenture may be made which will affect the terms of
payment of, the principal of, or any interest on any Debenture, without the
consent of the holder thereof, or reduce the percentage of Debenture holders
whose consent to modification is required. (Section 9.02). Without action by the
Debenture holders, the Company and the Trustee may amend the Indenture or enter
into supplemental indentures allowing for uncertificated Debentures, clarifying
any ambiguity or correcting any defect or inconsistency in the Indenture, making
any change to the Indenture that does not adversely affect the legal rights of
the Debenture holders, or increasing the aggregate principal amount of
Debentures to be issued under the Indenture. (Article 9).
Place, Method and Time of Payment. Principal and interest on the Debentures
will be payable at the principal executive office of the Company, as it may be
established from time to time, or at such other place as the Company may
designate for that purpose; provided, however, that payments may be made at the
option of the Company by check or draft mailed to the person entitled thereto at
his or her address appearing in the register which the Company maintains for
that purpose. (Section 2.06). Any payment of principal or interest which shall
be due on a non-business day will be payable by the Company on the next business
day immediately following such non-business day. (Section 11.07).
Events of Default. An Event of Default is defined in the Indenture as being
a default in payment of principal on the Debentures which has not been cured; a
default for 30 days in payment of any installment of interest on the Debentures;
acceleration of maturity of any Senior Indebtedness in an amount exceeding
$500,000 under the terms of the instrument under which such Senior Indebtedness
is or may be outstanding, if such acceleration is not annulled within 30 days
after written notice; or certain events of bankruptcy, insolvency or
reorganization or default in the performance or breach of any covenant or
warranty of the Company in the Indenture and continuance of such default in
performance or breach for a period of 60 days after notice of such default has
been received by the Company from the Trustee or from the holders of at least
25% in principal amount of the outstanding Debentures. (Section 6.01). The
Company is required to file annually with the Trustee an Officer's Certificate
as to the absence of certain defaults under the terms of the Indenture. (Section
4.03). The Indenture provides that the holders of a majority of the aggregate
principal amount of the Debentures at the time outstanding may, on behalf of all
holders, waive any past default or Event of Default except in payment of
principal or interest on the Debentures. (Section 6.04).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Debenture holders,
unless such Debenture holders shall have offered to the Trustee reasonable
indemnity. (Section 6.06(3)). Subject to such provisions
42
<PAGE> 44
for the indemnification of the Trustee, the holders of a majority in principal
amount of the Debentures at the time outstanding have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any power conferred on the Trustee. (Section 6.05).
The Indenture contains certain limitations on the right of an individual
Debenture holder to institute legal proceedings in the event of the Company's
default. (Section 6.06).
Satisfaction and Discharge of Indenture. The Indenture may be discharged
upon the payment of all Debentures outstanding thereunder or upon deposit in
trust of funds sufficient therefor, plus compliance with certain formal
procedures. (Article 8).
Reports. The Company plans to publish annual reports containing audited
financial statements and quarterly reports containing unaudited financial
information for the first three quarters of each fiscal year. Copies of such
reports will be sent to any Debenture holder upon written request.
Service Charges. The Company reserves the right to assess service charges
for issuing Debentures to replace lost or stolen Debentures, changing the
registration of a Debenture when such change is occasioned by a change in name
of the holder, issuing a replacement interest payment check, or a transferring
(whether by operation of law or otherwise) of the Debenture by the holder to
another holder. (Sections 2.05, 2.07 and 2.08).
Any holder who requests the replacement of any interest payment check 10
days or less from issue date accepts any bank charges, including stop payment
order charges. The charges amount will be subtracted from the replacement
interest payment check.
Transfer and Exchange. A holder may transfer or exchange Debentures in
accordance with the Indenture. The Company, as the registrar under the
Indenture, may require a holder, among other things, to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Company is not required to transfer or
exchange any Debentures selected for redemption. (Section 2.07). Also, the
Company is not required to transfer or exchange any Debenture for a period of
fifteen business days before the maturity of such Debentures. (Section 2.07).
Concerning the Trustee. The Indenture contains certain limitations on the
right of the Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property with
respect to any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined) and if any of the Indenture securities are in
default it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding
Debentures issued under the Indenture will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee with respect to the Debentures. (Section 6.05). The
Indenture provides that in case an Event of Default shall occur, and is not
cured, the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent person in the conduct of his or her own affairs.
(Section 7.01(a)). Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Debentures issued thereunder, unless they
shall have offered to the Trustee security and indemnity satisfactory to it.
(Section 7.01(e)).
VALIDITY OF DEBENTURES
Certain matters with respect to the validity of the Debentures offered
hereby will be passed upon for the Company by Dorsey & Whitney LLP, Minneapolis,
Minnesota.
43
<PAGE> 45
EXPERTS
The combined financial statements of ENStar (an operating unit of NSU) as
of December 31, 1995 and 1994 and for each of the three years in the period
ended December 31, 1995 have been audited by Grant Thornton LLP, independent
auditors, as set forth in their report included herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of CorVel as of March 31, 1996, and
1995 and for each of the three years in the period ended March 31, 1996 have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report included herein and are included in reliance upon such report given upon
the authority of said firm as experts in auditing and accounting.
44
<PAGE> 46
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF ENSTAR PAGE
- ------------------------------------------------------------------------------------- ----
<S> <C>
Combined Statements of Operating Unit Income for the six months ended June 30, 1996
and 1995 and for the three years ended December 31, 1995, 1994 and 1993............ F-2
Combined Statements of Operating Unit Assets and Liabilities as of June 30, 1996 and
December 31, 1995 and 1994......................................................... F-3
Combined Statements of Operating Unit Equity for the six months ended June 30, 1996
and for the three years ended December 31, 1995, 1994 and 1993..................... F-4
Combined Statements of Operating Unit Cash Flows for the six months ended June 30,
1996 and 1995 and for the three years ended December 31, 1995, 1994 and 1993....... F-5
Notes to Combined Financial Statements............................................... F-6
Report of Independent Certified Public Accountants................................... F-13
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF CORVEL
- -------------------------------------------------------------------------------------
<S> <C>
Consolidated Statements of Income for the three years ended March 31, 1994, 1995 and
1996............................................................................... F-16
Consolidated Balance Sheets as of March 31, 1996 and 1995............................ F-17
Consolidated Statements of Stockholders' Equity...................................... F-18
Consolidated Statements of Cash Flows for the three years ended March 31, 1994, 1995
and 1996........................................................................... F-19
Notes to Consolidated Financial Statements........................................... F-20
Report of Independent Auditors....................................................... F-25
Consolidated Statements of Income for the three months ended June 30, 1995 and
1996............................................................................... F-26
Consolidated Balance Sheets as of March 31, 1996 and as of June 30, 1996............. F-27
Consolidated Statements of Cash Flows for the three months ended June 30, 1995
and 1996........................................................................... F-28
Notes to Consolidated Financial Statements........................................... F-29
</TABLE>
F-1
<PAGE> 47
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT INCOME
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $31,793 $26,254 $54,891 $47,193 $46,756
Operating and product costs.................... 23,503 18,666 39,525 34,328 32,599
------- ------- ------- ------- -------
Gross profit................................... 8,290 7,588 15,366 12,865 14,157
Selling, general and administrative expenses... 8,123 7,114 14,333 13,567 14,182
Restructuring charges.......................... -- -- -- -- 1,953
------- ------- ------- ------- -------
Operating income (loss)........................ 167 474 1,033 (702) (1,978)
Interest expenses.............................. (139) (148) (247) (348) (361)
------- ------- ------- ------- -------
Income (loss) before taxes and equity in
earnings of unconsolidated subsidiary........ 28 326 786 (1,050) (2,339)
Income tax provision (benefit)................. 53 175 405 (340) (70)
------- ------- ------- ------- -------
Income (loss) before equity in earnings of
unconsolidated subsidiary.................... (25) 151 381 (710) (2,269)
Equity in earnings of unconsolidated
subsidiary................................... 627 564 1,191 996 745
------- ------- ------- ------- -------
Net income (loss).............................. $ 602 $ 715 $ 1,572 $ 286 $(1,524)
======= ======= ======= ======= =======
Pro forma income (loss) per share.............. $ 0.18 $ 0.22 $ 0.49 $ 0.09 $ (0.48)
======= ======= ======= ======= =======
Weighted average shares outstanding............ 3,304 3,279 3,217 3,235 3,146
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-2
<PAGE> 48
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT ASSETS AND LIABILITIES
<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
JUNE 30, -------------------
1996 1995 1994
----------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $ 120 $ 246 $ 74
Accounts receivable, net of allowance for doubtful accounts
($516 in 1996, $400 in 1995 and $333 in 1994)............ 9,193 8,784 7,516
Inventories................................................. 6,746 6,631 6,083
Prepaid expenses and other.................................. 448 274 237
Net assets held for sale.................................... -- 1,032 714
------- ------- -------
Total current assets..................................... 16,507 16,967 14,624
Property and equipment, net................................... 1,622 1,453 1,586
Goodwill...................................................... 4,880 4,960 5,121
Investment in unconsolidated subsidiary....................... 12,651 11,682 9,627
Other......................................................... 110 189 1,285
------- ------- -------
$35,770 $35,251 $32,243
======= ======= =======
LIABILITIES AND OPERATING UNIT EQUITY
Current liabilities
Notes payable to bank....................................... $ 2,938 $ 937 $ --
Current maturities of long-term debt........................ 17 1,088 428
Accounts payable............................................ 4,591 5,239 4,232
Accrued expenses............................................ 5,141 5,163 3,613
------- ------- -------
Total current liabilities.............................. 12,687 12,427 8,273
Long-term debt, less current maturities....................... 150 158 3,179
Deferred income taxes......................................... 3,330 2,972 2,615
Commitments and contingencies................................. -- -- --
Operating unit equity......................................... 19,603 19,694 18,176
------- ------- -------
$35,770 $35,251 $32,243
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-3
<PAGE> 49
ENStar
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<S> <C>
Balance at December 31, 1992....................................................... $17,263
Net loss......................................................................... (1,524)
Effect of equity transactions of unconsolidated subsidiary....................... 152
Effect of restructuring charges.................................................. 318
Translation adjustment........................................................... (198)
Additional capital invested...................................................... 1,024
-------
Balance at December 31, 1993....................................................... 17,035
Net income....................................................................... 286
Effect of equity transactions of unconsolidated subsidiary....................... 73
Additional capital invested...................................................... 782
-------
Balance at December 31, 1994....................................................... 18,176
Net income....................................................................... 1,572
Effect of equity transactions of unconsolidated subsidiary....................... 42
Constructive dividend............................................................ (96)
-------
Balance at December 31, 1995....................................................... 19,694
Net income (unaudited)........................................................... 602
Effect of equity transactions of unconsolidated subsidiary (unaudited)........... (44)
Constructive Dividend (unaudited)................................................ (649)
-------
Balance of June 30, 1996 (unaudited)............................................... $19,603
=======
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-4
<PAGE> 50
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT CASH FLOWS
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)....................... $ 602 $ 715 $ 1,572 $ 286 $ (1,524)
Adjustments to reconcile net income
(loss) to net cash provided by (used
in) operating activities:
Equity in earnings of unconsolidated
subsidiary......................... (627) (564) (1,191) (996) (745)
Non-cash restructuring charges....... -- -- -- -- 1,567
Depreciation and amortization........ 453 408 837 848 715
Deferred income taxes................ (28) (235) (465) (200) (460)
Translation adjustment............... -- -- -- -- (198)
Changes in operating assets and
liabilities, net of effects of
restructuring charges
Accounts receivable................ (409) 387 (1,268) (1,980) 819
Inventories........................ (115) (447) (548) 420 (406)
Accounts payable, accrued expenses
and other....................... (844) 1,117 2,202 653 213
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............... (968) 1,381 1,139 (969) (19)
-------- -------- -------- -------- --------
Cash flows from investing activities
Capital expenditures................. (542) (142) (543) (541) (1,089)
Collections on notes receivable...... 79 67 1,096 577 481
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities............... (463) (75) 553 36 (608)
-------- -------- -------- -------- --------
Cash flows from financing activities
Proceeds from long-term debt............ 33,596 27,103 56,073 48,868 23,267
Payments on long-term debt........... (32,674) (28,699) (57,497) (48,704) (23,693)
Additional capital invested
(constructive dividends)........... 383 276 (96) 782 1,024
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............... 1,305 (1,320) (1,520) 946 598
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... (126) (14) 172 13 (29)
Cash and cash equivalents at beginning of
year.................................... 246 74 74 61 90
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
year.................................... $ 120 $ 60 $ 246 $ 74 $ 61
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined statements.
F-5
<PAGE> 51
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS
NOTE 1 -- ORGANIZATION AND BUSINESS
ENStar (the "Operating Unit" or the "Unit") is a subsidiary of North Star
Universal, Inc. ("North Star"), comprised of Americable, Inc. ("Americable"),
Transition Networks, Inc., ("Transition") and Eagle Engineering and
Manufacturing, Inc. ("Eagle," which is included in net assets held for sale --
see Note 12), along with an equity investment in CorVel Corporation ("CorVel")
and certain other assets. At December 31, 1995, North Star owned a 35% ownership
interest in CorVel and following the sale of 350,000 shares in January 1996 and
other equity transactions of CorVel, its ownership was reduced to 26% (see Note
8). The accompanying financial statements reflect a 27% ownership interest for
all periods presented. The Operating Unit's investment in CorVel is accounted
for as an unconsolidated subsidiary using the equity method of accounting.
Americable is a provider of connectivity and networking products and
services. Transition designs, manufactures and markets connectivity devices used
in network applications.
Pursuant to the terms of an agreement between North Star and Michael Foods,
Inc. ("Michael Foods"), an unconsolidated subsidiary of North Star will be
merged with and into Michael Foods and the net assets owned by the Unit will be
transferred to a newly formed corporation, ENStar Inc. Under the terms of the
agreement, the shares of ENStar Inc. will be declared payable in a tax free
dividend to the North Star shareholders of record prior to the effective date of
such merger and distributed immediately following the merger. The transaction is
subject to the receipt of a favorable ruling from the Internal Revenue Service
that the transactions are tax free to the shareholders of Michael Foods and
North Star, the approval of both companies shareholders and other closing
conditions. In connection with the transaction, the Unit intends to transfer all
of its CorVel Common Stock to Americable to satisfy certain federal income tax
requirements relating to the merger and distribution. As of June 30, 1996, the
companies and the investments referred to in the first paragraph above, which
will be contributed to ENStar Inc., have not yet been transferred. Separate
financial statements of ENStar Inc. have been omitted since ENStar Inc. has
insignificant assets and no operations as of, and for the period ended, June 30,
1996.
NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The accompanying combined financial statements have
been prepared from the books and records of the entities and investments
described in Note 1. The combined financial statements include an allocation of
general and administrative costs incurred by North Star in the management of the
operating companies, investment holding and other assets of the Operating Unit.
Management believes these allocations are reasonable and present the operations
of the Unit as though it was operated on a stand alone basis. Additionally,
Operating Unit equity includes the historical equity of each entity, other net
assets contributed to the Operating Unit and intercompany payables owed to North
Star. The annual net advances between the Operating Unit and North Star are
considered additional capital invested from, or constructive dividends to, North
Star. Accordingly, the accompanying combined financial statements may not
necessarily be indicative of the results that would have been obtained if the
Unit had been operated as a stand alone entity.
Combined financial statements and related footnote data as of and for the
six months ended June 30, 1996 and 1995 are unaudited, but in the opinion of
management of the Unit, include all adjustments (consisting only of normal
recurring adjustments) necessary for fair presentation thereof. The results of
operations for the six months ended June 30, 1996 and 1995 are not necessarily
indicative of the results of a full year.
PRINCIPLES OF COMBINATION Significant inter-unit balances and transactions
have been eliminated.
F-6
<PAGE> 52
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
CASH AND CASH EQUIVALENTS The Unit considers its highly liquid temporary
investments with original maturities of three months or less to be cash
equivalents. The carrying value of cash and cash equivalents approximate fair
value because of the short-term maturity of these investments.
INVENTORIES Inventories are stated at the lower of average cost (determined
on a first-in, first-out basis) or market. Inventories consist of the following
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods....................................... $4,988 $4,092 $2,864
Purchased parts...................................... 1,758 2,539 3,219
------- ------ ------
$6,746 $6,631 $6,083
======= ====== ======
</TABLE>
PROPERTY AND EQUIPMENT Property and equipment are recorded at cost.
Depreciation and amortization for financial reporting purposes are provided on
the straight-line method over the estimated useful lives of the respective
assets which are generally three to five years. Property and equipment consist
of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements............................... $ 314 $ 304 $ 276
Office and computer equipment........................ 4,211 3,720 3,262
------- ------ ------
4,525 4,024 3,538
Less -- accumulated depreciation and amortization.... 2,903 2,571 1,952
------- ------ ------
$1,622 $1,453 $1,586
======= ====== ======
</TABLE>
GOODWILL Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization was $1,664,000 at June 30, 1996 and $1,584,000
and $1,423,000 at December 31, 1995 and 1994. The Unit maintains separate
financial records for each of its acquired entities and evaluates its goodwill
annually to determine potential impairment by comparing the carrying value to
the undiscounted future cash flows of the related assets. The Unit modifies the
life or adjusts the value of a subsidiary's goodwill if an impairment is
identified. See Note 3 for an impairment identified during 1993.
ACCRUED EXPENSES. Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Payroll and related benefits......................... $ 758 $ 749 $ 439
Insurance reserves................................... 1,006 905 794
Discontinued operations.............................. 1,925 1,614 545
Other................................................ 1,452 1,895 1,835
------- ------ ------
$5,141 $5,163 $3,613
======= ====== ======
</TABLE>
REVENUE RECOGNITION The Unit recognizes revenue from product sales at the
time product is shipped to a customer. Service revenue is recognized at the time
service is provided or ratably over the contractual service period.
F-7
<PAGE> 53
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
RESEARCH AND DEVELOPMENT. All research and development costs are charged to
expense as incurred. Research and development expenses were approximately
$1,000,000 in 1995, $1,200,000 in 1994, $822,000 in 1993 and $742,000 and
$455,000 for the six months ended June 30, 1996 and 1995.
PRO FORMA INCOME (LOSS) PER SHARE Pro forma income (loss) per share was
computed based on the weighted average number of shares of North Star common
stock outstanding (9,913,000 and 9,836,000 for the periods ended June 30, 1996
and 1995 and 9,650,000, 9,704,000 and 9,438,000 for the years ended December 31,
1995, 1994 and 1993) after giving effect to the assumed exercise of North Star's
outstanding stock options for North Star common stock, except when the effects
are antidilutive. This weighted average number of shares was adjusted to reflect
the distribution of ENStar Inc. common stock to North Star shareholders whereby
one share of ENStar Inc. common stock will be issued to each holder of three
shares of North Star common stock.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Unit increased its
investment in its unconsolidated subsidiary by $70,000, $122,000 and $254,000
and Operating Unit equity by $42,000, $73,000 and $152,000 during the years
ended December 31, 1995, 1994 and 1993, respectively, as a result of equity
transactions of CorVel. In addition, during those years the Operating Unit had
cash payments for interest of $247,000 in 1995, $348,000 in 1994, and $361,000
in 1993.
For the six months ended June 30, the Unit's investment in its
unconsolidated subsidiary decreased by $76,000 and $203,000 while Operating Unit
equity decreased by $44,000 and $110,000 during 1996 and 1995. In addition, the
constructive dividend for the six months ended June 30, 1996, includes
$1,032,000 of net assets held for sale which were transferred by the Operating
Unit to North Star as discussed in Note 12.
RECENTLY ISSUED ACCOUNTING STANDARDS The Financial Accounting Standards
Board has issued two accounting standards which the Unit is required to adopt
January 1, 1996. The first statement establishes guidance on when and how to
measure impairment of long-lived assets and certain identifiable intangibles and
how to value long-lived assets to be disposed of. The second standard
establishes accounting and reporting for the impact of the fair value of
stock-based compensation plans and permits the Unit to select the fair value
based method of accounting for employee stock options or the intrinsic value
method. Upon completion of the distribution described in Note 1, management
intends to adopt the intrinsic value method of accounting and reporting for
stock-based compensation plans. Management believes the adoption of these new
accounting standards will not have a material effect on the Unit's combined
financial statements. During the six month period ended June 30, 1996, the Unit
adopted these standards, the adoption of which did not have a material effect on
the Unit's combined financial statements.
USE OF ESTIMATES In the preparation of the Unit's combined financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and related revenues and
expenses. Actual results could differ from the estimates used by management.
NOTE 3 -- RESTRUCTURING CHARGES
In December 1993, Americable implemented a restructuring plan involving the
closure of its Canadian facilities, operated by Adanac Cable, Ltd., and
consolidation of its Canadian sales and customer support activities within its
U.S. operations. This plan was completed in 1994. In connection with this
consolidation, Americable recorded a restructuring charge of approximately $1.9
million in 1993. This charge includes approximately $600,000 for the write-off
of goodwill and other noncurrent assets, $700,000 for the reassessment of the
carrying value of inventory and receivables, and $600,000 for lease and
severance obligations and other related expenses.
F-8
<PAGE> 54
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INVESTMENT IN UNCONSOLIDATED SUBSIDIARY
The Unit's unconsolidated subsidiary consists of its investment in CorVel,
a health care services company. CorVel has a fiscal year end of March 31. The
following is summarized balance sheet and income statement information for
CorVel as of, and for the twelve month period ended December 31, 1995 and as of,
and for the six month period ended June 30, 1996 (in thousands):
<TABLE>
<CAPTION>
1995 1996
-------- -------
<S> <C> <C>
Current assets............................................ $ 36,739 $39,573
Noncurrent assets......................................... 15,514 17,467
Current liabilities....................................... 8,696 7,294
Noncurrent liabilities.................................... 765 1,718
Revenues.................................................. 106,814 55,107
Gross profit.............................................. 19,640 9,999
Net income................................................ 7,038 3,620
</TABLE>
At December 31, 1995 and June 30, 1996, the combined equity includes
approximately $3.7 million and $4.4 million of unremitted earnings related to
the Unit's investment in CorVel. At December 31, 1995 and June 30, 1996, the
fair value of the Operating Unit's investment in CorVel, based on the closing
market price, was approximately $46.7 million and $43.8 million (see Note 8).
NOTE 5 -- NET ASSETS HELD FOR SALE
In March 1991, the Operating Unit announced its intention to sell its
remaining non-computer related manufacturing company, Eagle. The Operating Unit
has recorded the net assets related to this subsidiary in the balance sheet
under the caption "Net Assets Held For Sale." Operating results of this
subsidiary are not material. The assets of Eagle were sold on April 26, 1996.
(see Note 12)
NOTE 6 -- NOTES PAYABLE AND LONG-TERM DEBT
Americable and Transition maintain a revolving line of credit and term loan
facility which provides borrowings up to $5.5 million due in may 1996.
Borrowings under this facility are based on eligible accounts receivable and
inventory with interest at prime plus 1.5% (10% at December 31, 1995 and 9.75%
at June 30, 1996). Amounts outstanding under the revolving line of credit at
December 31, 1995 are classified within notes payable to the bank. The term loan
bears interest at 10.665% and is payable in monthly principal installments of
$36,000 with a final installment of $893,000 due in May 1996. The credit
agreement includes certain restrictive covenants including minimum net worth
requirements, limitations on additional indebtedness and minimum interest
coverage. At December 31, 1995 and June 30, 1996, Americable and Transition were
in compliance with the covenants of this agreement. The carrying value of
long-term debt, which approximates fair value, consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ----------------
1996 1995 1994
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving line of credit............................. $ -- $ -- $2,107
Term note payable.................................... -- 1,071 1,500
Other................................................ 167 175 --
---- ------ ------
167 1,246 3,607
Less current maturities.............................. 17 1,088 428
---- ------ ------
$150 $ 158 $3,179
==== ====== ======
</TABLE>
F-9
<PAGE> 55
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Aggregate minimum annual principal payments of long-term debt at June 30,
1996, are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------------------------------------------
<S> <C>
1996......................................................... $ 9
1997......................................................... 18
1998......................................................... 20
1999......................................................... 22
2000......................................................... 25
2001 and thereafter.......................................... 73
----
$167
====
</TABLE>
(The following information is unaudited.) On August 9, 1996, Americable and
Transition amended the terms of their revolving line of credit facility with
their principal bank to provide borrowings up to $4 million and $2 million,
respectively, due in June 1998. Borrowings under the amended facility are based
on eligible accounts receivable and inventory with interest at prime with
optional fixed rate advances at the London Interbank Offered Rate ("LIBOR") plus
2.5%. At June 30, 1996, there were outstanding borrowings of $2,983,000 under
the revolving line of credit, including $857,000 of amounts transferred from the
previous term loan facility which matures in May 1996. In addition, there was
approximately $2,500,000 of available borrowings under this credit facility at
June 30, 1996. The amended credit agreement includes certain restrictive
covenants including minimum net worth requirements, limitations on additional
indebtedness and minimum interest coverage, with which the Unit is in
compliance.
NOTE 7 -- INCOME TAXES
The activity of the Unit has been included in the income tax return of
North Star. For financial reporting purposes, the Unit has been allocated a
provision for income taxes in an amount generally equivalent to the provision
that would have resulted had the Unit filed separate income tax returns. The
provision for combined income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------
1996 1995 1995 1994 1993
---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Current
Federal.................... $ 70 $ 350 $ 740 $(120) $ 330
State...................... 11 60 130 (20) 60
--- ---- ---- ----- ----
81 410 870 (140) 390
--- ---- ---- ----- ----
Deferred:
Federal.................... (24) (205) (405) (175) (400)
State...................... (4) (30) (60) (25) (60)
--- ---- ---- ----- ----
(28) (235) (465) (200) (460)
--- ---- ---- ----- ----
$ 53 $ 175 $ 405 $(340) $ (70)
=== ==== ==== ===== ====
</TABLE>
F-10
<PAGE> 56
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of income taxes at the federal statutory
rate to the effective rate:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ --------------------------
1996 1995 1995 1994 1993
----- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C>
Federal statutory rate........... 34.0% 34.0% 34.0% (34.0)% (34.0)%
State income taxes............... 20.9 9.2 8.9 (4.3) --
Losses producing no current
benefit........................ -- -- -- -- 28.4
Goodwill amortization............ 97.1 8.4 7.0 5.1 2.3
Other............................ 37.3 2.2 1.6 0.8 0.3
----- ---- ---- ----- ----
189.3% 53.8% 51.5% (32.4)% (3.0)%
===== ==== ==== ===== ====
</TABLE>
To the extent the Unit's financial reporting basis in its investment in
unconsolidated subsidiaries exceeds its tax basis, and is not expected to be
realized in a tax-free manner, the Unit records a deferred income tax liability.
At December 31, 1995, the deferred tax liability includes the initial tax effect
of $1.8 million for the difference in the financial reporting and tax basis of
the Unit's investment in CorVel following its initial public offering along with
income taxes recorded on the equity in earnings of CorVel of $794,000 in 1995,
$664,000 in 1994, and $497,000 in 1993.
The tax effects of the cumulative temporary differences resulting in the
net deferred tax liability are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ------------------
1996 1995 1994
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment in Corvel............................... $ (4,725) $(4,339) $(3,517)
Accrued expenses not deductible until paid......... 1,743 1,729 1,338
Other.............................................. (348) (362) (436)
------- ------- -------
$ (3,330) $(2,972) $(2,615)
======= ======= =======
</TABLE>
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
LEASING COMMITMENTS The Unit leases certain equipment and facilities under
operating leases. At June 30, 1996, the future aggregate minimum rental payments
under such leases which expire at various dates through 2008 are as follows (in
thousands):
<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
------------------------------------------
<S> <C>
1996................................. $347
1997................................. 561
1998................................. 462
1999................................. 469
2000................................. 368
2001 and thereafter.................. 329
</TABLE>
Certain of the leases provide for payment of taxes and other expenses.
Total rent expense on all leases including month-to-month leases for the years
ended December 31 was: $849,000 in 1995, $823,000 in 1994, and $830,000 in 1993.
For the six months ended June 30, 1996 and 1995, total rent expense was $494,000
and $456,000.
CONTINGENCY North Star has indicated that prior to its merger with Michael
and distribution of ENStar, it may cause its subsidiary ENStar to sell up to
200,000 shares of CorVel common stock and to distribute the after tax proceeds
from such sale to North Star in the form of a dividend. If this sale were to
occur, it would reduce
F-11
<PAGE> 57
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
the number of shares of CorVel common stock owned by ENStar to 1,025,000, which
would represent approximately 22% of the outstanding shares of CorVel common
stock as of June 30, 1996 (see Notes 1 and 4).
NOTE 9 -- EMPLOYEE RETIREMENT PLAN
North Star maintains an incentive savings plan for its employees and
employees including those of the Unit. Full-time employees that meet certain
requirements are eligible to participate in the plan. Contributions are made
annually, primarily at the discretion of North Star's Board of Directors.
Contributions of $144,000, $138,000, $126,000, were charged to operations in the
years ended December 31, 1995, 1994 and 1993.
NOTE 10 -- RELATED PARTY TRANSACTION
The Unit has an unsecured note receivable from North Star's majority
shareholder and former chairman of the board of $257,872 at December 31, 1995
and $57,872 at June 30, 1996. The note bears interest at the Unit's principal
bank's reference rate plus 1% (9.5% at December 31, 1995 and 9.25% at June 30,
1996). A principal payment of $150,000 was made in December 1995 and payments of
$200,000 were made during the six months ended June 30, 1996.
NOTE 11 -- GEOGRAPHIC AREA AND BUSINESS SEGMENT INFORMATION
Prior to 1994, the Unit's foreign operations included Americable's Canadian
subsidiary, Adanac Cable, Ltd. which was closed in December 1993 as discussed in
Note 3. In 1993, foreign operations consisted of revenues of $4.6 million and
operating loss of $195,000.
The Unit, through Transition, has international export sales throughout the
world. Substantially all of the export sales are denominated in U.S. dollars.
Revenues classified by major geographic area are as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers in the
United States................................. $28,992 $23,617 $49,668 $43,020 $43,616
Europe........................................ 1,895 1,692 3,363 2,737 2,230
Other......................................... 906 945 1,860 1,436 910
------- ------- ------- ------- -------
$31,793 $26,254 $54,891 $47,193 $46,756
======= ======= ======= ======= =======
</TABLE>
NOTE 12 -- SUBSEQUENT EVENT (UNAUDITED)
On April 26, 1996, the Operating Unit transferred its interest in Eagle to
North Star and North Star completed a sale of Eagle. The proceeds from the sale
have been retained by North Star. This transfer of Eagle to North Star has been
included within the constructive dividend to North Star during the period ended
June 30, 1996.
F-12
<PAGE> 58
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of North Star Universal, Inc.
We have audited the accompanying combined statements of operating unit
assets and liabilities of ENStar ("the Unit"), (an operating unit of North Star
Universal, Inc.), as of December 31, 1995 and 1994, and the related combined
statements of operating unit net income, operating unit equity, and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Unit's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the combined operating unit assets and
liabilities of ENStar as of December 31, 1995 and 1994, and the combined results
of their operations and their combined cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Minneapolis, Minnesota
February 15, 1996
Grant Thorton LLP
F-13
<PAGE> 59
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
BOARD OF DIRECTORS AND SHAREHOLDERS
NORTH STAR UNIVERSAL, INC.
In connection with our audit of the combined financial statements of ENStar
(an operating unit of North Star Universal, Inc.) referred to in our report
dated February 15, 1996, we have also audited Schedule II for each of the three
years in the period ended December 31, 1995. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 15, 1996
F-14
<PAGE> 60
ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
CHARGES
BALANCE AT CHARGED TO TO OTHER BALANCE
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS- AT END OF
DESCRIPTION OF PERIOD EXPENSES DESCRIBE DESCRIBE(1) OTHER(2) PERIOD
- ------------------------------- ----------- ---------- --------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Allowance for Doubtful
Accounts:
1993........................... $ 258 $220 -- $ (92) $(42) $344
1994........................... 344 115 -- (126) -- 333
1995........................... 333 135 -- (68) -- 400
</TABLE>
- -------------------------
(1) Write off of accounts deemed uncollectible.
(2) Represents effect of restructuring charges.
F-15
<PAGE> 61
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------------
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Revenues........................................... $80,619,000 $95,783,000 $109,052,000
Costs and Expenses
Cost of revenues................................... 67,331,000 78,950,000 88,937,000
General and administrative......................... 6,057,000 7,186,000 8,106,000
----------- ----------- ------------
73,388,000 86,136,000 97,043,000
----------- ----------- ------------
Income before income taxes......................... 7,231,000 9,647,000 12,009,000
Income tax provision............................... 2,821,000 3,762,000 4,684,000
----------- ----------- ------------
Net Income......................................... $ 4,410,000 $ 5,885,000 $ 7,325,000
=========== =========== ============
Net income per common and common equivalent
share............................................ $ 1.01 $ 1.30 $ 1.57
=========== =========== ============
Weighted average shares outstanding................ 4,369,000 4,542,000 4,674,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-16
<PAGE> 62
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents........................................ $13,211,000 $17,113,000
Accounts receivable (less allowance for doubtful accounts of
$825,000 in 1995 and $1,268,000 in 1996)...................... 15,868,000 18,394,000
Prepaid taxes and expenses....................................... 182,000 545,000
Deferred income taxes............................................ 1,809,000 2,032,000
------------ ------------
Total current assets........................................ 31,070,000 38,084,000
------------ ------------
Property and equipment, net........................................ 8,872,000 11,468,000
Other assets....................................................... 4,023,000 4,432,000
------------ ------------
$43,965,000 $53,984,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts and taxes payable....................................... $ 2,357,000 $ 3,057,000
Accrued liabilities.............................................. 4,628,000 4,246,000
------------ ------------
Total current liabilities................................... 6,985,000 7,303,000
------------ ------------
Deferred income taxes.............................................. 1,226,000 1,370,000
Commitments and contingencies
Stockholders' equity
Common stock, $.0001 par value: 20,000,000 shares authorized;
4,238,250 and 4,593,675 shares issued and outstanding at March
31, 1995 and 1996, respectively
Paid in capital.................................................... 24,169,000 26,401,000
Retained earnings.................................................. 11,585,000 18,910,000
------------ ------------
Total stockholders' equity.................................. 35,754,000 45,311,000
------------ ------------
$43,965,000 $53,984,000
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-17
<PAGE> 63
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON COMMON STOCK TOTAL
STOCK AND RETAINED SHAREHOLDERS'
SHARES PAID IN CAPITAL EARNINGS EQUITY
--------- --------------- ----------- -------------
<S> <C> <C> <C> <C>
Balance -- March 31, 1993.................. 3,706,649 $19,067,000 $ 1,290,000 $ 20,357,000
Stock issued under employee stock
purchase plan......................... 20,448 295,000 295,000
Stock issued under employee stock option
plan and related income tax
benefits.............................. 344,098 2,263,000 2,263,000
Net income............................... 4,410,000 4,410,000
--------- ----------- ----------- -----------
Balance -- March 31, 1994.................. 4,071,195 21,625,000 5,700,000 27,325,000
Stock issued under employee stock
purchase plan......................... 19,634 374,000 374,000
Stock issued under employee stock option
plan and related income tax
benefits.............................. 147,421 2,170,000 2,170,000
Net income............................... 5,885,000 5,885,000
--------- ----------- ----------- -----------
Balance -- March 31, 1995.................. 4,238,250 24,169,000 11,585,000 35,754,000
--------- ----------- ----------- -----------
Stock issued under employee stock
purchase plan......................... 18,384 444,000 444,000
Stock issued under employee stock option
plan and related income tax benefits,
net of shares repurchased upon
exercise.............................. 337,041 1,788,000 1,788,000
Net income............................... 7,325,000 7,325,000
--------- ----------- ----------- -----------
Balance -- March 31, 1996.................. 4,593,675 $26,401,000 $18,910,000 $ 45,311,000
========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-18
<PAGE> 64
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31
----------------------------------------
1994 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities
Net income........................................... $4,410,000 $ 5,885,000 $ 7,325,000
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization..................... 2,363,000 2,335,000 3,048,000
Deferred income taxes............................. 546,000 (44,000) (79,000)
Loss on write down and disposal of
property and equipment.......................... 75,000 39,000 23,000
Changes in operating assets and liabilities
Accounts receivable............................. (1,976,000) (2,657,000) (2,526,000)
Prepaid income taxes and expenses............... (144,000) 795,000 (363,000)
Accounts and taxes payable...................... 378,000 27,000 700,000
Accrued liabilities............................. 1,085,000 538,000 (382,000)
Other assets.................................... 33,000 (425,000) (511,000)
---------- ----------- -----------
Net cash provided by operating activities............ 6,770,000 6,493,000 7,235,000
---------- ----------- -----------
Cash flows from investing activities
Purchases of property and equipment.................. (4,406,000) (4,219,000) (5,565,000)
---------- ----------- -----------
Net cash used in investing activities................ (4,406,000) (4,219,000) (5,565,000)
Cash flows from financing activities
Proceeds and tax benefits from exercise of stock
options........................................... 2,558,000 2,544,000 2,232,000
---------- ----------- -----------
Net cash provided by financing activities............ 2,558,000 2,544,000 2,232,000
---------- ----------- -----------
Increase in cash and cash equivalents.................. 4,922,000 4,818,000 3,902,000
Cash and cash equivalents at beginning of year......... 3,471,000 8,393,000 13,211,000
---------- ----------- -----------
Cash and cash equivalents at end of year............... $8,393,000 $13,211,000 $17,113,000
========= ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-19
<PAGE> 65
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION: CorVel Corporation (the Company) provides services and
programs nationwide that are designed to enable insurance carriers, third party
administrators and employers with self-insured programs to administer, manage
and control the cost of workers compensation benefits.
BASIS OF PRESENTATION: The consolidated financial statements include the
accounts of CorVel Corporation and its subsidiaries. Significant intercompany
accounts and transactions have been eliminated in consolidation.
The consolidated financial statements are presented on the accrual basis of
accounting in accordance with generally accepted accounting principles which
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of March 31, 1995 and 1996 and revenues and
expenses for the three years ending March 31, 1996. Estimates made by the
Company relate primarily to the valuation of accounts receivable and estimation
of accrued liabilities. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS: Cash and cash equivalents consists of short-term
highly-liquid investments with maturities of 90 days or less when purchased. The
carrying amounts of the Company's financial instruments approximate their
relative fair values at March 31, 1995 and 1996.
CONCENTRATIONS OF CREDIT RISK: The Company performs periodic credit
evaluations of its customers' financial condition and does not require
collateral. No customer represented 10% of accounts receivable at March 31, 1995
and 1996. Receivables generally are due within 60 days. Credit losses relating
to customers in the workers compensation insurance industry consistently have
been within management's expectations.
PROPERTY AND EQUIPMENT: Property and equipment is stated at cost.
Depreciation and amortization is provided using the straight-line and
accelerated methods over the estimated useful lives of the assets which range
from three to seven years.
LONG-LIVED ASSETS: The Company elected the early adoption of SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" (Statement No. 121). In accordance with Statement No. 121,
long-lived assets and certain identifiable intangibles held and used by the
Company will be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
OTHER ASSETS: Other assets consists primarily of the excess of the purchase
price over the estimated fair value of the net assets of businesses acquired
(goodwill) and is being amortized on a straight-line basis over periods not
exceeding 40 years. Goodwill amounted to $3,344,000 (net of accumulated
amortization of $652,000) at March 31, 1995 and $3,636,000 (net of accumulated
amortization of $754,000) at March 31, 1996.
REVENUE RECOGNITION: The Company's revenues are recognized primarily as
services are rendered based on time and expenses incurred. A certain portion of
the Company's revenues are derived from fee schedule auditing which is based on
the number of provider charges audited and, to a limited extent, on a percentage
of savings achieved for the Company's clients. Accounts receivable includes
$1,318,000 and $1,527,000 of unbilled receivables at March 31, 1995 and 1996,
respectively. No one customer accounted for more than 10% of consolidated
revenues during the years ended March 31, 1994, 1995 and 1996.
INCOME TAXES: The consolidated financial statements reflect the application
of Statement of Financial Accounting Standards No. 109 -- "Accounting for Income
Taxes".
INCOME PER SHARE: Income per share is computed by dividing net income by
the weighted average number of common and common equivalent shares outstanding
during the year.
STOCK OPTIONS: The Company follows Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options. The Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
F-20
<PAGE> 66
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 123, "Accounting for Stock-Based Compensation" (SFAS No. 123) in October
1995. SFAS No. 123 establishes financial accounting and reporting standards for
stock-based compensation plans and for transactions in which an entity issues
its equity instruments to acquire goods and services from nonemployees. The new
accounting standards prescribed by SFAS No. 123 are optional, and the Company
may continue to account for its plans under previous standards. The Company does
not expect to adopt the new accounting standards, consequently, SFAS No. 123
will not have an impact on the Company's consolidated results of operations or
financial position. However, proforma disclosures of net earnings and earnings
per share will be made in fiscal 1997, as if the SFAS No. 123 accounting
standards had been adopted.
NOTE B -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following at March 31:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Office equipment and computers...................... $11,074,000 $15,542,000
Computer software................................... 3,490,000 4,207,000
Leasehold improvements.............................. 356,000 613,000
----------- -----------
14,920,000 20,362,000
Less: accumulated depreciation and amortization..... 6,048,000 8,894,000
----------- -----------
$ 8,872,000 $11,468,000
=========== ===========
</TABLE>
NOTE C -- ACCRUED LIABILITIES
Accrued liabilities consists of the following at March 31:
<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Payroll and related benefits.......................... $2,327,000 $2,366,000
Self insurance reserves............................... 1,017,000 737,000
Other................................................. 1,284,000 1,143,000
---------- ----------
$4,628,000 $4,246,000
========== ==========
</TABLE>
NOTE D -- INCOME TAXES
The income tax provision consists of the following for the three years
ended March 31:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ---------- -----------
<S> <C> <C> <C>
Current -- Federal....................... $ 1,903,000 $3,172,000 $ 4,045,000
Current -- State......................... 372,000 634,000 718,000
Tax benefits from option exercises....... (1,403,000) (991,000) (4,245,000)
Utilization of net operating loss........ (538,000)
----------- ---------- -----------
Subtotal............................ 872,000 2,277,000 518,000
----------- ---------- -----------
Deferred -- Federal...................... 460,000 (37,000) (102,000)
Deferred -- State........................ 86,000 (7,000) 23,000
----------- ---------- -----------
Subtotal............................ 546,000 (44,000) (79,000)
----------- ---------- -----------
Charge in lieu of income taxes
attributable to tax benefits from stock
option exercises and utilization of net
operating loss carryovers.............. 1,403,000 1,529,000 4,245,000
----------- ---------- -----------
$ 2,821,000 $3,762,000 $ 4,684,000
=========== ========== ===========
</TABLE>
F-21
<PAGE> 67
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following is a reconciliation of the income tax provision from the
statutory federal income tax rate to the effective rate for the three years
ended March 31 (35% for the three fiscal years ended March 31, 1996):
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Federal statutory income tax rate..... $2,531,000 $3,377,000 $4,203,000
State income taxes, net of federal
benefit............................. 300,000 399,000 446,000
Goodwill amortization................. 35,000 35,000 37,000
Other................................. (45,000) (49,000) (2,000)
---------- ---------- ----------
$2,821,000 $3,762,000 $4,684,000
========== ========== ==========
</TABLE>
Income taxes paid totaled $925,000, $1,100,000 and $1,193,000 for the years
ended March 31, 1994, 1995, and 1996, respectively. At March 31, 1994, the
Company had net operating loss (NOL's) carryforwards of $1,600,000 for income
tax purposes, expiring in 2007 for financial reporting purposes. A valuation
allowance of $538,000 was recorded in 1994 to offset the deferred tax assets
related to the NOL's. This $538,000 valuation allowance was applied to
additional paid in capital in 1995 since the related NOL's were principally
attributable to deductions for the exercise of non qualified stock options in
1994.
Deferred taxes at March 31, 1995 and 1996 are:
<TABLE>
<CAPTION>
1995 1996
----------- -----------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities not currently deductible.... $ 1,525,000 $ 1,310,000
Allowance for doubtful accounts................. 284,000 495,000
Other........................................... 0 227,000
----------- -----------
Deferred assets................................... 1,809,000 2,032,000
Deferred tax liabilities:
Excess of tax under book basis of fixed
assets....................................... (1,226,000) (1,370,000)
----------- -----------
Deferred liability.............................. (1,226,000) (1,370,000)
----------- -----------
Net deferred tax asset............................ $ 583,000 $ 662,000
=========== ===========
</TABLE>
NOTE E -- STOCK OPTION PLAN
Under the Company's Restated 1988 Executive Stock Option Plan, as amended,
options for up to 1,335,000 shares of the Company's common stock may be granted
to key employees, nonemployee directors and consultants at prices not less than
85% of the fair value of the stock at the date of grant as determined by the
Board. Options granted under the Plan may be either incentive stock options or
non-statutory stock options
F-22
<PAGE> 68
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and are generally exercisable beginning one year from the date of grant and vest
monthly thereafter for three years. Summarized information for this Plan
follows:
<TABLE>
<CAPTION>
1994 1995 1996
----------- ----------- ------------
<S> <C> <C> <C>
Options outstanding at the beginning of
the year.............................. 687,980 444,040 404,539
Options granted......................... 111,635 88,850 81,300
Options exercised....................... 338,998 110,421 105,672
Options canceled........................ 16,577 17,930 16,756
----------- ----------- ------------
Options outstanding at the end of the
year.................................. 444,040 404,539 363,411
=========== =========== ============
At the end of the year:
Prices of outstanding options........... $.01-$22.75 $.33-$26.50 $8.67-$31.50
Average price per share................. $11.36 $15.11 $18.33
Exercisable options..................... 182,920 199,484 182,575
Options available for future grants..... 137,908 266,988 202,444
</TABLE>
In addition to options granted under the Plan, the Company's President was
issued an option to purchase 750,000 shares of common stock at an exercise price
of $.0001 per share in January 1988. Options to purchase 5,100, 37,000, and
362,900 shares of common stock were exercised in fiscal 1994, 1995 and 1996,
respectively. As of March 31, 1996, options to purchase 60,000 shares of common
stock were outstanding, all of which were exercisable at a nominal price.
NOTE F -- EMPLOYEE STOCK PURCHASE PLAN
In fiscal 1992, the Company's Board of Directors approved the 1991 Employee
Stock Purchase Plan, as amended, that provides for the issuance of up to 150,000
shares of the Company's common stock. Under the plan, participating employees
are granted nontransferable, six-month options on October 1 and April 1 of each
year. These options entitle employees to purchase the number of whole shares
that their individual payroll deduction authorizations indicate can be purchased
at the end of the six-month period at 85% of the fair market value of the
Company's common stock at the date of grant or on the last day of the six-month
period, whichever is less. Employees are allowed to participate up to 20% of
their gross pay. Summarized plan information is as follows:
<TABLE>
<CAPTION>
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Employee contributions.......................... $295,000 $374,000 $444,000
Shares acquired................................. 20,448 19,634 18,384
Average purchase price.......................... $14.43 $19.02 $24.15
</TABLE>
NOTE G -- COMMITMENTS AND CONTINGENCIES
The Company leases office facilities under noncancelable operating leases.
Future minimum rental commitments under operating leases at March 31, 1996 are
$3,576,000 in fiscal 1997, $2,491,000 in fiscal 1998, $1,375,000 in fiscal 1999,
$793,000 in fiscal 2000, $256,000 in fiscal 2001, and none thereafter. Total
rental expense of $3,080,000, $3,559,000, and $3,901,000 was charged to
operations for the years ended March 31, 1994, 1995, and 1996, respectively.
The Company is involved in litigation arising in the normal course of
business. The Company believes that resolution of these matters will not result
in any payment that, in the aggregate, would be material to the financial
position and results of the operations of the Company.
F-23
<PAGE> 69
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE H -- SAVINGS PLAN
The Company maintains a retirement savings plan for its employees which is
a qualified plan under section 401(k) of the Internal Revenue Code. Full time
employees that meet certain requirements are eligible to participate in the
plan. Contributions are made annually primarily at the discretion of the
Company's Board of Directors. Contributions of $133,000, $157,000, and $50,000,
were charged to operations for the years ended March 31, 1994, 1995, and 1996,
respectively.
NOTE I -- QUARTERLY RESULTS
The following is a summary of unaudited results of operations for the two
years ended March 31, 1995 and 1996:
<TABLE>
<CAPTION>
NET INCOME PER
GROSS COMMON AND COMMON
REVENUES PROFIT NET INCOME EQUIVALENT SHARE
----------- ---------- ---------- -----------------
<S> <C> <C> <C> <C>
FISCAL YEAR ENDED MARCH 31, 1995:
First Quarter.......................... $22,071,000 $3,844,000 $1,344,000 $ .30
Second Quarter......................... 22,921,000 4,008,000 1,402,000 .31
Third Quarter.......................... 24,701,000 4,313,000 1,507,000 .33
Fourth Quarter......................... 26,090,000 4,668,000 1,632,000 .35
FISCAL YEAR ENDED MARCH 31, 1996:
First Quarter.......................... $26,779,000 $4,856,000 $1,701,000 $ .37
Second Quarter......................... 26,863,000 4,989,000 1,818,000 .39
Third Quarter.......................... 27,082,000 5,127,000 1,887,000 .40
Fourth Quarter......................... 28,328,000 5,143,000 1,919,000 .41
</TABLE>
F-24
<PAGE> 70
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
REPORT OF INDEPENDENT AUDITORS
Stockholders and Board of Directors
Corvel Corporation
We have audited the accompanying consolidated balance sheets of CorVel
Corporation as of March 31, 1995 and 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended March 31, 1996. Our audits also included the financial
statement schedule listed in the Index at Item 14(a). These financial statements
and this schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
CorVel Corporation at March 31, 1995 and 1996, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended March 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules when
considered in relationship to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Orange County, California
May 8, 1996
F-25
<PAGE> 71
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDING
JUNE 30,
--------------------------
1995 1996
----------- -----------
<S> <C> <C>
Revenues........................................................... $26,779,000 $29,851,000
Cost of Revenues................................................... 21,923,000 24,461,000
----------- -----------
Gross profit....................................................... 4,856,000 5,390,000
General and administrative expenses................................ 2,067,000 2,096,000
----------- -----------
Income before income taxes......................................... 2,789,000 3,294,000
Income tax provision............................................... 1,088,000 1,252,000
----------- -----------
Net income......................................................... $ 1,701,000 $ 2,042,000
========== ==========
Net income per common and common equivalent share.................. $ .37 $ .43
========== ==========
Weighted average common and common equivalent shares............... 4,592,000 4,759,000
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE> 72
CORVEL CORPORATION
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
MARCH 31, 1996 JUNE 30, 1996
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................................... $17,113,000 $17,640,000
Accounts receivable, net........................................ 18,394,000 19,904,000
Prepaid taxes and expenses...................................... 545,000 179,000
Deferred income taxes........................................... 2,032,000 1,850,000
----------- -----------
Total current assets......................................... 38,084,000 39,573,000
----------- -----------
Property and Equipment, Net....................................... 11,468,000 11,903,000
Other Assets...................................................... 4,432,000 5,564,000
----------- -----------
TOTAL ASSETS............................................ $53,984,000 $57,040,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................ $ 3,057,000 $ 2,995,000
Accrued liabilities............................................. 4,246,000 4,299,000
----------- -----------
Total current liabilities.................................... 7,303,000 7,294,000
----------- -----------
Deferred income taxes............................................. 1,370,000 1,718,000
Stockholders' Equity
Common stock...................................................... -- --
Paid-in-capital................................................... 26,401,000 27,076,000
Retained earnings................................................. 18,910,000 20,952,000
----------- -----------
Total stockholders' equity................................... 45,311,000 48,028,000
----------- -----------
TOTAL LIABILITIES AND EQUITY............................ $53,984,000 $57,040,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE> 73
CORVEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income...................................................... $ 1,701,000 $ 2,042,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 681,000 982,000
Changes in operating assets and liabilities
Accounts receivable........................................ 320,000 (1,510,000)
Prepaid taxes and expenses................................. (653,000) 366,000
Accounts payable........................................... 206,000 (62,000)
Accrued liabilities........................................ 184,000 53,000
Income taxes payable....................................... (702,000) 530,000
Other assets............................................... 357,000 222,000
----------- -----------
Net cash provided by operating activities....................... 2,094,000 2,623,000
----------- -----------
Cash flows from investing activities
Net assets purchased in acquisition............................. -- (1,375,000)
Additions to property and equipment............................. (1,151,000) (1,396,000)
----------- -----------
Net cash used in investing activities........................... (1,151,000) (2,771,000)
----------- -----------
Cash flows from financing activities
Sale of common stock and exercise of stock options and related
tax benefits.................................................... 233,000 675,000
----------- -----------
Net cash provided by financing activities....................... 233,000 675,000
----------- -----------
Increase in cash and cash equivalents............................. 1,176,000 527,000
Cash and cash equivalents at beginning............................ 13,211,000 17,113,000
----------- -----------
Cash and cash equivalents at end.................................. $14,387,000 $17,640,000
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-28
<PAGE> 74
CORVEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(UNAUDITED)
A. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended June 30, 1996 are not
necessarily indicative of the results that may be expected for the year ended
March 31, 1997. For further information, refer to the consolidated financial
statements and footnotes thereto for the year ended March 31, 1996 included in
the Company's registration statement on Form 10-K.
B. EARNINGS PER SHARE
Earnings per common and common equivalent shares were computed by dividing
net income by the weighted average number of shares of common stock and common
stock equivalents outstanding during the quarter.
F-29
<PAGE> 75
SCHEDULE II
CORVEL CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
ADDITIONS
------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Year Ended March 31, 1996:............ $ 825,000 $500,000 $ -- $ 57,000 $1,268,000
Year Ended March 31, 1995:............ 725,000 100,000 -- -- 825,000
Year Ended March 31, 1994:............ 485,000 240,000 -- -- 725,000
</TABLE>
F-30
<PAGE> 76
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information................ 2
Summary............................... 3
Risk Factors.......................... 7
The Company........................... 14
Recent Developments................... 15
Ratio of Earnings to Fixed Charges.... 15
Use of Proceeds....................... 16
Plan of Distribution.................. 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 24
Management............................ 35
Principal Shareholders................ 39
Description of Debentures............. 40
Validity of Debentures................ 43
Experts............................... 44
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
ENSTAR INC.
8.00% TWO YEAR
9.75% FIVE YEAR
11.00% TEN YEAR
SUBORDINATED DEBENTURES
--------------------
PROSPECTUS
--------------------
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following fees and expenses will be paid by the Company in connection
with the issuance and distribution of the securities registered hereby. All such
expenses, except for the SEC fees, are estimated.
<TABLE>
<S> <C>
SEC registration fee................................................ $ 3,449
Legal fees and expenses............................................. 20,000
Accounting fees and expenses........................................ 15,000
Blue Sky fees and expenses.......................................... 2,000
Printing expenses................................................... 15,000
Miscellaneous....................................................... 5,000
-------
Total.......................................................... $60,449
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 302A.521 of the Minnesota Statutes provides in substance that,
unless prohibited by its articles of incorporation, a corporation must indemnify
an officer or director who is made or threatened to be made a party to a
proceeding because of his or her capacity as an officer or director, against
judgments, penalties and fines and reasonable expenses, including attorneys'
fees and disbursements incurred by such person in connection with the
proceeding, if certain criteria are met. These criteria, all of which must be
met by the person seeking indemnification are (a) that no other organization has
paid the expenses for which indemnification is requested; (b) that such person
must have conducted himself or herself in good faith; (c) that no improper
personal benefits were obtained by such person and such person did not engage in
self-dealing as defined in the Minnesota Business Corporation Act; (d) that if
the action is a criminal prosecution, there must have been no reasonable cause
for such person to have believed that the conduct was unlawful; and (e) that
such person must have acted in a manner reasonably believed to have been in the
best interests of the corporation. Provision is made in the statute for
determinations as to eligibility for indemnification. The determination is made
by the members of the corporation's board of directors who are at the time not a
party to the proceedings under consideration, by special legal counsel selected
by the board of directors, by the shareholders who are not parties to the
proceedings or by a court in the State of Minnesota. Article Nine of the Bylaws
of the Company provides that the Company shall indemnify such persons, for such
liabilities, in such manner, under such circumstances and to such extent as
permitted by Section 302A.521, as now enacted or hereafter amended.
ENStar will also maintain an insurance policy or policies to assist in
funding indemnification of directors and officers for certain liabilities.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
2.1 Agreement and Plan of Reorganization, dated as of December 21, 1995, by and
among North Star Universal, Inc., Michael Foods, Inc. and NSU Merger Co.
(schedules omitted -- the Registrant agrees to furnish a copy of any schedule to
the Commission upon request) (filed as exhibit 2 to Registrant's Registration
Statement on Form S-4, Registration No. 333-1925, and incorporated herein by
reference).
**2.2 Subscription Agreement for the purchase of Debentures.
3.1 Articles of Incorporation of the Company (filed as exhibit 3.1 to Registrant's
Registration Statement on Form S-4, Registration No. 333-1925, and incorporated
herein by reference).
3.2 Bylaws of the Company (filed as exhibit 3.2 to Registrant's Registration
Statement on Form S-4, Registration No. 333-1925, and incorporated herein by
reference).
</TABLE>
II-1
<PAGE> 78
<TABLE>
<C> <S>
4.1 Form of Indenture (including form of Debenture) between the Company and National
City Bank of Minneapolis, as trustee.
5.1 Opinion of Dorsey & Whitney LLP
10.1 1996 Stock Incentive Plan, including forms of option agreements (filed as
exhibit 10.15 to Registrant's Registration Statement on Form S-4, Registration
No. 333-1925, and incorporated herein by reference).
10.2 Sixth Amendment to Amended and Restated Loan and Security Agreement, dated
August 9, 1996, among Americable, Inc., Transition Networks, Inc., Cable
Distribution Systems, Inc., and First Bank National Association, amending the
terms of the Amended and Restated Loan and Security Agreement (filed as exhibit
10.26 to NSU's Annual Report on Form 10-K for the year ended December 31, 1994,
and incorporated herein by reference).
10.3 Lease Agreement dated June 13, 1995 between Transition and West Life & Annuity
Insurance Company for lease of premises at 6475 City West Parkway, Eden Prairie,
Minnesota. (filed as exhibit 10.11 to Registrant's Registration Statement on
Form S-4, Registration No. 333-1925, and incorporated herein by reference).
10.4 Lease Agreement dated February 21, 1989 between Americable and Ryan/Flying Cloud
Associates Limited Partnership, including amendments thereto, for the lease of
premises at 7450 Flying Cloud Drive, Eden Prairie, Minnesota. (filed as exhibit
10.12 to Registrant's Registration Statement on Form S-4, Registration No.
333-1925, and incorporated herein by reference).
10.5 Employment Agreement, dated April 1, 1993, between North Star Universal, Inc.,
Transition Engineering, Inc. and Peter E. Flynn (filed as Exhibit 10.22 to NSU's
Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated
herein by reference).
10.6 Employment Agreement dated September 27, 1989 between Americable, Inc. and Gary
L. Eizenga (including Stock Option Agreement relating thereto). (filed as
exhibit 10.16 to Registrant's Registration Statement on Form S-4, Registration
No. 333-1925, and incorporated herein by reference).
10.7 Form of Distribution Agreement between North Star Universal, Inc., and the
Company (Filed as an exhibit to Agreement and Plan of Reorganization, dated as
of December 21, 1995, by and among North Star Universal, Inc., Michael Foods,
Inc. and NSU Merger Co., which agreement was filed as exhibit 2 to Registrant's
Registration Statement on Form S-4, Registration No. 333-1925, and is
incorporated herein by reference).
11 Computation of Ratio of Earnings to Fixed Charges
23.1 Consent of Dorsey & Whitney LLP (contained in Exhibit 5).
23.2 Consent of Grant Thornton LLP as independent public accountants to ENStar.
*23.3 Consent of Ernst & Young LLP as independent public accountants to CorVel
Corporation.
**24.4 Power of Attorney (included on the signature page of the Registration Statement
previously filed).
25.1 Statement of Eligibility and Qualification of National City Bank of Minneapolis,
as trustee,
under the Trust Indenture Act of 1939.
27.1 Financial Data Schedules
</TABLE>
- -------------------------
* To be filed by amendment.
** Previously filed with this Registration Statement.
(b) Financial Statement Schedules
II-2
<PAGE> 79
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that, in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned registrant further undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment to the Registration Statement on Form S-1 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Minneapolis, State of Minnesota, on October 29, 1996.
ENSTAR INC.
By /s/ JEFFREY J. MICHAEL
--------------------------------------
Jeffrey J. Michael,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<S> <C> <C> <C>
By /s/ JEFFREY J. MICHAEL Dated: October 29, 1996
------------------------------------------
Jeffrey J. Michael
President, Chief Executive Officer and
Director (principal executive officer)
By /s/ THOMAS WARGOLET Dated: October 29, 1996
------------------------------------------
Thomas Wargolet
Chief Financial Officer and Secretary
(principal financial and accounting
officer)
By /s/ MILES E. EFRON* Dated: October 29, 1996
------------------------------------------
Miles E. Efron
Director
By /s/ JAMES H. MICHAEL* Dated: October 29, 1996
------------------------------------------
James H. Michael
Chairman of the Board of Directors
By /s/ RICHARD J. BRAUN* Dated: October 29, 1996
------------------------------------------
Richard J. Braun
Director
* By /s/ JEFFREY J. MICHAEL
------------------------------------------
Jeffrey J. Michael
Pro se and attorney-in-fact
</TABLE>
II-4
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- -----
<S> <C> <C>
+2.1 Agreement and Plan of Reorganization, dated as of December 21,1995, by and
among North Star Universal, Inc., Michael Foods, Inc. and NSU Merger Co.
(schedules omitted -- the Registrant agrees to furnish a copy of any
schedule to the Commission upon request) (filed as exhibit 2 to
Registrant's Registration Statement on Form S-4, Registration No. 333-1925,
and incorporated herein by reference)......................................
**2.2 Subscription Agreement for the purchase of Debentures......................
+3.1 Articles of Incorporation of the Company (filed as exhibit 3.1 to
Registrant's Registration Statement on Form S-4, Registration No. 333-1925,
and incorporated herein by reference)......................................
+3.2 Bylaws of the Company (filed as exhibit 3.2 to Registrant's Registration
Statement on Form S-4, Registration No. 333-1925, and incorporated herein
by reference)..............................................................
4.1 Form of Indenture (including form of Debenture) between the Company and
National City Bank of Minneapolis, as trustee..............................
5.1 Opinion of Dorsey & Whitney LLP............................................
+10.1 1996 Stock Incentive Plan, including forms of option agreements (filed as
exhibit 10.15 to Registrant's Registration Statement on Form S-4,
Registration No. 333-1925, and incorporated herein by reference)...........
+10.2 Sixth Amendment to Amended and Restated Loan and Security Agreement, dated
August 9, 1996, among Americable, Inc., Transition Networks, Inc., Cable
Distribution Systems, Inc., and First Bank National Association, amending
the terms of the Amended and Restated Loan and Security Agreement (filed as
exhibit 10.1 to Registrant's Registration Statement on Form S-4,
Registration No. 333-1925, and incorporated herein by reference)...........
+10.3 Lease Agreement dated June 13, 1995 between Transition and West Life &
Annuity Insurance Company for lease of premises at 6475 City West Parkway,
Eden Prairie, Minnesota. (Filed as exhibit 10.11 to Registrant's
Registration Statement on Form S-4, Registration No. 333-1925, and
incorporated herein by reference)..........................................
+10.4 Lease Agreement dated February 21, 1989 between Americable and Ryan/Flying
Cloud Associates Limited Partnership, including amendments thereto, for the
lease of premises at 7450 Flying Cloud Drive, Eden Prairie, Minnesota.
(Filed as exhibit 10.12 to Registrant's Registration Statement on Form S-4,
Registration No. 333-1925, and incorporated herein by reference)...........
+10.5 Employment Agreement, dated April 1, 1993, between North Star Universal,
Inc., Transition Engineering, Inc. and Peter E. Flynn (filed as Exhibit
10.22 to NSU's Annual Report on Form 10-K for the year ended December 31,
1993 and incorporated herein by reference).................................
+10.6 Employment Agreement dated September 27, 1989 between Americable, Inc. and
Gary L. Eizenga (including Stock Option Agreement relating thereto), (filed
as exhibit 10.16 to Registrant's Registration Statement on Form S-4,
Registration No. 333-1925, and incorporated herein by reference)...........
</TABLE>
II-5
<PAGE> 82
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- -----
<C> <S> <C>
+10.7 Form of Distribution Agreement between North Star Universal, Inc., and the
Company (Filed as an exhibit to Agreement and Plan of Reorganization, dated
as of December 21, 1995, by and among North Star Universal, Inc., Michael
Foods, Inc. and NSU Merger Co., which agreement was filed as exhibit 2 to
Registrant's Registration Statement on Form S-4, Registration No. 333-1925,
and is incorporated herein by reference)...................................
11 Computation of Ratio of Earnings to Fixed Charges..........................
23.1 Consent of Dorsey & Whitney LLP (contained in Exhibit 5)...................
23.2 Consent of Grant Thornton LLP as independent public accountants to
ENStar.....................................................................
*23.3 Consent of Ernst & Young LLP as independent public accountants to CorVel
Corporation................................................................
**24 Power of Attorney (included on the signature page of the Registration
Statement
previously filed)..........................................................
25.1 Statement of Eligibility and Qualification of National City Bank of
Minneapolis, as trustee, under the Trust Indenture Act of 1939.............
27.1 Financial Data Schedules...................................................
</TABLE>
- -------------------------
+ Indicates exhibit has been previously filed with the Commission and is
incorporated herein by reference.
* To be filed by amendment.
** Previously filed with this Registration Statement.
II-6
<PAGE> 1
EXHIBIT 4.1
ENSTAR INC.
Subordinated Debentures
______________________
INDENTURE
Dated as of ______________________________ , 1996
National City Bank of Minneapolis
Trustee
<PAGE> 2
"CROSS-REFERENCE TABLE*
Trust Indenture
Act Section Indenture Section
- --------------- -----------------
310 (a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08, 7.10; 11.02
(c) N.A.
311 (a) 7.11
(b) 7.11
(c) N.A.
312 (a) 2.06
(b) 11.03
(c) 11.03
313 (a) 7.06
(b)(l) N.A.
(b)(2) 7.06
(c) 11.02
(d) 7.06
314 (a) 4.02; 11.02
(b) N.A.
(c)(l) 11.04
(c)(2) 11.04
(c)(3) N.A.
(d) N.A.
(e) 11.05
(f) 4.03
315 (a) 7.01(b)
(b) 7.05; 11.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.11
316 (a) (last sentence) 2.10
(a)(l)(A) 6.05
(a)(l)(B) 6.04
(a)(2) N.A.
(b) 6.07
317 (a)(1) 6.08
(a)(2) 6.09
(b) 2.05
318 (a) 11.01
N.A. MEANS NOT APPLICABLE.
______________
* This Cross-Reference Table is not part of the Indenture.
-i-
<PAGE> 3
TABLE OF CONTENTS
Page
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01 Definitions 1
SECTION 1.02 Other Definitions 2
SECTION 1.03 Incorporation by Reference of Trust Indenture Act 2
SECTION 1.04 Rules of Construction 3
ARTICLE TWO
THE SECURITIES
SECTION 2.01 Form and Dating 3
SECTION 2.02 Terms 3
SECTION 2.03 Execution and Authentication 4
SECTION 2.04 Registrar and Paying Agent 4
SECTION 2.05 Paying Agent to Hold Money in Trust 5
SECTION 2.06 Certificateholder Lists 5
SECTION 2.07 Transfer and Exchange 5
SECTION 2.08 Replacement Securities 5
SECTION 2.09 Outstanding Debentures 6
SECTION 2.10 Treasury Debentures 6
SECTION 2.11 Temporary Debentures 6
SECTION 2.12 Cancellation 6
SECTION 2.13 Default Interest 6
ARTICLE THREE
REDEMPTION
SECTION 3.01 Applicability of Article 7
SECTION 3.02 Notices to Trustee 7
SECTION 3.03 Selection of Debentures to Be Redeemed 7
SECTION 3.04 Notice of Redemption 7
SECTION 3.05 Effect of Notice of Redemption 8
SECTION 3.06 Deposit of Redemption Price 8
SECTION 3.07 Debentures Redeemed in Part 8
SECTION 3.08 Redemption Option upon Death or Disability of Holder 8
-ii-
<PAGE> 4
ARTICLE FOUR
COVENANTS
SECTION 4.01 Payment of Debentures 9
SECTION 4.02 SEC Reports 9
SECTION 4.03 Compliance Certificate 9
SECTION 4.04 Usury Laws 10
SECTION 4.05 Money for Debenture Payments to Be Held in Trust 10
SECTION 4.06 Continued Existence 10
ARTICLE FIVE
SUCCESSORS
SECTION 5.01 When Company May Merge, Etc. 10
ARTICLE SIX
DEFAULTS AND REMEDIES
SECTION 6.01 Events of Default 10
SECTION 6.02 Acceleration 12
SECTION 6.03 Other Remedies 12
SECTION 6.04 Waiver of Past Defaults 12
SECTION 6.05 Control by Majority 12
SECTION 6.06 Limitation on Suits 13
SECTION 6.07 Rights of Holders to Receive Payment 13
SECTION 6.08 Collection Suit by Trustee 13
SECTION 6.09 Trustee May File Proofs of Claim 13
SECTION 6.10 Priorities 13
SECTION 6.11 Undertaking for Costs 14
ARTICLE SEVEN
TRUSTEE
SECTION 7.01 Duties of Trustee 14
SECTION 7.02 Rights of Trustee 15
SECTION 7.03 Individual Rights of Trustee 15
SECTION 7.04 Trustee's Disclaimer 15
SECTION 7.05 Notice of Defaults 15
SECTION 7.06 Reports by Trustee to Holders 16
SECTION 7.07 Compensation and Indemnity 16
SECTION 7.08 Replacement of Trustee 16
SECTION 7.09 Successor Trustee by Merger, etc. 17
SECTION 7.10 Eligibility; Disqualification 17
SECTION 7.11 Preferential Collection of Claims Against Company 17
-iii-
<PAGE> 5
ARTICLE EIGHT
DISCHARGE OF INDENTURE
SECTION 8.01 Termination of Company's Obligations 18
SECTION 8.02 Application of Trust Money 18
SECTION 8.03 Repayment to the Company 18
ARTICLE NINE
AMENDMENTS
SECTION 9.01 Without Consent of Holders 19
SECTION 9.02 With Consent of Holders 19
SECTION 9.03 Compliance with Trust Indenture Act 20
SECTION 9.04 Revocation and Effect of Consents 20
SECTION 9.05 Notation on or Exchange of Debentures 20
SECTION 9.06 Trustee Protected 20
ARTICLE TEN
SUBORDINATION
SECTION 10.01 Agreement to Subordinate 20
SECTION 10.02 Certain Definitions 20
SECTION 10.03 Liquidation; Dissolution; Bankruptcy 21
SECTION 10.04 Default on Senior Indebtedness 21
SECTION 10.05 Acceleration of Debentures 22
SECTION 10.06 When Distribution Must be Paid Over 22
SECTION 10.07 Notice by Company 22
SECTION 10.08 Subrogation 22
SECTION 10.09 Relative Rights 23
SECTION 10.10 Subordination May Not Be Impaired by Company 23
SECTION 10.11 Distribution or Notice to Representative 23
SECTION 10.12 Rights of Trustee and Paying Agent 23
ARTICLE ELEVEN
MISCELLANEOUS
SECTION 11.01 Trust Indenture Act Controls 23
SECTION 11.02 Notices 24
SECTION 11.03 Communications by Holders with Other Holders 24
SECTION 11.04 Certificate and Opinion as to Conditions Precedent 24
SECTION 11.05 Statements Required in Certificate or Opinion 24
SECTION 11.06 Rules by Trustee and Agents 25
SECTION 11.07 Legal Holidays 25
SECTION 11.08 No Recourse Against Others 25
SECTION 11.09 Duplicate Originals 25
SECTION 11.10 Variable Provisions 25
SECTION 11.11 Governing Law 26
-iv-
<PAGE> 6
SECTION 11.12 No Adverse Interpretation of Other Agreements 26
SECTION 11.13 Successors 26
SECTION 11.14 Severability 26
SIGNATURES 27
EXHIBIT A - FORM OF DEBENTURE
-v-
<PAGE> 7
INDENTURE dated as of__________________, between ENSTAR INC., a Minnesota
corporation ("Company"), and NATIONAL CITY BANK OF MINNEAPOLIS, a National
Banking Association ("Trustee").
Each party agrees as follows for the benefit of the other party and for
the equal and ratable benefit of the Holders of the Company's Subordinated
Debentures:
ARTICLE 1
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01. Definitions.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
"Agent" means any Registrar, Paying Agent or co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board.
"Company" means the party named as such above until a successor replaces
it and thereafter means the successor or any other obliger with respect to the
Debentures.
"Company Order" means an order signed in the name of the Company by its
Chairman of the Board, President or a Vice President, and by its Treasurer, an
Assistant Treasurer, Controller, an Assistant Controller, Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Date of Issue" means the date that the Company receives the funds for the
purchase of a Debenture if such funds are received prior to 3:00 p.m. on a
business day or the next business day if the Company receives such funds on a
non-business day or after 3:00 p.m. on a business day. For this purpose, the
Company's business days will be deemed to be Monday through Friday, except on
Minnesota legal holidays.
"Debentures" means the Subordinated Debentures described above issued
under this Indenture.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Holder" or "Certificateholder" means a person in whose name a Debenture
is registered.
"Indenture" means this Indenture as amended from time to time.
"Officers' Certificate" means a certificate signed by two officers of the
Company, one of whom must be the President, the Treasurer or a Vice-President
of the Company.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
<PAGE> 8
"principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
"Stated Maturity," when used with respect to a Debenture, means the date
specified in such Debenture as the fixed date on which the principal of such
Debenture and any accrued but unpaid interest is due and payable.
"subsidiary" means any person of which at least a majority of capital
stock having ordinary voting power for the election of directors or other
governing body of such person is owned by the Company directly or through one
or more subsidiaries.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code 77aaa-77bbbb) as
in effect on the date of execution of this Indenture.
"Trustee" means the party named as such above until a successor replaces
it and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
Section 1.02. Other Definitions.
Defined
in
Term Section
----------------------------- -------
"Additional Interest" 2.02(b)
"Bankruptcy Law" 6.01
"Custodian" 6.01
"Debt" 10.02
"Event of Default" 6.01
" Indebtedness" 10.01
"Legal Holiday" 11.07
"Officer" 11.10
"Representative" 10.02
"Senior Indebtedness" 10.02
"U.S. Government Obligations" 8.01
Section 1.03. Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the
provision is incorporated by reference in and made a part of this Indenture.
The following TIA terms used in this Indenture have the following
meanings:
"indenture securities" means the Debentures;
"indenture security holder" means a Certificateholder;
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"indenture to be qualified" means this Indenture;
"indenture trustee" or "institutional trustee" means the
Trustee;
"obligor" on the Debentures means the Company.
All other terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule under the
TIA have the meanings assigned to them.
Section 1.04. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with generally
accepted accounting principles in effect on the
date of execution of this Indenture;
(3) "or" is not exclusive;
(4) words in the singular include the
plural, and in the plural include the singular; and
(5) provisions apply to successive events
and transactions.
ARTICLE 2
THE DEBENTURES
Section 2.01. Form and Dating.
The Debentures shall be substantially in the form of Exhibit A, with such
appropriate insertions, omissions, substitutions and other variations required
or permitted by this Indenture. The Debentures may have notations, legends or
endorsements required by law, stock exchange rule or usage.
Section 2.02. Terms.
(a) Amount Unlimited; Terms. The aggregate principal amount of Debentures
which may be authenticated and delivered under this Indenture is unlimited.
Debentures may be issued in one or more series. The initial aggregate
principal amount of the Debentures to be authenticated and delivered under this
Indenture shall be $10,000,000. The aggregate principal amount may be
increased, without the need for approval of any Holders of the Trustee by means
of Company Order, as set forth in Section 9.01.
(b) Interest. Subject to change by Company Order as provided herein,
interest on the Debentures shall be established initially by Company Order and
shall be payable at the rate set forth in such Company Order, until the
principal thereof is paid or made available for payment. After the date of the
Company Order, the rate of interest to be paid on the Debentures may be changed
from time to time by Company Order, provided that any change of interest rates
shall not alter the interest rate on Debentures issued prior to the effective
date of such Company Order. The Debentures shall bear
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interest from and commencing with their Date of Issue. In addition to the rate
of interest for the Debentures as set forth below, the Company shall be
obligated to make such additional payments of interest, premiums or other
benefits (referred to herein as "Additional Interest") on such of the
Debentures, in such amounts, in such form, on such terms and at such times as
shall be determined from time to time by Company Order, and the Company's
undertaking to pay such Additional Interest shall be an enforceable obligation
to the extent specified in the Company Order. Such Additional Interest payments
may be modified or discontinued at any time by Company Order.
(c) Denominations. The Debentures shall be issued in denominations of
$1,000 or greater.
(d) Subordination. The Debentures shall be subordinated and junior in
right of payment to all Senior Indebtedness of the Company as provided in
Article 10.
Section 2.03. Execution and Authentication.
Two Officers shall sign the Debentures for the Company by manual or
facsimile signature.
If an Officer whose signature is on a Debenture no longer holds that
office at the time the Debenture is authenticated, the Debenture shall
nevertheless be valid.
A Debenture shall not be valid until authenticated by the manual signature
of the Trustee. The signature shall be conclusive evidence that the Debenture
has been authenticated under this Indenture.
The Trustee shall authenticate Debentures for original issue up to the
aggregate principal amount as stated in the Company Order upon receipt by the
Trustee of the Company Order. The aggregate principal amount of Debentures
outstanding at any time may not exceed that amount except as provided in
Section 2.08.
The Trustee may appoint an authenticating agent acceptable to the Company
to authenticate Debentures. An authenticating agent may authenticate
Debentures whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same right as an Agent to deal with the Company or
an Affiliate.
Section 2.04. Registrar and Paying Agent.
The Company shall maintain an office or agency where Debentures may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Debentures may be presented for payment ("Paying
Agent"). The Registrar shall keep a register of the Debentures and of their
transfer and exchange. The Company may appoint one or more co-registrars and
one or more additional paying agents. The Company may change any Paying Agent,
Registrar or co-registrar without notice to any Certificateholder. The term
"Paying Agent" includes any additional paying agent. The Company shall notify
the Trustee of the name and address of any Agent not a party to this Indenture.
If the Company fails to appoint or maintain another entity as Registrar or
Paying Agent, the Trustee shall act as such. The Company or any of its
subsidiaries may act as Paying Agent or Registrar.
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Section 2.05. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to
agree in writing that the Paying Agent will hold in trust for the benefit of
Certificateholders or the Trustee all money held by the Paying Agent for the
payment of principal or interest on the Debentures, and will notify the Trustee
of any failure by the Company in making any such payment. While any such
failure continues, the Trustee may require a Paying Agent to pay all money held
by it to the Trustee. The Company at any time may require a Paying Agent to
pay all money held by it to the Trustee. Upon payment over to the Trustee, the
Paying Agent shall have no further liability for the money. If the Company
acts as Paying Agent, it shall segregate and hold in a separate trust fund for
the benefit of the Certificateholders all money held by it as Paying Agent.
The Paying Agent may charge for its expenses in issuing a replacement interest
check.
Section 2.06. Certificateholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Certificateholders. If the Trustee is not the Registrar, the Company shall
timely furnish to the Trustee the changes in this list and will furnish an
updated list of the names and addresses of Certificateholders in such form and
as of such date and at such other times as the Trustee may request in writing.
Section 2.07. Transfer and Exchange.
Where Debentures are presented to the Registrar or a co-registrar with a
request to register, transfer or to exchange them for an equal principal amount
of Debentures but of other denominations, the Registrar shall register the
transfer or make the exchange if its requirements for such transactions are
met, subject to the requirement that the Debentures be issued in denominations
of $1,000 or greater. To permit registrations of transfer and exchanges, the
Company shall issue and the Trustee shall authenticate Debentures at the
Registrar's request. The Company may charge for its expenses in transferring
or exchanging a Debenture.
The Company shall not be required (i) to issue, transfer or exchange any
Debenture during a period beginning at the opening of business 15 days before
the day of the mailing of a notice of redemption of Debentures selected for
redemption pursuant to Section 4.02 and ending at the close of business on the
day of such mailing, or (ii) to transfer or exchange any Debenture so selected
for redemption in whole or in part.
Section 2.08. Replacement Debentures.
If the Holder of a Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Debenture if the Trustee's requirements are met. If
required by the Trustee or the Company, an indemnity bond must be sufficient in
the judgment of both to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss which any of them may suffer if a Debenture
is replaced. The Trustee may waive such indemnity bond if so instructed by the
Company. The Company may charge for its expenses in replacing a Debenture.
Every replacement Debenture is an additional obligation of the Company.
Section 2.09. Outstanding Debentures.
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The Debentures outstanding at any time are all the Debentures
authenticated by the Trustee except for those canceled by it, those delivered
to it for cancellation, and those described in this Section as not outstanding.
If a Debenture is replaced pursuant to Section 2.08, it ceases to be
outstanding unless the Trustee receives proof satisfactory to it that the
replaced Debenture is held by a bona fide purchaser.
If Debentures are considered paid under Section 4.01, they cease to be
outstanding and interest on them ceases to accrue.
Section 2.10. Treasury Debentures.
In determining whether the Holders of the required principal amount of the
Debentures have concurred in any direction, waiver or consent, Debentures owned
by the Company or an Affiliate shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Debentures which the Trustee knows
are so owned shall be so disregarded.
Section 2.11. Temporary Debentures.
Until definitive Debentures are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Debentures. Temporary
Debentures shall be substantially in the form of definitive Debentures but may
have variations that the Company considers appropriate. Without unreasonable
delay, the Company shall prepare and the Trustee shall authenticate definitive
Debentures in exchange for temporary Debentures.
Section 2.12. Cancellation.
The Company at any time may deliver Debentures to the Trustee for
cancellation. The Registrar and Paying Agent shall forward to the Trustee any
Debentures surrendered to them for registration of transfer, exchange or
payment. The Trustee shall cancel all Debentures surrendered for registration
of transfer, exchange, payment, replacement or cancellation and shall dispose
of canceled Debentures as the Company directs. The Company may not issue new
Debentures to replace Debentures that it has paid or that have been delivered
to the Trustee for cancellation.
Section 2.13. Defaulted Interest.
If the Company fails to make a payment of interest on the Debentures, it
shall pay such interest thereafter in any lawful manner. It shall pay such
interest, plus any interest payable on it, to the persons who are
Certificateholders of Debentures on a subsequent special record date. The
Company shall fix the special record date and payment date. At least 15 days
before the special record date, the Company shall mail to Certificateholders of
Debentures a notice that states the special record date, payment date, and
amount of such interest to be paid.
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ARTICLE 3
REDEMPTION
Section 3.01 Applicability of Article.
Redemption of Debentures at the election of the Company, as permitted or
required by any provision of this Indenture, shall be made in accordance with
such provision and this Article.
Section 3.02. Notices to Trustee.
If the Company wants to redeem the Debentures pursuant to paragraph 4 of
the Debentures, it shall notify the Trustee by Officers' Certificate of the
redemption date and the principal amount of Debentures to be redeemed. The
Company shall give each notice provided for in this Section at least fifty days
before the redemption date.
Section 3.03. Selection of Debentures to Be Redeemed.
If fewer than all the Debentures are to be redeemed, the Company shall
select the Debentures to be redeemed by interest rate or maturity, and so
inform the Trustee by Officers' Certificate, subject to the remainder of this
section. If less than all of a grouping of Debentures, as specified by
Officers' Certificate, are to be redeemed, the portion thereof selected for
redemption shall be determined ratably or by lot. If fewer than all of such
grouping of Debentures as specified by Officers' Certificate are to be
redeemed, the Trustee shall then make the selection not more than 50 days
before the redemption date, from Debentures outstanding not previously called
for redemption. The Trustee may select for redemption portions of the
principal of Debentures that have denominations greater than $1,000.
Provisions of this Indenture that apply to Debentures called for redemption
also apply to portions of Debentures called for redemption. The Trustee shall
notify the Company promptly of the Debentures or portions of Debentures to be
called for redemption.
Section 3.04. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the
Company shall mail a notice of redemption by first-class mail to each Holder of
Debentures whose Debentures are to be redeemed.
The notice shall identify the Debentures to be redeemed and shall state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Debentures called for redemption must be surrendered to the
Paying Agent to collect the redemption price; and
(5) that interest on Debentures called for redemption ceases to
accrue on and after the redemption date.
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At the Company's request, the Trustee shall give the notice of redemption
in the Company's name and at its expense.
Section 3.05. Effect of Notice of Redemption.
Once notice of redemption is mailed, Debentures called for redemption
become due and payable on the redemption date at the redemption price.
Section 3.06. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the
Paying Agent, or if the Company is acting as Paying Agent it shall deposit into
a separate trust account pursuant to Section 2.05 hereof, money sufficient to
pay the redemption price of and accrued interest on all Debentures to be
redeemed on that date. The Paying Agent shall return to the Company any money
not required for that purpose, within two years following the redemption date.
Section 3.07. Debentures Redeemed in Part.
Upon surrender of a Debenture that is redeemed in part, the Company shall
issue and the Trustee shall authenticate for the Holder a new Debenture equal
in principal amount to the unredeemed portion of the Debenture surrendered.
Section 3.08. Redemption Option upon Death of Holder.
(a) Subject to the provisions of Article Ten and this Article Three, upon
the death of any Holder of one or more Debentures the Company shall be required
to pay up to $25,000 aggregate principal amount of, without any premium,
together with interest accrued to the redemption date on, all or such part (in
integral multiples of $100 in excess of $1,000) of the Debentures held by the
Holder of such Debentures at the date of such Holder's death, as requested in
the manner, and subject to the limitations, set forth below. Redemption of
such Debentures shall be made within 30 days following the receipt by the
Company or the Trustee of all of the following:
(1) a written request for redemption of the Debentures signed by a duly
authorized representative of the Holder, which request shall set forth the name
of the Holder, the date of death of the Holder and the principal amount of the
Debentures to be redeemed;
(2) the Debentures to be redeemed; and
(3) evidence satisfactory to the Trustee and the Company of the death of
such Holder and the authority of the representative to such extent as may be
required by the Trustee or Company.
(b) The Debentures held by the Holder shall not be entitled to redemption
pursuant to this Section unless all of the following conditions are met:
(1) the Debentures to be redeemed have been registered in the Holder's
name since their Date of Issue; and
(2) either the Company or the Trustee has been notified in writing of the
request for redemption within 180 days after the date of the Holder's death.
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(c) Authorized representatives of a Holder shall include the following:
executors, administrators or other legal representatives of an estate; trustees
of a trust; joint owners of Debentures owned in joint tenancy or tenancy by the
entirety; attorneys-in-fact; and other persons generally recognized as having
legal authority to act on behalf of another.
(d) If two or more persons are joint record holders of a Debenture, the
election to redeem will not apply until all record holders are deceased, except
that, if the joint holders are husband and wife, the election may be made after
the death of either spouse.
(e) The redemption of Debentures pursuant to this Section 3.08 shall be
made according to the terms of Sections 3.06 and 3.07 herein.
ARTICLE 4
COVENANTS
Section 4.01. Payment of Debentures.
The Company shall pay the principal of and interest on the Debentures on
the dates and in the manner provided in the Debentures. Principal and interest
shall be considered paid on the date due if the Paying Agent holds on that
date money designated for and sufficient to pay all principal and interest
then due.
The Company shall pay interest on overdue principal at the rate borne by
the Debentures; it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
Section 4.02. SEC Reports.
The Company shall file with the Trustee within 15 days after it files them
with the SEC copies of the annual reports and of the information, documents,
and other reports (or copies of such portions of any of the foregoing as the
SEC may by rules and regulations prescribe) for the Debentures which the
Company may be required to file with the SEC pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended. The Company also shall comply
with the other provisions of TIA Section 314(a).
Section 4.03. Compliance Certificate.
The Company shall deliver to the Trustee, within 120 days after the end of
each fiscal year of the Company, an Officers' Certificate stating that a review
of the activities of the Company and its subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether the Company has kept, observed, performed and
fulfilled its obligations under this Indenture, and further stating, as to each
such Officer signing such certificate, that to the best of his or her knowledge
the Company has kept, observed, performed and fulfilled each and every covenant
contained in this Indenture and is not in default in the performance or
observance of any of the terms, provisions and conditions hereof (or, if a
Default or Event of Default shall have occurred, describing all such Defaults
or Events of Default of which he or she may have knowledge) and that to the
best of his or her knowledge no event has occurred and remains in existence by
reason of which payments on account of the principal of or interest, if any, on
the Debentures are prohibited. See Section 11.10.
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Section 4.04. Usury Laws.
The Company will not voluntarily claim and will actively resist any
attempts to claim the benefit of any usury laws against the Holders of the
Debentures.
Section 4.05. Money for Debenture Payments to Be Held in Trust.
Whenever the Company shall have one or more Paying Agents, it will, on or
prior to each date for the payment of the principal of or interest on the
Debentures, deposit with a Paying Agent a sum sufficient to pay the principal
or interest so becoming due, such sum to be held in trust for the benefit of
the persons entitled to such payments; and, unless such Paying Agent is the
Trustee, the Company will promptly notify the Trustee of its action or failure
so to act.
The Company will cause each Paying Agent other than the Trustee to execute
and deliver to the Trustee an instrument in which such Paying Agent shall
agree with the Trustee, subject to the provisions of this Section, that
such Paying Agent will:
(1) hold all sums held by it for the payment of the principal of or
interest on the Debentures in trust for the benefit of the persons
entitled thereto until such sums shall be paid to such persons or
otherwise disposed of as herein provided;
(2) give the Trustee notice of any default by the Company (or any
other obligor upon the Debentures) in the making of any payment of
principal or interest; and
(3) at any time during the continuance of any such default, upon the
written request of the Trustee, forthwith pay to the Trustee all sums so
held in trust by such Paying Agent.
For the purpose of obtaining the satisfaction and discharge of this
Indenture or for any other purpose, the Company may at any time pay, or direct
any Paying Agent to pay, to the Trustee all sums held in trust by the Company
or such Paying Agent, such sums to be held by the Trustee upon the same terms
as those upon which such sums were held by the Company or such Paying Agent;
and, upon such payment by the Company or any Paying Agent to the Trustee, the
Company or such Paying Agent, as the case may be, shall be released from all
further liability with respect to such money.
Section 4.06. Continued Existence.
Subject to Article 5, the Company will do or cause to be done all things
necessary to preserve and keep in full force and effect its existence as a
corporation.
ARTICLE 5
SUCCESSORS
Section 5.01. When Company May Merge, Etc.
The Company shall not consolidate or merge with or into, or transfer or
lease all or substantially all of its assets to, any corporation, person or
entity person unless the corporation formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale or
conveyance shall have been made, assumes by supplemental indenture all the
obligations of the Company under the Debentures then outstanding and this
Indenture.
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The Company shall deliver to the Trustee prior to the proposed transaction
an Officers' Certificate to the foregoing effect and an Opinion of Counsel
stating that the proposed transaction and such supplemental indenture comply
with this Indenture.
The surviving corporation shall be the successor Company, but the
predecessor Company in the case of a transfer or lease shall not be released
from the obligation to pay the principal of and interest on the Debentures.
ARTICLE 6
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
An "Event of Default" occurs if:
(1) the Company defaults in the payment of interest on any Debenture
when the same becomes due and payable and the Default continues for a
period of 30 days;
(2) the Company defaults in the payment of the principal of any
Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise, which default has not been cured;
(3) the Company fails to comply with any of its other agreements or
covenants in, or provisions of, the Debentures or this Indenture and the
Default continues for the period and after the notice specified below;
(4) the Company or any material subsidiary pursuant to or within the
meaning of any Bankruptcy Law:
(A) commences a voluntary proceeding under any such Bankruptcy
Law,
(B) consents to the entry of an order for relief against it in
an involuntary Bankruptcy proceeding,
(C) consents to the appointment of a Custodian of it or for
all or substantially all of its property,
(D) makes a general assignment for the benefit of its creditors,
or
(E) generally is unable to pay its debts as the same become due;
(5) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(A) is for relief against the Company or any material subsidiary
in an involuntary Bankruptcy proceeding,
(B) appoints a Custodian of the Company or any material
subsidiary or for all or substantially all of its property, or
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(C) orders the liquidation of the Company or any material
subsidiary, and the order or decree remains unstayed and in effect
for 60 days;
(6) the maturity of any Senior Indebtedness in an amount exceeding
$500,000 is accelerated under the terms of the instrument under which
such Senior Indebtedness is outstanding, if such acceleration is not
annulled within 30 days after written notice.
The term "Bankruptcy Law" means title 11, U.S. Code or any similar
Federal or State Law for the relief of debtors. The term "Custodian" means any
receiver, trustee, assignee, liquidator or similar official under any
Bankruptcy Law.
A Default under clause (3) is not an Event of Default until the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures notify the Company of the Default and the Company does
not cure the Default within 60 days after receipt of the notice. The notice
must specify the Default, demand that it be remedied and state that the notice
is a "Notice of Default."
Section 6.02. Acceleration.
If an Event of Default occurs and is continuing, the Trustee by
notice to the Company, or the Holders of at least 25% in principal amount of
the then outstanding Debentures, by notice to the Company and the Trustee, may
declare the principal of and accrued interest on all the Debentures to be due
and payable. Upon such declaration the principal and interest owing on the
then outstanding Debentures shall be due and payable immediately. The Holders
of a majority in principal amount of the then outstanding Debentures, by
notice to the Trustee, may rescind an acceleration and its consequences if
the rescission would not conflict with any judgment or decree and if all
existing Events of Default have been cured or waived, except nonpayment of
principal or interest that has become due solely because of the acceleration.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy to collect the payment of principal or interest on
the Debentures or to enforce the performance of any provision of the
Debentures or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Debentures or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Holder of Debentures in exercising any
right or remedy accruing upon an Event of Default shall not impair the right
or remedy or constitute a waiver of or acquiescence in the Event of Default.
All remedies are cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of a majority in principal amount of the then outstanding
Debentures, by notice to the Trustee, may waive an existing Default or Event of
Default and its consequences except a continuing Default or Event of Default in
the payment of the principal of or interest on the Debentures.
Section 6.05. Control by Majority.
The Holders of a majority in principal amount of the then outstanding
Debentures may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on the Trustee. However, the Trustee may refuse to follow any
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direction that conflicts with law or this Indenture, is unduly prejudicial to
the rights of other Holders of the Debentures, or would involve the Trustee in
personal liability.
Section 6.06. Limitation on Suits.
The Holder of Debentures may pursue a remedy with respect to this
Indenture or the Debentures only if:
(1) the Holder gives to the Trustee notice of a continuing Event of
Default;
(2) the Holders of at least 25% in principal amount of the then
outstanding Debentures make a request to the Trustee to pursue the
remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holders of a majority of principal
amount of the then outstanding Debentures do not give the Trustee a
direction inconsistent with the request.
A Certificateholder may not use this Indenture to prejudice the
rights of another Holder of the Debentures or to obtain a preference or
priority over another Holder of the Debentures.
Section 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder of a Debenture to receive payment of principal and interest on the
Debenture, on or after the respective due dates expressed in the Debenture, or
to bring suit for the enforcement of any such payment on or after such
respective dates, shall not be impaired or affected without the consent of the
Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in Section 6.01(1) or (2) occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid on the Debentures with respect to which
the Event of Default occurred.
Section 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of
the Trustee and the Certificateholders allowed in any judicial proceedings
relative to the Company, its creditors or its property.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
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Second: to holders of Senior Indebtedness to the extent required by
Article 10;
Third: to Holders of Debentures for amounts due and unpaid on the
Debentures for principal and interest, ratably, without
preference or priority of any kind, according to the
amounts due and payable on the Debentures for principal and
interest, respectively; and
Fourth: to the Company.
The Trustee may fix a record date and payment date for any payment to
Certificateholders.
Section 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as a Trustee, a court in its discretion may assess reasonable costs,
including reasonable attorneys' fees, against any party litigant in the suit,
having due regard to the merits and good faith of the claims or defenses made
by the party litigant. This Section does not apply to a suit by the Trustee, a
suit by a Holder pursuant to Section 6.07, or a suit by Holders of more than
10% in principal amount of the then outstanding Debentures.
ARTICLE 7
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise such of the rights and power vested in it by this Indenture, and
use the same degree of care and skill in their exercise, as a prudent person
would exercise or use under the circumstances in the conduct of his or her own
affairs.
(b) Except during the continuance of an Event of Default:
(1) The Trustee need perform only those duties that are
specifically set forth in this Indenture and no others.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions
furnished to the Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the certificates and
opinions to determine whether or not they conform to the requirements of
this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section.
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(2) The Trustee shall not be liable for any error of judgment made
in good faith by a Trust Officer, unless it is proved that the Trustee
was negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or
power unless it receives indemnity satisfactory to it against any loss,
liability or expense.
(f) The Trustee shall not be liable for interest on any money received by
it except as the Trustee may agree with the Company. Money held in trust by
the Trustee need not be segregated from the other funds except to the extent
required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and
to have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an
Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on
the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible for
the misconduct or negligence of any agent appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits to
take in good faith which it believes to be authorized or within its rights or
powers.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner
or pledgee of Debentures and may otherwise deal with the Company or an
Affiliate with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee is subject to Sections
7.10 and 7.11.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Debentures, it shall not be accountable for the Company's use
of the proceeds from the Debentures, and it shall not be responsible for any
statement in the Debentures other than its authentication.
Section 7.05. Notice of Defaults.
If a Default or Event of Default occurs and is continuing and if it is
known to the Trustee, the Trustee shall mail to Holders of the Debentures a
notice of the Default or Event of Default within 90 days after it occurs.
Except in the case of a Default or Event of Default in payment on a Debenture,
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the Trustee may withhold the notice if and so long as a committee of its Trust
Officers in good faith determines that withholding the notice is in the
interests of Holders of the Debentures.
Section 7.06. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 11.10, the
Trustee shall mail to Certificateholders a brief report dated as of such
reporting date that complies with TIA 313(a). The Trustee also shall comply
with TIA 313(b)(2).
A copy of each report at the time of its mailing to Certificateholders
shall be filed with the SEC and each stock exchange on which the Debentures are
listed. The Company shall notify the Trustee when the Debentures are listed on
any stock exchange.
Section 7.07. Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. The Company shall
reimburse the Trustee upon request for all reasonable out-of-pocket expenses
incurred by it. Such expenses shall include the reasonable compensation and
out-of-pocket expenses of the Trustee's agents and counsel.
The Company shall indemnify the Trustee against any loss or liability
incurred by it except as set forth in the next paragraph. The Trustee shall
notify the Company promptly of any claim for which it may seek indemnity. The
Company shall defend the claim and the Trustee shall cooperate in the defense.
The Trustee may have separate counsel and the Company shall pay the reasonable
fees and expenses of such counsel. The Company need not pay for any settlement
made without its consent, which consent shall not be unreasonably withheld.
The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee through negligence or bad faith.
To secure the Company's payment of obligations in this Section, the
Trustee shall have a lien prior to the Debentures on all money or property held
or collected by the Trustee, including that held in trust to pay principal and
interest on the Debentures.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01(4) or (5) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section.
The Trustee may resign by so notifying the Company. The Trustee may
be removed with respect to the Debentures by the Holders of a majority in
principal amount of the then outstanding Debentures by so notifying the Trustee
and the Company. The Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
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(2) the Trustee is adjudged a bankrupt or an insolvent or any order
for relief is entered with respect to the Trustee under any Bankruptcy Law;
(3) a Custodian or public officer takes charge of the Trustee or its
property;
(4) the Trustee becomes incapable of action; or
(5) in the judgment of the Company, comparable services are
available from another entity qualifying under Section 7.10 at a materially
lower cost to the Company.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, a successor
Trustee may be appointed by act of the Holders of a majority in principal amount
of the then outstanding Debentures to replace the successor Trustee appointed by
the Company.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the then outstanding Debentures
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder of the
Debentures may petition any court of competent jurisdiction for the removal of
the Trustee and the appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to the Holders of Debentures. The retiring Trustee shall promptly
transfer all property held by it as Trustee to the successor Trustee, subject to
the lien provided for in Section 7.07.
Section 7.09. Successor Trustee by Merger, etc.
If the Trustee consolidates, merges or converts into, or transfers all
or substantially all of its corporate trust business to another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA 310(a)(1). The Trustee shall always have a combined capital
and surplus as stated in Section 11.10. The Trustee is subject to TIA 310(b).
Section 11.10 lists any excluded indenture or trust agreement.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee is subject to TIA 311(a), excluding any creditor
relationship described in TIA 311(b). A Trustee who has resigned or been
removed shall be subject to TIA 311(a) to the extent indicated therein.
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ARTICLE 8
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
This Indenture shall cease to be of further effect (except that the
Company's obligations under Sections 7.07 and 8.03 shall survive) when all
outstanding Debentures theretofore authenticated and issued have been delivered
to the Trustee for cancellation. In addition, the Company may terminate its
obligations under this Indenture if:
(a) The Debentures then outstanding mature within one year or all of
the Debentures then outstanding are to be called for redemption within one year
under arrangements satisfactory to the Trustee for giving the notice of
redemption; and
(b) The Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations sufficient to pay principal and interest on the
Debentures then outstanding to maturity or redemption, as the case may be. The
Company may make the deposit only during the one-year period and only if Article
11 permits it.
However, the Company's obligations in Sections 2.04, 2.05, 2.06, 2.07,
2.08, 4.01, 6.07, 6.08 and 8.03, and in Article 10, shall survive until no
Debentures are outstanding. Thereafter, only the Company's obligations in
Sections 7.07 and 8.03 shall survive.
If a deposit is made pursuant to this Section 8.01, the Trustee upon
request shall acknowledge in writing the discharge of the Company's obligations
under this Indenture, except for those surviving obligations specified above.
In order to have money available on a payment date to pay principal or
interest on the Debentures, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. U.S. Government Obligations shall not be callable
at the issuer's option.
"U.S. Government Obligations" means direct obligations of the United
States of America for the payment of which the full faith and credit of the
United States of America is pledged.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to Section 8.01. It shall apply the deposited money
and the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Debentures. Money and Debentures so held in trust are not subject to Article
10.
Section 8.03. Repayment to the Company.
The Trustee and the Paying Agent shall promptly pay to the Company
upon request any money or Debentures held by them at any time in excess of
amounts required to be so held hereunder.
The Trustee and the Paying Agent shall pay to the Company upon request
any money held by them for the payment of principal or interest that remains
unclaimed for two years. After
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payment to the Company, Certificateholders entitled to the money must look to
the Company for payment as general creditors unless an applicable abandoned
property law designates another person.
ARTICLE 9
AMENDMENTS
Section 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Debentures
without the consent of the Holders of the Debentures by Company Order:
(1) to cure any ambiguity, defect or inconsistency;
(2) to comply with Section 5.01;
(3) to provide for uncertificated Debentures in addition to
certificated Debentures;
(4) to increase the aggregate principal amount of Debentures which
may be authenticated and delivered under this Indenture.
(5) to make any change that does not adversely affect the legal
rights hereunder of the Holders of the Debentures.
Section 9.02. With Consent of Holders.
The Company and the Trustee may amend this Indenture or the
Debentures with the written consent of the Holders of at least a majority in
principal amount of the then outstanding Debentures. However, without the
consent of each Certificateholder affected, an amendment under this Section may
not:
(1) reduce the amount of Debentures whose Holders must consent to
an amendment;
(2) reduce the rate of or change the time for payment of interest,
including default interest, on any issued and authenticated
Debenture;
(3) reduce the principal of or change the fixed maturity of any
Debenture;
(4) make any Debenture payable in money other than that stated in
such Debenture;
(5) make any change in Section 6.04, 6.07 or 9.02 (second
sentence);
(6) make any change in Article 10 that adversely affects the
rights of any Certificateholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 of any holder of an issue of Senior
Indebtedness unless the holders of the issue pursuant to its terms consent to
the change or the change is otherwise permissible.
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After an amendment under this Section becomes effective, the Company
shall mail to the Holders of the Debentures affected by such amendment a notice
briefly describing the amendment.
Section 9.03. Compliance with Trust Indenture Act.
Every amendment to this Indenture or the Debentures shall be set forth
in a supplemental indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder of a Debenture is a continuing consent by the Holder and every subsequent
Holder of a Debenture or portion of a Debenture that evidences the same debt as
the consenting Holder's Debenture, even if notification of the consent is not
made on any Debenture. However, any such Holder or subsequent Holder may revoke
the consent as to his or her Debenture or portion of a Debenture if the Trustee
receives the notice of revocation before the date the amendment or waiver
becomes effective. An amendment or waiver becomes effective in accordance with
its terms and thereafter binds every Holder of the Debentures.
Section 9.05. Notation on or Exchange of Debentures.
The Trustee may place an appropriate notation about an amendment or
waiver on any Debenture thereafter authenticated. The Company in exchange for
all Debentures may issue and the Trustee shall authenticate new Debentures that
reflect the amendment or waiver.
Section 9.06. Trustee Protected.
The Trustee shall sign all supplemental indentures, except that the
Trustee need not sign any supplemental indenture that adversely affects its
rights.
ARTICLE 10
SUBORDINATION
Section 10.01. Agreement to Subordinate
The Company agrees, and each Certificateholder by accepting a
Debenture agrees, that the indebtedness evidenced by the Debentures is
subordinated in right of payment, to the extent and in the manner provided in
this Article, to the prior payment in full of all Senior Indebtedness, and that
the subordination is for the benefit of the holders of Senior Indebtedness.
Section 10.02. Certain Definitions.
"Indebtedness" means any indebtedness, contingent or otherwise, in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of the Company or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments or letters of credit, or
representing the balance deferred and unpaid on the purchase price of any
property or interest therein, except any such balance that constitutes a trade
payable.
"Representative" means the indenture trustee or other trustee, agent
or representative for an issue of Senior Indebtedness.
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"Senior Indebtedness" means all Indebtedness (present or future)
created, incurred, assumed or guaranteed by the Company (and all renewals,
extensions or refundings thereof), except such Indebtedness that by its terms
expressly provides that such Indebtedness is not senior or superior in right of
payment to the Debentures. Notwithstanding anything herein to the contrary,
Senior Indebtedness shall not include debt of the Company to any of its
subsidiaries.
A distribution may consist of cash, Debentures or other property.
Section 10.03. Liquidation; Dissolution; Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property:
(1) holders of Senior Indebtedness shall be entitled to receive
payment in full in cash of the principal and interest (including interest
accruing after the commencement of any such proceeding) to the date of
payment, on the Senior Indebtedness before Certificateholders shall be
entitled to receive any payment of principal or interest on Debentures; and
(2) until the Senior Indebtedness is paid in full in cash, any
distribution to which Certificateholders would be entitled but for this
Article shall be made to holders of Senior Indebtedness as their interest
may appear, except that Holders of Debentures may receive Debentures that
are subordinated to Senior Indebtedness to at least the same extent as such
Debentures.
Section 10.04. Default on Senior Indebtedness.
Upon the maturity of any Senior Indebtedness by lapse of time,
acceleration or otherwise, all such Senior Indebtedness shall first be paid in
full, or such payment duly provided for in cash or in a manner satisfactory to
the holders of such Senior Indebtedness, before any payment is made by the
Company or any person acting on behalf of the Company on account of the
principal or interest on the Debentures.
The Company may not pay principal or interest on the Debentures and
may not acquire Debentures for cash or property other than capital stock of the
Company if:
(1) a default on Senior Indebtedness occurs and is continuing that
permits holders of such Senior Indebtedness to accelerate its maturity, and
(2) the default is the subject of judicial proceedings or the
Company receives a notice of the default from a person who may give it
pursuant to Section 10.12. If the Company receives any such notice, a
similar notice received within nine months thereafter relating to the same
default on the same issue of Senior Indebtedness shall not be effective for
purposes of this Section.
The Company may resume payments on the Debentures and may acquire them
when:
(a) the default is cured or waived, or
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(b) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings, if this Article otherwise permits the payment
or acquisition at that time.
Section 10.05. Acceleration of Debentures.
If payment of the Debentures is accelerated because of an Event of
Default, the Company shall promptly notify holders of Senior Indebtedness of
the acceleration. The Company may pay Holders of the Debentures when 120 days
pass after the acceleration occurs if this Article permits the payment at that
time.
Section 10.06. When Distribution Must be Paid Over.
In the event that, notwithstanding the provisions of Section 10.04, the
Company shall make any payment to the Trustee on account of the principal or
interest on the Debentures, after the happening of a default in payment of the
principal or interest on Senior Indebtedness, or after receipt by the Company
and the Trustee of written notice as provided in Sections 10.04 and 10.12 of an
Event of Default or an event which, with the passage of time or the giving of
notice or both, would constitute an Event of Default with respect to any Senior
Indebtedness, then, unless and until such Default or Event of Default shall
have been cured or waived or shall have ceased to exist, such payment shall be
held by the Trustee, in trust for the benefit of, and shall be paid forthwith
over and delivered to, the holders of Senior Indebtedness (pro rata as to each
of such holders on the basis of the respective amounts of Senior Indebtedness
held by them) or their representative or the trustee under the indenture or
other agreement (if any) pursuant to which Senior Indebtedness may have been
issued, as their respective interests may appear, for application to the
payment of all Senior Indebtedness remaining unpaid to the extent necessary to
pay all Senior Indebtedness in full in accordance with its terms, after giving
effect to any concurrent payment or distribution to or for the holders of
Senior Indebtedness.
If a distribution is made to the Holders of Debentures that because of
this Article should not have been made to them, the Holders who receive the
distribution shall hold it in trust for holders of Senior Indebtedness and pay
it over to them as their interests may appear.
Section 10.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any
facts known to the Company that would cause a payment of principal or interest
on the Debentures to violate this Article, but failure to give such notice
shall not affect the subordination of the Debentures to the Senior Indebtedness
provided in this Article. Nothing in this Article 10 shall apply to claims of,
or payments to, the Trustee under or pursuant to Section 6.07.
Section 10.08. Subrogation.
After all Senior Indebtedness is paid in full and until the Debentures are
paid in full, Holders of the then outstanding Debentures shall be subrogated to
the rights of holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness to the extent distributions otherwise payable
to such Holders have been applied to the payment of Senior Indebtedness. A
distribution made under this Article to holders of Senior Indebtedness which
otherwise would have been made to Certificateholders is not, as between the
Company and Certificateholders, a payment by the Company on Senior
Indebtedness.
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Section 10.09. Relative Rights.
This Article defines the relative rights of Certificateholders and holders
of Senior Indebtedness. Nothing in this indenture shall:
(1) impair, as between the Company and Certificateholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Debentures in accordance with their
terms;
(2) affect the relative rights of Certificateholders and creditors
of the Company other than holders of Senior Indebtedness; or
(3) prevent the Trustee or any Certificateholder from exercising its
available remedies upon a Default or Event of Default, subject to the
rights of holders of Senior Indebtedness to receive distributions
otherwise payable to Certificateholders.
If the Company fails because of this Article to pay principal or interest
on a Debenture on the due date, the failure is still a Default or Event of
Default.
Section 10.10. Subordination May Not Be Impaired by Company.
No right of any holder of Senior Indebtedness to enforce the subordination
of the indebtedness evidenced by the Debentures shall be impaired by any act or
failure to act by the Company or by its failure to comply with this Indenture.
Section 10.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of
Senior Indebtedness, the distribution may be made and the notice given to their
Representative.
Section 10.12. Rights of Trustee and Paying Agent.
The Trustee or Paying Agent may continue to make payments on the
Debentures until it receives notice of facts that would cause a payment of
principal or interest on the Debentures to violate this Article. Only the
Company, a Representative or a holder of an issue of Senior Indebtedness that
has no Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not Trustee. Any
Agent may do the same with like rights.
ARTICLE 11
MISCELLANEOUS
Section 11.01. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies, or conflicts with
another provision which is required to be included in this Indenture by the
TIA, the required provision shall control.
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Section 11.02. Notices.
Any notice by the Company or the Trustee to the other is duly given if in
writing and delivered in person or mailed by first-class mail to the other's
address stated in Section 11.10. The Company or the Trustee by notice to the
other may designate additional or different addresses for subsequent notices or
communications.
Any notice to a Certificateholder shall be mailed by first-class mail to
the address shown on the register kept by the Registrar or such other name and
addresses as provided to Trustee pursuant to TIA 313(c)(2) and (3). Failure to
mail a notice or communication to a Certificateholder or any defect in it shall
not affect its sufficiency with respect to other Certificateholders.
If a notice is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it.
It the Company mails a notice to Certificateholders, it shall mail a copy
to the Trustee and each Agent at the same time.
All other notices shall be in writing.
Section 11.03. Communication by Holders with Other Holders.
Certificateholders may communicate pursuant to TIA 312(b) with other
Certificateholders with respect to their rights under this Indenture or the
Debentures. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA 312(c).
Section 11.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by the Company to the Trustee to take any
action under this Indenture, the Company shall furnish to the Trustee:
(a) an Officers' Certificate stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating to
the proposed action have been complied with; and
(b) an Opinion of Counsel stating that, in the opinion of such counsel,
all such conditions precedent have been complied with.
Section 11.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
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(3) a statement that, in the opinion of such person, he or she has
made such examination or investigation as is necessary to enable him or
her to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of such person,
such condition or covenant has been complied with.
Section 11.06. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of
Certificateholders. The Registrar or Paying Agent may make reasonable rules
and set reasonable requirements for its functions.
Section 11.07. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking
institutions are not required to be open. If a payment date is a Legal Holiday
at a place of payment, payment may be made at that place on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for the
intervening period.
Section 11.08. No Recourse Against Others.
All liability described in the Debentures of any director, officer,
employee or stockholder, as such, of the Company is waived and released.
Section 11.09. Duplicate Originals.
The parties may sign any number of copies of this Indenture. One signed
copy is enough to prove this Indenture.
Section 11.10. Variable Provisions.
"Officer" means the President, any Vice President, the Treasurer, the
Secretary, any Assistant Treasurer or any Assistant Secretary of the Company.
The Company initially appoints itself as Paying Agent and Registrar.
The first certificate pursuant to Section 4.03 shall be for the fiscal
year ending on December 31, 1996.
The reporting date for Section 7.06 is May 15 of each year. The first
reporting date is May 15, 1997.
The trustee shall always have a combined capital and surplus of at least
$10,000,000 as set forth in its most recent published annual report of
conditions.
The Company's address is:
ENSTAR INC.
6479 City West Parkway
Eden Prairie, Minnesota 55344
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The Trustee's address is:
651 Nicollet Mail
Minneapolis, Minnesota 55402
Attention: Corporate Trust Department
Section 11.11. Governing Law.
The internal laws of the State of Minnesota shall govern this Indenture
and the Debentures.
Section 11.12. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan or
debt agreement of the Company or a subsidiary. Any such indenture, loan or
debt agreement may not be used to interpret this Indenture.
Section 11.13. Successors.
All agreements of the Company in this Indenture and the Debentures shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 11.14. Severability.
In case any provision in this Indenture or the Debentures shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
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SIGNATURES
Dated: as of ENSTAR INC.
By_______________________________
Its______________________________
Attest:
___________________________________
Dated: as of NATIONAL CITY BANK OF MINNEAPOLIS
By_______________________________
Its______________________________
Attest:
___________________________________
Trust Officer
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EXHIBIT A
ENSTAR SUBORDINATED DEBENTURE
[ ] Two Year [ ] Five Year [ ] Ten Year Subordinated Debenture(s)
Security # ____________________________ Holders (s):
Date of Issue __________________________________
Stated Maturity __________________________________
Principal Amount __________________________________ $______________________
Interest Rate _________________% Interest Payment Date(s):__________
Interest Payment Method
[ ] Quarterly [ ] Monthly [ ] At Maturity (Compounded Qtrly)
ENStar Inc., a Minnesota corporation (herein called the "Company"),
for value received, hereby promises to pay to the Holder or registered assigns,
the Principal Amount on the Stated Maturity and to pay interest thereon from
the Date of Issue, or from the most recent Interest Payment Date to which
interest has been duly provided for, on each Interest Payment Date at the
Interest Rate, until the principal hereof is paid or made available for
payment. Interest will be calculated based on a 365-day year. The interest
so payable, on any Interest Payment Date will, except as provided in the
Indenture referred to below and on the reverse hereof, be paid to the person in
whose name this Debenture is registered at the close of business on the 15th
calendar day prior to such Interest Payment Date whether or not such day is a
business day.
Reference is made to the further provisions of this Debenture set
forth below and on the reverse hereof. Such further provisions shall for all
purposes have the same effect as though fully set forth at this place.
Dated:
National City Bank of Minneapolis, as Trustee ENStar Inc.
Authenticated by: _____________________ By: ____________ ____________
Authorized Signature President Secretary
<PAGE> 35
1. Indenture. This Debenture is one debenture in a series of
Debentures issued under an Indenture dated as of _______________________,
1996 ("Indenture") between the Company and National City Bank of Minneapolis,
as trustee (the "Trustee"). The terms of the Debentures include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 as amended by the Trust Indenture Reform Act of 1990 (15
U.S. Code 77aa-77bbbb) as in effect on the date of the Indenture. The
Debentures are subject to all such terms and Holders of the Debentures are
referred to the Indenture and the Act for a statement of such terms. The
Debentures are unsecured general obligations of the Company. The aggregate
principal amount of Debentures that may be issued under the Indenture is
unlimited.
2. Method of Payment. The Company will pay interest on the
Debentures (except defaulted interest) to the persons who are registered
Holders of Debentures at the close of business on the record date for the next
interest payment date even though Debentures are canceled after the record date
and on or before the interest payment date. Holders must surrender Debentures
to the Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of
payment is legal tender for payment of public and private debts. However, the
Company may pay principal and interest by check payable in such money. It may
mail an interest check to a Holder's registered address.
3. Paying Agent, Registrar. The Company will act as Paying Agent
and Registrar. The Company may change any Paying Agent and Registrar, or
co-registrar, without notice.
4. Optional Redemption. The Company may redeem all the Debentures at
any time or some of them from time to time at a price of 100% of the principal
amount of the Debentures plus accrued interest to the redemption date.
5. Notice of Redemption. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
Holder of Debentures to be redeemed at this registered address. On and after
the redemption date, interest ceases to accrue on Debentures or portion of them
called for redemption.
6. Redemption by the Holder on Death. Under certain circumstances as
provided in the Indenture and upon request, the Company will, upon the death of
the Holder of a Debenture, repay the principal amount of the Debenture,
together with interest accrued to the redemption date, within 30 days following
a request therefor from the Holder's authorized representative, in accordance
with the provisions of the Indenture, if (i) the Debenture has been registered
in the Holder's name since the Date of Issue, (ii) the principal amount of the
Debentures to
-2-
<PAGE> 36
be repaid does not exceed $25,000, and (iii) the Company or the Trustee has
been notified in writing of the request for repayment within 180 days after the
Holder's death. If two or more persons are joint record Holders of a
Debenture, the election to redeem will not apply until all record Holders are
deceased, except that, if the joint Holders are husband and wife, the election
may be made after the death of either spouse.
7. Subordination. The Debentures are subordinated to Senior
Indebtedness of the Company, which is any Indebtedness of the Company
outstanding on the date of the Indenture or Indebtedness thereafter created,
incurred, assumed or guaranteed by the Company and all renewals, extensions and
refundings thereof, except such Indebtedness that by its terms expressly
provides that such Indebtedness is not senior or superior in right of payment
to the Debentures. Indebtedness is any indebtedness, contingent or otherwise,
in respect of borrowed money (whether or not the recourse of the lender is to
the whole of the assets of the Company or any subsidiary or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
letters of credit, representing the balance deferred and unpaid of the purchase
price of any property or interest therein, except any such balance that
constitutes a trade payable. To the extent provided in the Indenture, Senior
Indebtedness must be paid before the Debenture may be paid. The Company
agrees, and each Debenture Holder by accepting a Debenture agrees, to the
subordination and authorizes the Trustee to give it effect.
8. Transfer or Exchange. The Debentures are in registered form. The
transfer of Debentures may be registered and Debentures may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The
Registrar need not exchange or register the transfer of any Debenture or
portion of a Debenture selected for redemption. Also, it need not exchange or
register the transfer of any Debenture for a period of 15 days before a
selection of Debentures to be redeemed.
9. Persons Deemed Owners. The registered Holder of a Debenture may
be treated as its owner for all purposes.
10. Amendments and Waivers. Subject to certain exceptions, the
Indenture or the Debentures may be amended with the consent of the Holders of a
majority in principal amount of the then outstanding Debentures and any
existing default may be waived with the consent of the Holders of a majority in
principal amount of the then outstanding Debentures, except that no amendment
may alter or impair the obligation of the Company to pay principal of and
interest on this Debenture at the times, place and rate, and in the coin or
currency, or reduce the principal amount of Debentures the Holders of which must
consent to an amendment, without the consent of the Holder hereof. Without the
consent of any Debenture Holder, the
-3-
<PAGE> 37
Indenture or the Debenture may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of Company obligations to Debenture
Holders, to increase the aggregate principal amount of Debentures to be issued
or to make any change that does not adversely affect the rights of any
Debenture Holder.
11. Defaults and Remedies. An Event of Default is: a default in
payment of principal on the Debenture which has not been cured; a default for
30 days in payment of any installment of interest on the Debenture; acceleration
of maturity of a Senior Indebtedness in an amount exceeding 500,000 under the
terms of the instrument under which such Senior Indebtedness is or may be
outstanding, if such acceleration is not annulled within 30 days after written
notice; or certain events of bankruptcy, insolvency or reorganization or
default in the performance or breach of any covenant or warranty of the Company
in the Indenture and continuance of such default in performance or breach for a
period or 60 days after notice of such default has been received by the Company
from the Trustee or from the Holders of 25% in principal amount of the
outstanding Debentures. If an Event of Default occurs and is continuing, the
Trustee or the Holders of at least 25% in principal amount of the then
outstanding Debentures may declare all the Debentures to be due and payable
immediately. Debenture Holders may not enforce the Indenture or the Debentures
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Debentures. Subject
to certain limitations, Holders of a majority in principal amount of the then
outstanding Debentures may direct the Trustee in its exercise of any trust or
power. The Trustee may withhold from Debenture Holders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interest. The Company must
furnish an annual compliance certificate to the Trustee.
12. Trustee Dealing with the Company. National City Bank of
Minneapolis, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
13. No Recourse Against Others. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Debenture(s) or the Indenture or for any
claim based on, in respect of or by reason of such obligations or their
creation. Each Debenture Holder by accepting a Debenture waives and releases
all such liability. The waiver and release are part of the consideration for
the issue of the Debenture.
14. Authentication. This Debenture shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating
agent.
-4-
<PAGE> 38
15. Abbreviations. Customary abbreviations may be used in the name
of a Debenture Holder or an assignee, such as: TEN COM (=tenants in common)
TEN ENT (=tenants by the entireties), JT TEN (=joint tenants with right of
survivorship and not as tenants in common), CUST (=Custodian), U/T/M/A
(=Uniform Transfer to Minors Act) and TOD (=Transfer on Death).
The Company will furnish to any Debenture Holder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Debenture in larger type. Requests may be made to: Investment Department,
ENStar Inc., 6479 City West Parkway, Eden Prairie, MN 55344.
-5-
<PAGE> 39
ASSIGNMENT FORM
To assign this Debenture, fill in the form below:
I or we assign and transfer this Debenture to
----------------------------
(Insert assignee's social security or tax I.D. number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint _______________________________________________________
agent to transfer this Debenture on the books of the Company. The agent may
substitute another to act for him.
________________________________________________________________________________
Date: __________ Your Signature: _________________________________________
(Sign exactly as your name appears on the other side of this Debenture)
****************************************************************
MATURITY FORM
To present this Debenture at maturity, fill in form below:
Date: ___________ Your Signature: ________________________________________
(Sign exactly as your name appears on the other side of this Debenture)
<PAGE> 1
EXHIBIT 5.1
Dorsey & Whitney LLP
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402-1498
ENStar Inc.
6479 City West Parkway
Eden Prairie, Minnesota 55344
Ladies and Gentlemen:
We have acted as counsel to ENStar Inc. (the "Company") in
connection with the registration pursuant to a Registration Statement on Form
S-1 (the "Registration Statement") filed with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, of $10,000,000
principal amount of Subordinated Debentures (the "Debentures"), to be issued
pursuant to an Indenture (the "Indenture"), to be entered into by and between
the Company and National City Bank of Minneapolis, a national banking
association, as trustee. All capitalized terms used herein and not defined
herein have the meanings assigned to them in the Indenture.
We have examined such documents and reviewed such questions of
law as we have considered necessary and appropriate for the purposes of this
opinion.
In rendering our opinion set forth below, we have assumed the
authenticity of all documents submitted to us as originals, the genuineness of
all signatures and the conformity to the authentic originals of all documents
submitted to us as copies. We have also assumed the legal capacity for all
purposes relevant hereto of all natural persons and, with respect to all
parties to agreements or instruments relevant hereto other than the Company,
that such parties had the requisite power and authority (corporate or
otherwise) to execute, deliver and perform such agreements or instruments, that
such agreements or instruments have been duly authorized by all requisite
action (corporate or otherwise), executed and delivered by such parties and
that such agreements or instruments are the valid, binding and enforceable
obligations of such parties. As to questions of fact material to our opinion,
we have relied upon certificates of officers of the Company and of public
officials.
Based upon the foregoing, we are of the opinion that the
Debentures, once issued in accordance with the Indenture and paid for in
accordance with the
<PAGE> 2
applicable subscription agreement, will constitute valid
and binding obligations of the Company, enforceable in accordance with their
terms, except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium and other laws relating to or affecting the
enforcement of creditors' rights generally or by general principles of equity.
Our opinion expressed above is limited to the laws of the
State of Minnesota.
We consent to your filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the heading
"Legal Matters" in the Prospectus included therein.
Dated: October 25, 1996
Very truly yours,
DORSEY &WHITNEY LLP
<PAGE> 1
EXHIBIT 11
ENSTAR INC.
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
---------------- -------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Income (loss) from continuing
operations before income taxes
and equity in earnings .......................... $ 28 $ 326 $ 786 $ (1,050) $ (2,339) $(1,524) $ (1,081)
Fixed charges ........................................... 287 277 512 609 636 620 667
----- ------ ------ -------- -------- ------- --------
Income from continuing operations
before income taxes, equity in
earnings and fixed charges ...................... $ 315 $ 603 $1,298 $ (441) $ (1,703) $ (904) $ (414)
===== ====== ====== ======== ======== ======= ========
Fixed Charges:
Interest expense ................................ $ 139 $ 148 $ 247 $ 348 $ 361 $ 373 $ 415
Interest portion of rentals ..................... 148 129 265 261 275 247 252
Amortization of debt expense .................... 0 0 0 0 0 0 0
----- ------ ------ -------- -------- ------- --------
$ 287 $ 277 $ 512 $ 609 $ 636 $ 620 $ 667
===== ====== ====== ======== ======== ======= ========
Ratio of earnings to fixed charges ...................... 1.10 2.18 2.54 (0.72) (2.68) (1.46) (0.62)
Earnings coverage deficit below
1:1 ratio ....................................... -- -- -- 1,050 2,339 1,524 1,081
</TABLE>
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our reports dated February 15, 1996 accompanying the combined
financial statements and schedule of ENStar (an Operating Unit of North Star
Universal, Inc.) included in the Registration Statement of ENStar Inc. on Form
S-1. We hereby consent to the use of the aforementioned reports in the
Registration Statement of ENStar Inc. and to the use of our name as it appears
under the caption "Experts."
/s/ Grant Thornton LLP
Minneapolis, Minnesota
October 24, 1996
<PAGE> 1
Exhibit 25.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
Form T-1
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an application to determine eligibility of a
Trustee pursuant to Section 305(b)(2)___
------------------------------------
NATIONAL CITY BANK OF MINNEAPOLIS
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
NOT APPLICABLE 41-0872838
(Jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization if not a U.S. national bank) 55402
651 NICOLLET MALL (Zip Code)
MINNEAPOLIS, MINNESOTA
(Address of principal executive office)
</TABLE>
TIMOTHY M. MURPHY
NATIONAL CITY BANK OF MINNEAPOLIS
651 NICOLLET MALL
MINNEAPOLIS, MN 55402
(612) 904-8000
(Name, address and telephone number of agent for service)
------------------------------------
ENSTAR INC
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
MINNESOTA 41-1831611
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization) 55344
6479 CITY WEST PARKWAY (Zip Code)
EDEN PRAIRIE, MINNESOTA
(Address of principal executive office)
</TABLE>
SUBORDINATED DEBENTURES
(Title of the indenture securities)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
Furnish the following information as to the trustee
(a) Name and address of each examining or supervising authority to which
it is subject.
<TABLE>
<S> <C>
Comptroller of the Currency.......................................... Washington, D.C.
Federal Deposit Insurance Corporation................................ Washington, D.C.
The Board of Governors of the Federal Reserve System................. Washington, D.C.
</TABLE>
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
ITEM 2. AFFILIATIONS WITH OBLIGOR.
If the obligor is an affiliate of the trustee, describe such affiliation.
None.
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
(a) Furnish the following information as to each class of voting
securities of the trustee.
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. A COL. B
- -------------- ------------------
TITLE OF CLASS AMOUNT OUTSTANDING
- -------------- ------------------
<S> <C>
Common Stock ....................................... 7,374,520 shares
</TABLE>
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
(a) The Title of the securities outstanding under each such other
indenture.
None.
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310(b)(1) of
the Act arises as a result of the trusteeship under any such other
indentures, including a statement as to how the indenture securities
will rank as compared with the securities under such other indentures.
Not applicable.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH THE OBLIGOR OR
UNDERWRITERS.
If the trustee of any of the directors or executive officers of the trustee
is a director, officer, partner, employee, appointee, or representative of the
obligor or of any underwriter for the obligor, identify each such person having
any such connection and state the nature of each such connection.
Not Applicable.
2
<PAGE> 3
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by the obligor and each director, partner and
executive officer of the obligor:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. D
COL. C -------------------------
COL. A COL. B ------------ PERCENTAGE OF VOTING
- --------------- -------------- AMOUNT OWNED SECURITIES REPRESENTED
NAME OF OWNER TITLE OF CLASS BENEFICIALLY BY AMOUNT GIVEN IN COL. C
- --------------- -------------- ------------ -------------------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE UNDERWRITERS OR THEIR
OFFICIALS.
Furnish the following information as to the voting securities of the
trustee owned beneficially by each underwriter for the obligor and each
director, partner, and executive officer of each such underwriter:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. D
COL. C -------------------------
COL. A COL. B ------------ PERCENTAGE OF VOTING
- --------------- -------------- AMOUNT OWNED SECURITIES REPRESENTED
NAME OF OWNER TITLE OF CLASS BENEFICIALLY BY AMOUNT GIVEN IN COL. C
- --------------- -------------- ------------ -------------------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
Furnish the following information as to the securities of the obligor owned
beneficially or held as collateral security for obligations in default by the
trustee:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. D
COL. B COL. C ---------------
--------------------- ----------------------- PERCENTAGE OF
WHETHER THE AMOUNT OWNED CLASS
COL. A SECURITIES ARE VOTING BENEFICIALLY OR HELD AS REPRESENTED BY
- --------------- OR COLLATERAL SECURITY FOR AMOUNT
TITLE OF CLASS NON-VOTING SECURITIES OBLIGATIONS IN DEFAULT GIVEN IN COL. C
- --------------- --------------------- ----------------------- ---------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of an underwriter for the obligor, furnish
the following information as to each class of securities of such underwriter,
any of which are so owned or held by the trustee:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. C COL. D
----------------------- ---------------
COL. A AMOUNT OWNED PERCENTAGE OF
- --------------- BENEFICIALLY OR HELD AS CLASS
NAME OF ISSUER COL. B COLLATERAL SECURITY FOR REPRESENTED BY
AND TITLE OF --------------------- OBLIGATIONS IN DEFAULT AMOUNT
CLASS AMOUNT OUTSTANDING BY TRUSTEE GIVEN IN COL. C
- --------------- --------------------- ----------------------- ---------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
3
<PAGE> 4
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES OF CERTAIN
AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral security for
obligations in default any voting securities of a person who, to the knowledge
of the trustee (1) owns 10 percent or more of the voting securities of the
obligor or (2) is an affiliate, other than a subsidiary, of the obligor, furnish
the following information as to the voting securities of such person:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. C COL. D
------------------------- -------------------
COL. A AMOUNT OWNED BENEFICIALLY PERCENTAGE OF CLASS
- ------------------ COL. B OR HELD AS COLLATERAL REPRESENTED BY
NAME OF ISSUER AND ------------------ SECURITY FOR OBLIGATIONS AMOUNT GIVEN IN
TITLE OF CLASS AMOUNT OUTSTANDING IN DEFAULT BY TRUSTEE COL. C
- ------------------ ------------------ ------------------------- -------------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF A PERSON
OWNING 50 PERCENT OR MORE OF THE VOTING SECURITIES OF THE OBLIGOR.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of the
trustee, owns 50 percent or more of the voting securities of the obligor,
furnish the following information as to each class of securities of such person,
any of which are so owned or held by the trustee:
<TABLE>
<CAPTION>
AS OF OCTOBER 15, 1996
(WITHIN 31 DAYS)
COL. C COL. B
------------------------- ----------------------
COL. A AMOUNT OWNED BENEFICIALLY PERCENTAGE OF
- ------------------ COL. B OR HELD AS COLLATERAL SECURITIES REPRESENTED
NAME OF ISSUER AND ------------------ SECURITY FOR OBLIGATIONS BY AMOUNT GIVEN IN
TITLE OF CLASS AMOUNT OUTSTANDING IN DEFAULT BY TRUSTEE COL. C
- ------------------ ------------------ ------------------------- ----------------------
<S> <C> <C> <C>
Not Applicable.
</TABLE>
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
Except as noted in the instructions, if the obligor is indebted to the
trustee, furnish the following information:
<TABLE>
<CAPTION>
COL. A COL. B COL. C
- ---------------------- ------------------ -------------------
NATURE OF INDEBTEDNESS AMOUNT OUTSTANDING DATE DUE
- ---------------------- ------------------ -------------------
<S> <C> <C>
Not Applicable.
</TABLE>
ITEM 13. DEFAULTS BY OBLIGOR.
(A) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default.
None.
(B) If the trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether there has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
None.
4
<PAGE> 5
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
Not Applicable.
ITEM 15. FOREIGN TRUSTEE.
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be qualified
under the Act.
Not Applicable.
ITEM 16. LIST OF EXHIBITS.
List below all exhibits filed as a part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
2. A copy of the certificate of authority of the trustee to commence business,
if not contained in the articles of association.
3. A copy of the certificate of authority of the trustee to exercise corporate
trust powers. If such authorization is not contained in the documents
specified in paragraph (1) or (2) above.
4. A copy of the existing bylaws of the trustee, or instruments corresponding
thereto.
5. Not applicable.
6. The consents of United States institutional trustees required by Section
321 (b) of the Act.
7. A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority.
8. Not applicable.
9. Not applicable.
5
<PAGE> 6
CONSENT OF TRUSTEE
Pursuant to the requirement of Section 321 (b) of the Trust Indenture Act
of 1939, in connection with the proposed issue by Enstar Inc of its Subordinated
Debentures we hereby consent that reports of examinations by Federal, State,
Territorial or District authorities may be furnished by such authorities to the
Securities and Exchange Commission upon request therefor.
NATIONAL CITY BANK OF MINNEAPOLIS
By: /s/ TIMOTHY M. MURPHY
Timothy M. Murphy
Vice President
6
<PAGE> 7
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, National City Bank of Minneapolis, organized and existing under the
laws of the United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto authorized,
all in the City of Minneapolis, and State of Minnesota on the 24th day of
October, 1996.
NATIONAL CITY BANK OF MINNEAPOLIS
By: /s/ TIMOTHY M. MURPHY
Timothy M. Murphy
Vice President
7
<PAGE> 8
Comptroller of the Currency
Administrator of National Banks
Washington, D.C. 20219
CERTIFICATION OF FIDUCIARY POWERS
I, Dean. E. Miller, Deputy Comptroller for Trust and Securities, do hereby
certify that the records in this Office evidence that the National City Bank of
Minneapolis, Minneapolis, Minnesota was granted June 22, 1967, under the hand
and seal of the Comptroller, the right to act in all fiduciary capacities
authorized under the provisions of the Act of Congress approved September 28,
1962, 76 Stat. 668, 12 USC 92a. I further certify that the authority so granted
remains in full force and effect.
IN TESTIMONY WHEREOF, I have hereunto
subscribed my name and caused the seal
of Office of the Comptroller of the
Currency to be affixed to these
presents at the Treasury Department,
in the city of Washington and District
of Columbia this tenth day of May,
1984.
Dean E. Miller
Deputy Comptroller
for Trust and Securities
8
<PAGE> 9
EXHIBIT B
April 21, 1982
BY-LAWS
OF
NATIONAL CITY BANK OF MINNEAPOLIS
(ORGANIZED UNDER THE NATIONAL BANKING LAWS OF THE UNITED STATES)
---------------------------------------------
SECTION 1. The regular annual meeting of the shareholders of this
Association, for the election of directors and for the transaction of such other
business as properly may come before the meeting, shall be held at its main
banking house in the City of Minneapolis, the State of Minnesota, or any other
convenient place duly authorized by the Board of Directors, on the third
Wednesday in March of each year commencing with the year 1978, or on the next
succeeding business day, if the day fixed falls on a legal holiday, in
accordance with the provisions of its Articles of Association and the laws of
the United States, at which meeting a Board of Directors shall be elected; but
if no such election is held on that day as provided, it may be held at any
regular adjournment of the annual meeting or at a subsequent special meeting
held within sixty days, in accordance with the provisions of the laws of the
United States. The holders of a majority of the outstanding shares entitled to
vote and represented at any meeting of the shareholders may choose persons to
act as Chairman and as Secretary of the meeting. The Chairman of the Board shall
then make a report to the shareholders regarding the condition of the
Association and shall review the business of the preceding year.
The Board of Directors of this Association, or any three or more
stockholders owning, in the aggregate, not less than ten per centum of the stock
of this Association, may call a special meeting of shareholders at any time.
Unless otherwise provided by the laws of the United States, or by the Articles
of Association, a notice of the time, place and purpose of every regular annual
meeting and every special meeting of the shareholders shall be given by
first-class mail, postage prepaid, mailed at least ten days prior to the date of
such meeting to each shareholder of record at his address as shown upon the
books of this Association.
SECTION 2. Shareholders may vote at any meeting of the shareholders by
proxies duly authorized in writing, but no director, officer, employee or
attorney of this Association shall act as proxy. Proxies shall be valid only for
one meeting, to be specified therein, and any adjournments of such meeting.
Proxies shall be dated and shall be filed with the records of the meeting.
In deciding on questions at meetings of shareholders, except in the
election of directors, each shareholder shall be entitled to one vote for each
share of stock held. A majority of votes cast shall decide each matter submitted
to the shareholders at the meeting except in cases where by law a larger vote is
required.
In all elections of directors, each shareholder shall have the right to
vote the number of shares owned by him for as many persons as there are
directors to be elected, or to cumulate such shares and give one candidate as
many votes as the number of directors multiplied by the number of shares shall
equal, or to distribute them on the same principle among as many candidates as
he shall think fit.
In the case of any meeting of the shareholders, a record showing the names
of the shareholders present and the number of shares of stock held by each, and
the names of the proxies shall be made. This record also shall show the number
of shares voted on each action taken, including the number of shares voted for
each candidate for director. This record shall be included in the minute book of
the Association.
After each meeting of the shareholders, there shall be forwarded to the
Comptroller of the Currency, a report thereof, in the form prescribed by the
Comptroller of the Currency.
DIRECTORS
SECTION 3. The Board of Directors shall consist of not less than five (5)
nor more than twenty-five (25) shareholders. The number of directors to be
elected shall be determined at the annual meeting of
9
<PAGE> 10
shareholders by a majority of the votes cast by the shareholders in person or by
proxy, or by a similar vote at any special meeting called for the purpose, upon
due notice having been given according to law.
The directors of this Association shall hold office for one year and until
their successors are elected and have qualified.
Each person elected or appointed a director of this Association must take
the oath of such office in the form prescribed by the Comptroller of the
Currency. No person elected or appointed a director of this Association shall
exercise the functions of such office until he has taken such oath and the same
has been transmitted to the Comptroller of the Currency.
Any vacancies occurring in the Board of Directors shall be filed, in
accordance with the laws of the United States, by appointment by the remaining
directors, and any director so appointed shall hold office until the next
election.
Following the annual meeting of the shareholders, the Chairman or the
Secretary of the meeting shall notify promptly the Directors-Elect of their
election, and they shall meet promptly for the purpose of taking their oaths,
organizing the new Board, appointing officers and fixing salaries for the
ensuing year and for transacting such other business as properly may come before
the meeting.
The Regular Meetings of the Board of Directors shall be held, without
notice, at 10:00 o'clock in the forenoon on the third Wednesday of each month at
the Main Banking House. When any regular meeting of the Board falls upon a
holiday, the meeting shall be held on the next banking business day unless the
Board shall designate some other day.
Special meetings of the Board of Directors may be called by the Chairman of
the Board of Directors or by the President of the Association, or at the request
of three (3) or more directors. Each member of the Board of Directors shall be
given notice stating the time and place, by telegram, letter, or in person, of
each such special meeting, excepting the Organization Meeting following the
election of directors.
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business. If, at the time fixed for the meeting,
including the meeting to organize the new Board following the Annual Meeting of
Shareholders, a quorum is not present, the directors in attendance may adjourn
the meeting from time to time until a quorum is obtained.
Except as otherwise provided herein, a majority of those directors present
and voting at any meeting of the Board of Directors, shall decide each matter
considered. A director cannot vote by proxy or otherwise act by proxy at a
meeting of the Board of Directors.
OFFICERS AND EMPLOYEES
SECTION 4. The officers of this Association shall be a Chairman of the
Board, a President, one or more Vice Presidents, a Cashier, and such other
officers as may be appointed by the Board of Directors. The Chairman of the
Board and the President shall be members of the Board of Directors. In the
absence of the Chairman of the Board, the President will act in that capacity.
The Chairman of the Board and the President shall hold their offices for
the current year for which the Board of which they shall be members was elected,
unless either shall resign, become disqualified, or be removed; and any vacancy
occurring in the office of either the Chairman of the Board or the President
shall be promptly filled by the Board of Directors.
The Cashier and the subordinate officers and clerks shall be appointed to
hold their offices, respectively, during the pleasure of the Board of Directors.
Each officer and employee of the Association shall give bond of suitable
amount with security to be approved by the Board of Directors, conditioned for
the honest and faithful discharge of his duties as such officer or employee. At
the discretion of the Board, such bonds may be schedule or blanket form and the
premiums shall be paid by the Association. The amount of such bonds, the form of
coverage, and the name of
10
<PAGE> 11
the company providing the surety therefor shall be reviewed by the Board of
Directors each year at the first regular meeting of the Board following the
Organization Meeting of the new Board. Action shall be taken by the Board at
that time approving the amount of the bond to be provided by each officer and
employee of the Association for the ensuing year.
The Chairman of the Board shall preside at all meetings. Either the
Chairman of the Board or the President shall be Chief Executive Officer of the
Association. The Chairman of the Board and the President shall be ex officio
members of all Committees of the Association except the Examining Committee.
The Cashier of this Association shall be responsible for all assets and
documents of this Association, and shall keep proper records of all the
transactions of the Association.
Each Vice President shall have such power and duties as may be assigned to
him by the Board of Directors. A Vice President shall be designated as the
Secretary of the Association, in which he shall maintain and preserve the
organization papers of the Association, the Articles of Association, the returns
of elections, the By-Laws, the proceedings of regular and special meetings of
the Board of Directors and of the shareholders and the reports of the Committees
and Board of Directors. The minutes of each meeting shall be signed by the
Chairman of the Board and attested by the Secretary.
There shall be a Trust officer of this Association whose duties shall be to
manage, supervise and direct all the activities of the Trust Department. He
shall do and perform all acts and things necessary or proper to be done or
performed in carrying on the business of the Trust Department in accordance with
provisions of law and regulations of the Comptroller of the Currency.
He shall act pursuant to opinion of counsel where such opinion is deemed
necessary. Opinions of counsel shall be retained on file in connection with all
important matters pertaining to trusts, both individual and corporate.
The Trust officer shall be responsible for all assets and documents held by
the Association in connection with trust matters.
COMMITTEES
SECTION 5. There shall be a standing committee of this Association
appointed by the Board, to be known as the Discount Committee, consisting of the
Chairman of the Board, the President, one or more Vice Presidents and two
directors, each to serve a six-month term. This Committee shall have power to
discount and purchase bills, notes and other evidences of debt, to buy and sell
bills of exchange, to examine and approve loans and discounts, to exercise
authority regarding loans and discounts held by the Association, and to direct
and transact all other business of the Association, which properly might come
before the Board of Directors, except such as the Board only, by law, is
authorized to perform. The Discount Committee shall report its actions in
writing at each regular meeting of the Board of Directors, which shall approve
or disapprove the report and record such action in the minutes of the meeting.
There shall be a standing committee of this Association known as the
Examining Committee, appointed annually by the Board of Directors. Each member
of this Committee shall serve until his successor is appointed and the Committee
shall consist of three members of the Board of Directors, none of whom shall be
active officers of the Association. The duties of this Committee shall be to
make suitable examinations every six months of the affairs of the Association.
The result of such examination shall be reported, in writing, to the Board at
the next regular meeting thereafter, stating whether the Association is in a
sound and solvent condition, whether adequate internal audit controls and
procedures are being maintained and recommending to the Board such changes in
the manner of doing business, etc., as shall be deemed suitable.
The Examining Committee, upon its own recommendation and with the approval
of the Board of Directors, may employ a qualified firm of Certified Public
Accountants to make an examination and audit of the Association. If such a
procedure is followed, the one annual examination and audit of such firm of
Accountants and the presentation of its report to the Board of Directors will be
deemed sufficient to comply with the requirements of this section of these
By-Laws.
11
<PAGE> 12
There shall be a Trust Investment Committee of this Association composed of
at least three members of the Association who shall be capable and experienced
officers or directors of the Association. All investments of trust funds shall
be made, retained or disposed of only with the approval of the Trust Investment
Committee; and the Committee shall keep minutes of all its meetings, showing the
disposition of all matters considered and passed upon by it. The Committee
shall, at least once during each period of twelve months, review all the assets
held in or for each fiduciary account to determine their safety and current
value and the advisability of retaining or disposing of them; and a report of
all such reviews, together with the action taken as a result thereof, shall be
noted in the minutes of the Committee.
As prescribed by Regulation 9 of the Comptroller of the Currency, the Board
of Directors shall appoint a committee of three directors, exclusive of any
active officers of the Association, which shall at least once during each period
of twelve months make suitable audits to be made, by auditors responsible only
to the Board of Directors, and shall like wise at least once during each period
of twelve months ascertain by thorough examination made, or caused to be made,
by such Committee, whether a review of all of the assets in each trust as to
their safety and current value and the advisability of retaining or disposing of
them has been made, and whether trust funds awaiting investment or distribution
have been held uninvested or undistributed any longer than was reasonably
necessary. Such Committee shall promptly make a full report of such audits and
examination in writing to the Board of Directors of the Association, together
with a recommendation as to the action, if any, which may be necessary to
correct any unsatisfactory conditions. A report of the audits and examination
required, together with the action taken thereon, shall be noted in the minutes
of the Board of Directors and such report shall be made a part of the records of
the Association.
The Board of Directors may appoint, from time to time, other temporary
committees, for such purposes and with such powers as the Board may determine.
SEAL
SECTION 6. The following is an impression of the Seal adopted by the Board
of Directors of this Association.
IMPRESSION OF SEAL
The Chairman of the Board, the President, each Vice President, the Cashier,
the Secretary, the Trust Officer, each Assistant Trust Officer, each Assistant
Cashier and each Loan Officer shall have the authority to affix the Corporate
Seal of this Association and attest the same.
STOCK
SECTION 7. The stock of this Association shall be assignable and
transferable only on the books of this Association. A stock certificate book
shall be maintained in which all assignments and transfers of stock shall be
made.
Certificates of stock, signed by the Chairman of the Board, the President
or Vice President, and the Cashier or Assistant Cashier, shall be issued to
shareholders, and when stock is transferred, the certificates thereof shall be
returned to the Association and new certificates issued. The returned
certificates shall be cancelled and preserved for record purposes. Certificates
of stock shall meet the requirements of Section 5139 of the Revised Statutes and
shall state upon the face thereof that the stock is transferable only upon the
books of the Association.
12
<PAGE> 13
BANKING HOURS
SECTION 8. This Association will be open for business during the following
hours:
<TABLE>
<S> <C> <C>
NATIONAL CITY BANK BUILDING - 5TH AND MARQUETTE
Lobby........................ Monday thru Friday 8:00 a.m. - 6:00 p.m.
Skyway....................... Monday thru Friday 7:45 a.m. - 4:00 p.m.
SHERATON RITZ OFFICE - 4TH AND NICOLLET
Lobby........................ Monday thru Friday 9:00 a.m. - 4:00 p.m.
Walk-up Windows.............. Monday thru Friday 8:00 a.m. - 9:00 a.m.
4:00 p.m. - 6:00 p.m.
T.V. Drive-up Windows........ Monday thru Friday 8:00 a.m. - 6:00 p.m.
SOUTHDALE OFFICE - 69TH STREET WEST OF FRANCE AVENUE
Lobby........................ Monday thru Thursday 9:00 a.m. - 6:00 p.m.
Friday 9:00 a.m. - 7:00 p.m.
Drive-up Tellers............. Monday thru Thursday 7:00 a.m. - 6:00 p.m.
Friday 7:00 a.m. - 7:00 p.m.
Drive-up Tellers............. Monday thru Thursday 7:00 a.m. - 6:00 p.m.
Saturday 9:00 a.m. - 12:00 p.m.
</TABLE>
Transactions made after 4:00 p.m. and on Saturday are processed the next
business day. This Association shall not be open for business on Saturdays
(except the Southdale Office) and Sundays and days recognized by the laws of the
State of Minnesota as legal holidays. The hours referred to herein shall mean
Standard Time, except when Daylight Saving Time is in effect, when such stated
hours shall mean Daylight Saving Time.
CONVEYANCE OF REAL ESTATE
SECTION 9. All transfers and conveyance of real estate, title to which is
vested in this Association, including real estate held as fiduciary, shall be by
written instrument under the seal of this Association, made pursuant to order of
the Board of Directors and signed by the Chairman of the Board, the President,
Vice President or Cashier.
CONTRACTS
SECTION 10. All contracts, checks, drafts shall be signed by the Chairman
of the Board, the President or Vice President, or such other officers as may be
designated by the Board of Directors.
TRUSTS
SECTION 11. There shall be maintained in the Trust Department a file
containing (a) original instruments creating each trust, or properly
authenticated copies thereof, (b) properly receipted vouchers evidencing payment
and distributions under each trust, (c) properly evidenced reports to courts or
other accounting for trusts, and (d) copies of all court orders in connection
with trust matters.
No trust funds shall be invested in any securities in which corporate
fiduciaries located in this state may not lawfully invest except (a) in
accordance with express instructions contained in the trust instrument, (b)
pursuant to court order, or (c) where the trust instrument expressly provides
that investments may be made without regard to otherwise applicable laws
governing investments by fiduciaries.
13
<PAGE> 14
CHANGES IN BY-LAWS
SECTION 12. These By-Laws may be amended upon vote of a majority of the
entire Board of Directors at any meeting of the Board, provided ten (10) days'
notice of the proposed amendment has been given to each member of the Board of
Directors. No amendment may be made unless the By-Law, as amended, is consistent
with the requirements of the laws of the United States and of the Articles of
Association. A certified copy of all amendments to these By-Laws shall be
forwarded to the Comptroller of the Currency immediately after adoption.
14
<PAGE> 15
CERTIFICATION
At a meeting of the Board of Directors of the NATIONAL CITY BANK OF
MINNEAPOLIS regularly held on the 21st day of April, 1982, the foregoing revised
By-Laws were adopted.
IN TESTIMONY WHEREOF, we, the directors of this Association who were
present at said meeting, have hereunto subscribed our names.
DIRECTORS
/s/ David L. Andreas
------------------------------------
David L. Andreas
/s/ Marvin Borman
------------------------------------
Marvin Borman
/s/ Edward C. Brown, Jr.
------------------------------------
Edward C. Brown, Jr.
/s/ James B. Goetz
------------------------------------
James B. Goetz
/s/ James H. Hearon, III
------------------------------------
James H. Hearon, III
/s/ Walter W. Heller
------------------------------------
Walter W. Heller
/s/ C. Bernard Jacobs
------------------------------------
C. Bernard Jacobs
/s/ C. Wilbur Peters
------------------------------------
C. Wilbur Peters
15
<PAGE> 16
June 10, 1980
NATIONAL CITY BANK OF MINNEAPOLIS
CHARTER NO. 15295
REVISED ARTICLES OF ASSOCIATION
FIRST. The title of this Association shall be, "National City Bank of
Minneapolis."
SECOND. The main office shall be in the City of Minneapolis, the County of
Hennepin, the State of Minnesota. The general business of the Association shall
be conducted at its main office and its legally established branches.
THIRD. The Board of Directors of this Association shall consist of not
less than five (5) nor more than twenty-five (25) shareholders. At any meeting
of the shareholders held for the purpose of electing Directors, or changing the
number thereof, the number of Directors may be determined by a majority of the
votes cast by the shareholders in person or by proxy. A majority of the full
Board of Directors is authorized to increase the number of Directors between the
regular annual meeting of the shareholders of the Association and appoint
persons to fill the vacancies created thereby; provided, however, such increase
in the number of directors shall be limited to not more than two (2) in any one
(1) year. A majority of the Board of Directors shall be necessary to constitute
a quorum for the transaction of business at any Directors' meeting.
FOURTH. (as amended January 7, 1964). The regular annual meeting of the
shareholders of this Association shall be held at its main banking house, or
other convenient place duly authorized by the Board of Directors, on such day of
each year as is specified therefor in the By-Laws.
FIFTH. (as amended March 28, 1979). The amount of authorized capital stock
of this Association shall be Twelve Million Five Hundred Thousand and no/100
Dollars ($12,500,000), divided into 2,500,000 shares of common stock of par
value of Five and no/100 ($5.00) Dollars each, said capital stock may be stock
of par value of Five and no/100 ($5.00) Dollars each; said capital stock may be
increased or decreased from time to time, in accordance with the provisions of
the laws of the United States.
No holder of shares of the capital stock of any class of the corporation
shall have any preemptive or preferential right of subscription to any shares of
any class of stock of the corporation, whether now or hereafter authorized or to
any obligations convertible into stock of the corporation, issued or sold, nor
any right of subscription to any thereof other than such, if any, as the Board
of Directors, in its discretion, may from time to time determine and at such
price as the Board of Directors may from time to time fix.
(Amended February 5, 1971) "The Association at any time, and from time to
time, may authorize and issue debt obligations whether or not subordinated,
without approval of Shareholders."
SIXTH. (As amended March 19, 1980). The Board of Directors shall appoint
one of its members as Chairman of the Board and one of its members as President
of this Association. The President shall be authorized, in the absence of the
Chairman of the Board, to perform all acts and duties pertinent to the office of
Chairman of the Board. The Board of Directors shall have the power to appoint
one or more Executive Vice Presidents, Senior Vice Presidents, or Vice
Presidents, Cashier, Secretary, Treasurer, and such other employees as may be
required to transact the business of this Association, to fix the salaries to be
paid to such officers and employees of this Association; and to dismiss any
officers and employees and appoint others to take their place.
The Board of Directors shall have the power to define the duties of
officers and employees of this Association and to require adequate bonds from
them for the faithful performance of their duties; to make all By-Laws that may
be lawful for the general regulation of the business of this Association and the
management of its affairs, and generally to do and perform all acts that may be
lawful for a Board of Directors to do and perform.
16
<PAGE> 17
Any person may be indemnified or reimbursed by the Association for
reasonable expenses actually incurred by him in connection with any action,
suit, or proceeding to which he is made a party by reason of his being or having
been a Director, officer, or employee of this Association: PROVIDED, HOWEVER,
that no person shall be so indemnified or reimbursed in relation to any action
suit, or proceeding in which he shall finally be adjudged to have been negligent
in the performance of his duties or to have committed an act or failed to
perform a duty for which there is a common-law or a statutory liability: AND,
PROVIDED, FURTHER, that no person shall be so indemnified or reimbursed in
relation to any action, suit, or proceeding which has been made the subject of a
compromise settlement, except with the approval of the holders of record of a
majority of the outstanding shares of this Association. The foregoing right of
indemnification or reimbursement shall not be exclusive of other rights to which
such person may be entitled as a matter of law.
The Board of Directors shall have the power to change the location of the
main office of this Association to any other place within the limits of the City
of Minneapolis, the State of Minnesota, without the approval of the shareholders
of this Association but subject to the approval of the Comptroller of the
Currency; and shall have the power to change the location of any branch or
branches of this Association to any other location, without the approval of the
shareholders of this Association but subject to the approval of the Comptroller
of the Currency.
SEVENTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
EIGHTH. The Board of Directors of this Association, or any three or more
shareholders owning, in the aggregate, not less than ten per centum (10%) of the
stock of this Association, may call a special meeting of shareholders at any
time.
Unless otherwise provided by the laws of the United States, a notice of the
time, place, and purpose of every regular annual, and every special meeting of
the shareholders shall be given by first-class mail, postage prepaid, mailed at
least ten (10) days prior to the date of such meeting to each shareholder of
record at his address as shown upon the books of this Association.
17
<PAGE> 18
Subject to the provisions of the laws of the United States, these Articles
of Association may be amended at any meeting of the shareholders for which
adequate notice has been given, by the affirmative vote of the owners of a
majority of the stock of this Association, voting in person or by proxy.
IN WITNESS WHEREOF, we have hereunto set our hands on this 18th day of
June, 1980.
<TABLE>
<S> <C>
/s/ Lowell W. Andreas /s/ Frederick L. Deming
- -------------------------------------------- --------------------------------------------
Lowell W. Andreas Frederick L. Deming
/s/ Sister Mary Madonna Ashton /s/ James B. Goetz
- -------------------------------------------- --------------------------------------------
Sister Mary Madonna Ashton James B. Goetz
/s/ Howard E. Barnhill /s/ James H. Hearon, III
- -------------------------------------------- --------------------------------------------
Howard E. Barnhill James H. Hearon, III
/s/ Marvin Borman /s/ Walter W. Heller
- -------------------------------------------- --------------------------------------------
Marvin Borman Walter W. Heller
/s/ Edward C. Brown, Jr. /s/ C. Bernard Jacobs
- -------------------------------------------- --------------------------------------------
Edward C. Brown, Jr. C. Bernard Jacobs
/s/ Kenneth H. Dahlberg /s/ C. Wilbur Peters
- -------------------------------------------- --------------------------------------------
Kenneth H. Dahlberg C. Wilbur Peters
/s/ John H. Daniels /s/ Ralph C. Turnquist
- -------------------------------------------- --------------------------------------------
John H. Daniels Ralph C. Turnquist
</TABLE>
DIRECTORS
18
<PAGE> 19
NATIONAL CITY BANK
BALANCE SHEET
JUNE 30, 1996
<TABLE>
<CAPTION>
JUNE 30
---------------------
1996 1995
-------- --------
<S> <C> <C>
(IN THOUSANDS)
(UNAUDITED)
ASSETS
Cash and Due From Banks................................................ $ 35,512 $ 31,590
Federal Funds Sold and Resale Agreements............................... 410 25,600
Available-for-Sale Securities.......................................... 129,951 113,102
Held-to-Maturity Securities............................................ 26,985 35,957
Loans.................................................................. 391,597 353,335
Less: Valuation Allowance for Loan Losses............................ (6,210) (5,252)
-------- --------
Net Loans...................................................... 385,387 348,083
Bank Premises and Equipment............................................ 10,979 3,871
Accrued Income Receivable.............................................. 4,359 3,583
Customer Acceptance Liability.......................................... 226 84
Other Assets........................................................... 19,392 15,429
-------- --------
ASSETS................................................................. $613,201 $577,299
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:.............................................................. $118,142 $112,251
Non-interest Bearing................................................. 313,275 272,737
Total Deposits.................................................... 431,417 384,988
Federal Funds Purchased and Repurchase Agreements...................... 108,451 112,024
Other Borrowed Funds................................................... 14,559 21,119
Acceptances Outstanding................................................ 226 84
Other Liabilities...................................................... 6,872 7,675
-------- --------
Total Liabilities.................................................... 561,525 525,890
Stockholders' Equity:
Common Stock, Par Value $5.00
Authorized 2,500,000 Shares
Issued 2,400,000.................................................. 12,000 12,000
Surplus.............................................................. 12,000 12,000
Unrealized Losses Net of Tax Effect.................................. (1,355) (518)
Undivided Profits.................................................... 29,031 27,927
-------- --------
Total Stockholders' Equity........................................ 51,676 51,409
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY................................... $613,201 $577,299
======== ========
</TABLE>
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULES BELOW CONTAIN SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE UNAUDITED FINANCIAL STATEMENTS OF ENSTAR AND THE NOTES
THERETO, AND ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 120
<SECURITIES> 0
<RECEIVABLES> 9,709
<ALLOWANCES> (516)
<INVENTORY> 6,746
<CURRENT-ASSETS> 16,507
<PP&E> 4,525
<DEPRECIATION> (2,903)
<TOTAL-ASSETS> 35,770
<CURRENT-LIABILITIES> 12,687
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,603
<TOTAL-LIABILITY-AND-EQUITY> 35,770
<SALES> 31,793
<TOTAL-REVENUES> 31,793
<CGS> 23,503
<TOTAL-COSTS> 23,503
<OTHER-EXPENSES> 8,123
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (139)
<INCOME-PRETAX> 28
<INCOME-TAX> (53)
<INCOME-CONTINUING> (25)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 602
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
