ENSTAR INC, 424B1, 1996-11-08

ENSTAR INC
424B1, 1996-11-08
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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<PAGE> 1

FILED PURSUANT TO

RULE 424B(1)

REG. NO. 333-12301

$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
November 7, 1996, the Company had no outstanding Senior Indebtedness or other
indebtedness, other than Senior Indebtedness in the aggregate amount of
approximately $31.1 million (the "NSU Assumed Indebtedness"). The NSU Assumed
Indebtedness ranks senior to the Subordinated Debentures and represents
indebtedness of North Star Universal, Inc., the sole shareholder of the Company
("NSU"), assumed by the Company in connection with the transfer by NSU to the
Company of all of the capital stock of Americable and Transition and the shares
of CorVel common stock. NSU has agreed to satisfy, and indemnify the Company in
full for, all payment and other obligations in respect of such NSU Assumed
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>
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
- ------------------------------------------------------------------------------------------------
Per Debenture................................... 100% None 100%
- ------------------------------------------------------------------------------------------------
Total........................................... $10,000,000 None $10,000,000
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
</TABLE>

(1) Before deducting expenses payable by the Company estimated at $60,449

THE DATE OF THIS PROSPECTUS IS NOVEMBER 7, 1996

<PAGE> 2

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.

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<PAGE> 3

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 November 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 November 7, 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 $31.1 million aggregate principal amount
of subordinated indebtedness as of November 7, 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 company whose stock will be held by the shareholders
of NSU. It is anticipated that the ENStar Common

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<PAGE> 4

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." In connection with
the Merger, Michael has agreed to cause NSU to pay in full all NSU Assumed
Indebtedness within six months following consummation of the Merger.

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.

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<PAGE> 5

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
November 7, 1996, the Company had no
outstanding Senior Indebtedness or other
indebtedness, other than Senior Indebtedness in
the aggregate amount of approximately $33.8
million (the "NSU Assumed Indebtedness"). The
NSU Assumed Indebtedness ranks senior to the
Subordinated Debentures and represents
indebtedness of NSU assumed by the Company in
connection with the transfer by NSU to the
Company of all of the capital stock of
Americable and Transition and the shares of
CorVel common stock. NSU has agreed to satisfy,
and indemnify the Company in full for, all
payment and other obligations in respect of
such NSU Assumed Indebtedness. In addition, in
connection with the Merger, Michael has agreed
to cause NSU to pay in full all NSU Assumed
Indebtedness within six months following
consummation of the Merger. See "DESCRIPTION OF
DEBENTURES -- Subordination."

5
<PAGE> 6

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>
NINE MONTHS ENDED
SEPTEMBER 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........................ $49,151 $40,593 $54,891 $47,193 $46,756 $42,025 $37,007
Operating income (loss)......... 410 618 1,033 (702) (1,978) (1,151) (666)
Interest expense, net........... (191) (210) (247) (348) (361) (373) (415)
Income (loss) before income
taxes and equity in earnings
of unconsolidated
subsidiary.................... 219 408 786 (1,050) (2,339) (1,524) (1,081)
------- ------- ------- ------- ------- ------- -------
Net income (loss)............... $ 1,053 $ 1,050 $ 1,572 $ 286 $(1,524) $ (550) $ (302)
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share(2)...................... $ 0.32 $ 0.32 $ 0.49 $ 0.09 $ (0.48) $ (0.17) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Pro forma net weighted average
shares outstanding(2)......... 3,307 3,284 3,217 3,235 3,146 3,146 3,296
BALANCE SHEET DATA (END OF
PERIOD)(1)
Total assets.................... $36,512 $35,752 $35,251 $32,243 $30,222 $30,318 $29,497
Long-term debt, including
current maturities............ 163 2,162 1,246 3,607 3,443 3,898 3,323
Operating unit equity........... 20,393 20,128 19,694 18,176 17,035 17,262 16,737
</TABLE>

- -------------------------
(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. Except for 1994, in which year stock options which were antidilutive
for computation of earnings per share at NSU, such options were dilutive
when computing earnings per share for Enstar.

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<PAGE> 7

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 and the nine months ended
September 30, 1996, ENStar generated operating income of approximately $1.0
million and $410,000, respectively. 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

7
<PAGE> 8

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. 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 nine month periods ending
September 30, 1996 and 1995, the ratio of earnings to fixed charges was 1.55 and
2.03, 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 November 7, 1996, the
Company had no outstanding Senior Indebtedness or other indebtedness, other than
NSU Assumed Indebtedness in the aggregate amount of approximately $31.1 million.
The NSU Assumed Indebtedness was assumed by the Company in connection with the
transfer by NSU to the Company of all of the capital stock of Americable and
Transition and the shares of CorVel common stock. NSU has agreed to satisfy, and
indemnify the Company in full for, all payment and other obligations in respect
of such NSU Assumed Indebtedness. In addition, in connection with the Merger,
Michael has agreed to cause NSU to pay in full all NSU Assumed Indebtedness
within six months following consummation of the Merger. 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."

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<PAGE> 9

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 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,

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experienced delays in the introduction of certain of its new products and
enhancements. See "BUSINESS -- Business Strategy -- Transition" and "-- Products
and Services -- Transition."

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

10
<PAGE> 11

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 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 nine months of 1996, Mayo Foundation accounted
for approximately 11% and 14%, respectively, of Americable's 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 65% of its revenues from its 100 largest customers in the
first nine months 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 nine months 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 nine months of
1996, Transition's largest international customer accounted for approximately
11% and 12%, respectively, of international net sales (4% and 4%, respectively,
overall). Moreover, the ten distributors that sold the largest amount of
Transition's products accounted for approximately 39% and 43%, respectively, of
Transition's net sales for 1995 and the first nine months 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

11
<PAGE> 12

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 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 nine month period ended September
30, 1996, total inventory write-offs as a percentage of net sales were
approximately 1% and 1.7%, respectively. 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> 13

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> 14

THE COMPANY

ENStar, a Minnesota corporation formed in 1995, is a wholly owned
subsidiary of NSU. On November 7, 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 26% 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.

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." In connection with the Merger, Michael has agreed to cause NSU to
pay in full all NSU Assumed Indebtedness within six months following
consummation of the Merger.

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

14
<PAGE> 15

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.

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.

RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 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...... 1.55 2.03 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.

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

15
<PAGE> 16

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> 17

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 nine-month periods ending September 30, 1996 and 1995
and years ended December 31, 1995, 1994 and 1993, and the combined balance sheet
data at September 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 nine-month periods ended September 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 nine months
ended September 30, 1996 are not necessarily indicative of the results to be
expected for the entire year.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 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.......................... $49,151 $40,593 $54,891 $47,193 $46,756 $42,025 $37,007
Operating income (loss)........... 410 618 1,033 (702) (1,978) (1,151) (666)
Interest expense, net............. (191) (210) (247) (348) (361) (373) (415)
Income (loss) before income taxes
and equity in earnings of
unconsolidated subsidiary....... 219 408 786 (1,050) (2,339) (1,524) (1,081)
------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $ 1,053 $ 1,050 $ 1,572 $ 286 $(1,524) $ (550) $ (302)
======= ======= ======= ======= ======= ======= =======
Pro forma net income (loss) per
share(1)........................ $ 0.32 $ 0.32 $ 0.49 $ 0.09 $ (0.48) $ (0.17) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Pro forma net weighted average
shares outstanding(1)........... 3,307 3,284 3,217 3,235 3,146 3,296 3,261
COMBINED BALANCE SHEET DATA (END
OF PERIOD)
Total assets...................... $36,512 $35,752 $35,251 $32,243 $30,222 $30,318 $29,497
Long-term debt, including current
maturities...................... 163 2,162 1,246 3,607 3,443 3,898 3,323
Operating unit equity............. 20,393 20,128 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> 18

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 November 7, 1996, NSU
contributed its stock of Americable, Transition and CorVel to ENStar. At
November 7, 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> 19

The following are unaudited summarized operating results for ENStar's two
operating subsidiaries for the nine months ended September 30, 1996 and
September 30, 1995, and each of the three years ended December 31, 1995 (in
thousands):

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues
Americable................................... $38,221 $31,050 $42,160 $36,940 $38,266
Transition................................... 12,166 10,656 14,266 11,779 10,025
Eliminations................................. (1,236) (1,113) (1,535) (1,526) (1,535)
------- ------- ------- ------- -------
$49,151 $40,593 $54,891 $47,193 $46,756
======= ======= ======= ======= =======
Gross Profit
Americable................................... $ 8,494 $ 7,551 $ 9,979 $ 8,262 $10,254
Transition................................... 4,510 3,967 5,387 4,603 3,903
------- ------- ------- ------- -------
$13,004 $11,518 $15,366 $12,865 $14,157
======= ======= ======= ======= =======
Selling, General and Administrative Expenses
Americable................................... $ 7,510 $ 6,658 $ 8,814 $ 8,220 $10,075
Transition................................... 4,261 3,328 4,465 4,252 2,985
Restructuring charges........................ -- -- -- -- 1,953
Allocable corporate expenses................. 823 914 1,054 1,095 1,122
------- ------- ------- ------- -------
$12,594 $10,900 $14,333 $13,567 $16,135
======= ======= ======= ======= =======
Operating Income (Loss)
Americable................................... $ 984 $ 893 $ 1,165 $ 42 $ 179
Transition................................... 249 639 922 351 918
Restructuring charges........................ -- -- -- -- (1,953)
Allocable corporate expenses................. (823) (914) (1,054) (1,095) (1,122)
------- ------- ------- ------- -------
$ 410 $618 $ 1,033 $ (702) $(1,978)
======= ======= ======= ======= =======
</TABLE>

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1996 vs. NINE MONTHS ENDED SEPTEMBER 30, 1995

Consolidated revenues increased $8.5 million, or 21%, to $49.1 million from
$40.6 million in 1995.

Revenues at Americable increased approximately $7.2 million, or 23%, to
$38.2 million. Increased sales of networking products of approximately $8.0
million and increased revenues from installation and services of approximately
$900,000, both due primarily to higher demand, contributed to the increase in
sales at Americable. Included in these amounts is approximately $1.9 million of
higher sales of networking products to one customer, which is not expected to
continue during the remainder of the year and throughout 1997. For the period,
sales of networking products and services and installation were approximately
$20.1 million, or 53%, and $2.9 million, or 8%, of Americable's revenues,
respectively. Sales of cable and other connectivity products decreased
approximately $1.5 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 first three quarters of 1996. In
addition, sales of cable assemblies decreased approximately $200,000, due to
lower demand experienced between periods.

Revenues at Transition increased approximately $1.5 million, or 14.2%, to
$12.2 million. Sales of Transition's advanced LAN products increased
approximately $540,000, or 52% to $1.6 million, reflecting additional revenues
from new products and product enhancements introduced during 1995 and 1996.
Sales from new product introductions and enhancements accounted for
approximately 13% of net sales for the nine

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<PAGE> 20

months ended September 30, 1996 versus 41% for the comparable period in 1995.
Sales of basic LAN and terminal products increased approximately $970,000, or
10%, to $10.6 million. Sales to domestic customers increased approximately $1.1
million, or 16%, to $7.9 million which primarily reflects higher demand for
Transition's products. Sales to international customers increased approximately
$400,000, or 10%, to $4.3 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 26.5% in
1996 as compared to 28.4% 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 $1.7 million or 15.5%, to $12.6 million from $10.9 million in
1995. The increase in operating expenses at Americable reflects increased
selling expenses of approximately $560,000 due to higher sales salaries,
commissions and related expenses and approximately $300,000 of higher
engineering expenses due to the addition of technical and engineering personnel.
Overall, general and administrative expenses of Americable were relatively
unchanged between years. Americable expects that its selling expenses, as a
percentage of revenues, may increase during the remainder of 1996 and throughout
1997. Such increases resulted from the addition of sales and technical personnel
and costs associated with the release of a new catalog in the first quarter of
1996. 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 reduction in operating profits at Americable.

Transition had increased operating expenses of approximately $933,000, or
28%, which reflects increased engineering expenses of approximately $445,000 due
to the addition of engineering personnel associated with new product
development. In addition, this increase also reflects higher sales and marketing
expenses of approximately $450,000, 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 for the remainder of 1996 and throughout 1997. 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.

ENStar's research and development expenses (incurred exclusively within
Transition) were approximately $1.1 million versus $900,000 for the nine month
periods ended September 30, 1996 and 1995, respectively.

Corporate expenses decreased approximately $91,000, or 10% primarily due to
lower professional fees.

Net interest expense decreased $19,000 to $191,000 from $210,000 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 $84,000 to
$956,000 from $872,000 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 its annual and quarterly reports as filed on
Forms 10-K and 10-Q with the Securities and Exchange Commission.

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<PAGE> 21

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 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

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<PAGE> 22

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.

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.

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<PAGE> 23

CAPITAL RESOURCES AND LIQUIDITY

ENStar has experienced cash flow deficits from operations in certain prior
years 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 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 provided by operations
was $640,000 for the nine months ended September 30, 1996, versus approximately
$1.0 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 September 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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<PAGE> 24

BUSINESS

GENERAL

ENStar was formed on December 21, 1995, as a wholly owned subsidiary of
NSU. On November 7, 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 November 7,
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 November 6, 1996 was
$28.00. 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 September 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> 25

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> 26

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.

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.

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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<PAGE> 28

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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<PAGE> 29

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 and 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. Americable installs Bay
Networks, Inc.'s Optivity network management software, one of the leading

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<PAGE> 30

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 CheckPoint 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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<PAGE> 31

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> 32

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 nine months of 1996, Mayo Foundation accounted
for approximately 11% and 14%, respectively, of net sales. In addition, in 1995
and the first nine months of 1996, Americable derived approximately 61% and 65%,
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 nine months of 1996, revenues from outside the
United States accounted for approximately 37% and 35%, 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> 33

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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<PAGE> 34

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> 35

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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<PAGE> 36

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 May 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.

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<PAGE> 37

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> 38

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> 39

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> 40

DESCRIPTION OF DEBENTURES

GENERAL

The Debentures will be issued under an Indenture, dated as of November 7,
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. Senior Indebtedness under the Indenture also includes all NSU
Assumed Indebtedness. (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> 41

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 November 7, 1996,
the Company had no outstanding Senior Indebtedness or other indebtedness, other
than NSU Assumed Indebtedness in the aggregate amount of approximately $31.1
million. The NSU Assumed Indebtedness ranks senior to the Subordinated
Debentures and represents indebtedness of NSU assumed by the Company in
connection with the transfer by NSU to the Company of all of the capital stock
of Americable and Transition and the shares of CorVel common stock. NSU has
agreed to satisfy, and indemnify the Company in full for, all payment and other
obligations in respect of such NSU Assumed Indebtedness. In addition, in
connection with the Merger, Michael has agreed to cause NSU to pay in full all
NSU Assumed Indebtedness within six months following consummation of the Merger.

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

41
<PAGE> 42

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 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

42
<PAGE> 43

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 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)).

43
<PAGE> 44

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.

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> 45

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 nine months ended September 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 September 30, 1996
and December 31, 1995 and 1994..................................................... F-3
Combined Statements of Operating Unit Equity for the nine months ended September 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 nine months ended September
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 six months ended September 30, 1995 and
1996............................................................................... F-26
Consolidated Balance Sheets as of March 31, 1996 and as of September 30, 1996........ F-27
Consolidated Statements of Cash Flows for the six months ended September 30, 1995
and 1996........................................................................... F-28
Notes to Consolidated Financial Statements........................................... F-29
</TABLE>

F-1
<PAGE> 46

ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT INCOME

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues....................................... $49,151 $40,593 $54,891 $47,193 $46,756
Operating and product costs.................... 36,147 29,075 39,525 34,328 32,599
------- ------- ------- ------- -------
Gross profit................................... 13,004 11,518 15,366 12,865 14,157
Selling, general and administrative expenses... 12,594 10,900 14,333 13,567 14,182
Restructuring charges.......................... -- -- -- -- 1,953
------- ------- ------- ------- -------
Operating income (loss)........................ 410 618 1,033 (702) (1,978)
Interest expenses.............................. (191) (210) (247) (348) (361)
------- ------- ------- ------- -------
Income (loss) before taxes and equity in
earnings of unconsolidated subsidiary........ 219 408 786 (1,050) (2,339)
Income tax provision (benefit)................. 122 230 405 (340) (70)
------- ------- ------- ------- -------
Income (loss) before equity in earnings of
unconsolidated subsidiary.................... 97 178 381 (710) (2,269)
Equity in earnings of unconsolidated
subsidiary................................... 956 872 1,191 996 745
------- ------- ------- ------- -------
Net income (loss).............................. $ 1,053 $ 1,050 $ 1,572 $ 286 $(1,524)
======= ======= ======= ======= =======
Pro forma income (loss) per share.............. $ 0.32 $ 0.32 $ 0.49 $ 0.09 $ (0.48)
======= ======= ======= ======= =======
Weighted average shares outstanding............ 3,307 3,284 3,217 3,235 3,146
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-2
<PAGE> 47

ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
(UNAUDITED) DECEMBER 31,
SEPTEMBER 30, -------------------
1996 1995 1994
------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 174 $ 246 $ 74
Accounts receivable, net of allowance for doubtful
accounts ($527 in 1996, $400 in 1995 and $333 in
1994).................................................. 9,704 8,784 7,516
Inventories............................................... 6,629 6,631 6,083
Prepaid expenses and other................................ 367 274 237
Net assets held for sale.................................. -- 1,032 714
------- ------- -------
Total current assets................................... 16,874 16,967 14,624
Property and equipment, net................................. 1,572 1,453 1,586
Goodwill.................................................... 4,841 4,960 5,121
Investment in unconsolidated subsidiary..................... 13,199 11,682 9,627
Other....................................................... 26 189 1,285
------- ------- -------
$36,512 $35,251 $32,243
======= ======= =======
LIABILITIES AND OPERATING UNIT EQUITY
Current liabilities
Notes payable to bank..................................... $ 1,115 $ 937 $ --
Current maturities of long-term debt...................... 17 1,088 428
Accounts payable.......................................... 5,829 5,239 4,232
Accrued expenses.......................................... 5,522 5,163 3,613
------- ------- -------
Total current liabilities............................ 12,483 12,427 8,273
Long-term debt, less current maturities..................... 146 158 3,179
Deferred income taxes....................................... 3,490 2,972 2,615
Commitments and contingencies............................... -- -- --
Operating unit equity....................................... 20,393 19,694 18,176
------- ------- -------
$36,512 $35,251 $32,243
======= ======= =======
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-3
<PAGE> 48

ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT EQUITY
(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)........................................................... 1,053
Effect of equity transactions of unconsolidated subsidiary (unaudited)........... (45)
Constructive Dividend (unaudited)................................................ (309)
-------
Balance of September 30, 1996 (unaudited).......................................... $20,393
=======
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-4
<PAGE> 49

ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
COMBINED STATEMENTS OF OPERATING UNIT CASH FLOWS

<TABLE>
<CAPTION>
(UNAUDITED)
NINE MONTHS ENDED
SEPTEMBER 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)....................... $ 1,053 $ 1,050 $ 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......................... (956) (872) (1,191) (996) (745)
Non-cash restructuring charges....... -- -- -- -- 1,567
Depreciation and amortization........ 693 619 837 848 715
Deferred income taxes................ (88) (350) (465) (200) (460)
Translation adjustment............... -- -- -- -- (198)
Changes in operating assets and
liabilities, net of effects of
restructuring charges
Accounts receivable................ (920) (1,202) (1,268) (1,980) 819
Inventories........................ 2 (596) (548) 420 (406)
Accounts payable, accrued expenses
and other....................... 856 2,363 2,202 653 213
-------- -------- -------- -------- --------
Net cash provided by (used in)
operating activities............... 640 1,012 1,139 (969) (19)
-------- -------- -------- -------- --------
Cash flows from investing activities
Capital expenditures................. (693) (458) (543) (541) (1,089)
Collections on notes receivable...... 258 98 1,096 577 481
Other................................ (95) -- -- -- --
-------- -------- -------- -------- --------
Net cash provided by (used in)
investing activities............... (530) (360) 553 36 (608)
-------- -------- -------- -------- --------
Cash flows from financing activities
Proceeds from long-term debt......... 50,238 41,287 56,073 48,868 23,267
Payments on long-term debt........... (51,143) (42,732) (57,497) (48,704) (23,693)
Additional capital invested
(constructive dividends)........... 723 920 (96) 782 1,024
-------- -------- -------- -------- --------
Net cash provided by (used in)
financing activities............... (182) (525) (1,520) 946 598
-------- -------- -------- -------- --------
Net increase (decrease) in cash and
cash equivalents................... (72) 127 172 13 (29)
Cash and cash equivalents at beginning of
year.................................... 246 74 74 61 90
-------- -------- -------- -------- --------
Cash and cash equivalents at end of
year.................................... $ 174 $ 201 $ 246 $ 74 $ 61
======== ======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these combined statements.

F-5
<PAGE> 50

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 prior to 1996. 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 September 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,
September 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
nine months ended September 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 nine months ended September 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> 51

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,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods................................... $ 4,813 $4,092 $2,864
Purchased parts.................................. 1,816 2,539 3,219
------- ------ ------
$ 6,629 $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,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Leasehold improvements........................... $ 341 $ 304 $ 276
Office and computer equipment.................... 4,318 3,720 3,262
------- ------ ------
4,659 4,024 3,538
Less -- accumulated depreciation and
amortization................................... 3,087 2,571 1,952
------- ------ ------
$ 1,572 $1,453 $1,586
======= ====== ======
</TABLE>

GOODWILL Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization was $1,704,000 at September 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,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Payroll and related benefits..................... $ 895 $ 749 $ 439
Insurance reserves............................... 1,095 905 794
Discontinued operations.......................... 2,069 1,614 545
Other............................................ 1,463 1,895 1,835
------- ------ ------
$ 5,522 $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> 52

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
million in 1995, $1.2 million in 1994, $822,000 in 1993 and $1.1 million and
$710,000 for the nine months ended September 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 (9,922,000 and 9,852,000 for the periods ended September 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 nine months ended September 30, 1996 and 1995, the Unit's
investment in its unconsolidated subsidiary decreased by $76,000 in 1996 and
increased by $76,000 in 1995 while Operating Unit equity decreased by $45,000
and $18,000, net of deferred taxes, during 1996 and 1995. In addition, the
constructive dividend for the nine months ended September 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> 53

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 nine month period ended September 30, 1996 (in thousands):

<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
Current assets....................................... $44,298 $ 36,739
Noncurrent assets.................................... 17,711 15,514
Current liabilities.................................. 8,495 8,696
Noncurrent liabilities............................... 2,880 765
Revenues............................................. 84,826 106,814
Gross profit......................................... 15,847 19,640
Net income........................................... 5,712 7,038
</TABLE>

At December 31, 1995 and September 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 September 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 $37.2 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). 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,
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,
SEPTEMBER 30, ----------------
1996 1995 1994
------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Revolving line of credit......................... $ -- $ -- $2,107
Term note payable................................ -- 1,071 1,500
Other............................................ 163 175 --
----- ------ ------
163 1,246 3,607
Less current maturities.......................... 17 1,088 428
----- ------ ------
$ 146 $ 158 $3,179
===== ====== ======
</TABLE>

F-9
<PAGE> 54

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 September
30, 1996, are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------------------------------------------
<S> <C>
1996......................................................... $ 5
1997......................................................... 18
1998......................................................... 20
1999......................................................... 22
2000......................................................... 25
2001 and thereafter.......................................... 73
----
$163
====
</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 September 30, 1996, there were outstanding borrowings of $1,115,000
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 $4.9 million of available borrowings under this credit
facility at September 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>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ ---------------------------
1996 1995 1995 1994 1993
---- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Current
Federal.................... $180 $ 490 $ 740 $(120) $ 330
State...................... 30 90 130 (20) 60
--- ---- ---- ----- ----
210 580 870 (140) 390
--- ---- ---- ----- ----
Deferred:
Federal.................... (77) (305) (405) (175) (400)
State...................... (11) (45) (60) (25) (60)
--- ---- ---- ----- ----
(88) (350) (465) (200) (460)
--- ---- ---- ----- ----
$122 $ 230 $ 405 $(340) $ (70)
=== ==== ==== ===== ====
</TABLE>

F-10
<PAGE> 55

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>
NINE MONTHS ENDED
SEPTEMBER 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............... 8.5 11.1 8.9 (4.3) --
Losses producing no current
benefit........................ -- -- -- -- 28.4
Goodwill amortization............ 12.4 10.1 7.0 5.1 2.3
Other............................ .8 1.2 1.6 0.8 0.3
----- ---- ---- ----- ----
55.7% 56.4% 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,
SEPTEMBER 30, ------------------
1996 1995 1994
------------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Investment in Corvel........................... $(4,944) $(4,339) $(3,517)
Accrued expenses not deductible until paid..... 1,780 1,729 1,338
Other.......................................... (326) (362) (436)
------- ------- -------
$(3,490) $(2,972) $(2,615)
======= ======= =======
</TABLE>

NOTE 8 -- COMMITMENTS AND CONTINGENCIES

LEASING COMMITMENTS The Unit leases certain equipment and facilities under
operating leases. At September 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................................. $179
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 nine months ended September 30, 1996 and 1995, total rent expense was
$691,000 and $624,000.

CONTINGENCIES 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 the number of shares of CorVel common stock owned
by ENStar to 1,025,000, which would represent

F-11
<PAGE> 56

ENSTAR
(AN OPERATING UNIT OF NORTH STAR UNIVERSAL, INC.)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)

approximately 22% of the outstanding shares of CorVel common stock as of
September 30, 1996 (see Notes 1 and 4).

As a result of the expected transfer of a substantial portion of the assets
of North Star to ENStar, ENStar will enter into a supplemental indenture with
North Star pursuant to which ENStar will assume the obligations of North Star
with respect to certain debenture indebtedness of North Star. North Star will,
however, separately agree to satisfy, and hold ENStar harmless from, all payment
and other obligations with respect to such debenture indebtedness. The amount of
such indebtedness was $33,770,000 at September 30, 1996. Following the transfer
to ENStar of the assets described in Note 1, North Star will continue to own
7,354,950 shares of Michael which had a fair market value of approximately $75
million at September 30, 1996. Assuming completion of the merger agreement
between North Star and Michael and the distribution of ENStar to shareholders of
North Star, (see Note 1), Michael, with stockholder equity of approximately $185
million at September 30, 1996, will become obligated to repay such indebtedness
within six months following the merger. ENStar will remain contingently liable
for the debenture indebtedness of North Star until repaid.

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.
The note bears interest at the Unit's principal bank's reference rate plus 1%
(9.5% at December 31, 1995). A principal payment of $150,000 was made in
December 1995. During the nine months ended September 30, 1996, this note was
paid in full.

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>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
------------------ -----------------------------
1996 1995 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Revenues from unaffiliated customers in the
United States................................. $44,867 $36,710 $49,668 $43,020 $43,616
Europe........................................ 2,889 2,470 3,363 2,737 2,230
Other......................................... 1,395 1,413 1,860 1,436 910
------- ------- ------- ------- -------
$49,151 $40,593 $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
September 30, 1996.

F-12
<PAGE> 57

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.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota
February 15, 1996

F-13
<PAGE> 58

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> 59

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> 60

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> 61

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> 62

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> 63

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> 64

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> 65

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> 66

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> 67

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> 68

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> 69

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> 70

CORVEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
SIX MONTHS ENDING SEPTEMBER
30,
----------------------------
1995 1996
----------- -----------
<S> <C> <C>
REVENUES........................................................ $53,642,000 $59,570,000
Cost of Revenues................................................ 43,797,000 48,692,000
----------- -----------
Gross profit.................................................... 9,845,000 10,878,000
General and administrative expenses............................. 4,075,000 4,210,000
----------- -----------
Income before income taxes...................................... 5,770,000 6,668,000
Income tax provision............................................ 2,251,000 2,534,000
----------- -----------
NET INCOME...................................................... $ 3,519,000 $ 4,134,000
=========== ===========
Net income per common and common equivalent share............... $ .76 $ .87
=========== ===========
Weighted average common and common equivalent shares............ 4,627,000 4,760,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-26
<PAGE> 71

CORVEL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, 1996 1996
-------------- -------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents....................................... $ 17,113,000 $ 22,122,000
Accounts receivable, net........................................ 18,394,000 20,264,000
Prepaid taxes and expenses...................................... 545,000 162,000
Deferred income taxes........................................... 2,032,000 1,750,000
----------- -----------
Total current assets......................................... 38,084,000 44,298,000
----------- -----------
Property and Equipment, Net....................................... 11,468,000 12,015,000
Other Assets...................................................... 4,432,000 5,696,000
----------- -----------
TOTAL ASSETS............................................ $ 53,984,000 62,009,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable................................................ $ 3,057,000 $ 3,596,000
Accrued liabilities............................................. 4,246,000 4,899,000
----------- -----------
Total current liabilities.................................... 7,303,000 8,495,000
----------- -----------
Deferred income taxes............................................. 1,370,000 2,880,000
Stockholders' Equity
Common stock...................................................... -- --
Paid-in-capital................................................... 26,401,000 27,590,000
Retained earnings................................................. 18,910,000 23,044,000
----------- -----------
Total stockholders' equity................................... 45,311,000 50,634,000
----------- -----------
TOTAL LIABILITIES AND EQUITY............................ $ 53,984,000 62,009,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE> 72

CORVEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------------
1995 1996
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net income...................................................... $ 3,519,000 $ 4,134,000
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization................................ 1,362,000 1,987,000
Changes in operating assets and liabilities
Accounts receivable........................................ (3,188,000) (1,870,000)
Prepaid taxes and expenses................................. 30,000 383,000
Accounts payable........................................... 375,000 539,000
Accrued liabilities........................................ 677,000 653,000
Income taxes payable....................................... (131,000) 1,792,000
Other assets............................................... 437,000 46,000
----------- -----------
Net cash provided by operating activities....................... 3,081,000 7,664,000
----------- -----------
Cash flows from investing activities
Net assets purchased in acquisition............................. -- (1,375,000)
Additions to property and equipment............................. (2,241,000) (2,469,000)
----------- -----------
Net cash used in investing activities........................... (2,241,000) (3,844,000)
----------- -----------
Cash flows from financing activities
Sale of common and exercise of stock options and related
tax benefits.................................................... 1,146,000 1,189,000
----------- -----------
Net cash provided by financing activities....................... 1,146,000 1,189,000
----------- -----------
Increase (decrease) in cash:...................................... 1,986,000 5,009,000
Cash and cash equivalents at beginning............................ 13,211,000 17,113,000
----------- -----------
Cash and cash equivalents at end.................................. $15,197,000 $22,122,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE> 73

CORVEL CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 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 September 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> 74

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> 75

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

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
Prospectus Summary...................... 3
Risk Factors............................ 7
The Company............................. 14
Ratio of Earnings to Fixed Charges...... 15
Use of Proceeds......................... 15
Plan of Distribution.................... 15
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.................. 44
Experts................................. 44
Index to Combined Financial
Statements............................ F-1
</TABLE>

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

- ------------------------------------------------------
- ------------------------------------------------------
ENSTAR INC.
8.00% TWO YEAR
9.75% FIVE YEAR
11.00% TEN YEAR

SUBORDINATED DEBENTURES
--------------------

PROSPECTUS
--------------------

NOVEMBER 7, 1996

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