ENSTAR INC, 424B1, 1997-04-07

ENSTAR INC
424B1, 1997-04-07
COMPUTERS & PERIPHERAL EQUIPMENT & SOFTWARE

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<PAGE> 1
424b(1)
File No. 333-24007

$25,000,000

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 $25 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 Subordinated 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 March 25, 1997, the Company had no outstanding Senior
Indebtedness, other than Senior Indebtedness in the aggregate amount of
approximately $27.2 million (the "Michael Assumed Indebtedness"). The Michael
Assumed Indebtedness ranks senior to the Subordinated Debentures and represents
indebtedness of Michael Foods, Inc (formerly known as North Star Universal,
Inc.,) the former shareholder of the Company ("NSU"), assumed by the Company in
connection with the Reorganization Transactions described herein. See "Business
- -- Reorganization Transactions." Michael has agreed to satisfy, and indemnify
the Company in full for, all payment and other obligations in respect of such
Michael Assumed Indebtedness. As of March 25, 1997, the Company had outstanding
other indebtedness in the aggregate principal amount of approximately $3.0
million represented by subordinated debentures that rank pari passu with the
Subordinated Debentures offered hereby. 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 April 1999; 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 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
============================================================================================================
UNDERWRITING
PRICE TO DISCOUNT AND PROCEEDS TO
PUBLIC COMMISSION COMPANY(1)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Debenture................................... 100% None 100%
- ------------------------------------------------------------------------------------------------------------
Total........................................... $25,000,000 None $25,000,000
============================================================================================================
</TABLE>

(1) Before deducting expenses payable by the Company estimated at $95,000.

THE DATE OF THIS PROSPECTUS IS APRIL 4, 1997
<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.

2
<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.

THE COMPANY

ENStar, a Minnesota corporation formed in 1995, 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. At March 25, 1997,
ENStar (through Americable) also owned 1,025,000 shares of common stock of
CorVel Corporation ("CorVel"), or an approximate 23% interest in CorVel, a
provider of cost containment and managed care services designed to address the
medical costs of workers' compensation.

ENStar was formerly a wholly owned subsidiary of NSU. In connection with
transactions (the "Reorganization Transactions") consummated pursuant to a
reorganization agreement entered into between NSU and Michael Foods, Inc.
("Michael"), NSU transferred, on or prior to February 28, 1997, to ENStar
certain of its assets, including its shares of common stock of Americable and
Transition and its shares of CorVel and certain other assets. Pursuant to the
Reorganization Transactions, (i) NSU merged with Michael and (ii) the
outstanding common stock of ENStar (the "ENStar Common Stock") was distributed
to the shareholders of NSU (the "Distribution"). As a result of the
Distribution, ENStar ceased to be a subsidiary of NSU and became a publicly
owned company whose stock is quoted on the Nasdaq National Market under the
symbol "ENSR." In connection with the Reorganization Transactions, Michael has
agreed to pay in full all Michael Assumed Indebtedness within six months of
consummation of the Reorganization Transactions, and Michael has notified
holders of the Michael Assumed Indebtedness that it intends to redeem such
indebtedness on April 15, 1997. In connection with the Reorganization
Transactions, ENStar agreed to indemnify Michael against certain losses arising
from the Reorganization Transactions and to assume certain liabilities of NSU.
See "BUSINESS -- Reorganization Transactions."

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. As a network integrator, Americable Network
Technologies provides products and services designed to build and manage LAN and
wide area network ("WAN") infrastructures for large and medium sized
organizations. These network services include planning, implementation,
maintenance, security and product fulfillment. Following the completion of the
Reorganization Transactions, Americable's network integration business was
renamed ENStar Networking Corporation. As a value-added distributor, Americable
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 and patch panels) and networking hardware.
Through American Custom Products, Americable provides manufacturing capabilities
designed 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.

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.
3
<PAGE> 4

THE OFFERING

Securities Offered............ The Company is offering up to $25,000,000
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. 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 March
25, 1997, the Company had no outstanding Senior
Indebtedness, other than Senior Indebtedness in
the aggregate amount of approximately $27.2
million (the "Michael Assumed Indebtedness").
The Michael Assumed Indebtedness ranks senior
to the Subordinated Debentures and was assumed
by the Company in connection with
Reorganization Transactions. Michael has agreed
to satisfy, and indemnify the Company in full
for, all payment and other obligations in
respect of such Michael Assumed Indebtedness.
In addition, in connection with the
Reorganization Transactions, Michael has agreed
to pay in full all Michael Assumed Indebtedness
within six months of consummation of the
Reorganization Transactions, and Michael has
notified holders of the Michael Assumed
Indebtedness that it intends to redeem such
indebtedness on April 15, 1997. As of March 25,
1997, the Company had outstanding other
indebtedness in the aggregate principal amount
of approximately $3.0 million represented by
subordinated debentures that rank pari passu
with the Subordinated Debentures offered
hereby. See "DESCRIPTION OF DEBENTURES --
Subordination."
4
<PAGE> 5

SELECTED HISTORICAL CONSOLIDATED FINANCIAL INFORMATION

The following table sets forth certain selected historical consolidated
financial information of ENStar that has been derived from and should be read in
conjunction with ENStar's Consolidated Financial Statements, including the Notes
thereto, which are included elsewhere in this Prospectus:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA(1)
Revenues........................................ $64,123 $54,891 $47,193 $46,756 $42,025
Operating income (loss)......................... (53) 1,033 (702) (1,978) (1,151)
Interest expense, net........................... (204) (247) (348) (361) (373)
Income (loss) before income taxes and equity in
earnings of unconsolidated subsidiary......... (257) 786 (1,050) (2,339) (1,524)
------- ------- ------- ------- -------
Net income (loss)............................... $ 1,072 $ 1,572 $ 286 $(1,524) $ (550)
======= ======= ======= ======= =======
Net income (loss) per share(2).................. $ 0.32 $ 0.49 $ 0.09 $ (0.48) $ (0.17)
======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding(2)......................... 3,309 3,217 3,235 3,146 3,146
CONSOLIDATED BALANCE SHEET DATA (END OF
PERIOD)(1)
Total assets.................................... $36,015 $35,251 $32,243 $30,222 $30,318
Long-term debt, including current maturities.... 1,178 1,246 3,607 3,443 3,898
Shareholders' equity............................ 20,947 19,694 18,176 17,035 17,262
</TABLE>

- -------------------------
(1) See Notes 1 and 2 to Notes to ENStar's Consolidated Financial Statements for
a description of the entities included in the consolidated financial
statements and the basis on which the consolidated financial statements were
prepared.
(2) Net income (loss) per share was computed using the weighted average number
of outstanding shares of NSU Common Stock during each period presented
adjusted for the Distribution of one share of ENStar Common Stock for every
three shares of NSU Common Stock outstanding. Except for 1994, in which year
stock options were not dilutive for computation of earnings per share at
NSU, such options were dilutive when computing earnings per share for
ENStar.
5
<PAGE> 6

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.

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 1992, 1993, 1994 and 1996. During 1995, ENStar generated operating
income of approximately $1.0 million. Further ENStar expects to record an
operating loss for the year ended December 31, 1997 primarily as a result of
expected reduction in demand from certain large customers at Americable and the
costs associated with the addition to the number of services offered to
Americable customers, the addition of new engineering and sales personnel at
Americable and Transition and weaker than expected demand for Transition's
products. 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 customers' 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 $1.5 million (9% of net sales) in 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.

6
<PAGE> 7

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 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.

Sustained operating losses 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 OPERATIONS 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, 1996, 1995, 1994, 1993 and 1992 was (.50), 2.54,
(0.72), (2.68) and (1.46), respectively. During the years 1996, 1994, 1993, and
1992, the Company's earnings were inadequate to cover its fixed charges. The
coverage deficiency was approximately $257,000, $1,050,000, $2,339,000 and
$1,524,000 for the fiscal years ended December 31, 1996, 1994, 1993 and 1992,
respectively. Based on the Company's recent cash flow deficits, 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 March 25, 1997, the
Company had no outstanding Senior Indebtedness, other than Michael Assumed
Indebtedness in the aggregate amount of approximately $27.2 million. The Michael
Assumed Indebtedness was assumed by the Company in connection with the
Reorganization Transactions. Michael has agreed to satisfy, and indemnify the
Company in full for, all payment and other obligations in respect of such
Michael Assumed Indebtedness, and has agreed to cause NSU to pay in full all
Michael Assumed Indebtedness within six months of consummation of the
Reorganization Transactions. Michael has notified holders of the Michael Assumed
Indebtedness that it intends to redeem the Michael Assumed Indebtedness on April
15, 1997. As of March 25, 1997, the Company had outstanding other indebtedness
in the aggregate principal amount of approximately $3.0 million represented by
subordinated debentures that rank pari passu with the Subordinated Debentures
offered hereby. 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

7
<PAGE> 8

Company will be able to issue additional indebtedness, additional equity
securities or sell any of its assets on favorable terms or at all. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION -- Capital Resources and Liquidity."

REDEMPTION

The Company, at its option, may at any time redeem all or a portion of the
outstanding Debentures at any time prior to maturity on at least 30 days (but
not more than 60 days) notice to each holder of Debentures to 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 $25 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 CONDITION -- 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 to sell a large portion of the holdings of CorVel Common
Stock at a given time.

PRODUCT AND SERVICE DEVELOPMENT RISKS

With respect to Transition, the market for networking products is subject
to rapid technological change, evolving industry standards and frequent new
product introductions and, therefore, requires a high level of expenditures for
research and development. Transition may be required to incur significant
expenditures to develop such product offerings. There can be no assurance that
Transition will be successful in identifying, sourcing, developing and marketing
product enhancements or new products that respond to this rapidly changing
market. Also, there can be no assurance that its product enhancements and new
products will adequately meet the requirements of the marketplace and achieve
market acceptance. A critical factor in market acceptance of product
enhancements and new products is the timely introduction of such products and
enhancements in order to take advantage of existing market opportunities.
Transition has, in the past, experienced delays in the introduction of certain
of its new products and enhancements. See "BUSINESS -- Business
Strategy -- Transition" and "-- Products and Services -- Transition."

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

8
<PAGE> 9

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 OPERATIONS AND FINANCIAL
CONDITION."

At Americable, the purchase of its products and services generally involves
a significant commitment of capital, with the delays frequently associated with
large capital expenditures and required authorization procedures within an
organization. Such expenditures by customers can range from $50,000 to over
$500,000. The sales cycle for Americable's products and services generally
ranges from three to nine months depending on the size of the project, extent of
competition and degree of the customer's technical expertise. For these and
other reasons, Americable's operating results are subject to a number of risks
over which it has little or no control, including customers' technology life
cycle needs, budgetary constraints and internal authorization reviews. Further,
Americable is increasing its operating expenses, including an increase in
personnel, based on anticipated revenue growth in its networking line of
business.

9
<PAGE> 10

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 1996, Mayo Foundation accounted for approximately 11% and
12%, respectively, of Americable's net sales. During the first quarter of 1997,
Americable has experienced a significant reduction in demand from Mayo
Foundation which is expected to continue. This reduction in demand will
adversely impact ENStar's results of operations during 1997, and thereafter, to
the extent sales from new and existing customers at Americable are not
sufficient to offset this decline. 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 62% of its revenues
from its 100 largest customers in 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
1996, Americable was Transition's largest domestic customer accounting for
approximately 14% and 13%, respectively, of domestic net sales (9% and 9%,
respectively, overall). During 1995 and 1996, Transition's largest international
customer accounted for approximately 11% and 11%, 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
1996.

Any termination or significant disruption of the companies' relationships
with a number of its principal customers could have a material adverse effect on
ENStar's business, financial condition and results of operations. In addition, a
deterioration in the financial condition of any of its principal customers could
expose ENStar to the possibility of large accounts receivable write-offs, which
would adversely affect ENStar's financial condition and results of operations.
See "BUSINESS -- Marketing and Customers."

DEPENDENCE ON KEY SUPPLIERS AND PRODUCT SUPPLY

The networking industry has experienced product supply shortages and
customer order backlogs due to the inability of certain manufacturers to supply
certain products on a timely basis. In addition, certain suppliers have
initiated new channels of distribution that increase competition for the
available product supply. There can be no assurance that suppliers will be able
to maintain an adequate supply of products to fulfill Americable's and
Transition's customer orders on a timely basis. Both Americable and Transition
have experienced product supply shortages in the past and expect to experience
such shortages from time to time in the future. Failure to obtain adequate
product supplies or fulfill customer orders on a timely basis or substantial
change in the cost of components could affect the companies' ability to deliver
products in a timely

10
<PAGE> 11

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 1996,
approximately 23% 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 1996, total inventory write-offs as a
percentage of net sales were approximately 1% and 2.3%, respectively. During the
fourth quarter of 1996, Transition recorded approximately $500,000 of provision
for inventory obsolescence related to the discontinuance of one of its advanced
LAN stackable hub product lines. 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.

11
<PAGE> 12

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 CompuCom Systems 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 Anicom, Inc., 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."

CONTROL BY MICHAEL FAMILY

James A. Michael and Jeffrey J. Michael, each a member of the Board of
Directors of ENStar, and certain limited partnerships controlled by them (the
"Michael Family Shareholders"), beneficially own approximately 1,906,158 (or
57.6%) of the outstanding Common Stock of ENStar as of March 3, 1997. See
"Principal Shareholders." Accordingly, the Michael Family Shareholders will have
the ability to exercise significant influence over the business and affairs of
ENStar, including the ability to approve or reject corporate actions requiring
the approval of shareholders.

INDEMNIFICATION OBLIGATIONS WITH RESPECT TO REORGANIZATION TRANSACTIONS

In connection with the Reorganization Transactions, ENStar agreed to
indemnify Michael against certain losses and to assume certain liabilities of
NSU, including any liabilities arising out of the Distribution and any taxes
resulting from the Distribution. See "BUSINESS -- Reorganization Transactions."
There can be no assurance that any obligation to indemnify Michael for any such
loss or other liability will not have a material adverse effect on the business,
financial condition and results of operations of ENStar.

12
<PAGE> 13

THE COMPANY

ENStar was formerly a wholly owned subsidiary of NSU. In connection with
the Reorganization Transactions, NSU transferred to ENStar, on or prior to
February 28, 1997, certain of its assets, including its shares of common stock
of Americable and Transition and its shares of CorVel, and certain other assets.
Pursuant to the Reorganization Transactions, (i) NSU merged with Michael and
(ii) the outstanding common stock of ENStar (the "ENStar Common Stock") was
distributed to the shareholders of NSU (the "Distribution"). As a result of the
Distribution, ENStar ceased to be a subsidiary of NSU and became a publicly
owned company whose stock is quoted on the Nasdaq National Market under the
symbol "ENSR." In connection with the Reorganization Transactions, Michael
agreed to pay in full all Michael Assumed Indebtedness within six months of
consummation of the Reorganization Transactions. Michael has notified holders of
the Michael Assumed Indebtedness that it intends to redeem the Michael Assumed
Indebtedness on April 15, 1997. In addition, in connection with the
Reorganization Transactions, ENStar agreed to indemnify Michael against certain
losses and to assume certain liabilities of NSU. See "BUSINESS -- Reorganization
Transactions." ENStar is a holding company. Its principal subsidiaries are
Americable and Transition. ENStar also owns 1,025,000 shares of common stock of
CorVel, or an approximate 23% 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. As a network integrator, Americable
Network Technologies provides products and services designed to build and manage
LAN and WAN infrastructures for large and medium sized end-users. These network
services include planning, implementation, maintenance, security and product
fulfillment. Following the completion of the Reorganization Transactions,
Americable's network integration business was renamed ENStar Networking
Corporation. As a value-added distributor, Americable 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 and patch panels) and networking hardware. Through Americable Custom
Products, Americable provides manufacturing capabilities 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.

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.

13
<PAGE> 14

RATIO OF EARNINGS TO FIXED CHARGES

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges..................... (.50) 2.54 (0.72) (2.68) (1.46)
Deficiency in earnings to fixed charges................ $257 $ -- $1,050 $2,339 $1,524
</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. Proceeds from the sale of Debentures may also be
used from time to time to repurchase ENStar Common Stock depending on market
conditions, and, at such time as outstanding Debentures come due, the Company
may use proceeds from the sale of new Debentures offered hereby to retire such
maturing Debentures. 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 $25 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 April 1999; however, the Company
reserves the right to terminate this offering of Debentures at any time prior to
such date. In compliance with Rule 3a4-1 of the Exchange Act of 1934, the
officers and employees of the Company will limit their participation in the
offering of Debentures to preparation of written communication or delivery of
communication through the mail or other means that do not involve oral
solicitation by the officer or employee, responding to inquiries of a potential
purchaser in a communication initiated by the potential purchaser, or performing
ministerial and clerical work related to the offering. No underwriting discounts
or commissions of any kind will be paid to such officers or employees in
connection with this offering. No minimum amount of the Debentures must be sold
in order for the Company to accept and deposit the proceeds of this offering.

The Debentures only may be purchased by means of the offer to purchase
Debentures contained in the form of Subscription Agreement provided by the
Company (the "Subscription Agreement"). The Company will not accept an offer to
purchase Debentures or negotiate checks delivered for payment on the sale of
Debentures unless the prospective purchaser has previously received this
Prospectus. In the event that the Company receives a properly executed
Subscription Agreement and payment for the purchase of Debentures from any
person who has previously received this Prospectus, but who has not received a
current post-effective amendment thereto, the Company will not accept the
Subscription Agreement nor accept any payment therefor until the lapse of five
business days following the mailing of a confirmation of sale and current post-
effective amendment to such prospective purchaser. During this five business day
period, any prospective purchaser of Debentures may revoke his or her offer,
orally or in writing, and the Company will promptly

14
<PAGE> 15

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.

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.

15
<PAGE> 16

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 Results of Operations and Financial Condition and the Consolidated
Financial Statements and the Notes thereto included elsewhere herein. (See Notes
1 and 2 to Notes to Consolidated Financial Statements for a description of the
entities included in the consolidated financial statements and the basis on
which the consolidated financial statements were prepared.) The consolidated
statements of operations data for the years ended December 31, 1996, 1995 and
1994, and the consolidated balance sheet data December 31, 1996 and 1995 are
derived from, and are qualified by reference to, the audited consolidated
financial statements included elsewhere in this Prospectus and should be read in
conjunction with those consolidated financial statements and notes thereto. The
consolidated statements of operations data for the years ended December 31, 1993
and 1992 and the consolidated balance sheet data at December 31, 1994, 1993 and
1992 are derived from audited consolidated financial statements not included
herein.

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA
Revenues........................................ $64,123 $54,891 $47,193 $46,756 $42,025
Operating income (loss)......................... (53) 1,033 (702) (1,978) (1,151)
Interest expense, net........................... (204) (247) (348) (361) (373)
Income (loss) before income taxes and equity in
earnings of unconsolidated subsidiary......... (257) 786 (1,050) (2,339) (1,524)
------- ------- ------- ------- -------
Net income (loss)............................... $ 1,072 $ 1,572 $ 286 $(1,524) $ (550)
======= ======= ======= ======= =======
Net income (loss) per share(1).................. $ 0.32 $ 0.49 $ 0.09 $ (0.48) $ (0.17)
======= ======= ======= ======= =======
Weighted average common and common equivalent
shares outstanding(1)......................... 3,309 3,217 3,235 3,146 3,146
CONSOLIDATED BALANCE SHEET DATA (END OF PERIOD)
Total assets.................................... $36,015 $35,251 $32,243 $30,222 $30,318
Long-term debt, including current maturities.... 1,178 1,246 3,607 3,443 3,898
Shareholders' equity............................ 20,947 19,694 18,176 17,035 17,262
</TABLE>

- -------------------------
(1) Net income (loss) per share was computed using the weighted average number
of outstanding shares of NSU Common Stock during each period presented
adjusted for the Distribution of one share of ENStar Common Stock for every
three shares of NSU Common Stock outstanding. Except for 1994, in which year
stock options were not dilutive for computation of earnings per share at
NSU, such options were dilutive when computing earnings per share for
ENStar.

16
<PAGE> 17

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Consolidated
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 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. At December 31, 1996 ENStar also owned 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. In January 1997, ENStar sold
200,000 shares of CorVel reducing its ownership interest to approximately 23%
and, in connection with the Reorganization Transactions, distributed the
proceeds of approximately $5.1 million from the sale to NSU in the form of a
dividend. 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.

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 Consolidated Financial Statements of ENStar,
the Consolidated Statements of Operations of ENStar include an allocation of
general and administrative costs incurred by

17
<PAGE> 18

NSU prior to the consummation of the Reorganization Transactions 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 the consummation of the Reorganization Transactions.

The following are summarized operating results for ENStar's two operating
subsidiaries for the years ended December 31, 1996, 1995, and 1994 (in
thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues
Americable................................................ $48,667 $42,160 $36,940
Transition................................................ 17,055 14,266 11,779
Eliminations.............................................. (1,599) (1,535) (1,526)
------- ------- -------
$64,123 $54,891 $47,193
======= ======= =======
Gross Profit
Americable................................................ $11,000 $ 9,979 $ 8,262
Transition................................................ 5,837 5,387 4,603
------- ------- -------
$16,837 $15,366 $12,865
======= ======= =======
Selling, General and Administrative Expenses
Americable................................................ $ 9,829 $ 8,814 $ 8,220
Transition................................................ 5,934 4,465 4,252
Allocable corporate expenses.............................. 1,127 1,054 1,095
------- ------- -------
$16,890 $14,333 $13,567
======= ======= =======
Operating Income (Loss)
Americable................................................ $ 1,171 $ 1,165 $ 42
Transition................................................ (97) 922 351
Allocable corporate expenses.............................. (1,127) (1,054) (1,095)
------- ------- -------
$ (53) $ 1,033 $ (702)
======= ======= =======
</TABLE>

RESULTS OF OPERATIONS

1996 vs. 1995

Consolidated revenues increased $9.2 million, or 17%, to $64.1 million from
$54.9 million in 1995.

Revenues at Americable increased approximately $6.5 million, or 15%, to
$48.7 million. This includes increased sales of networking products of
approximately $8.3 million and increased revenues from installation and services
of approximately $700,000, both due primarily to higher demand. Included in
these amounts is approximately $1.6 million of higher sales of networking
products to one customer, which is not expected to continue throughout 1997. For
1996, sales of networking products and services and installation were
approximately $25 million, or 51%, of Americable's revenues. Sales of cable and
other connectivity products decreased approximately $2.3 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 in 1996. In
addition, sales of cable assemblies decreased approximately $200,000, due to
lower demand experienced between periods.

Revenues at Transition increased approximately $2.8 million, or 20%, to
$17.1 million. Sales of Transition's advanced LAN products increased
approximately $1.2 million or 79% to $2.6 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 21% of net sales for 1996 versus 9% for 1995. Sales of basic LAN
and terminal products increased approximately $1.6 million, or 14%, to $14.5
million. Sales to domestic customers increased approximately $2 million, or 24%,
to $11.1 million

18
<PAGE> 19

which primarily reflects higher demand for Transition's products. Sales to
international customers increased approximately $800,000, or 15%, to $6 million,
which was primarily a result of the addition of new customers. Sales to
international customers accounted for approximately 35% and 37% of net sales in
1996 and 1995, respectively. 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 26.3% in
1996 as compared to 28% 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. Decreased margins at Transition are primarily the result of
approximately $500,000 of inventory write-downs recorded in the fourth quarter
of 1996. ENStar expects its gross profit margins to continue to decline in 1997
due to expected competitive pricing pressures on products sold by both
Americable and Transition.

ENStar's selling, general and administrative expenses increased
approximately $2.6 million or 17.8%, to $16.9 million from $14.3 million in
1995. The increase in operating expenses at Americable reflects increased
selling expenses of approximately $757,000 due to higher sales salaries,
commissions and related expenses and approximately $422,000 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 anticipates that its revenues in 1997 will be adversely impacted
by an expected reduction in demand from its two largest customers in addition to
the effects related to its transition to more of a networking service provider.
Further, Americable expects that its selling expenses, as a percentage of
revenues, will increase in 1997. Such increases will result from the addition of
sales and technical personnel and promotional, training and other related costs
associated with its service offerings. As a result of these anticipated
increases in operating expenses, in addition to possible reductions in revenues,
ENStar expects to record operating losses during 1997.

Transition had increased operating expenses of approximately $1.5 million,
or 33%, which reflects increased engineering expenses of approximately $520,000
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 $890,000, 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 during 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 $1.5 million and $1 million for 1996 and 1995,
respectively. The increase in research and development expenses is primarily due
to the addition of new engineering personnel associated with new product
development.

Corporate expenses increased approximately $73,000, or 7% primarily due to
higher professional fees.

Net interest expense decreased $43,000 to $204,000 from $247,000 in 1995,
due primarily to lower interest rates between years under the Americable and
Transition credit facilities.

The income tax provision in 1996 and 1995 reflects ENStar's estimated
effective annual tax rate. See Note 7 to Consolidated Financial Statements of
ENStar.

Equity in earnings of unconsolidated subsidiaries increased approximately
$100,000 to $1.3 million from $1.2 million 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

19
<PAGE> 20

Condition and Results of Operations section of its annual and quarterly reports
as filed on Forms 10-K and 10-Q with the Securities and Exchange Commission.

1995 VERSUS 1994

Revenues at Americable increased approximately $5.2 million, or 14.1%, to
$42.1 million. This includes increased revenues of $4.5 million resulting from
higher demand for networking products. Of this amount, approximately $3.1
million of sales were attributable to higher volume of networking products with
a large end-user customer. 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 as a result of
higher demand for OEM assemblies, which was 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.

Consolidated 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.

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.

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.

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 Consolidated 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.

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<PAGE> 21

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.

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 $72,000 in 1996 and $1 million in 1994, versus net
cash provided from operations of approximately $1.1 million in 1995.

ENStar does not have the use of cash generated by CorVel and its
subsidiaries. Also, since its initial public offering in 1991, CorVel has not
declared any dividends and has indicated that it does not anticipate doing so
for the foreseeable future. ENStar may from time to time, depending on market
conditions and other factors, sell a portion of its CorVel holdings. The ability
of ENStar 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 to
sell a large portion of the CorVel holdings at a given time.

In November 1996, ENStar commenced a program (the "Debenture Program"),
similar to one previously maintained by NSU, whereby it sells subordinated
debentures of various maturities to primarily individual investors. The
debentures are offered on a continuous basis at interest rates that change from
time to time depending on market conditions. At December 31, 1996, the Company
had $945,000 principal amount of subordinated debentures outstanding with
weighted average interest rate of 9.44%. Interest on ENStar's outstanding
debentures accrues annually and is payable monthly, quarterly, or at maturity.

In January 1997, ENStar sold 200,000 shares of CorVel for approximately
$5.1 million cash. Prior to consummation of the Reorganization Transactions on
February 28, 1997, these proceeds along with approximately $1.4 million were
paid in the form of a cash dividend to NSU.

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 facilities are based on eligible
accounts receivable and inventory with interest at prime (8.25% at December 31,
1996), with optional fixed rate advances at the London Interbank Offered Rate
("LIBOR") plus 2.5%. At December 31, 1996, there were outstanding borrowings of
approximately $1.3 million under the revolving line of credit. There were
approximately $4.7 million of available borrowings under these credit facilities
at December 31, 1996.

ENStar expects to be able to fund its working capital and capital
expenditure requirements for 1997 with cash flow from operations along with the
amounts available under the credit facilities of its operating companies. During
1997, ENStar's operating plans call for approximately $1.1 million in capital
expenditures.

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<PAGE> 22

BUSINESS

GENERAL

ENStar was formed in December 1995 as a wholly owned subsidiary of NSU. In
connection with the Reorganization Transactions, NSU transferred to ENStar, on
or prior to February 28, 1997, certain of its assets, including its shares of
common stock of Americable and Transition and its shares of CorVel, and certain
other assets. Pursuant to the Reorganization Transactions, (i) NSU merged with
Michael and (ii) the outstanding common stock of ENStar (the "ENStar Common
Stock") was distributed to the shareholders of NSU (the "Distribution"). As a
result of the Distribution, ENStar ceased to be a subsidiary of NSU and became a
publicly owned company whose stock is quoted on the Nasdaq National Market under
the symbol "ENSR." See "-- Reorganization Transactions."

ENStar's operations consist of the operations of Americable and Transition.
ENStar directly employs seven management and administrative employees. In
addition, at March 25, 1997, ENStar owned 1,025,000 shares of CorVel common
stock, which represents approximately 23% 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
March 24, 1997, was $25.50.

ENStar 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.

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, 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 ENStar for election
as directors of CorVel.

In connection with the Distribution, ENStar transferred all of its CorVel
Common Stock to Americable to satisfy certain federal income tax requirements
relating to the Reorganization Transactions. Neither ENStar nor Americable has
any agreement with CorVel requiring CorVel to register the shares of CorVel
Common Stock. In the absence of registration of its CorVel Common Stock, the
ability of ENStar 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 to sell a large portion of holdings of CorVel Common Stock at a given
time.

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<PAGE> 23

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 two primary business units, Americable Network Technologies
and Americable Distribution, which are described in more detail below.

As a network integrator, Americable Network Technologies provides products
and services designed to build and manage LAN and WAN infrastructures for large
and medium sized end-users. These networking services include planning,
implementation, maintenance, security and product fulfillment. Following the
completion of the Reorganization Transactions, Americable's network integration
business was renamed ENStar Networking Corporation. 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.

As a value-added distributor, 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 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.

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<PAGE> 24

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 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 1997 the
overall market in the United States for networking products and services was
approximately $80 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 1996, approximately 5,000 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.

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<PAGE> 25

From 1991 to 1996, Americable's domestic sales have increased from $27.6
million to $48.7 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 1996 represented 8% of Americable's total
revenues, of which approximately 2% 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.

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 1996:

<TABLE>
<CAPTION>
AS A PERCENT OF SALES
---------------------
<S> <C>
Networking Products........................... 51%
Services and Installation..................... 8%
Cable Assemblies.............................. 15%
Bulk Cable.................................... 12%
Other Connectivity Products................... 14%
</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 both
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.

25
<PAGE> 26

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 Planning -- Through the combination of its advanced engineering
and project management teams, Americable assists its customers with
project planning including requirements design, detailed design and
implementation planning. These services are either offered as part of an
overall project or arranged separately as a billable service.

- Network Implementation -- 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., 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"). Americable also 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.

- Network Management -- Americable provides and installs network management
systems that provide its customers with the capability of network
troubleshooting, diagnostics, security, optimization and proactive
network maintenance all from a single workstation. Americable installs
Bay Networks, Inc.'s Optivity network management software, and 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). Through its Technical Response Center, (TRC),
Americable also offers its customers the capabilities for remote network
management, diagnostics and security.

- Structured Wiring Systems -- Americable provides project management,
design and implementation of structured wiring systems for data
communications.

- Network Maintenance -- 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. Through the TRC Americable can provide remote
diagnostic capabilities as part of its maintenance services. The TRC is
capable of receiving a customer call, remotely diagnosing the problem,
searching for an application solution and, if necessary, dispatching a
regional engineer to perform on-site troubleshooting. 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 offers a wide-range of security services
for customers with Internet and intranetwork applications. Such services
includes policy development, physical security planning, security
verification, network and systems security, employee security, remote
access security and security management. Americable is an authorized
reseller of the CheckPoint Fire Wall - 1, a security product offered by
CheckPoint Software Technologies, Ltd., in addition to products offered
by Internet Security Systems Inc. ("ISS") and Security Dynamics
Technologies, Inc.

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 77% of Americable's net sales in 1996. In addition to
value-added distribution sales, Americable Network Technologies will oversee the
design and implementation of projects involving multiple LANs across a WAN,
consisting of multi-vendor hardware products and several thousand nodes.
Value-added projects generally range in size from $10,000 to $500,000. During
1996, sales derived from value-added projects and services consisted of
approximately 17% 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.

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<PAGE> 27

Americable Distribution

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 size of the division
during 1996 was approximately $700. The distribution business of Americable
(including sales of cable assemblies) constituted approximately 23% of
Americable's net sales in 1996.

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 manufacturing capabilities 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. Americable is in 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 1996, sales to OEM customers constituted approximately 24% of
total cable assembly sales and approximately 4% 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................................... 23%
Basic LAN products.......................................... 62%
Advanced LAN products....................................... 15%
</TABLE>

27
<PAGE> 28

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.

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.

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. Transition expects a
significant portion of its sales growth in the future will be derived from the
introduction of new advanced LAN products. However, 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 that the sales growth will be achieved.

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 50 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 an authorized 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 1996, Mayo Foundation accounted for approximately 11% and
14%, respectively, of net sales. In addition, in 1995 and 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

28
<PAGE> 29

United Kingdom, South Africa, Australia and Sweden. During 1995 and 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.

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
$1.5 million (9% of net sales) for the year ended December 31, 1996. For 1997,
Transition has budgeted research and development expenses of approximately $1.9
million.

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.

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 CompuCom
Corporation, 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 Anicom, 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.

29
<PAGE> 30

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.

PROPERTIES

Americable. 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 Chicago, Illinois (10,000 square feet), 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 27,000
square feet of leased space. Of this space, approximately 1,900 square feet is
occupied by ENStar's corporate offices.

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.

REORGANIZATION TRANSACTIONS

Pursuant to the Reorganization Transaction, NSU merged with Michael and the
outstanding ENStar Common Stock was distributed to the shareholders of NSU in
the Distribution. As a result of the Distribution, ENStar ceased to be a
subsidiary of NSU and became a publicly owned company whose stock is quoted on
the Nasdaq National Market under the symbol "ENSR."

In connection with the Reorganization Transactions, Michael has agreed to
pay in full all Michael Assumed Indebtedness within six months of consummation
of the Reorganization Transactions. Michael has notified holders of the Michael
Assumed Indebtedness that it intends to redeem the Michael Assumed Indebtedness
on April 15, 1997. Michael also agreed to pay, perform and discharge all
liabilities of NSU arising at any time prior to February 28, 1997 (the effective
date of the Reorganization Transactions (the "Effective Date")), other than the
following liabilities retained by NSU: (i) liabilities arising from the
assertion of dissenters rights by NSU shareholders in connection with the
Reorganization Transactions, (ii) obligations under certain agreements entered
into in connection with the Reorganization Transactions.

In connection with the Reorganization Transactions, ENStar agreed to
indemnify Michael and any subsidiaries of Michael against certain liabilities
including: (i) all liabilities (other than the liabilities assumed by Michael)
of NSU or any NSU subsidiary, arising out of: (a) the liabilities transferred to
ENStar by NSU and (b) the transactions contemplated by the agreement governing
the Distribution (the "Distribution

30
<PAGE> 31

Agreement"), including the Distribution and any taxes as a result of the
Distribution; (ii) all liabilities arising from any claim made by any
shareholder of ENStar 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 Reorganization Transactions; (iii) all
liabilities assumed by ENStar relating to the employee benefit plans of NSU;
(iv) any breach of the Distribution Agreement by ENStar; and (v) damages, costs,
and expenses including attorney's fees incurred in defending and settling claims
for such liabilities.

In connection with the Reorganization Transactions, Michael agreed to
indemnify ENStar 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 assumed by Michael; (iii) all
liabilities of Michael or any subsidiary of Michael; (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 Reorganization Transactions; (v) any
breach of the Distribution Agreement by NSU; and (vi) damages, costs and
expenses including attorney's fees incurred in defending and settling claims for
such obligations, expenses or liabilities.

31
<PAGE> 32

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
C.S. Mondelli..................... 46 President and Chief Executive Officer,
Transition
</TABLE>

Mr. James H. Michael has served as Chairman of the Board of ENStar since
March 1996. Prior to such time, Mr. Michael served on the Board of Directors of
NSU since July 1991. Mr. Michael is the father of Jeffrey J. Michael, ENStar's
President and Chief Executive Officer.

Mr. Miles E. Efron has served on the Board of Directors of ENStar since
March 1996. Prior to such time, Mr. Efron served on the Board of Directors of
NSU since July 1991. 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 has served as a director of ENStar since March 1996.
Prior to such time, Mr. Braun served on the Board of Directors of NSU since
1994, he 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 the President and Chief Executive
Officer of ENStar since March 1996. Mr. Michael was an initial director and
officer (serving as President and Secretary) of ENStar at the time it was
organized in December 1995 until March 1996. Mr. Michael continues to serve on
the Board of Directors of ENStar. Prior to the closing of the Reorganization
Transactions, Mr. Michael 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 the Executive Vice President of ENStar
since March 1996. Mr. Flynn was an initial director and officer (serving as Vice
President and Treasurer) of ENStar at the time it was organized in December 1995
until March 1996. Prior to the closing of the Reorganization Transactions, Mr.
Flynn 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 is a director of CorVel.

Mr. Thomas S. Wargolet has served as Chief Financial Officer and Secretary
of ENStar since March 1996. Prior to such time, Mr. Wargolet serves as the
Controller of NSU since September 1989. Mr. Wargolet was also the Director of
Finance of Americable from September 1991 until January 1995. Since January
1995,

32
<PAGE> 33

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. 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 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 the Board of Directors or 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 ENStar'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

In March, 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 "ENStar Stock Incentive Plan"). The ENStar Stock Incenctive 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 ENStar Stock Incentive 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 ENStar Stock Incentive 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 ENStar Stock
Incentive 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 ENStar Stock Incentive 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

33
<PAGE> 34

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
ENStar Stock Incentive 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.

SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION

The following table provides certain summary information concerning
compensation paid to or accrued in 1996 by the Chief Executive Officer and all
other executive officers of the Company whose salary and bonus earned in 1996
exceeded $100,000 (the "Named Executive Officers"). All of the amounts set forth
below were paid by NSU except for the grant of certain stock options.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION(1)(2)(3)
--------------------------- ------ ----- ---------- ---------------------
<S> <C> <C> <C> <C>
Jeffrey J. Michael..................... $235,000 $ -- 28,500 $7,196
President and Chief Executive Officer
Peter E. Flynn......................... 161,330 100,000 23,500 6,889
Executive Vice President
Thomas S. Wargolet..................... 87,231 26,100 49,250(5) 2,890
Chief Financial Officer and Secretary
C.S. Mondelli.......................... 120,000 24,000 70,000(6) 2,769
President and Chief Executive Officer
of Transition
Gary L. Eizenga(4)..................... 165,577 65,000 150,000(7) 4,750
Former President and Chief Executive
Officer of Americable
</TABLE>

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

(1) Represents amounts contributed to the NSU 401(k) Plan for the benefit of
each of the Named Executive Officers in the following amounts: Mr. Michael,
$4,750; Mr. Flynn, $4,750; Mr. Wargolet, $2,890; Mr. Mondelli, $2,769; and
Mr. Eizenga, $4,750.

(2) None of the Named Executive Officers held or received any awards of
restricted shares.

(3) Includes life and disability insurance premiums paid by NSU for the benefit
of each of Messrs. Michael and Flynn.

(4) Mr. Eizenga's employment with Americable was terminated in February 1997.

(5) Includes options to purchase 35,000 shares of Americable common stock.

(6) Represents options to purchase shares of Transition common stock.

(7) Represents options to purchase shares of Americable common stock.

34
<PAGE> 35

Option Grants

The following table summarizes options granted during the year ended
December 31, 1996 to the Named Executive Officers.

OPTION GRANTS DURING YEAR ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
% OF TOTAL VALUE AT ASSUMED
OPTIONS ANNUAL RATES OF STOCK
GRANTED PRICE APPRECIATION
TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------
NAME GRANTED(1) IN 1996(2) PER SHARE DATE 5%($) 10%($)
---- ---------- ---------- --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey J. Michael............... 28,500 37.0% $9.00 03/05/06 $161,311 408,795
Peter E. Flynn................... 23,500 30.5 9.00 03/05/06 133,011 337,077
Thomas S. Wargolet............... 14,250 18.5 9.00 03/05/06 80,656 204,397
35,000(4) 10.1 0.82 12/02/06 18,049 45,740
C.S. Mondelli.................... 70,000(5) 23.5 1.25 10/01/06 55,028 139,452
Gary L. Eizenga.................. 150,000(4) 43.5 0.82 12/02/06 77,354 196,030
</TABLE>

- -------------------------
(1) Unless otherwise indicated, each option represents the right to purchase one
share of Common Stock of ENStar. The options shown in this table are all
non-qualified stock options granted pursuant to the ENStar Stock Incentive
Plan. The options to purchase shares of ENStar Common Stock granted to
Messrs. Michael, Flynn and Wargolet for 28,500 shares, 23,500 shares and
14,250 shares, respectively, become exercisable with respect to 25% of such
shares over a period of four years from the date of grant and have a term of
ten years. The options to purchase shares of Americable common stock granted
to Mr. Wargolet for 35,000 shares become exercisable with respect to 20% of
such shares on the date of grant and on each anniversary of the date of
grant during the four year period thereafter, and have a term of ten years.
The options to purchase shares of Americable common stock grant to Mr.
Eizenga for 150,000 shares become exercisable with respect to 50% of such
shares on the date of grant, 20% on each second and third anniversary of the
date of grant and 10% on the third anniversary of the date of grant, and
have a term of ten years. The options granted to Mr. Eizenga were terminate,
unexercised, in connection with the termination of his employment with
Americable in February 1997. The options to purchase shares of Transition
Common Stock granted to Mr. Mondelli for 70,000 shares become exercisable
with respect to 20% of such shares on the date of grant and on each February
20 during the four year period following the date of grant, and have a term
of ten years. To the extent not already exercisable, the options generally
become exercisable in the event of a merger in which ENStar, Americable or
Transition, as the case may be, is not the surviving corporation, a transfer
of all the stock of ENStar, Americable or Transition, as applicable, a sale
of substantially all the assets, or a dissolution or liquidation, of ENStar,
Americable or Transition, as applicable.

(2) In 1996, ENStar, Americable and Transition granted employees options to
purchase an aggregate of 77,083 shares of ENStar Common Stock, 345,000
shares of Americable common stock and 298,500 shares of Transition common
stock, respectively.

(3) The compounding assumes a ten year exercise period for all option grants.
The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent ENStar's estimate or projection of future Common Stock prices.
These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent on the future
performance of the Common Stock of ENStar, Americable and Transition, as
applicable, and overall stock market conditions. The amounts represented in
the table may not necessarily be achieved.

(4) Represents the right to purchase shares of common stock of Americable.

(5) Represents the right to purchase shares of common stock of Transition.

35
<PAGE> 36

Option Values

The following table summarizes the value of options held at December 31,
1996 by the Named Executive Officers. No options held by such executive officers
were exercised during 1996.

AGGREGATED OPTION VALUES AT DECEMBER 31, 1996

<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 1996 AT DECEMBER 31, 1996
------------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Jeffrey J. Michael........................ -- 28,500 -- --
Peter E. Flynn............................ -- 23,500 -- --
Thomas S. Wargolet........................ -- 14,250 -- --
7,000(1) 28,000(1) -- --
C. S. Mondelli............................ 14,000(2) 56,000(2) -- --
Gary L. Eizenga........................... 75,000(1) 75,000(1) -- --
</TABLE>

- -------------------------
(1) Represents the right to purchase shares of Common Stock of Americable.

(2) Represents the right to purchase shares of Common Stock of Transition.

The options to purchase Americable common stock and Transition common stock
granted to certain of the Named Executive Officers in 1996 were granted pursuant
to the Americable, Inc. 1996 Stock Option Plan (the "Americable Plan") and the
Transition Networks, Inc. 1996 Stock Option Plan (the "Transition Plan"),
respectively. There are 4,400,000 shares of Americable common stock currently
outstanding and 600,000 shares of Americable common stock reserved for issuance
under the Americable Plan. Options to purchase 345,000 shares were granted in
1996 under the Americable Plan. There are 2,900,000 shares of Transition common
stock currently outstanding and 750,000 shares of Transition common stock
reserved for issuance under the Transition Plan. Options to purchase 298,500
shares were granted in 1996 under the Transition Plan. The exercise price of the
options granted pursuant to the Americable Plan was determined by the Board of
Directors of Americable, based on the then current fair value of the common
stock. The exercise price of the options granted pursuant to the Transition Plan
also was determined by the Board of Directors of Transition, based on the then
current fair value of the common stock. Pursuant to the terms of the applicable
option agreements under the plans, the shares of common stock that may be
purchased pursuant to the options are subject to restrictions on transfer and
certain repurchase rights by each of the respective issuers and by ENStar, based
on a valuation formula. The option agreements also include certain covenants
with respect to nondisclosure of confidential information and non-competition.

Prior to the termination of his employment with Americable, Gary Eizenga
was a party to a stock option agreement 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 recapitalization, stock-split or stock dividend, at
a price per share equal to the book value per share as of September 30, 1989. In
December 1996, in connection with the grant of a new option to purchase 150,000
shares of Common Stock of Americable, Mr. Eizenga agreed to terminate the
earlier stock option agreement.

In connection with the termination of his employment with Americable, Mr.
Eizenga and the Company entered into an agreement providing for the continued
payment of his base salary and related benefits for up to one year and for the
payment of $25,000 in respect of outstanding options to purchase common stock.

36
<PAGE> 37

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information with respect to the
beneficial ownership of the common stock of ENStar as of March 3, 1997, by each
Named Executive Officer and Director of ENStar, by each shareholder who is known
by ENStar to own beneficially more than 5 percent of the outstanding common
stock of ENStar, and by all officers and Directors of NSU as a group.

<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP(1) OF CLASS
------------------------------------ ----------------------- --------
<S> <C> <C>
James H. Michael............................................ 1,032,133(2) 31.2%
Jeffrey J. Michael.......................................... 874,025(3) 26.4%
Miles E. Efron.............................................. 148,967(4) 4.5%
Peter E. Flynn.............................................. 5,875(5) *
Thomas S. Wargolet.......................................... 3,862(6) *
Richard J. Braun............................................ 4,000(7) *
C.S. Mondelli............................................... -- --
Gary L. Eizenga............................................. -- --
Heartland Advisors, Inc..................................... 331,433(8) 10.0%
790 North Milwaukee Street
Milwaukee, Wisconsin 53202
All officers and directors as a group (6 persons)........... 2,068,862(8) 62.0%
</TABLE>

- -------------------------
* Less than one percent.

(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes generally voting power
and/or investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable within 60 days of the
date hereof ("Currently Exercisable Option") are deemed outstanding for
computing the percentage beneficially owned by the person holding such
options but are not deemed outstanding for computing the percentage
beneficially owned by any other person.

(2) Includes 942,165 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. Includes 4,000 shares of Common Stock issuable pursuant to
Currently Exercisable Options.

(3) Includes 865,667 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. Includes
7,125 shares of Common Stock issuable pursuant to Currently Exercisable
Options.

(4) Includes 4,000 shares of Common Stock issuable pursuant to Currently
Exercisable Options.

(5) Includes 5,875 shares of Common Stock issuable pursuant to Currently
Exercisable Options.

(6) Includes 3,562 shares of Common Stock issuable pursuant to Currently
Exercisable Options.

(7) Includes 4,000 shares of Common Stock issuable pursuant to Currently
Exercisable Options.

(8) Based on information in a Schedule 13D Report delivered to NSU (the former
shareholder of ENStar) 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 290,667 of such shares and sole
dispositive power over all such shares.

(9) Shares shown as beneficially owned include 28,562 shares not outstanding,
but which may be acquired pursuant to Currently Exercisable Options.

37
<PAGE> 38

DESCRIPTION OF DEBENTURES

GENERAL

The Debentures will be issued under an Indenture, as supplemented (the
"Indenture"), 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)).

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).

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 March 25, 1997,
the Company had no outstanding Senior Indebtedness, other than Michael Assumed
Indebtedness in the aggregate amount of approximately $27.2 million. The Michael
Assumed Indebtedness ranks senior to the Subordinated Debentures

38
<PAGE> 39

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. In connection with the
Reorganization Transactions, Michael has agreed to satisfy, and indemnify the
Company in full for, all payment and other obligations in respect of such
Michael Assumed Indebtedness. In addition, in connection with the Reorganization
Transactions, Michael agreed to pay in full all Michael Assumed Indebtedness
within six months of consummation of the Reorganization Transactions. Michael
has notified holders of the Michael Assumed Indebtedness that it intends to
redeem the Michael Assumed Indebtedness on April 15, 1997. In addition, as of
March 25, 1997, the Company had outstanding other indebtedness in the aggregate
principal amount of approximately $3.0 million represented by subordinated
debentures that rank pari passu with the Subordinated Debentures offered hereby.

The Debentures to be sold pursuant to this offering rank in parity with
each other. The Company may sell, and is permitted pursuant to the Indenture to
sell, additional subordinated debentures ranking in parity with the Debentures
being offered hereby.

Interest. Interest on each Debenture will accrue from the date of issuance
and will be payable, at the election of the initial purchaser, quarterly, at
maturity, or if the Debenture is in a denomination of $5,000 or more, monthly.
If interest is paid at maturity only, it will be compounded quarterly.

The election by the purchaser at the time of the purchase for payment of
interest at maturity may be changed only once to provide for the payment either
quarterly or monthly. Accrued and unpaid interest as of the effective date of
the change will be added to the principal amount of the Debenture and simple
interest will be paid thereafter on the new principal amount. To change the
payment option a holder of a Debenture must: (a) furnish the Company with a
written notice of such election; (b) forward the actual certificate evidencing
the Debenture to the Company for notation of current value and change in
interest payment; and (c) provide such additional documentation and other
materials as the Company deems necessary.

Interest Accrual Date. Interest on the Debentures accrues from the date of
issuance, which is deemed to be the date the Company receives a properly
executed Subscription Agreement and appropriate funds, provided such are
received prior to 3:00 p.m. on a business day. Otherwise, if the Company
receives such funds on a nonbusiness day or after 3:00 p.m. on a business day,
then the date of issuance will be deemed to be the next business day. For this
purpose, the Company's business days will be deemed to be Monday through Friday,
except for Minnesota legal holidays. (Sections 1.01 and 2.02(b)).

Taxes. The following discussion is based on provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable regulations
thereunder, judicial authority and current administrative ruling, all of which
may be retroactively subject to change. Each prospective purchaser of Debentures
is advised to consult his or her own tax advisor. Interest on the Debentures is
taxable as it accrues, including interest on Debentures which is payable only at
maturity. As a consequence, a holder of a Debenture who elects payment of
interest at maturity is required to recognize the interest income on such
Debenture as it accrues although payment of such interest is deferred until
maturity. Under the Code, the Company is required to report the interest earned
on Debentures with respect to each holder to the Internal Revenue Service. No
portion of interest will be withheld for holders providing the Company with a
taxpayer identification number on Forms W-8 or W-9, except on accounts held by
foreign business entities. With respect to those investors who do not provide
the Company with a taxpayer identification number on Forms W-8 or W-9, the
Company will withhold 31% of any interest paid. It is the Company's policy that
no sale will be made to anyone refusing to provide a taxpayer identification
number on Forms W-8 or W-9.

Additional Interest. In addition to the interest rates payable as set forth
above, the Company may make such additional payments of interest, premiums or
other benefits on such of the Debentures, in such amounts, in such form, on such
terms and at such times as shall be determined from time to time by the Company
("Additional Interest"). (Section 2.02(b)). Such Additional Interest payments
may be modified or discontinued at any time. (Section 2.02(b)). For example,
such Additional Interest payments may be limited to new investors, or to current
investors increasing or renewing their investments in the Company's Debentures.
Also, such Additional Interest payments may be limited to current or new
investors residing in a particular geographic area.

39
<PAGE> 40

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 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).

40
<PAGE> 41

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)).

41
<PAGE> 42

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 consolidated financial statements of ENStar Inc. as of December 31,
1996 and 1995 and for each of the three years in the period ended December 31,
1996 have been audited by Grant Thornton LLP, independent auditors, as set forth
in their reports included herein, and are included in reliance upon such reports
given upon the authority of said firm as experts in accounting and auditing.

The consolidated financial statements and schedule of CorVel Corporation as
of March 31, 1996, and 1995 and for each of the three years in the period ended
March 31, 1996 have been included in reliance on their report audited by Ernst &
Young LLP given on their the authority as experts in auditing and accounting.

42
<PAGE> 43

ENSTAR INC.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
FINANCIAL STATEMENTS OF ENSTAR PAGE
------------------------------ ----
<S> <C>
Consolidated Statements of Operations for the three years
ended December 31, 1996, 1995
and 1994.................................................. F-2
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-3
Consolidated Statements of Shareholders' Equity for the
three years ended December 31, 1996, 1995 and 1994........ F-4
Consolidated Statements of Cash Flows for the three years
ended December 31, 1996, 1995
and 1994.................................................. F-5
Notes to Consolidated Financial Statements.................. F-6
Report of Independent Certified Public Accountants.......... F-14
Report of Independent Certified Public Accountants on
Schedule.................................................. F-15
Schedule II -- Valuation and Qualifying Accounts............ F-16
</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-17
Consolidated Balance Sheets as of March 31, 1995 and 1996... F-18
Consolidated Statements of Stockholders' Equity for the
three years ended March 31, 1994, 1995 and 1996........... F-19
Consolidated Statements of Cash Flows for the three years
ended March 31, 1994, 1995
and 1996.................................................. F-20
Notes to Consolidated Financial Statements.................. F-21
Report of Independent Auditors.............................. F-26
Condensed Consolidated Statements of Income for the nine
months ended December 31, 1995 and 1996................... F-27
Condensed Consolidated Balance Sheets as of March 31, 1996
and as of December 31, 1996............................... F-28
Condensed Consolidated Statements of Cash Flows for the nine
months ended December 31, 1995
and 1996.................................................. F-29
Notes to Condensed Consolidated Financial Statements........ F-30
Schedule II -- Valuation and Qualifying Accounts............ F-31
</TABLE>

F-1
<PAGE> 44

ENSTAR INC.
CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenues.................................................... $64,123 $54,891 $47,193
Operating and product costs................................. 47,286 39,525 34,328
------- ------- -------
Gross profit................................................ 16,837 15,366 12,865
Selling, general and administrative expenses................ 16,890 14,333 13,567
------- ------- -------
Operating income (loss)..................................... (53) 1,033 (702)
Interest expense, net....................................... (204) (247) (348)
------- ------- -------
Income (loss) before taxes and equity in earnings of
unconsolidated subsidiary................................. (257) 786 (1,050)
Income tax provision (benefit).............................. (25) 405 (340)
------- ------- -------
Income (loss) before equity in earnings of unconsolidated
subsidiary................................................ (232) 381 (710)
Equity in earnings of unconsolidated subsidiary............. 1,304 1,191 996
------- ------- -------
Net income.................................................. $ 1,072 $ 1,572 $ 286
======= ======= =======
Net income per share........................................ $ 0.32 $ 0.49 $ 0.09
======= ======= =======
Weighted average shares outstanding......................... 3,309 3,217 3,235
</TABLE>

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

F-2
<PAGE> 45

ENSTAR INC.
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
---- ----
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................. $ 824 $ 246
Accounts receivable, net of allowance for doubtful
accounts ($440 in 1996 and $400 in 1995)............... 8,785 8,784
Inventories............................................... 5,706 6,631
Prepaid expenses and other................................ 481 274
Net assets held for sale.................................. -- 1,032
------- -------
Total current assets................................... 15,796 16,967
Property and equipment, net................................. 1,742 1,453
Goodwill.................................................... 4,801 4,960
Investment in unconsolidated subsidiary..................... 13,519 11,682
Other....................................................... 157 189
------- -------
$36,015 $35,251
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable to bank..................................... $ 1,310 $ 937
Current maturities of long-term debt...................... 28 1,088
Accounts payable.......................................... 4,101 5,239
Accrued expenses.......................................... 4,830 5,163
------- -------
Total current liabilities............................ 10,269 12,427
Long-term debt, less current maturities..................... 1,150 158
Deferred income taxes....................................... 3,649 2,972
Commitments and contingencies............................... -- --
Shareholders' equity........................................ 20,947 19,694
------- -------
$36,015 $35,251
======= =======
</TABLE>

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

F-3
<PAGE> 46

ENSTAR INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
COMMON STOCK
------------------ ADDITIONAL OPERATING TOTAL
SHARES PAID-IN RETAINED UNIT SHAREHOLDERS'
ISSUED AMOUNT CAPITAL EARNINGS EQUITY EQUITY
--------- ------ ---------- -------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994........... -- $ -- $ -- $ -- $17,035 $17,035
Net income......................... -- -- -- -- 286 286
Effect of equity transactions of
unconsolidated subsidiary....... -- -- -- -- 73 73
Additional capital invested........ -- -- -- -- 782 782
--------- ---- ------- ---- ------- -------
Balance at December 31, 1994......... -- -- -- -- 18,176 18,176
Net income......................... -- -- -- -- 1,572 1,572
Effect of equity transactions of
unconsolidated subsidiary....... -- -- -- -- 42 42
Constructive dividend.............. -- -- -- -- (96) (96)
--------- ---- ------- ---- ------- -------
Balance at December 31, 1995......... -- -- -- -- 19,694 19,694
Net income......................... -- -- -- -- 868 868
Effect of equity transactions of
unconsolidated subsidiary....... -- -- -- -- (45) (45)
Constructive dividend.............. -- -- -- -- (309) (309)
--------- ---- ------- ---- ------- -------
Balance at November 6, 1996.......... -- -- -- -- 20,208 20,208
Contribution of common stock of
Americable, Transition and
CorVel to ENStar Inc. by North
Star Universal, Inc. (NSU)...... -- -- 20,208 -- (20,208) --
Issuance of shares of ENStar common
stock to shareholders in February
1997............................... 3,306,000 33 (33) -- -- --
Net income from November 7, 1996
through December 31, 1996.......... -- -- -- 204 -- 204
Effect of equity transactions of
unconsolidated subsidiary.......... -- -- (125) -- -- (125)
Additional capital invested.......... -- -- 660 -- -- 660
--------- ---- ------- ---- ------- -------
Balance at December 31, 1996......... 3,306,000 $ 33 $20,710 $204 $ -- $20,947
========= ==== ======= ==== ======= =======
</TABLE>

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

F-4
<PAGE> 47

ENSTAR INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities
Net income................................................ $ 1,072 $ 1,572 $ 286
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Equity in earnings of unconsolidated subsidiary........ (1,304) (1,191) (996)
Depreciation and amortization.......................... 940 837 848
Deferred income taxes.................................. (25) (465) (200)
Changes in operating assets and liabilities
Accounts receivable.................................. (1) (1,268) (1,980)
Inventories.......................................... 925 (548) 420
Accounts payable, accrued expenses and other......... (1,679) 2,202 653
-------- -------- --------
Net cash provided by (used in) operating activities.... (72) 1,139 (969)
-------- -------- --------
Cash flows from investing activities
Capital expenditures................................... (1,070) (543) (541)
Collections on notes receivable........................ 258 1,096 577
Other.................................................. (226) -- --
-------- -------- --------
Net cash provided by (used in) investing activities.... (1,038) 553 36
-------- -------- --------
Cash flows from financing activities
Proceeds from long-term debt........................... 69,017 56,073 48,868
Payments on long-term debt............................. (68,712) (57,497) (48,704)
Additional capital invested (constructive dividends)... 1,383 (96) 782
-------- -------- --------
Net cash provided by (used in) financing activities.... 1,688 (1,520) 946
-------- -------- --------
Net increase in cash and cash equivalents.............. 578 172 13
Cash and cash equivalents at beginning of year.............. 246 74 61
-------- -------- --------
Cash and cash equivalents at end of year.................... $ 824 $ 246 $ 74
======== ======== ========
</TABLE>

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

F-5
<PAGE> 48

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 -- ORGANIZATION AND BUSINESS

ENStar Inc. ("ENStar") is a holding company principally comprised of two
operating companies, Americable, Inc. ("Americable") and Transition Networks,
Inc. ("Transition"), and an equity investment in CorVel Corporation ("CorVel").
ENStar was formerly an operating unit of North Star Universal, Inc. ("North
Star"). In November 1996 North Star contributed the operating unit's assets to
ENStar. On February 28, 1997 North Star, in connection with its merger with
Michael Foods, Inc. ("Michael Foods"), distributed its ownership interest in
ENStar to North Star's shareholders through a tax free dividend, thus causing
ENStar to become a publicly held company.

Americable is a provider of connectivity and networking products and
services and represents approximately 75% of the Company's consolidated sales.
Transition designs, manufactures and markets connectivity devices and network
applications, and accounts for approximately 25% of sales. CorVel is a health
care services company. At December 31, 1996 and 1995 the Company owned a 26% and
27% ownership in CorVel. The Company's investment in CorVel is accounted for as
an unconsolidated subsidiary using the equity method of accounting. In January
1997, ENStar sold a portion of its investment in CorVel which reduced its
ownership percentage to approximately 23%. The proceeds from this sale of
$5,150,000 were distributed to North Star in the form of a dividend prior to the
merger with Michael Foods.

NOTE 2 -- SUMMARY OF ACCOUNTING POLICIES

BASIS OF PRESENTATION The accompanying consolidated financial statements
prior to November 1996 were financial statements of the operating unit comprised
of the entities and assets described in note 1. Operating unit equity was
converted to contributed capital at the time North Star contributed the capital
stock of Americable, Transition, and CorVel to ENStar. There was no change in
the historical cost basis of the assets and liabilities of any of the entities
or investment contributed to ENStar. The consolidated, and formerly combined,
financial statements include an allocation of general and administrative costs
incurred by North Star in the management of the operating companies. Management
believes these allocations are reasonable and present the operations of the
Company as though it had operated on a stand-alone basis. Previously, operating
unit equity included the historical equity of each entity, the net investment in
CorVel and intercompany payables owed to North Star. The net annual advances
between the former operating unit and North Star were considered additional
capital invested from, or constructive dividend to, North Star. Accordingly, the
accompanying consolidated financial statements may not necessarily be indicative
of the results that would have been obtained if the Company had been operated as
a stand alone entity through out all periods presented.

CASH AND CASH EQUIVALENTS The Company 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. During the fourth quarter of 1996,
the Company recorded a $500,000 lower-of-cost-or-market adjustment to inventory.
Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
---- ----
<S> <C> <C>
Finished goods.............................................. $3,285 $4,092
Purchased parts............................................. 2,421 2,539
------ ------
$5,706 $6,631
====== ======
</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

F-6
<PAGE> 49

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

respective assets which are generally three to five years. Accelerated methods
are used for income tax reporting. Property and equipment consist of the
following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Leasehold improvements...................................... $ 183 $ 304
Office and computer equipment............................... 3,490 3,720
------ ------
3,673 4,024
Less -- accumulated depreciation and amortization........... 1,931 2,571
------ ------
$1,742 $1,453
====== ======
</TABLE>

GOODWILL Goodwill is amortized on a straight-line basis over a period of 40
years. Accumulated amortization was $1,542,000 and $1,384,000 at December 31,
1996 and 1995, respectively. The Company 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 Company modifies the
life or adjusts the value of a subsidiary's goodwill if an impairment is
identified.

ACCRUED EXPENSES Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1995
---- ----
<S> <C> <C>
Payroll and related benefits................................ $ 701 $ 749
Insurance reserves.......................................... 968 905
Discontinued operations..................................... 2,000 1,614
Other....................................................... 1,105 1,895
------ ------
$4,774 $5,163
====== ======
</TABLE>

REVENUE RECOGNITION The Company 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.

RESEARCH AND DEVELOPMENT All research and development costs are charged to
expense as incurred. Research and development expenses were approximately $1.5
million in 1996, $1 million in 1995, and $1.2 million in 1994.

ADVERTISING The Company expenses advertising costs as incurred, except for
direct response advertising, which is capitalized and amortized over its
expected period of future benefit. Direct response advertising consists
primarily of catalog production costs which are amortized over the estimated
useful life of the publication, generally two years. Advertising costs charged
to expense were approximately $1.1 million in 1996, $600,000 in 1995, and
$600,000 in 1994. Deferred advertising costs included within prepaid expense was
$95,000 and $25,000 at December 31, 1996 and 1995, respectively.

NET INCOME PER SHARE Net income per share was computed based on the
weighted average number of shares of North Star common stock outstanding
(9,927,000, 9,650,000 and 9,704,000 for the years ended December 31, 1996, 1995
and 1994) 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 was issued to each holder of three shares
of North Star common stock.

F-7
<PAGE> 50

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CAPITAL STOCK The Company has available for issue 100,000,000 shares,
consisting of 20,000,000 shares of preferred stock, par value of $.01 per share,
of which none have been issued or are outstanding at December 31, 1996 and
80,000,000 shares of common stock, par value of $.01 per share, of which
3,306,000 were issued in February 1997 in connection with the distribution of
ENStar common stock to NSU shareholders. These shares have been reported in the
Company's financial statements as if they were outstanding at December 31, 1996.

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company increased its
investment in its unconsolidated subsidiary by $70,000 and $122,000 and
shareholders' equity by $42,000 and $73,000 during the years ended December 31,
1995 and 1994, respectively, as a result of equity transactions of CorVel. In
addition, the Company had cash payments for interest of $225,000 in 1996,
$247,000 in 1995, and $348,000 in 1994.

For the year ended December 31, 1996, the Company's investment in its
unconsolidated subsidiary decreased by $337,000 while shareholders' equity
decreased by $170,000, net of deferred taxes. In addition, the constructive
dividend for 1996, includes $1,032,000 of net assets held for sale which were
transferred by the Company to North Star as discussed in Note 4.

STOCK BASED COMPENSATION The Company utilizes the intrinsic value method of
accounting for its employee stock based compensation plans. Information related
to the fair value based method of accounting is contained in Note 9.

USE OF ESTIMATES In the preparation of the consolidated 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.

RECLASSIFICATIONS Certain 1995 and 1994 amounts have been reclassified to
conform to the 1996 presentation.

NOTE 3 -- INVESTMENT IN UNCONSOLIDATED SUBSIDIARY

The Company'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 unaudited summarized balance sheet and income statement
information for CorVel as of, and for the twelve month period ended December 31,
1996 (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
1996
------------
<S> <C>
Current assets.............................................. $ 44,861
Noncurrent assets........................................... 18,267
Current liabilities......................................... 10,028
Noncurrent liabilities...................................... 2,361
Revenues.................................................... 118,339
Gross profit................................................ 21,702
Net income.................................................. 8,230
</TABLE>

At December 31, 1996, shareholders' equity includes approximately $5
million of unremitted earnings related to the Company's investment in CorVel. At
December 31, 1996, the fair value of the Company's investment in CorVel, based
on the closing market price, was approximately $35.5 million (see Note 1 for
details related to the sale of a portion of this investment).

F-8
<PAGE> 51

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 4 -- NET ASSETS HELD FOR SALE

On April 26, 1996, NSU completed the sale of Enstar's net assets held for
sale. The proceeds from the sale were retained by NSU. The book value of the
assets sold has been included within the constructive dividend to NSU for the
year ended December 31, 1996.

NOTE 5 -- NOTES PAYABLE AND LONG-TERM DEBT

During 1995 and a portion of 1996, Americable and Transition maintained a
revolving line of credit which provided aggregate borrowings up to $5.5 million.
Borrowings under this facility were 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 credit agreement included
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.

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 (8.25% at December 31, 1996) with optional
fixed rate advances at the London Interbank Offered Rate ("LIBOR") plus 2.5%. At
December 31, 1996, there were aggregate outstanding borrowings of $1,310,000
under these revolving lines of credit. In addition, there was approximately $4.7
million of available borrowings under these credit facilities at December 31,
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 Companies were in compliance.

The carrying value of long-term debt, which approximates fair value,
consists of (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1995
---- ----
<S> <C> <C>
Subordinated debentures..................................... $ 945 $ --
Term note payable........................................... -- 1,071
Other....................................................... 233 175
------ ------
1,178 1,246
Less current maturities..................................... 28 1,088
------ ------
$1,150 $ 158
====== ======
</TABLE>

During 1996, the Company registered with the Securities and Exchange
Commission $10 million of debentures, of which $9,055,000 remained unissued at
December 31, 1996. Subordinated debentures are unsecured and due in varying
monthly installments beginning November 1998 through 2003 and had a weighted
average interest rate of 9.44% at December 31, 1996.

F-9
<PAGE> 52

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Aggregate minimum annual principal payments of long-term debt are as
follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1997........................................................ $ 28
1998........................................................ 150
1999........................................................ 266
2000........................................................ 39
2001........................................................ 91
2002 and thereafter......................................... 604
------
$1,178
======
</TABLE>

NOTE 6 -- INCOME TAXES

The activity of the Company has been included in the income tax return of
North Star. For financial reporting purposes, the Company has been allocated a
provision for income taxes in an amount generally equivalent to the provision
that would have resulted had the Company filed separate income tax returns. The
provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Current
Federal.......................................... $ 45 $ 740 $(120)
State............................................ 9 130 (20)
---- ----- -----
54 870 (140)
---- ----- -----
Deferred:
Federal.......................................... (69) (405) (175)
State............................................ (10) (60) (25)
---- ----- -----
(79) (465) (200)
---- ----- -----
$(25) $ 405 $(340)
==== ===== =====
</TABLE>

The following is a reconciliation of income taxes at the federal statutory
rate to the effective rate:

<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Federal statutory rate............................... (34.0)% 34.0% (34.0)%
State income taxes................................... (.3) 8.9 (4.3)
Goodwill amortization................................ 21.1 7.0 5.1
Other................................................ 3.5 1.6 0.8
----- ---- -----
(9.7)% 51.5% (32.4)%
===== ==== =====
</TABLE>

To the extent the Company'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 Company records a deferred income tax
liability. At December 31, 1996, 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 Company's investment in CorVel following its initial public
offering along with income taxes recorded on the equity in earnings of CorVel of
$869,000 in 1996, $794,000 in 1995 and $664,000 in 1994.

F-10
<PAGE> 53

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax effects of the cumulative temporary differences resulting in the
net deferred tax liability are as follows (in thousands):

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Investment in Corvel............................... $(5,072) $(4,339) $(3,517)
Accrued expenses not deductible until paid......... 1,956 1,729 1,338
Other.............................................. (533) (362) (436)
------- ------- -------
$(3,649) $(2,972) $(2,615)
======= ======= =======
</TABLE>

NOTE 7 -- COMMITMENTS AND CONTINGENCIES

LEASING COMMITMENTS The Company leases certain equipment and facilities
under operating leases. The future aggregate minimum rental payments under such
leases which expire at various dates through 2002 are as follows (in thousands):

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31,
-------------------------
<S> <C>
1997................................. $674
1998................................. 600
1999................................. 598
2000................................. 418
2001................................. 263
2002 and thereafter.................. 101
</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: $1,022,000 in 1996, $939,000 in 1995, and $823,000 in
1994.

CONTINGENCIES As a result of the transfer of a substantial portion of the
assets of North Star to ENStar, ENStar entered into a supplemental indenture
with North Star in which ENStar assumed the obligations of North Star with
respect to certain debenture indebtedness of North Star. North Star however,
separately agreed to satisfy, and hold ENStar harmless from, all payment and
other obligations with respect to such debenture indebtedness. Michael Foods,
with stockholder equity of approximately $188 million at December 31, 1996,
became 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. Michael Foods has notified holders of such debenture
indebtedness that it intends to repay such indebtedness on April 15, 1997. The
amount of such indebtedness, net of cash transferred to Michael Foods, was
$21,250,000 at February 21, 1997, the date of the merger with Michael Foods. In
addition, ENStar, through the operation of an indemnification agreement, is
contingently liable for any, and all, liabilities arising from the activities of
North Star, through, and including, the reorganization of North Star and Michael
Foods. Under the terms of the indemnification agreement, the Company is required
to maintain certain minimum levels of market capitalization or net worth for a
period of five years.

NOTE 8 -- EMPLOYEE RETIREMENT PLAN

ENStar maintains an incentive savings plan for its employees. Full-time
employees that meet certain requirements are eligible to participate in the
plan. Contributions are made annually, primarily at the discretion of ENStar's
Board of Directors. Contributions of $189,000, $144,000, $138,000, were charged
to operations in the years ended December 31, 1996, 1995 and 1994.

F-11
<PAGE> 54

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9 -- STOCK OPTIONS

The Company and each of its operating subsidiaries adopted employee stock
option plans for the benefit of selected officers and key employees during 1996.
These plans were approved by the respective Company's Board of Director's in
1996. The following is a brief summary of each of the Plans:

ENSTAR A total of 300,000 shares of common stock are reserved for issuance
under the ENStar Plan. Options are granted at or above fair market value and
expire ten years after the date of grant. The 77,100 stock options issued during
1996 and outstanding at December 31, 1996 have an exercise price of $9.00 per
share as determined by the Board as their best estimate of a price greater than
or equal to the market value of those shares at the date of grant. The options
become exercisable at a rate of 25% on the anniversary of the date of grant in
each of the first four years following the grant. The fair value of the employee
options granted during 1996 was $3.89 and was estimated on the date of grant
using the Black-Scholes option pricing model. The following weighted average
assumptions were used for grants issued in 1996: no dividends to be paid,
expected volatility of 57.5%, a risk-free interest rate of 5.53%, and an
expected life of 3 years.

AMERICABLE A total of 600,000 shares of Americable common stock are
reserved for issuance under the Americable Plan. Options are granted at or above
fair market value and expire ten years after the date of grant. The 345,000
stock options issued during 1996 and outstanding at December 31, 1996 have an
exercise price of $0.83 per share as determined by the Board as their best
estimate of a price greater than or equal to the market value of those shares at
the date of grant. The options become exercisable at various rates over the
first five years following the grant with 101,000 exercisable at December 31,
1996. The fair value of the employee options granted during 1996 was $0.52 and
was estimated on the date of grant using the Black-Scholes option pricing model.
The following weighted average assumptions were used for grants issued in 1996:
no dividends to be paid, expected volatility of 98%, a risk-free interest rate
of 5.88%, and an expected life of 3 years.

TRANSITION A total of 750,000 shares of Transition common stock are
reserved for issuance under the Transition Plan. Options are granted at or above
fair market value and expire ten years after the date of grant. The 298,500
stock options issued during 1996 and outstanding at December 31, 1996 have an
exercise price of $1.25 per share as determined by the Board as their best
estimate of a price greater than or equal to the market value of those shares at
the date of grant. The options become exercisable at various rates over the
first five years following the grant with 16,100 exercisable at December 31,
1996. The fair value of the employee options granted during 1996 was $0.48 and
was estimated on the date of grant using the Black-Scholes option pricing model.
The following weighted average assumptions were used for grants issued in 1996:
no dividends to be paid, expected volatility of 49%, a risk-free interest rate
of 5.88%, and an expected life of 3 years.

Had the Company or its operating subsidiaries elected to use the fair value
based method of accounting for stock options, the pro forma effect on net income
for 1996 would have been expense of approximately $73,000 or 2 cents per share.
This may not be representative of the future effects of applying this statement.

NOTE 10 -- RELATED PARTY TRANSACTION

At December 31, 1995, ENStar had an unsecured note receivable from North
Star's majority shareholder and former chairman of the board of $257,872 which
was paid in full during 1996.

F-12
<PAGE> 55

ENSTAR INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11 -- GEOGRAPHIC AREA AND BUSINESS SEGMENT INFORMATION

The Company, 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>
YEARS ENDED DECEMBER 31,
---------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Revenues from unaffiliated customers in the
United States............................................. $58,124 $49,668 $43,020
Europe.................................................... 4,192 3,363 2,737
Other..................................................... 1,807 1,860 1,436
------- ------- -------
$64,123 $54,891 $47,193
======= ======= =======
</TABLE>

F-13
<PAGE> 56

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

Board of Directors of ENStar Inc.

We have audited the accompanying consolidated balance sheets of ENStar Inc.
as of December 31, 1996 and 1995, and the related consolidated statements of net
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 31, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe 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
ENStar Inc. as of December 31, 1996 and 1995, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1996, in conformity with generally accepted
accounting principles.

/s/ GRANT THORNTON LLP

Minneapolis, Minnesota
February 19, 1997 (except for Note 1
as to which the date is February 28,
1997)

F-14
<PAGE> 57

REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE

BOARD OF DIRECTORS OF ENSTAR INC.

In connection with our audit of the consolidated financial statements of
ENStar Inc. referred to in our report dated February 19, 1997, we have also
audited Schedule II for each of the three years in the period ended December 31,
1996. 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 19, 1997 (except for Note 1 as to
which the date is February 28, 1997)

F-15
<PAGE> 58

ENSTAR 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) PERIOD
----------- ---------- ---------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Allowance for Doubtful Accounts:
1994.................................... $344 $115 -- $(126) $333
1995.................................... 333 135 -- (68) 400
1996.................................... 400 132 -- (92) 440
</TABLE>

- -------------------------
(1) Write off of accounts deemed uncollectible.

F-16
<PAGE> 59

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-17
<PAGE> 60

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-18
<PAGE> 61

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-19
<PAGE> 62

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-20
<PAGE> 63

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-21
<PAGE> 64

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-22
<PAGE> 65

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-23
<PAGE> 66

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-24
<PAGE> 67

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
COMMON AND COMMON
REVENUES GROSS 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-25
<PAGE> 68

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 schedule when
considered in relationship to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

Orange County, California
May 8, 1996

F-26
<PAGE> 69

CORVEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31,
-------------------------------
1995 1996
---- ----
<S> <C> <C>
REVENUES.................................................... $80,724,000 $90,011,000
Cost of Revenues............................................ 65,752,000 73,452,000
----------- -----------
Gross profit................................................ 14,972,000 16,559,000
General and administrative expenses......................... 6,108,000 6,380,000
----------- -----------
Income before income taxes.................................. 8,864,000 10,179,000
Income tax provision........................................ 3,458,000 3,868,000
----------- -----------
NET INCOME.................................................. $ 5,406,000 $ 6,311,000
=========== ===========
Net income per common and common equivalent share........... $ 1.16 $ 1.33
=========== ===========
Weighted average common and common equivalent shares........ 4,657,000 4,752,000
</TABLE>

See accompanying notes to consolidated financial statements.

F-27
<PAGE> 70

CORVEL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1996 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents................................. $17,113,000 $23,077,000
Accounts receivable, net.................................. 18,394,000 20,275,000
Prepaid taxes and expenses................................ 545,000 159,000
Deferred income taxes..................................... 2,032,000 1,350,000
----------- -----------
Total current assets................................... 38,084,000 44,861,000
----------- -----------
Property and Equipment, Net................................. 11,468,000 12,638,000
Other Assets................................................ 4,432,000 5,629,000
----------- -----------
TOTAL ASSETS...................................... $53,984,000 $63,128,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable.......................................... $ 3,057,000 $ 4,883,000
Accrued liabilities....................................... 4,246,000 5,145,000
----------- -----------
Total current liabilities.............................. 7,303,000 10,028,000
----------- -----------
Deferred income taxes....................................... 1,370,000 2,361,000
Stockholders' Equity
Common stock................................................ -- --
Paid-in-capital............................................. 26,401,000 27,637,000
Treasury stock.............................................. -- (2,119,000)
Retained earnings........................................... 18,910,000 25,221,000
----------- -----------
Total stockholders' equity............................. 45,311,000 50,739,000
----------- -----------
TOTAL LIABILITIES AND EQUITY...................... $53,984,000 $63,128,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-28
<PAGE> 71

CORVEL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------------
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities
Net income................................................ $ 5,406,000 $ 6,311,000
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation and amortization.......................... 2,186,000 2,981,000
Changes in operating assets and liabilities
Accounts receivable.................................. (1,892,000) (1,881,000)
Prepaid taxes and expenses........................... 374,000 1,068,000
Accounts payable..................................... 1,046,000 1,826,000
Accrued liabilities.................................. 665,000 899,000
Income taxes payable................................. (461,000) 991,000
Other assets......................................... (660,000) (88,000)
----------- -----------
Net cash provided by operating activities................. 6,664,000 12,107,000
----------- -----------
Cash flows from investing activities
Net assets purchased in acquisition....................... -- (1,375,000)
Additions to property and equipment....................... (4,145,000) (3,885,000)
----------- -----------
Net cash used in investing activities..................... (4,145,000) (5,260,000)
----------- -----------
Cash flows from financing activities
Repurchase of common stock.................................. -- (2,119,000)
Sale of common and exercise of stock options and related
tax benefits.............................................. 1,632,000 1,236,000
----------- -----------
Net cash provided by financing activities................. 1,632,000 (883,000)
----------- -----------
Increase (decrease) in cash:................................ 4,151,000 5,964,000
Cash and cash equivalents at beginning...................... 13,211,000 17,113,000
----------- -----------
Cash and cash equivalents at end............................ $17,362,000 $23,077,000
=========== ===========
</TABLE>

See accompanying notes to consolidated financial statements.

F-29
<PAGE> 72

CORVEL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 nine months ended December 31, 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-30
<PAGE> 73

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-31
<PAGE> 74

======================================================

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............................ 6
The Company............................. 13
Ratio of Earnings to Fixed Charges...... 14
Use of Proceeds......................... 14
Plan of Distribution.................... 14
Selected Financial Data................. 16
Management's Discussion and Analysis of
Results of Operations and Financial
Condition............................. 17
Business................................ 22
Management.............................. 32
Principal Shareholders.................. 37
Description of Debentures............... 38
Validity of Debentures.................. 42
Experts................................. 42
Index to Consolidated Financial
Statements............................ F-1
</TABLE>

======================================================

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

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

PROSPECTUS
--------------------
APRIL 4, 1997

======================================================