<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
-------- -----------
Commission file number 0-29026
ENSTAR INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1831611
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6479 City West Parkway
Eden Prairie, Minnesota 55344
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (612) 941-3200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- --------
At July 31, 1997, 3,304,279 shares of common stock of the registrant were
outstanding.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-----------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 12,584 $ 824
Accounts receivable, net 8,249 8,785
Inventories 5,618 5,706
Prepaid expenses and other current assets 284 481
--------------------------------
Total current assets 26,735 15,796
Property and equipment, net 1,924 1,742
Investment in unconsolidated subsidiary 10,924 13,519
Goodwill, net 4,722 4,801
Other assets 220 157
--------------------------------
$ 44,525 $ 36,015
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ 2,232 $ 1,310
Current portion of long-term debt 29 28
Accounts payable 4,002 4,101
Accrued expenses 5,685 4,830
--------------------------------
Total current liabilities 11,948 10,269
Long-term debt, net of current maturities 14,628 1,150
Deferred income taxes 1,716 3,649
Shareholders' Equity
Common stock, $.01 par value
100,000,000 shares authorized,
issued and outstanding 3,304,279
shares in 1997 and 1996 33 33
Additional paid-in-capital 17,180 20,710
Retained earnings (deficit) (980) 204
---------------------------------
Total shareholders' equity 16,233 20,947
----------------------------------
$ 44,525 $ 36,015
==================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-----------------------------------------------
1997 1996 1997 1996
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 13,392 $ 16,431 $ 25,324 $ 31,793
Operating and product costs 9,590 12,303 17,953 23,503
-----------------------------------------------
Gross profit 3,802 4,128 7,371 8,290
Selling, general,
and administrative expenses 5,044 4,244 9,870 8,123
-----------------------------------------------
Operating income (loss) (1,242) (116) (2,499) 167
Interest expense, net (190) (74) (274) (140)
-----------------------------------------------
Income (loss) before income taxes
and equity in earnings of
unconsolidated subsidiary (1,432) (190) (2,773) 27
Income tax provision (benefit) (500) (52) (950) 52
-----------------------------------------------
Income (loss) before equity in
earnings of unconsolidated
subsidiaries (932) (138) (1,823) (25)
Equity in earnings of
unconsolidated subsidiary 330 323 639 627
-----------------------------------------------
Net income (loss) (602) 185 (1,184) 602
===============================================
Net income (loss) per share $ (0.18) $ 0.06 $ (0.36) $ 0.18
===============================================
Weighted average shares
outstanding 3,304,279 3,313,133 3,304,279 3,304,333
===============================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1997 1996
--------------------------------
<S> <C> <C>
Net cash used in operating activities $ (656) $ (966)
Cash flows for investing activities
Capital expenditures (641) (542)
Other (63) 79
--------------------------------
Net cash used in investing activities (704) (463)
--------------------------------
Cash flow from financing activities
Proceeds from long-term debt 13,492 384
Payments on long-term debt (14) ---
Proceeds from notes payable 29,556 33,596
Payments on notes payable (28,634) (32,675)
Constructive dividends (1,280) ---
--------------------------------
Net cash provided by financing
activities 13,120 1,305
--------------------------------
Net increase (decrease) in cash and
cash equivalents 11,760 (124)
Cash and cash equivalents
at beginning of period 824 246
--------------------------------
Cash and cash equivalents
at end of period $ 12,584 $ 122
==================================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Business
ENStar Inc. ("ENStar" or "the Company") 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" or "NSU"). 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.
2. 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 financial statements for
1996 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 throughout all periods presented.
The accompanying unaudited condensed consolidated financial statements
have been prepared by ENStar without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. The information
furnished in the condensed consolidated financial statements includes normal
recurring adjustments which are, in the opinion of management, necessary
for a fair presentation of such financial statements. Certain information
and footnote disclosure normally included in financial statements prepared
in accordance with generally accepted accounting principles have been
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
condensed or omitted pursuant to such rules and regulations. Although the
Company believes that the disclosures are adequate to make the information
presented not misleading, it is suggested that these condensed consolidated
financial statements be read in conjunction with the financial statements
and the notes thereto included in the Company's latest annual report on
Form 10-K.
Results for the six months ended June 30 may not necessarily be
indicative of the results to be expected for the full year.
3. Investment in Unconsolidated Subsidiary --
The Company's unconsolidated subsidiary consists of its investment in
CorVel Corporation ("CorVel"). At June 30, 1997, ENStar owned 1,025,000
shares, or an approximate 24% ownership, in CorVel. The Company's investment
in CorVel is accounted for as an unconsolidated subsidiary using the equity
method of accounting. CorVel has a fiscal year ended March 31. The following
is summarized balance sheet and income statement information of the Company's
unconsolidated subsidiary as of, and for the six month period ended June 30,
1997 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Current assets $ 37,070
Noncurrent assets 20,464
Current liabilities 10,839
Noncurrent liabilities 1,553
Revenues 65,717
Gross profit 12,289
Net income 4,480
</TABLE>
In January 1997, ENStar, at the direction of North Star, sold 200,000
shares of CorVel for approximately $5.1 million cash. The proceeds from the
sale were distributed to and retained by North Star. The book value of the
shares sold was approximately $1.4 million, net of deferred taxes, and has
been reflected as a dividend to North Star during the period ended March 31,
1997. In addition, as a result of other equity transactions of CorVel, ENStar
decreased its investment in unconsolidated subsidiary by approximately
$900,000, additional paid-in capital by $540,000, and deferred income taxes by
$360,000. At June 30, 1997, the value of the Company's investment in CorVel,
based on the closing market price, was approximately $29.5 million.
<PAGE>
ENStar Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
4. Inventories --
Inventories are stated at the lower of average cost (first-in, first-out)
or market. Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------------------------
<S> <C> <C>
Finished goods $ 4,328 $ 3,285
Purchased parts 1,290 2,421
--------------------------------
$ 5,618 $ 5,706
--------------------------------
--------------------------------
</TABLE>
5. Accrued Expenses -
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
--------------------------------
<S> <C> <C>
Payroll and related benefits $ 692 $ 701
Insurance reserves 1,010 968
Discontinued operations 2,000 2,000
Other 1,983 1,161
--------------------------------
$ 5,685 $ 4,830
--------------------------------
--------------------------------
</TABLE>
6. Net Income (Loss) Per Share --
Net income (loss) per share for 1997 was based on the average number of
shares outstanding during the period after giving effect to the assumed
exercise of outstanding stock options, except where the effects are
antidilutive.
<PAGE>
ENStar Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Net income per share for the three and six months ended June 30, 1996 was
computed based on the 9,939,000 and 9,913,000 weighted average number of shares
of North Star common stock outstanding after giving effect to the assumed
exercise of North Star's outstanding stock options. This weighted average
number of shares was adjusted to reflect the distribution of ENStar common
stock to North Star shareholders whereby one share of ENStar common stock was
issued to each holder of three shares of North Star common stock.
7. New Accounting Pronouncement --
The FASB has issued Statement of Financial Accounting Standards No. 128,
Earnings Per Share, which is effective for financial statements issued after
December 15, 1997. Early adoption of the new standard is not permitted. The
new standard eliminates primary and fully diluted earnings per share and
requires presentation of basic and diluted earnings per share together with
disclosure of how the per share amounts were computed. The effect on the
Company's financial statements of adopting this new standard has not been
determined.
8. Income Taxes --
Deferred income taxes arise from temporary differences between financial
and tax reporting. To the extent the Company's financial reporting basis in
its investment in unconsolidated subsidiary exceeds its tax basis, and is not
expected to be realized in a tax-free manner, the Company records a deferred
tax liability. At June 30, 1997, the deferred tax liability includes a
cumulative tax effect of approximately $4.1 million for the differences in the
financial reporting and tax basis of the Company's investment in CorVel.
9. Contingencies -
In connection with the merger of North Star and Michael Foods, 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.
10. Reclassifications --
Certain 1996 amounts have been reclassified to conform with the financial
statement presentation used in 1997. Such reclassifications had no impact on
previously reported retained earnings or net income.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
Operations of the Company should be read in conjunction with the
Consolidated Financial Statements and the Notes thereto included
elsewhere in this report.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of
the Securities Exchange Act of 1934, as amended. These statements include
statements regarding intent, belief, or current expectations of the Company
and its management. Shareholders and prospective investors are cautioned that
any such forward-looking statements are not guarantees of future performance
and involve a number of risks and uncertainties that may cause the Company's
actual results to differ materially from the results discussed in the
forward-looking statements. Among the factors that could cause actual results
to differ materially from those indicated by such forward-looking statements
are general economic conditions, computer and computer networking industry
conditions, risks associated with the cost required for the development and
offering of new products and services that may not be commercially successful,
the rapid technological changes occurring in the markets in which the Company
operates, failure to successfully execute Americable's expansion strategy,
dependence on and the need to recruit and retain key personnel, the
concentration of the Company's revenues with certain customers, dependence on
key suppliers and product supply, the substantial competition in the markets
in which the Company operates and certain indemnification obligations relating
to the Reorganization Transactions. Each of these factors is more fully
discussed in Exhibit 99 to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
The market for Transition Network's products is characterized by rapid
technological change. The introduction of products embodying new technology
can render existing products obsolete. Transition has recently refined its
product strategy to focus more of its research and development efforts on
developing products facilitating the conversion from existing to new
technologies. This shift in product focus is expected to reduce future
sales of the Company's existing advanced LAN products as it focuses more of its
engineering, marketing, and sales resources on its conversion based products.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
GENERAL
ENStar Inc. is a holding company. Its principal subsidiaries are
Americable, Inc. ("Americable") and Transition Networks, Inc. ("Transition").
Americable's operations are organized into two primary business units, Enstar
Networking Corporation ("Enstar Networking") and Americable Distribution. As
a network integrator, Enstar Networking provides services designed to build,
maintain, and secure local area network ("LAN") and wide area network ("WAN")
infrastructures for large and medium sized end-users. As a value-added
distributor, Americable is a provider of networking and connectivity products,
cable assemblies, and custom OEM manufacturing solutions. Transition is a
manufacturer of connectivity devices used in LAN applications. At June 30,
1997, ENStar owned 1,025,000 shares of common stock of CorVel Corporation
("CorVel"), or an approximate 24% 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, at the direction of North Star,
sold 200,000 shares of CorVel for approximately $5.1 million cash. The proceeds
from the sale were distributed to and retained by North Star. 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.
ENStar was formerly a wholly owned subsidiary of North Star. In
connection with the reorganization involving North Star and Michael Foods (the
"Reorganization Transactions"), North Star transferred 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) North Star merged with Michael Foods and (ii)
the outstanding common stock of ENStar (the "ENStar Common Stock") was
distributed to the shareholders of North Star (the "Distribution"). As a
result of the Distribution, ENStar ceased to be a subsidiary of North Star and
became a publicly owned company. ENStar's Common Stock is included on the
Nasdaq National Market under the symbol "ENSR".
As described in Note 2 to the Consolidated Financial Statements of
ENStar, the Consolidated Statements of Operations of ENStar for 1996 include
an allocation of general and administrative costs incurred by North Star 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.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The following are unaudited summarized operating results for each of the
Company's continuing operations for the three and six months ended June 30
(in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------------------
1997 1996 1997 1996
-------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Americable $ 9,555 $ 12,819 $ 17,937 $ 24,920
Transition 4,163 3,992 8,038 7,643
Eliminations (326) (380) (651) (770)
---------------------------------------------
$ 13,392 $ 16,431 $ 25,324 $ 31,793
=============================================
Gross Profit
Americable $ 2,138 $ 2,752 $ 4,184 $ 5,484
Transition 1,664 1,376 3,187 2,806
---------------------------------------------
$ 3,802 $ 4,128 $ 7,371 $ 8,290
=============================================
Selling, General and Administrative Expenses
Americable $ 3,220 $ 2,553 $ 5,974 $ 4,973
Transition 1,467 1,404 3,183 2,656
Corporate 357 287 713 494
----------------------------------------------
$ 5,044 $ 4,244 $ 9,870 $ 8,123
==============================================
Operating Income (Loss)
Americable $ (1,082) $ 199 $ (1,790) $ 511
Transition 197 (28) 4 150
Corporate (357) (287) (713) (494)
----------------------------------------------
$ (1,242) $ (116) $ (2,499) $ 167
==============================================
</TABLE>
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997 vs. THREE MONTHS ENDED JUNE 30, 1996
Consolidated revenues decreased $3.0 million, or 18.5%, to $13.4 million
from $16.4 million in 1996.
Revenues at Americable decreased approximately $3.2 million, or 25.5%, to
$9.6 million. This includes approximately $2.1 million in decreased sales of
networking products to two customers due to reduced demand which is expected
to continue for the remainder of the year. These customers accounted for
approximately $2.7 million of revenues in 1996. In addition, sales of bulk
cable and other connectivity products decreased approximately $660,000,
primarily due to lower demand from contractors and resellers. Offsetting these
decreases was approximately $280,000 of increased internal service revenues due
to expanded focus on service offerings at Enstar Networking Corporation.
Revenues at Transition increased approximately $171,000, or 4.3%, to
$4.2 million. Sales to domestic customers increased approximately $250,000,
or 10%, to $2.8 million, which primarily is a result of the addition of new
customers and higher demand from existing customers. Sales to international
customers were approximately $1.4 million, a decrease of 3% from the previous
year. Sales to international customers accounted for approximately 33% and 35%
of net sales for the period ended June 30, 1997 and 1996, respectively.
Consolidated gross profit, as a percent of revenues, increased to 28.4%
in 1997 as compared to 25.1% in 1996. Margins at Transition increased to 40%
from 34.5% due primarily to higher sales of new product enhancements of its
basic LAN products. In addition, increased margins at Americable are primarily
attributable to the higher level of internal service revenues.
The Company's selling, general and administrative expenses increased
$800,000, or 18.9%, to $5 million from $4.2 million in 1996.
Operating expenses at Americable increased approximately $667,000 or
26.1% for the period which reflects approximately $295,000 of higher
engineering expense due to the addition of technical and engineering
personnel and higher training costs. In addition, this increase reflects
approximately $250,000 of increased selling expenses primarily attributable
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
to higher promotional expenses related to the introduction of Enstar
Networking along with the addition of new sales personnel and related
expenses. General and administrative expenses increased approximately
$122,000 due primarily to higher facility related expenses associated with
the increased level of personnel.
Operating expenses at Transition increased approximately 4.5%, which
reflects increased sales and marketing expenses of approximately $160,000
associated with advertising and promotional activities along with the
addition of new product marketing personnel and related expenses This was
offset by approximately $100,000 of decreased engineering expenses which
reflects a reduction in development costs and personnel associated with
Transition's advanced LAN products.
Corporate expenses increased approximately $70,000, or 24.4%, to $357,000
which reflect higher costs related to the subordinated debenture program.
Net interest expense increased $116,000 or 157% to $190,000 from $74,000
in 1996 due primarily to the higher levels of long-term debt related to the
subordinated debenture program which commenced in November 1996.
The income tax provision (benefit) reflects the Company's estimated
effective annual tax rate. The income tax benefit of $500,000 in 1997 relates
to the elimination of deferred tax liabilities that will reverse as net
operating losses available for carryforward are utilized in future periods.
To the extent loss carryforwards are realized in the future, deferred taxes
will be reinstated.
Equity in earnings of the Company's unconsolidated subsidiary increased
$7,000 to $330,000 from $323,000 in the previous year which reflects higher
earnings at CorVel, offset by ENStar's reduced ownership interest in CorVel
following the January 1997 sale of stock. Further information with respect
to the results of operations of CorVel is contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
section on their Form 10-Q and Form 10-K as filed with the Securities and
Exchange Commission.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
SIX MONTHS ENDED JUNE 30, 1997 vs. SIX MONTHS ENDED JUNE 30, 1996
Consolidated revenues decreased $6.5 million, or 20.3%, to $25.3 million
from $31.8 million in 1996.
Revenues at Americable decreased approximately $7 million, or 28%, to
$17.9 million. This includes approximately $5.1 million in decreased sales of
networking products to two customers due to reduced demand which is expected to
continue for the remainder of the year. These customers accounted for
approximately $6.6 million of revenues in 1996. In addition, sales of bulk
cable and other connectivity products decreased approximately $1.6 million
primarily due to lower demand from contractors and resellers. Offsetting these
decreases was approximately $465,000 of increased internal service revenues due
to expanded focus on service offerings at Enstar Networking Corporation.
Revenues at Transition increased approximately $395,000, or 5.2%, to $8
million. Sales to domestic customers increased approximately $250,000, or 11.5%
to $5.3 million, which primarily is a result of the addition of new customers.
Sales to international customers were approximately $2.7 million, a decrease of
1% from the previous year. Sales to international customers accounted for
approximately 34% and 36% of net sales for the period ended June 30, 1997 and
1996, respectively.
Consolidated gross profit, as a percent of revenues, increased to 29.1% in
1997 as compared to 26.1% in 1996. Increased margins at Americable are
primarily attributable to the higher level of internal service revenues.
Increased margins at Transition are primarily due to higher sales of basic LAN
products sold during the period. ENStar expects its gross profit margins to
decline due to expected competitive pricing pressures on products sold by both
Americable and Transition.
The Company's selling, general and administrative expenses increased
approximately $1.8 million, or 21.5%, to $9.9 million from $8.1 million
in 1996.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
Operating expenses at Americable increased approximately $1 million, or
20.1%, for the period which reflects approximately $540,000 of increased
selling expenses primarily attributable to higher promotional expenses
related to the introduction of Enstar Networking along with the addition of
new sales personnel and related expenses. In addition, this increase reflects
approximately $375,000 of higher engineering expense due to the addition of
technical and engineering personnel along with increased recruiting and training
costs. General and administrative expenses increased approximately $85,000
due primarily to higher facility related expenses associated with the increased
level of personnel.
Americable expects that its selling expenses, as a percentage of
revenues, will increase during the remainder of 1997 through the addition of
sales and technical personnel and their related expenses. These anticipated
increases in operating expenses may result in lower operating profits at
Americable, if the company is unable to increase its sales volume and/or
gross profit margins.
Transition had increased operating expenses of approximately $527,000, or
19.8%, which reflects increased sales and marketing expenses of approximately
$455,000 associated with advertising and promotional activities along with the
addition of new product marketing personnel and related expenses. In an effort
to successfully develop and launch new product enhancements, Transition
anticipates the increased levels of spending on engineering, marketing and
promotional costs to continue throughout 1997. If such increased level of
spending does not result in the timely introduction of commercially successful
products, Transition may experience significantly reduced levels of sales growth
and operating results during the remainder of 1997.
Corporate expenses increased approximately $219,000, or 44%, to $713,000,
which primarily reflects severance related costs associated with a former
executive of Americable, in addition to higher costs related to the subordinated
debenture program.
Net interest expense increased $134,000, or 97%, to $274,000 from $140,000
in 1996, due primarily to higher levels of long-term debt related to the
subordinated debenture program which commenced in November 1996.
The income tax provision (benefit) reflects the Company's estimated
effective annual tax rate. The income tax benefit of $950,000 in 1997 relates
to the elimination of deferred tax liabilities that will reverse as net
operating losses available for carryforward are utilized in future periods.
To the extent loss carryforwards are realized in the future, deferred taxes
will be reinstated.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
Equity in earnings of the Company's unconsolidated subsidiary increased
$12,000 to $639,000 from $627,000 in the previous year which reflects higher
earnings at CorVel, offset by ENStar's reduced ownership interest in CorVel
following the January 1997 sale of stock. Further information with respect to
the results of operations of CorVel is contained in the Management's Discussion
and Analysis of Financial Condition and Results of Operations section on their
Form 10-Q and Form 10-K as filed with the Securities and Exchange Commission.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
RESULTS OF OPERATIONS (Continued)
CAPITAL RESOURCES AND LIQUIDITY
ENStar has experienced cash flow deficits from operations and has
experienced fluctuations in its working capital, which are primarily
attributable to the change in receivables and inventories associated with
the fluctuation in sales and timing of payments on accounts payable. Cash
used in operations was $656,000 for the six months ended June 30, 1997,
versus cash used in operations of $966,000 in 1996.
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")
whereby it sells subordinated debentures of various maturities primarily to
individual investors. The debentures are offered on a continuous basis at
interest rates that change from time to time depending on market conditions.
Proceeds from long-term debt of approximately $13.5 million represent sales of
debentures under this program. At June 30, 1997, the Company had $14.4
million principal amount of subordinated debentures outstanding with a
weighted average interest rate of 9.4%.
Americable and Transition maintain revolving line of credit facilities
with their principal bank to provide borrowings up to $9 million and $4 million,
respectively, due in June 1998. Borrowings under these facilities are based on
eligible accounts receivable and inventory with interest at prime (8.5%) with
optional fixed rate advances at the London Interbank Offered Rate ("LIBOR") plus
2.5%. At June 30, 1997, there was approximately $2.2 million of outstanding
borrowings and approximately $2.5 million of available borrowings under these
credit facilities. At June 30, 1997, Americable was not in compliance with
certain financial covenants of this credit agreement. Management is
currently in the process of negotiating an amendment to this agreement and
obtaining the necessary waivers from its bank.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY (Continued)
In June 1997, the Company commenced a modified "Dutch Auction" self-
tender offer for the repurchase of up to 600,000 shares of its common stock.
This tender offer expired in July 1997, resulting in the Company's purchase
of 35,903 shares of its common stock at $6.25 per share or an aggregate cost
of approximately $224,000.
At August 8, 1997, ENStar had approximately $12.5 million of cash and
cash equivalents, excluding cash of its operating subsidiaries. The Company
believes that its available cash and cash equivalents along with the amounts
available under the credit facilities of its operating companies, will be
adequate to meet expected cash requirements, including capital expenditures and
potential acquisitions, for the remainder of the year.
<PAGE>
PART II - OTHER INFORMATION
ENStar Inc. and Subsidiaries
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The 1997 Annual Meeting of Shareholders of ENStar Inc.
was held on June 26, 1997, at the Marriott Hotel Southwest in Minneapolis,
Minnesota.
The holders of 3,025,418 shares of Common Stock, in excess of 91.56
percent of the outstanding 3,304,279 common shares entitled to vote, were
represented at the meeting in person or by proxy.
The four candidates for election as directors listed in the Company's
proxy statement were elected to serve until the next annual meeting. Each
received at least 3,022,572 votes representing 99.9 percent of the votes
cast and 91.5 percent of the outstanding shares.
For complete minutes of the meeting, please write to ENStar Inc.,
6479 City West Parkway, Eden Prairie, MN 55344
Item 5. OTHER MATTERS
On June 16, 1997, the Company disclosed that Americable incurred a
potential loss of approximately $900,000 in late May as a result of a fraudulent
scheme by a group of persons who falsely claimed to be employees of a large
company in connection with the purchase of products from Americable.
The Company has been notified by its insurance carrier that it has agreed to
provide coverage related to the loss. To date, Americable has been reimbursed
for a substantial portion of this loss and the Company does not expect to record
any significant losses in connection with this claim.
<PAGE>
PART II - OTHER INFORMATION
ENStar Inc. and Subsidiaries
(Continued)
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibit is being filed with this report on
Form 10-Q.
Exhibit 10.9 First Amendment to Loan and Security Agreement,
dated May 29, 1997, among Transition Networks, Inc., and First
Bank National Association, amending the terms of the Loan and
Security Agreement dated August 9, 1996.
Exhibit 10.10 Seventh Amendment to Amended and Restated Loan and
Security Agreement, dated May 29, 1997, among Americable, Inc.,
Cable Distribution Systems, Inc., and First Bank National
Association, amending the terms of the Amended and Restated Loan
and Security Agreement dated August 9, 1996.
Exhibit 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ENSTAR INC.
--------------------------
(Registrant)
Date August 14, 1997 by /s/ Jeffrey J. Michael
--------------------------- --------------------------
Jeffrey J. Michael
President and Chief Executive Officer
Date August 14, 1997 by /s/ Thomas S. Wargolet
--------------------------- --------------------------
Thomas S. Wargolet
Chief Financial Officer
and Secretary
(Principal Financial and
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
Number
- --------
10.9 First Amendment To Loan And Security Agreement
For Transition Networks, Inc.
10.10 Seventh Amendment To Amended And Restated Loan And
Security Agreement For Americable, Inc. And Cable
Distribution Systems, Inc.
27.1 Financial Data Schedule
FIRST BANK NATIONAL ASSOCIATION
FINANCING FOR
TRANSITION NETWORKS, INC.
POST-CLOSING DOCUEMENTS
A. AMENDMENT NO. 1 (5/29/97)
1. Amendment
2. Amended Supplement A
3. Secretary's Certificate
a. Resolutions
b. Articles
c. Bylaws
d. Incumbency and Signature Specimen
<PAGE>
FIRST AMENDMENT TO
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (the "Amendment") is
dated as of May 29, 1997, and is by and between TRANSITION NETWORKS, INC., a
Minnesota corporation (the "Borrower") and FIRST BANK NATIONAL ASSOCIATION, a
national banking association (the "Bank"). Capitalized terms not otherwise
expressly defined herein shall have the meanings set forth in the Loan
Agreement.
RECITALS
WHEREAS, the Borrower and the Bank are parties to a Loan and Security
Agreement, dated as of August 9, 1996 (the "Loan Agreement");
WHEREAS, the Borrower and the Bank desire to amend the terms of the Loan
Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1 - AMENDMENTS TO THE LOAN AGREEMENT
1.1 Amendments to Loan Agreement. The Loan Agreement is hereby amended
as follows:
(a) The definitions of "Americable Spin-off", "Guarantor", "Guaranty
Documents", "Loan Documents", "Obligations" and "Obligor" appearing in
ARTICLE I of the Loan Agreement are respectively amended in their
entireties to read as follows:
"Americable Spin-off": North Star Universal, Inc.'s spin-off of
not less than 90% of its stock ownership in Americable to ENStar
Inc., a Minnesota corporation ("ENStar").
"Guarantor": None.
"Guaranty Documents": None
"Loan Documents": This Agreement, any Note, the Subordination
Agreement and each other instrument, document, guaranty, mortgage, deed of
trust, chattel mortgage, pledge, power of attorney, consent, assignment,
contract, notice, security agreement, lease, financing statement,
subordination agreement, trust account agreement, or other agreement
executed and delivered by the Borrower or any guarantor or party granting
security interests in connection with this Agreement, the Loans or the
Collateral.
<PAGE>
"Obligations": All of the liabilities, obligations and
indebtedness of the Borrower to the Bank of any kind of nature,
however created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing or due or to become
due, and including, without limitation, (a) the Borrower's
obligations under the Loan Documents, including obligations of
performance, (b) the Borrower's obligations with respect to any
"Letter of Credit" or any "Application" described in this Agreement,
and (c) interest, charges, expenses, Attorney's Fees and other sums
chargeable to the Borrower by the Bank under the Loan Documents.
"Obligations" shall also include any and all amendments, extensions,
renewals, refundings or refinancings of any of the foregoing.
"Obligor": The "Borrower".
(b) Section 5.1.1.(a) of the Loan Agreement is amendment in its
entirety to read as follows:
(a) ANNUAL AUDIT REPORT. As soon as available and in any event
within 120 days after the end of each fiscal year of ENStar, the
annual audit report of ENStar and its Subsidiaries prepared on a
consolidated basis in conformity with GAAP, consisting of at least
statements of income, cash flow, changes in financial position and
stockholders' equity, and a consolidated balance sheet as at the end
of such year, setting forth in each case in comparative form
corresponding figures from the previous annual audit, certified,
without qualification, by independent certified public accountants
of recognized standing selected by ENStar and acceptable to the Bank,
together with the related supplemental consolidating balance sheets
and income statements and any management letters, management reports
or other supplementary comments or reports to ENStar or its board of
directors furnished by such accountants."
(c) Section 2.15 is amended by changing the reference to subsection
"(iii)" appearing in the parenthetical clause in the second line on page
24 of the Loan Agreement to a reference to subsection "(c)".
(d) Section 3.2(b) is amended by inserting 170225066472 as the
account number of the Collateral Account.
(e) The Borrowing Base Certificate attached to the Loan Agreement as
Exhibit A is hereby amended to conform to Exhibit A (Amended 5/97)
attached to this Amendment.
(f) Supplement A attached to the Loan Agreement is hereby deleted
and Supplement A (Amended 5/97) attached to this Amendment is substituted
therefor. All references in the Loan Agreement to "Supplement A" shall be
references to Supplement A (Amended 5/97).
<PAGE>
1.2 Construction. All references in the Loan Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to
the Loan Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and
maintain the Loans under the Loan Agreement as amended herby, the Borrower
herby warrants and represents to the Bank that: (a) The execution, delivery
and performance by the Borrower of this Amendment and any other documents to
which the Borrower is a party have been duly authorized by all necessary
corporate or partnership action, do not require any approval or consent of,
or any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including, without
limitation, any stockholder or partner), do not and will not conflict with,
result in any violation of or constitute any default under, any provision of
the Borrower's articles of incorporation or bylaws, any agreement binding on
or applicable to the Borrower or any of its property, or any law or
governmental regulation or court decree or order, binding upon or applicable,
to the Borrower or of any of its property and will not result in the creation
or imposition of any security interest or other lien or encumbrance in or on
any of its property pursuant to the provisions of any agreement applicable to
the Borrower or any of its property; (b) The Loan Agreement as amended by this
Amendment is the legal, valid and binding obligations of the Borrower and is
enforceable in accordance with its terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or decisions
at the time in effect affecting the enforceability of rights or creditors
generally and to general equitable principles which may limit the right to
obtain equitable remedies.
ARTICLE III - CONDITIONS AND EFFECTIVENESS
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions:
3.1 Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE IV of the Loan Agreement shall
be true and correct as though made on the date hereof except for changes
that are permitted by the terms of the Loan Agreement. The execution by
the Borrower of this Amendment shall be deemed a representation that the
Borrower has complied with the foregoing condition.
3.2 Before and after giving effect to this Amendment, no Event of
Default or no Default, shall have occurred and be continuing under the
Loan Agreement except for those expressly waived by the terms hereof. The
execution by the Borrower of this Amendment shall be deemed a
representation that the Borrower has complied with the foregoing
condition.
<PAGE>
3.3 The Bank shall have received the following documents
appropriately completed and duly executed by the Borrower and the other
Obligors where appropriate:
(a) This Amendment appropriately completed and duly executed by
the Borrower, together with a resolution of the Borrower authorizing the
execution and delivery of this Amendment in form and substance
satisfactory to the Bank; and
(b) Such other approvals, opinions or documents, as the Bank
may reasonably request.
ARTICLE IV - GENERAL
4.1 Expenses. The Borrower agrees to reimburse the Bank upon demand
for all reasonable expenses, including reasonable fees of attorneys (who
may be employees of the Bank) and legal expenses incurred by the Bank in
the preparation, negotiation and execution of this Amendment and any other
document required to be furnished herewith, and in enforcing the
obligations of the Borrower hereunder, and to pay and save the Bank
harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of the Loan
Agreement.
4.2 Counterparts. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original but all such counterparts shall
constitute but one and the same instrument.
4.3 Severability. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
4.4 Law. This Amendment shall be a contract made under the laws of
the State of Minnesota, which laws shall govern all the rights and duties
hereunder.
4.5 Successors: Enforceability. This Amendment shall be binding
upon the Borrower and the Bank and their respective successors and
assigns, and shall inure to the benefit of the Borrower and the Bank and
the successors and assigns of the Bank. Except as hereby amended, the
Loan Agreement shall remain in full force and effect and is hereby
ratified and confirmed in all respects.
<PAGE>
4.6 Recitals. The recitals hereto are incorporated herein by
reference and constitute and integral part of this Amendment.
4.7 Acknowledgement and Release. In order to induce the Bank
to enter into this Amendment, the Borrower: (a) represents and warrants
to the Bank that no events have taken place and no circumstances exist
at the date hereof which would give the Borrower the right to assert a
defense, offset or counterclaim to any claim by the Bank for payment of
the Obligations; and (b) hereby releases and forever discharges the Bank
and its successors, assigns, directors, officers, agents, employees and
participants from any and all actions, causes of action, suits,
proceedings, debts, sums of money, covenants, contracts, controversies,
claims and demands, at law or in equity, which the Borrower ever had or
now has against the Bank or its successors, assigns, directors, officers,
agents, employees or participants by virtue of their relationship to the
Borrower in connection with the Loan Documents and the transactions
related thereto.
4.8 Release of Guarantors. On the date hereof, the Bank releases
and discharges each of Americable and Cable from the Guaranty Documents
to which such Person is a party.
4.9 Consent. On the date hereof, the Bank, in accordance with
Section 6.12(e) of the Loan Agreement, the Bank consents to the Borrower's
incurrance of Indebtedness from Americable and/or ENStar so long as the
aggregate outstanding principal amount of such Indebtedness does not
exceed $1,000,000 at any time.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of
the date first written above.
TRANSITION NETWORKS, INC.,
a Minnesota corporation
By:
-------------------------
Title:
----------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By:
-------------------------
Title:
----------------------
<PAGE>
EXHIBIT A
BORROWING BASE CERTIFICATE
(AMENDED 5/97)
First Bank National Association
First Bank Place MPFP0804
601 Second Avenue South Computed as of
Minneapolis, MN 55402-4302 Date: Report No.
--------------- -----
Attention: Ms. Kimberly Leppanen
The undersigned is the Borrower under a Loan and Security Agreement, dated
August 9, 1996 (as the same may be amended, modified or supplemented from time
to time, herein called the "Agreement") between the undersigned and FIRST BANK
NATIONAL ASSOCIATION (the "Lender").
The undersigned hereby reaffirms all representations and warranties to the
Agreement and certifies and warrants that the undersigned holds, subject to the
security interest of the Lender under the Agreement, the following collateral
computed as of .
------------------
I. ACCOUNTS RECEIVABLE
1. Accounts balance (From last BBC No. ,
--------
Dated ) $
------------------ ------
2. Add: New Sales and other Debits $
------
3. Less: Collection of Accounts (Net Cash) $
------
4. Less: Misc Credit Memos $
------
5. Discounts Allowed and Other Adjustments to Receivables $
------
6. Accounts Receivable Balance as of Period ending
above (sum lines 1-5) $
------
7. Total Ineligible accounts as of Aging dated $
---------- ------
8. Total Eligible Accounts Receivable (Line 6 - Line 7) $
======
9. Eligible Loan Value @ 75%$ $
------
10. Total Foreign Accounts Receivable that are Ineligible
because they are foreign and that are insured $
------
11. Eligible Loan Value @75% (or higher % permitted
by Lender) $
------
<PAGE>
II. INVENTORY dated
----------
12. Total Inventory $
------
13. Less: Ineligible Inventory $
------
14. Total Eligible Inventory (Line 12 - Line 13) $
======
15. Eligible Loan Value @ 20% (or higher %
permitted by Lender) of Line 14 $
------
16. The lesser of $1,000,000 or line 15 $
======
17. Unadjusted Eligible Loan Value (Line 9 + Line 11
+ Line 14) $
------
18. Less: Letter of Credit Obligation (not
collaterized by cash) $
======
19. Adjusted Collateral Value (Line 17 - Line 18) $
======
III. LOAN AVAILABILITY
20. Credit Amount $4,000,000 $
------
21. Less: Letter of Credit Obligations $
======
22. Adjusted Credit Amount $
------
23. Loan Availability (Lesser of Line 19 and Line 22) $
------
24. Loan Balance report (From last BBC No. ,
----------
Dated )
------------ $
------
25. Add: new Loan Advances requested since last report
(Add monthly interest charge, term loan payment and
other fees if applicable) $
------
26. Less: Collections applied to loan since last report $
======
27. Less: Loan Balance this report (Line 24 +
Line 25 - Line 26) $
------
28. Excess (Deficit) Eligible Loan Value of Collateral
(Line 19 - Line 27) $
======
<PAGE>
The undersigned further certifies and warrants that no Event of Default is
existing as of the date hereof and, to the best knowledge and belief of the
officer of the undersigned executing this Borrowing Base Certificate, there has
not been (except as may otherwise be indicated below) any change to the
information set forth above since the computation date specified above which
would materially reduce the amounts shown if such amounts were computed as of
the date of this Borrowing Base Certificate.
TRANSITION NETWORKS, INC.
By Title Date
------------------------------ ---------------------- ------------
<PAGE>
SUPPLEMENT A
to
LOAN AND SECURITY AGREEMENT
Dated as of AUGUST 9, 1996 Between
FIRST BANK NATIONAL ASSOCIATION (the "Bank") and
TRANSITION NETWORKS, INC.
(the "Borrower")
(AMENDED 5/97)
1. Loan Agreement Reference. This Supplement A, as it may be amended or
modified from time to time, is a part of the Loan and Security Agreement, dated
as of August 9, 1996, between the Borrower and the Bank (together with all
amendments, modifications and supplements thereto, the "Loan Agreement"). Terms
used herein which are defined in the Loan Agreement shall have the meanings
given such terms in the Loan Agreement unless the context otherwise requires.
2. Credit Amount; Borrowing Base.
2.1 Credit Amount. The maximum amount of Loans which the Bank will make
available to the Borrower shall not exceed FOUR MILLION AND N0/100 DOLLARS
($4,000,000) (such amount is herein called the "Credit Amount") (unless such
amount is increased by the Bank in its sole and absolute discretion); provided,
however, that the aggregate outstanding principal balance of the Loans plus the
Letter of Credit Obligations shall not exceed the Credit Amount.
2.2 Borrowing Base. The term "Borrowing Base," as used herein, shall mean:
(a) an amount of up to 75% (or such higher percentage with respect to
the portion of the Borrower's Eligible Accounts Receivable that are
foreign insured Accounts Receivable as permitted by the Lender, in its
sole discretion from time to time) of the net amount (as determined by
the Bank after deduction of such reserves and allowances as the Bank
deems proper and necessary) of the Borrower's Eligible Accounts
Receivable; plus
(b) an amount of up to the lesser of (i) 20% (or such higher percentage
with respect as permitted by the Lender, in its sole discretion, from
time to time) of the net value (the lower of the cost or market value
of such Inventory as determined by the Bank on a first in first out basis
and after deduction of such reserves and allowances as the Bank deems
proper and necessary ) of the Borrower's Eligible Inventory or (ii)
$1,000,000.
2.3 Bank's Rights. The Borrower agrees that nothing contained in this
Supplement A (a) shall be construed as the Bank's agreement to resort or
look to a particular type or item of Collateral as security for any
specific Loan or advance or in any way limit the Bank's right to resort
to any or all of the Collateral as security for any of the obligations,
(b) shall be deemed to limit or reduce any lien on or any security
interest in or upon any portion of the Collateral or other security for
the Obligations or (c) shall supersede Section 2.10 of the Loan Agreement.
<PAGE>
3. Interest.
3.1 Revolving Loans. The unpaid balance of the Revolving Loans shall bear
interest to maturity as follows:
(a) Eurodollar Advances. The unpaid principal amount of each Eurodollar
Advance shall bear interest prior to maturity at a rate per annum equal
to the Eurodollar Rate (Reserve Adjusted) in effect for each Interest
Period for such Eurodollar Advance plus 2.50% per annum.
(b) Reference Rate Advances. The unpaid principal amount of each
Reference Rate Advance shall bear interest prior to maturity at a rate
per annum equal to the Reference Rate.
3.2 Default Rate. If any amount of the Loans is not paid when due, whether
by acceleration or otherwise, the entire unpaid principal balance of the Loans
(other than overdraft Loans and Over Advances) shall bear interest until paid at
a rate per annum equal to the greater of (i) the Reference Rate from time to
time in effect plus four percent (4%) or (ii) two percent (2%) above the rate
in effect at the time such amount became due for such past due amount.
3.3 Overdraft Loans; Over Advances. Overdraft Loans and over Advances shall
bear interest at the rate(s) determined pursuant to Section 2.8 or Section 2.9
of the Credit Agreement, as applicable.
4. Eligible Account Receivable Data.
(a) The Account Receivable must not be unpaid on the date that is 90 days
after the date of the invoice evidencing such Account Receivable.
(b) If invoices representing 10% or more of the unpaid net amount of all
Accounts Receivable from any one Account Debtor are unpaid more than 90
days after the dates of the invoices evidencing such Accounts Receivable,
then all Accounts Receivable relating to such Account Debtor shall cease
to be Eligible Accounts Receivable.
5. Additional Covenants. From the date of the Loan Agreement and thereafter
until all of the Borrower's Obligations under the Loan Agreement are paid in
full, the Borrower agrees that, unless the Bank shall otherwise consent in
writing, it will not, and will not permit any Subsidiary to, do any of the
following:
<PAGE>
5.1 Tangible Capital Base. During each of the periods set forth below, permit
the Tangible Capital Base to be less than the amount set forth below opposite
such period at any time:
Period Tangible Capital Base
------ ---------------------
June 1, 1996 through and
including March 29, 1997 $3,500,000
March 31, 1997 through and
including December 30, 1997 $3,300,000
December 31, 1997 through and
including May 30, 1998 $3,600,000
5.2 Leverage Ratio. During each of the periods set forth below, permit the
ratio of (a) the total of (i) the Borrower's unconsolidated Indebtedness, minus
(ii) the Borrower's unconsolidated Subordinated Debt, minus (iii) the aggregate
unpaid accrued interest on all Subordinated Debt of the Borrower owing to NSU,
to (b) Tangible Capital Base to be greater than: (a)1.75:1 during the Borrower's
fiscal year ending December 31, 1996; (b) 2.50:1 during any of the Borrower's
fiscal years thereafter.
5.3 Interest Coverage Ratio. Permit the ratio, as of any Measurement Date, for
the period commencing on the first day of the Borrower's fiscal year through and
including such Measurement Date, of (a) the Borrower's unconsolidated EBITDA to
(b) the total of (i) the Borrower's unconsolidated interest expense (including,
without limitation, imputed interest expense on Capitalized Leases) minus (ii)
the aggregate unpaid accrued interest on all Subordinated Debt of the Borrower
owing to NSU, to be less than: (r) 2:1 for any Measurement Date occurring prior
to January 1, 1997; (s) 1.5:1 for any Measurement Date occurring during the
Borrower's 1997 fiscal year; or (t) 2:1 for any Measurement Date occurring
thereafter. For purposes of this Supplement A, "Measurement Date" means: (x) at
any time other than during the Borrower's 1997 fiscal year, the last day of any
fiscal quarter; or (y) at any time during the Borrower's 1997 fiscal year, the
last day of such fiscal year.
5.4 Capital Expenditures. Make Capital Expenditures in an amount exceeding:
(a) $1,000,000 during the Borrower's fiscal year ending December 31, 1997; or
(b) $450,000 during any fiscal year thereafter.
Borrower's Initials__________
Bank's Initials__________
Date: May______, 1997
<PAGE>
CERTIFICATE
-----------
I, , do hereby certify that I am the duly appointed
----------------------
or elected and qualified Secretary and the keeper of the
------------------------
records of Transition Networks, Inc., a corporation organized and existing
under the laws of the State of Minnesota (the "Corporation") and that the
following is a true and correct copy of resolutions duly adopted by unanimous
written action of the Borrower's Board of Directors on the day of May,
------
1997;
and that such resolutions are now in full force and effect, unamended,
unaltered, and unrepealed:
WHEREAS, there has been presented to the directors a form of First
Amendment (the "First Amendment") to that certain Loan and Security Agreement
dated as of August 9, 1996 (the "Loan Agreement"), between this Corporation and
First Bank National Association (the "Bank").
NOW, THEREFORE, BE IT RESOLVED, that any one of the Secretary, Vice
President or Vice President--Finance of this Corporation is authorized to
execute, in the name and on behalf of this Corporation, and deliver to the Bank
the First Amendment and any promissory note or other instrument, document or
agreement required by the Bank in connection with such First Amendment,
substantially in the form of that reviewed by the directors, except for such
changes, additions or deletions as such officer(s) shall deem proper; execution
by such officer(s) of an amendment and related documents to be conclusive
evidence that such officer(s) deem(s) all of the terms and provisions thereof
to be proper (the executed First Amendment is hereafter called the
"Amendment");
FURTHER RESOLVED, that any one of the Secretary, Vice President or Vice
President--Finance of this Corporation be and hereby is authorized on behalf of
this Corporation to borrow from time to time under the Loan Agreement as
amended by the Amendment, to agree to rates of interest and other terms of
loans, and to repay all amounts so borrowed;
FURTHER RESOLVED, that each officer of this Corporation be and hereby is
authorized to take such action from time to time on behalf of this Corporation
as he/she may deem necessary, advisable or proper in order to carry out and
perform the obligations of this Corporation under the Loan Agreement as amended
by the Amendment and all related instruments, documents and agreements;
FURTHER RESOLVED, that all authority conferred by these resolutions shall
be deemed retroactive and any and all acts authorized hereunder performed prior
to the adoption of this resolution are hereby ratified, affirmed, adopted and
approved;
<PAGE>
FURTHER RESOLVED, that the Secretary or any other officer of this
Corporation is authorized to certify to said Bank a copy of these resolutions
and the names and signatures of this Corporation's officers or employees hereby
authorized to act, and the Bank is hereby authorized to rely upon such
certificate until formally advised by a like certificate of any change therein,
and is hereby authorized to rely on any such additional certificates.
I FURTHER CERTIFY THAT the Bylaws and Articles of Incorporation previously
delivered by this Corporation to said Bank have not been amended, modified or
restated after the date of such delivery.
I FURTHER CERTIFY THAT the following persons have been appointed or
elected and are now acting as officers or employees of said Corporation in the
capacity set before their respective names:
TITLE NAME SIGNATURE
Secretary Peter E. Flynn --------------------
Vice President Jeffrey J. Michael --------------------
Vice Pres.-Finance Thomas S. Wargolet --------------------
IN WITNESS WHEREOF, I have subscribed my name as Secretary this day of
------
May, 1997.
--------------------------------
Secretary
<PAGE>
FIRST BANK NATIONAL ASSOCIATION
FINANCING FOR
AMERICABLE, INC.
AND
CABLE DISTRIBUTION SYSTEMS, INC.
POST-CLOSING DOCUEMENTS
A. AMENDMENT NO. 1 (11/29/93)
1. Amendment with attached Acknowledgements
a. Adanac
b. NSU
2. Amended Supplement A
B. WAIVER AND AMENDMENT NO. 2 (3/3/95)
1. Amendment with attached Acknowledgements
a. Adanac
b. NSU
2. Amended Supplement A
C. WAIVER AND AMENDMENT NO. 3 (5/31/96)
1. Amendment with attached Acknowledgements
a. Adanac
b. NSU
2. Amended Supplement A
D. AMENDMENT NO. 4 (6/28/96)
1. Letter Amendment with attached Acknowledgement
a. NSU
E. AMENDMENT NO. 5 (7/31/96)
1. Letter Amendment with attached Acknowledgement
a. NSU
<PAGE>
F. AMENDMENT NO. 6 (8/9/96)
1. Amendment
2. Amended Supplement A
3. Americable's Secretary's Certificate
a. Resolutions
b. Articles
c. Bylaws
d. Incumbency and Signature Specimen
4. Cable's Secretary's Certificate
a. Resolutions
b. Articles
c. Bylaws
d. Incumbency and Signature Specimen
5. Transition Guaranty
6. Transition Security Agreement (See Separate Volume pertaining to
Transition Loan and Security Agreement)
7. Transition's Secretary's Certificate (See Separate Volume pertaining to
Transition's Loan and Security Agreement)
a. Resolutions
b.. Articles
c. Bylaws
d. Incumbency and Signature Specimen
8. NSU Acknowledgment
9. Americable's Good Standing Certificates
a. Minnesota
b. Texas
c. Illinois (post-closing)
d. North Dakota
e. Wisconsin (post-closing)
10. Cable's Good Standing Certificates
a. Georgia
<PAGE>
G. LETTER OF CONSENT (2/27/97)
1. Consent
H. AMENDMENT NO. 7 (5/29/97)
1. Amendment
2. Amended Supplement A
3. Americable's Secretary's Certificate
a. Resolutions
b. Articles
c. Bylaws
d. Incumbency and Signature Specimen
4. Cable's Secretary's Cetificate
a. Resolutions
b. Articles
c. Bylaws
d. Incumbency and Signature Specimen
<PAGE>
SEVENTH AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS SEVENTH AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(the "Amendment") is dated as of May 29, 1997, and is by and among AMERICABLE,
INC., a Minnesota corporation ("Americable"), and CABLE DISTRIBUTION SYSTEMS,
INC., a Georgia corporation ("Cable"), (Americable and Cable are hereinafter
each individually referred to as a "Borrower" and collectively as the
"Borrowers" and FIRST BANK NATIONAL ASSOCIATION, a national banking association
(the "Bank"). Capitalized terms not otherwise expressly defined herein shall
have the meanings set forth in the Loan Agreement.
RECITALS
WHEREAS, the Borrowers and the Bank are parties to an Amended and Restated
Loan and Security Agreement, dated as of June 1, 1993, as amended by a First
Amendment dated as of November 29, 1993, a Waiver, a Second Amendment dated
March 3, 1995, a Third Amendment dated May 31, 1996, a letter amendment dated
June 28, 1996, a letter amendment dated July 31, 1996 and a Sixth Amendment
dated as of August 9, 1996 (as so amended, the "Loan Agreement");
WHEREAS, the Borrowers and the Bank desire to further amend the terms of
the Loan Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE 1 - AMENDMENTS TO THE LOAN AGREEMENT
1.1 Amendments to Loan Agreement. The Loan Agreement is hereby amended
as follows:
(a) The definitions of "Americable Spin-off", "Guarantor", "Guaranty
Documents", "Loan Documents", "Obligations" and "Obligor", "Tangible Net
Worth," and "Unused Credit Amount" appearing in Section 1.1 of the Loan
Agreement are respectively amended in their entireties to read as follows:
"'Americable Spin-off'": North Star Universal, Inc.'s spin-off
of not less than 90% of its stock ownership in Americable to ENStar Inc., a
Minnesota corporation ("ENStar").
'Guarantor': None.
'Guaranty Documents': None.
<PAGE>
'Loan Documents': This Agreement, any Note, the Subordination
Agreement and each other instrument, document, guaranty, mortgage,
deed of trust, chattel mortgage, pledge, power of attorney, consent,
assignment, contract, notice, security agreement, lease, financing
statement, subordination agreement, trust account agreement, or other
agreement executed and delivered by the Borrower or any guarantor or
party granting security interests in connection with this Agreement,
the Loans or the Collateral.
'Obligations': All of the liabilities, obligations and
indebtedness of the Borrowers to the Bank of any kind or nature,
however created, arising or evidenced, whether direct or indirect,
absolute or contingent, now or hereafter existing or due or to become
due, and including, without limitation, (a) the Borrowers' obligations
under the Loan Documents, including obligations of performance, (b)
the Borrowers' obligations with respect to any "Letter of Credit" or
any "Application" described in this Agreement, and (c) interest,
charges, expenses, Attorneys' Fees and other sums chargeable to the
Borrowers by the Bank under the Loan Documents. "Obligations" shall
also include any and all amendments, extensions, renewals, refundings
or refinancings of any of the foregoing.
'Obligor': The Borrowers.
'Tangible Net Worth': As of any date of determination, the sum
of the amounts set forth on the unconsolidated balance sheet of
Americable as the common stock, preferred stock, additional paid-in
capital, and retained earnings of Americable (excluding treasury
stock), less the book value of all assets of Americable that would be
treated as intangible assets under GAAP, including, without
limitation, all such items as goodwill, trademarks, trade names,
service marks, copyrights, patents, licenses, unamortized debt
discount and expense, unamortized deferred charges and Investments in
the CorVel Pledged Stock.
'Unused Credit Amount': The Credit Amount minus the sum of (a)
the outstanding principal balance of the Revolving Loans plus (b) the
Letter of Credit Obligations."
(b) Section 1.1 of the Loan Agreement is further amended to add the
following new definitions of "Additional Availability" and "Approved
Acquisition" in proper alphabetical order:
"'Additional Availability': The term "Additional
Availability" shall mean the amount, if any, permitted to be added to
the Borrowing Base as a result of the consummation of any Approved
Acquistion.
'Approved Acquisition': The term "Approved Acquisition" shall
mean any Investment approved by the Bank pursuant to Section 6.11(i)."
<PAGE>
(c) The Loan Agreement is generally amended so that each reference to
"NSU" shall be deemed a reference to "ENStar".
(d) Section 2.4(c) is amended in its entirety to read as follows:
"(c) Non-Use Fee. The Borrower shall pay to the Bank a non-use
fee (the "Non-Use Fee") for the period from the date hereof to
the date the Credit terminates in an amount equal to one-quarter
of one percent (1/4%) of the average daily Unused Credit Amount.
The Non-Use Fee shall be charged for the actual number of days
elapsed over a year consisting of 360 days on the actual daily
balance of the Revolving Loans. The Non-Use Fee shall be paid
by the Borrower on the last day of each March, June, September
and December, commencing on the first such day to occur after the
date hereof, and on the date the Credit terminates for the period
then ended. The Bank may provide for the payment of any unpaid
Non-Use Fee by charging a Disbursement Account or any other bank
account maintained by any Borrower with the Bank or advancing
any amount thereof to the Borrowers as a Revolving Loan."
(e) Section 2.15 is amended in its entirety to read as follows:
"Section 2.15 Increased Costs. If, as a result of any law, rule,
regulation, treaty or directive, or any change therein or in the
interpretation or administration thereof, or compliance by the
Bank with any request or directive (whether or not having the
force of law) from any court, central bank, governmental
authority, agency or instrumentality, or comparable agency:
(a) any tax, duty or other charge with respect to any Loan,
any Letter of Credit, the Note or this Agreement is imposed,
modified or deemed applicable, or the basis of taxation of
payments to the Bank of interest or principal of any Loan or of
the Non-Use Fee or with respect to any Application or Letter of
Credit (other than taxes imposed on the overall net income of the
Bank by the jurisdiction in which the Bank has its principal
office) is changed;
(b) any reserve, special deposit, special assessment or
similar requirement against assets of, deposits with or for the
account of, or credit extended by, the Bank is imposed, modified
or deemed applicable;
(c) any increase in the amount of capital required or
expected to be maintained by the Bank or any person controlling
the Bank is imposed, modified or deemed applicable; or
<PAGE>
(d) any other condition affecting this Agreement is imposed
on the Bank or the relevant funding markets;
and the Bank determines that, by reason thereof, the cost to the Bank
of making or maintaining any Loan or Letter of Credit or this
Agreement or any Application is increased, or the amount of any sum
receivable by the Bank hereunder or under the Note or any Application
is reduced; then, the Borrowers shall pay to the Bank upon demand
such additional amount or amounts as will compensate the Bank (or the
controlling person in the instance of (c) above) on an after-tax
basis for such additional costs or reduction (provided that the Bank
has not been compensated for such additional cost or reduction in the
calculation of the "Eurodollar Reserve Rate"). Determinations by the
Bank for purposes of this Section of the additional amounts required
to compensate the Bank shall be conclusive in the absence of manifest
error. In determining such amounts, the Bank may use any reasonable
averaging, attribution and allocation methods."
(f) Section 5.1.1.(a) of the Loan Agreement is amendment in its entirety
to read as follows:
(a) ANNUAL AUDIT REPORT. As soon as available and in any event
within 120 days after the end of each fiscal year of ENStar, the
annual audit report of ENStar and its Subsidiaries prepared on a
consolidated basis in conformity with GAAP, consisting of at least
statements of income, cash flow, changes in financial position and
stockholders' equity, and a consolidated balance sheet as at the end
of such year, setting forth in each case in comparative form
corresponding figures from the previous annual audit, certified,
without qualification, by independent certified public accountants
of recognized standing selected by ENStar and acceptable to the Bank,
together with the related supplemental consolidating balance sheets
and income statements and any management letters, management reports
or other supplementary comments or reports to ENStar or its board of
directors furnished by such accountants."
(g) Section 6.8 is amended in its entirety to read as follows:
"6.8 Restricted Payments. Purchase or redeem any shares of its
stock, declare or pay any dividends thereon (other than stock dividends
and dividends payable to Americable), make any distribution to
stockholders as such (other than Americable) or set aside any funds for
any such purpose, and not prepay, purchase or redeem any subordinated
Indebtedness of the Borrower or any Subsidiary; provided, however, that,
so long as no Event of Default or Unmatured Event of Default has occurred
and is continuing or would result therefrom, Americable may make payments
to ENStar: (a) with respect to any tax obligation of Americable or any of
its Subsidiaries actually paid by ENStar (less any refund actually
<PAGE>
received by ENStar); and (b) of an additional amount not to exceed in the
aggregate, the sum of the following amounts received by Americable after
February 28, 1997: (i) cash dividends received by Americable with respect
to the CorVel Stock; and (ii) net cash proceeds received by Americable
from the sale of the CorVel Stock. Any Excess Cash Flow which is not paid
to the Borrower in the next succeeding fiscal year may not be included in
the determination of Excess Cash Flow for such fiscal year."
(h) Section 6.11 is amended in its entirety to read as follows:
"6.11 Investments. Acquire for value, make, have or hold any
Investments, except: (a) advances to employees of the Borrowers or the
Subsidiaries for travel or other ordinary business expenses, provided that
the aggregate amount outstanding at any one time shall not exceed $50,000
in the aggregate for all employees; (b) advances to subcontractors and
suppliers in maximum aggregate amounts reasonably acceptable to the Bank;
(c) extensions of credit in the nature of Accounts Receivable or notes
receivable arising from the sale of goods and services in the ordinary
course of business; (d) shares of stock, obligations or other securities
received in settlement of claims arising in the ordinary course of
business; (e) Investments (other than Investments in the nature of loans
or advances) outstanding on the date hereof in Subsidiaries by the
Borrowers and other Subsidiaries; (f) other Investments outstanding on the
date hereof and listed on Schedule 6.11; (g) an Investment in the CorVel
Stock; (h) loans, advances or other extensions of credit to Transition,
provided that the aggregate amount outstanding from Americable or ENStar
at any one time shall not exceed $1,000,000; (i) Investments by Americable
in other Persons having similar business lines as Americable, provided
that the aggregate initial amount of such Investments does not exceed
$5,000,000 and Americable obtains the Bank's prior written consent to any
such Investment, which consent may be given or withheld by the Bank in its
sole discretion; and (j) other Investments consented to by the Bank in
writing."
(a) Supplement A (Amended 8/9/96) attached to the Loan Agreement is
hereby deleted and Supplement A (Amended 5/97) attached to this Amendment
is substituted therefor. All references in the Loan Agreement to
"Supplement A" shall be references to Supplement A (Amended 5/97).
1.2 Construction. All references in the Loan Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the
Loan Agreement as amended by this Amendment.
<PAGE>
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and
maintain the Loans under the Loan Agreement as amended herby, the Borrower
herby warrants and represents to the Bank that: (a) The execution, delivery
and performance by the Borrower of this Amendment and any other documents to
which the Borrower is a party have been duly authorized by all necessary
corporate or partnership action, do not require any approval or consent of,
or any registration, qualification or filing with, any government agency or
authority or any approval or consent of any other person (including, without
limitation, any stockholder or partner), do not and will not conflict with,
result in any violation of or constitute any default under, any provision of
the Borrower's articles of incorporation or bylaws, any agreement binding on
or applicable to the Borrower or any of its property, or any law or
governmental regulation or court decree or order, binding upon or applicable,
to the Borrower or of any of its property and will not result in the creation
or imposition of any security interest or other lien or encumbrance in or on
any of its property pursuant to the provisions of any agreement applicable to
the Borrower or any of its property; (b) The Loan Agreement as amended by this
Amendment is the legal, valid and binding obligations of the Borrower and is
enforceable in accordance with its terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws, rulings or decisions
at the time in effect affecting the enforceability of rights or creditors
generally and to general equitable principles which may limit the right to
obtain equitable remedies.
ARTICLE III - CONDITIONS AND EFFECTIVENESS
This Amendment shall become effective on the date first set forth above,
provided, however, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions:
3.1 Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE IV of the Loan Agreement shall
be true and correct as though made on the date hereof except for changes
that are permitted by the terms of the Loan Agreement. The execution by
the Borrower of this Amendment shall be deemed a representation that the
Borrower has complied with the foregoing condition.
3.2 Before and after giving effect to this Amendment, no Event of
Default or no Default, shall have occurred and be continuing under the
Loan Agreement except for those expressly waived by the terms hereof. The
execution by the Borrower of this Amendment shall be deemed a
representation that the Borrower has complied with the foregoing
condition.
<PAGE>
3.3 The Bank shall have received the following documents
appropriately completed and duly executed by the Borrower and the other
Obligors where appropriate:
(a) This Amendment appropriately completed and duly executed by
the Borrower, together with a resolution of the Borrower authorizing the
execution and delivery of this Amendment in form and substance
satisfactory to the Bank; and
(b) Such other approvals, opinions or documents, as the Bank
may reasonably request.
ARTICLE IV - GENERAL
4.1 Expenses. The Borrower agrees to reimburse the Bank upon demand
for all reasonable expenses, including reasonable fees of attorneys (who
may be employees of the Bank) and legal expenses incurred by the Bank in
the preparation, negotiation and execution of this Amendment and any other
document required to be furnished herewith, and in enforcing the
obligations of the Borrower hereunder, and to pay and save the Bank
harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of the Loan
Agreement.
4.2 Counterparts. This Amendment may be executed in as many
counterparts as may be deemed necessary or convenient, and by the
different parties hereto on separate counterparts, each of which, when so
executed, shall be deemed an original but all such counterparts shall
constitute but one and the same instrument.
4.3 Severability. Any provision of this Amendment which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining portions hereof or
affecting the validity or enforceability of such provisions in any other
jurisdiction.
4.4 Law. This Amendment shall be a contract made under the laws of
the State of Minnesota, which laws shall govern all the rights and duties
hereunder.
4.5 Successors: Enforceability. This Amendment shall be binding
upon the Borrower and the Bank and their respective successors and
assigns, and shall inure to the benefit of the Borrower and the Bank and
the successors and assigns of the Bank. Except as hereby amended, the
Loan Agreement shall remain in full force and effect and is hereby
ratified and confirmed in all respects.
<PAGE>
4.6 Recitals. The recitals hereto are incorporated herein by
reference and constitute and integral part of this Amendment.
4.7 Acknowledgement and Release. In order to induce the Bank
to enter into this Amendment, the Borrower: (a) represents and warrants
to the Bank that no events have taken place and no circumstances exist
at the date hereof which would give the Borrower the right to assert a
defense, offset or counterclaim to any claim by the Bank for payment of
the Obligations; and (b) hereby releases and forever discharges the Bank
and its successors, assigns, directors, officers, agents, employees and
participants from any and all actions, causes of action, suits,
proceedings, debts, sums of money, covenants, contracts, controversies,
claims and demands, at law or in equity, which the Borrower ever had or
now has against the Bank or its successors, assigns, directors, officers,
agents, employees or participants by virtue of their relationship to the
Borrower in connection with the Loan Documents and the transactions
related thereto.
4.8 Release of Transition. On the date hereof, the Bank releases
Transition from the Guaranty Documents to which Transition is a party.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed by their respective officers thereunto duly authorized as of
the date first written above.
AMERICABLE, INC.,
a Minnesota corporation
By:
-------------------------
Title:
----------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By:
-------------------------
Title:
----------------------
<PAGE>
SUPPLEMENT A
to
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of June 1, 1993 Among
FIRST BANK NATIONAL ASSOCIATION (the "Bank") and
AMERICABLE, INC.
and CABLE DISTRIBUTION SYSTEMS, INC.
(collectively, the "Borrowers")
(AMENDED 5/97)
1. Loan Agreement Reference. This Supplement A, as it may be amended or
modified from time to time, is a part of the Loan and Security Agreement, dated
as of June 1, 1993, between the Borrowers and the Bank (together with all
amendments, modifications and supplements thereto, the "Loan Agreement"). Terms
used herein which are defined in the Loan Agreement shall have the meanings
given such terms in the Loan Agreement unless the context otherwise requires.
2. Credit Amount; Borrowing Base.
2.1 Credit Amount. The maximum amount of Revolving Loans which the Bank will
make available to the Borrowers shall not exceed NINE MILLION AND N0/100 DOLLARS
($9,000,000) (such amount is herein called the "Credit Amount") (unless such
amount is increased by the Bank in its sole and absolute discretion).
2.2 Borrowing Base. The term "Borrowing Base," as used herein, shall mean:
(a) an amount of up to 85% of the net amount (as determined by the
Bank after deduction of such reserves and allowances as the Bank deems
proper and necessary) of the Borrower's Eligible Accounts Receivable;
plus
(b) an amount of up to the lesser of (i) 40% of the net value (the
lower of the cost or market value of such Inventory as determined by
the Bank on a first in first out basis and after deduction of such
reserves and allowances as the Bank deems proper and necessary) of
the Borrowers' Eligible Inventory or (iii) $1,500,000; plus
(c) the Additional Availability, if any.
2.3 Bank's Rights. The Borrower agrees that nothing contained in this
Supplement A (a) shall be construed as the Bank's agreement to resort or
look to a particular type or item of Collateral as security for any
specific Loan or advance or in any way limit the Bank's right to resort
to any or all of the Collateral as security for any of the obligations,
(b) shall be deemed to limit or reduce any lien on or any security
interest in or upon any portion of the Collateral or other security for
the Obligations or (c) shall supersede Section 2.10 of the
Loan Agreement.
<PAGE>
3. Interest.
3.1 Revolving Loans. The unpaid balance of the Revolving Loans shall bear
interest to maturity as follows:
(a) Eurodollar Advances. The unpaid principal amount of each Eurodollar
Advance shall bear interest prior to maturity at a rate per annum equal
to the Eurodollar Rate (Reserve Adjusted) in effect for each Interest
Period for such Eurodollar Advance plus 2.50% per annum.
(b) Reference Rate Advances. The unpaid principal amount of each
Reference Rate Advance shall bear interest prior to maturity at a rate
per annum equal to the Reference Rate.
3.2 Default Rate. If any amount of the Loans is not paid when due, whether
by acceleration or otherwise, the entire unpaid principal balance of the Loans
(other than overdraft Loans and Over Advances) shall bear interest until paid at
a rate per annum equal to the greater of (i) the Reference Rate from time to
time in effect plus four percent (4%) or (ii) two percent (2%) above the rate
in effect at the time such amount became due for such past due amount.
3.3 Overdraft Loans; Over Advances. Overdraft Loans and over Advances shall
bear interest at the rate(s) determined pursuant to Section 2.8 or Section 2.9
of the Credit Agreement, as applicable.
4. Eligible Account Receivable Data.
(a) The Account Receivable must not be unpaid on the date that is 90
days after the date of the invoice evidencing such Account Receivable.
(b) If invoices representing 10% or more of the unpaid net amount of all
Accounts Receivable from any one Account Debtor are unpaid more than 90
days after the dates of the invoices evidencing such Accounts Receivable,
then all Accounts Receivable relating to such Account Debtor shall cease
to be Eligible Accounts Receivable.
5. Additional Covenants. From the date of the Loan Agreement and thereafter
until all of the Borrowers' Obligations under the Loan Agreement are paid in
full, the Borrowers agree that, unless the Bank shall otherwise consent in
writing, it will not, and will not permit any Subsidiary to, do any of the
following:
<PAGE>
5.1 Tangible Capital Base. During each of the periods set forth below, permit
the Tangible Capital Base to be less than the amount set forth below opposite
such period at any time:
Period Tangible Capital Base
------ ---------------------
June 1, 1996 through and
including December 30, 1996 $3,300,000
December 31, 1996 through and
including December 30, 1997 $3,500,000
December 31, 1997 through and
including May 30, 1998 $4,000,000
May 31, 1998 and thereafter $4,750,000
5.2 Leverage Ratio. During each of the periods set forth below, permit the
ratio of (a) the total of (i) Americable's unconsolidated Indebtedness, minus
(ii) Americable's unconsolidated Subordinated Debt, minus (iii) the aggregate
unpaid accrued interest on all Subordinated Debt of Americable owing to NSU,
to (b) Tangible Capital Base to be greater than: (x)2.5:1 during the period on
and after June 30, 1996 to and including December 30, 1996; or (y) 2.2:1 at
any time thereafter.
5.3 Interest Coverage Ratio. Permit the ratio, as of any Measurement Date, for
the period commencing on the first day of Americable's fiscal year through and
including such Measurement Date, of (a) Americable's unconsolidated EBITDA to
(b) the total of (i) Americable's unconsolidated interest expense (including,
without limitation, imputed interest expense on Capitalized Leases) minus (ii)
the aggregate unpaid accrued interest on all Subordinated Debt of Americable
owing to NSU, to be less than: (r) 2:1 for any Measurement Date occurring prior
to January 1, 1997; (s) 1.5:1 for any Measurement Date occurring during the
Americable's 1997 fiscal year; or (t) 2:1 for any Measurement Date occurring
thereafter. For purposes of this Supplement A, "Measurement Date" means: (x) at
any time other than during Americable's 1997 fiscal year, the last day of any
fiscal quarter; or (y) at any time during the Americable's 1997 fiscal year, the
last day of such fiscal year.
5.4 Capital Expenditures. Make Capital Expenditures in an amount exceeding the
following amounts determined on a consolidated basis for the Borrowers only
(excluding Transition): (a) $600,000 during Americable's fiscal year ending
December 31, 1996; (b) $1,250,000 during Americable's fiscal year ending
December 31, 1997; and (c) $600,000 during any fiscal year thereafter.
Borrower's Initials__________
Bank's Initials__________
Date: May 29, 1997
<PAGE>
CERTIFICATE
-----------
I, , do hereby certify that I am the duly appointed
----------------------
or elected and qualified Secretary and the keeper of the
------------------------
records of Transition Networks, Inc., a corporation organized and existing
under the laws of the State of Minnesota (the "Corporation") and that the
following is a true and correct copy of resolutions duly adopted by unanimous
written action of the Borrower's Board of Directors on the day of May,
------
1997;
and that such resolutions are now in full force and effect, unamended,
unaltered, and unrepealed:
WHEREAS, there has been presented to the directors a form of First
Amendment (the "First Amendment") to that certain Loan and Security Agreement
dated as of August 9, 1996 (the "Loan Agreement"), between this Corporation and
First Bank National Association (the "Bank").
NOW, THEREFORE, BE IT RESOLVED, that any one of the Secretary, Vice
President or Vice President--Finance of this Corporation is authorized to
execute, in the name and on behalf of this Corporation, and deliver to the Bank
the First Amendment and any promissory note or other instrument, document or
agreement required by the Bank in connection with such First Amendment,
substantially in the form of that reviewed by the directors, except for such
changes, additions or deletions as such officer(s) shall deem proper; execution
by such officer(s) of an amendment and related documents to be conclusive
evidence that such officer(s) deem(s) all of the terms and provisions thereof
to be proper (the executed First Amendment is hereafter called the
"Amendment");
FURTHER RESOLVED, that any one of the Secretary, Vice President or Vice
President--Finance of this Corporation be and hereby is authorized on behalf of
this Corporation to borrow from time to time under the Loan Agreement as
amended by the Amendment, to agree to rates of interest and other terms of
loans, and to repay all amounts so borrowed;
FURTHER RESOLVED, that each officer of this Corporation be and hereby is
authorized to take such action from time to time on behalf of this Corporation
as he/she may deem necessary, advisable or proper in order to carry out and
perform the obligations of this Corporation under the Loan Agreement as amended
by the Amendment and all related instruments, documents and agreements;
FURTHER RESOLVED, that all authority conferred by these resolutions shall
be deemed retroactive and any and all acts authorized hereunder performed prior
to the adoption of this resolution are hereby ratified, affirmed, adopted and
approved;
<PAGE>
FURTHER RESOLVED, that the Secretary or any other officer of this
Corporation is authorized to certify to said Bank a copy of these resolutions
and the names and signatures of this Corporation's officers or employees hereby
authorized to act, and the Bank is hereby authorized to rely upon such
certificate until formally advised by a like certificate of any change therein,
and is hereby authorized to rely on any such additional certificates.
I FURTHER CERTIFY THAT the Bylaws and Articles of Incorporation previously
delivered by this Corporation to said Bank have not been amended, modified or
restated after the date of such delivery.
I FURTHER CERTIFY THAT the following persons have been appointed or
elected and are now acting as officers or employees of said Corporation in the
capacity set before their respective names:
TITLE NAME SIGNATURE
Secretary Peter E. Flynn --------------------
Vice President Jeffrey J. Michael --------------------
Vice Pres.-Finance Thomas S. Wargolet --------------------
IN WITNESS WHEREOF, I have subscribed my name as Secretary this day of
------
May, 1997.
--------------------------------
Secretary
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