<PAGE>
UNITED STATES
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 March 31, 1999
[ ] 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)
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: (612) 942-3800
6479 City West Parkway, Eden Prairie, MN 55344
(Former name, former address and former fiscal year,
if changed since last report)
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 May 8, 1998, 2,976,723 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>
March 31, December 31,
1999 1998
--------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 16,508 $ 17,155
Accounts receivable, net 5,314 4,769
Finished goods inventories 2,109 1,734
Prepaid expenses and other current assets 222 161
--------------------------------
Total current assets 24,153 23,819
Property and equipment, net 878 1,072
Investment in unconsolidated subsidiaries 13,982 13,293
Goodwill, net 4,446 4,486
Other assets 861 903
--------------------------------
$ 44,320 $ 43,573
================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ 2,590 $ 1,680
Current portion of long-term debt 4,071 4,899
Accounts payable 2,808 3,186
Accrued expenses 4,366 4,580
--------------------------------
Total current liabilities 13,835 14,345
Long-term debt, net of current maturities 15,328 14,104
Deferred income taxes 1,809 1,539
Commitments and contingencies -- --
Shareholders' Equity
Common stock, $.01 par value 1,000,000,000
shares authorized, issued and outstanding
2,976,723 shares in 1999 and 1998 30 30
Additional paid-in-capital 13,839 13,839
Retained deficit (521) (284)
--------------------------------
Total shareholders' equity 13,348 13,585
--------------------------------
$ 44,320 $ 43,573
================================
</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
March 31,
-------------------------------
1999 1998
-------------------------------
<S> <C> <C>
Revenues $ 8,349 $ 9,834
Operating and product costs 6,324 7,852
-------------------------------
Gross profit 2,025 1,982
Selling, general,
and administrative expenses 2,366 3,171
-------------------------------
Operating loss (341) (1,189)
Interest expense, net (301) (273)
-------------------------------
Loss before income taxes and equity in
earnings of unconsolidated subsidiaries (642) (1,462)
Income tax provision -- --
-------------------------------
Loss before equity in earnings
of unconsolidated subsidiaries (642) (1,462)
Equity in earnings of
unconsolidated subsidiaries 405 345
-------------------------------
Loss from continuing operations (237) (1,117)
Discontinued operations, net of taxes
loss from operations -- (195)
-------------------------------
Net loss $ (237) $ (1,312)
===============================
Basic and diluted loss per share:
Continuing operations $ (.08) $ (0.34)
Discontinued operations -- (0.06)
Net loss (.08) (0.40)
===============================
Weighted average shares outstanding 2,977 3,267
===============================
</TABLE>
See accompanying notes to condensed consolidated financial statements.
<PAGE>
ENStar Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
1999 1998
-------------------------------
<S> <C> <C>
Net cash used in operating activities $ (1,960) $ (934)
Cash flows from investing activities
Capital expenditures (35) (292)
Other 42 11
--------------------------------
Net cash provided by (used in)
investing activities 7 (281)
--------------------------------
Cash flow from financing activities
Proceeds from long-term debt 774 1,514
Payments on long-term debt (378) (7)
Proceeds from notes payable 10,481 15,095
Payments on notes payable (9,571) (14,817)
--------------------------------
Net cash provided by financing
activities 1,306 1,785
--------------------------------
Net increase (decrease) in
cash and cash equivalents (647) 570
Cash and cash equivalents
at beginning of period 17,155 12,609
--------------------------------
Cash and cash equivalents
at end of period $ 16,508 $ 13,179
==================================
</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., a Minnesota corporation formed in 1995 ("ENStar" or the
"Company"), is a holding company. Its principal subsidiaries are Americable,
Inc. ("Americable") and Enstar Networking Corporation ("Enstar Networking").
Americable is a provider of value-added connectivity products and custom OEM
manufacturing solutions to the telecommunications, Category 5, and premise
wiring markets. Enstar Networking is a network security integrator providing
solutions to design, manage and secure corporate network infrastructures.
ENStar also owns 1,025,000 shares of common stock of CorVel Corporation
("CorVel"), or an approximate 25% interest in CorVel, a provider of cost
containment and managed care services designed to address the medical costs of
workers' compensation and 1,350,000 shares in Vicom Incorporated ("Vicom"), or
an approximate 38.5% interest in Vicom, a telecommunications company providing
services to integrate voice, data, and video solutions. These investments are
accounted for as unconsolidated subsidiaries using the equity method of
accounting.
On December 10, 1998, ENStar sold its subsidiary, Transition Networks,
Inc. ("Transition"), to Communications Systems, Inc. ("Communications Systems").
The transaction involved the sale of all of Transition's common stock and has
been shown as discontinued operations in these financial statements. See Note 3
for additional discussion of this transaction.
Effective December 31, 1998, ENStar sold the assets of the Midwest region
of Enstar Networking to Vicom. See Note 4 for additional discussion of this
transaction.
2. Basis of Presentation --
BASIS OF PRESENTATION 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
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 three months ended March 31 may not necessarily be
indicative of the results to be expected for the full year.
<PAGE>
ENStar Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
3. Discontinued Operations --
On December 10, 1998, ENStar sold all of its former subsidiary,
Transition's common stock to Communications Systems, a telecommunications
company, for approximately $9 million in cash. The gain on disposition was
approximately $2.5 million, net of income taxes of approximately $1.6 million.
Results of operations of Transition are reflected as discontinued
operations in the accompanying consolidated statement of operations. Operating
results of Transition for the three months ended March 31, 1998 were as follows:
Revenues $ 4,297
Operating loss (185)
Net loss from discontinued operations (195)
4. Sale of Assets --
Effective December 31, 1998, ENStar sold the assets of the Midwest region
of Enstar Networking to Vicom. The transaction involved the sale of
substantially all of the assets of the business in exchange for 1,350,000 shares
of Vicom common stock and a $750,000 promissory note to ENStar bearing interest
at an annual rate of 9%, interest payable quarterly, with the principal due on
or before December 2003. There was no gain or loss on this transaction. As a
result of this transaction, ENStar owns a 38.5% ownership interest in Vicom,
which is accounted for as an unconsolidated subsidiary using the equity method
of accounting.
The following sets forth the unaudited consolidated results of operations
for the three months ended March 31, 1998, as if this transaction had occurred
as of January 1, 1998 (in thousands):
Revenues $ 7,270
Loss from continuing operations (767)
Basic and diluted loss per share
from continuing operations (.23)
5. Net Loss Per Share --
The Company's basic and diluted net loss per share was computed by dividing
the net loss by the weighted average number of outstanding common shares, as all
common share equivalents relating to stock options were antidilutive during the
periods presented. Options to purchase 412,250 and 359,250 shares of common
stock with weighted average exercise prices of $7.72 and $7.78 were outstanding
during the three months ended March 31, 1999 and 1998, but were excluded from
the computation of common share equivalents because they were antidilutive.
<PAGE>
ENStar Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
6. Investment in Unconsolidated Subsidiaries --
The Company's unconsolidated subsidiaries consist of its investments in
CorVel and Vicom. Corvel is a health care services company with a fiscal
year end of March 31. Vicom is a telecommunications company with a December 31
year end. Vicom is a non-reporting public company and since the Company's
investment in Vicom is not considered to be material, summary financial
statement information has not been provided. The following is unaudited
summarized balance sheet and income statement information for CorVel as of,
and for the three month period ended March 31, 1999 (in thousands):
Current assets $44,504
Total assets 68,686
Current liabilities 11,835
Noncurrent liabilities 3,637
Revenues 43,401
Gross profit 7,663
Net income 2,722
At March 31, 1999, the fair value of the Company's investment in CorVel
based on the closing market price was approximately $36.6 million. This amount
does not reflect the tax expense which would be incurred on the sale of these
shares.
7. 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 March 31, 1999, the deferred tax liability includes a cumulative
tax effect of approximately $5.1 million for the differences in the financial
reporting and tax basis of the Company's investment in CorVel. This deferred
tax liability is offset by deferred tax assets related to accrued expenses not
deductible until paid and net operating loss carryforwards. No tax benefit has
been recorded in either of the periods presented due to the additional
valuation allowance recorded against the net deferred tax asset generated in the
period.
8. 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.
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
9. Use of Estimates --
In the preparation of the condensed consolidated financial statements,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and related revenues and expenses.
Actual results could differ from the estimates used by management.
10. Reclassification --
Certain 1998 amounts have been reclassified to conform to the 1999
presentation.
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
11. Business Segments --
ENStar consists of two operating segments, Americable and Enstar
Networking. The operating results of Enstar Networking are segregated with
respect to the Midwest operations sold to Vicom (see Note 4) ("ENC - business
disposition").
Certain financial information on the Company's segments is as follows:
3 Months Ended March 31,
---------------------------
1999 1998
---------------------------
Revenues - external
Americable $ 4,343 $ 4,136
Enstar Networking 4,030 3,134
---------------------------
$ 8,373 $ 7,270
ENC - business disposition -- 2,990
---------------------------
Total Revenues - external $ 8,373 $10,260
===========================
Revenues - intersegment
Americable $ 24 $ --
ENC - business disposition -- 426
===========================
Total Revenues - intersegment $ 24 $ 426
===========================
Operating Income (Loss)
Americable $ 59 $ (109)
Enstar Networking (174) (495)
Corporate (226) (235)
---------------------------
(341) (839)
ENC - business disposition -- (350)
---------------------------
Total Operating Loss $ (341) $(1,189)
===========================
<PAGE>
ENStar, Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
12. Proposed Transaction --
On March 8, 1999, the Company announced that it had established a Special
Committee to consider a proposal by the majority shareholders to acquire the
outstanding shares of ENStar common stock not already owned by them or certain
entities under their control. The majority shareholders have preliminarily
proposed that the shares not controlled by them be acquired for a cash price
of $10.00 per share, however, the proposal is subject to change based on a
number of factors including determination of the structure of the transaction.
The Special Committee will evaluate the fairness of any proposed transaction to
all shareholders of the Company, and will engage counsel and financial advisors
in connection with its role. The majority shareholders and their controlled
entities own approximately 1,920,000 shares, or 65%, of the Company's common
stock.
<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 Condensed
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 and are made in reliance under the
safe harbor provisions of the Securities Litigation Reform Act of 1995. 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, 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 merger of North Star and Michael Foods. 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, 1998.
GENERAL
ENStar is a holding company. Its principal subsidiaries are Americable,
Inc. and Enstar Networking Corporation. ENStar also owns 1,025,000 shares of
common stock of CorVel Corporation, or an approximate 25% interest. CorVel is
a provider of cost containment and managed care services designed to address the
medical costs of workers' compensation. 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 also owns 1,350,000 shares in Vicom
Incorporated, or an approximate 38.5% interest in Vicom, a telecommunications
Company providing services to integrate voice, data, and video solutions.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Historically, Enstar Networking operated in various regional locations in
the Southwest, Southeast, and Midwest, and has added and deleted locations on
the basis of business opportunities and operating performance of each location.
Following the sale of the Midwest region to Vicom on December 31, 1998, Enstar
Networking's business is focused on the Southwest region of the United States.
Prior to 1997, Enstar Networking operated as the network integration
business of Americable. Enstar Networking was organized in April 1997 to
distinctly focus the networking service activities from the traditional
distribution and manufacturing operations of Americable. Enstar Networking
was incorporated on January 1, 1998. The results of operations include an
allocation of general and administrative expenses for certain items such as
accounting, human resources and information systems along with facility related
expenses. Management believes these allocations are reasonable and present the
operations of Enstar Networking and Americable as though they had operated as
separate businesses.
Since its organization in 1997, Enstar Networking has made significant
investments in new sales, consulting, engineering and technical personnel as
part of its effort to build its network security integration business. As
part of this strategy in 1998, Enstar Networking has shifted its focus from
historical commodity-based networking and structured wiring product sales
towards more security integrated solutions. As part of this change, the company
experienced a significant increase in operating expenses resulting in operating
losses in 1997 and 1998. Enstar Networking expects to incur an operating loss
in 1999 as it continues to build its network security consulting practice.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
The accompanying management discussion and analysis of results of operation
reflects pro forma operating results of Enstar Networking exclusive of the
Midwest region sold to Vicom ("ENC - business disposition"). In addition,
results of operations are restated to give effect to discontinued operations as
discussed in Note 3 to the Condensed Consolidated Financial Statements. The
following are summarized operating results for ENStar's operating subsidiaries
for the three months ended March 31 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1999 1998
----------------------------
<S> <C> <C>
Revenues
Americable $ 4,343 $ 4,136
Enstar Networking 4,030 3,134
Eliminations (24) --
---------------------------
$ 8,349 $ 7,270
ENC - business disposition -- 2,990
Eliminations -- (426)
---------------------------
Total Revenues $ 8,349 $ 9,834
===========================
Gross Profit
Americable $ 1,175 $ 846
Enstar Networking 850 618
---------------------------
$ 2,025 $ 1,464
ENC - business disposition -- 518
---------------------------
Total Gross Profit $ 2,025 $ 1,982
===========================
Selling, General, and Administrative Expenses
Americable $ 1,116 $ 955
Enstar Networking 1,024 1,113
Corporate 226 235
---------------------------
$ 2,366 $ 2,303
ENC - business disposition -- 868
---------------------------
Total Selling, General, and Administrative $ 2,366 $ 3,171
===========================
Operating Income (Loss)
Americable $ 59 $ (109)
Enstar Networking (174) (495)
Corporate (226) (235)
---------------------------
$ (341) $ (839)
ENC - business disposition -- (350)
---------------------------
Total Operating Loss $ (341) $ (1,189)
===========================
</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 MARCH 31, 1999 vs. THREE MONTHS ENDED MARCH 31, 1998
Consolidated pro forma revenues increased $1,079,000, or 14.8%, to
$8,349,000 from $7,270,000 in 1998.
Revenues at Americable increased $183,000, or 5%, to $4,319,000. This
increase reflects growth in sales of fiber optic and networking products offset
by a reduction in bulk cable in the quarter.
Revenues at Enstar Networking increased $896,000, or 28.6%, to $4,030,000.
During the quarter, sales of networking security products and services increased
$787,000, or 190%, due primarily to higher demand. Offsetting this increase was
approximately $302,000 of lower structured wiring services and products due to a
shift in focus to network integration and security services.
Consolidated gross profit, as a percent of revenues, increased to 24.3% in
1999, as compared to 20.1% in 1998. Increased margins at Americable from 20.5%
to 27.1% are primarily due to higher margins on connectivity products and
improvement in production variances. Margins at Enstar Networking increased
to 21.1% from 19.7%, primarily due to a shift in sales toward networking
security products and services and away from lower margin structured wiring
business.
ENStar's selling, general, and administrative expenses increased
approximately $63,000, or 2.7%, to $2,366,000 from $2,303,000 in 1998.
Operating expenses at Americable were $1,116,000, an increase of $161,000.
Included in this was an increase in selling expenses of approximately $90,000
due to the addition of sales and product support personnel. Enstar Networking's
operating expenses decreased slightly to $1,024,000 from $1,113,000 in 1998.
This includes approximately $123,000 of decreased administrative expenses which
were partially offset by increased wage and benefit expenses for additional
network security personnel. Corporate expenses were $226,000, relatively
unchanged between periods.
No tax benefit was recorded in either period due to the Company's recording
an additional valuation allowance against the net deferred tax asset generated
in the respective periods.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY
ENStar has experienced cash flow deficits from operations due primarily to
the losses incurred at its operating companies. In addition, ENStar has
experienced fluctuations in its working capital, which are primarily
attributable to the increase in receivables associated with growth in sales.
Cash used in operations was $1,960,000 in 1999 versus $934,000 in 1998.
ENStar does not have the use of cash generated by CorVel. 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 of 1933 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.
The Company maintains a program (the "Debenture Program") whereby it sells
subordinated debentures of various maturities to primarily individual investors.
The debentures are offered on a continuous basis at interest rates that change
from time to time depending on market conditions. At March 31, 1999, the
Company had $19,399,000 principal amount of subordinated debentures outstanding
with weighted average interest rate of 9.6%. Long-term debt proceeds includes
approximately $595,000 of new debentures sold and $179,000 of compounded
interest for the three months ended March 31, 1999. Approximately $4.9 million
of debentures are scheduled to mature during 1999. As of March 31, 1999, the
Company was not offering debentures for sale due to the pending transaction by
the majority shareholder to purchase the outstanding minority shares. See note
12 for additional discussion on this transaction.
Americable and Enstar Networking maintain a revolving line of credit
facility which provides borrowings up to $3 million and is due in October 1999.
Borrowings under this facility are based on eligible accounts receivable with
interest at prime plus 1% (8.75% at March 31, 1999). At March 31, 1999, there
were outstanding borrowings of $2,590,000, and approximately $410,000 of
available borrowings. The note contains certain restrictive covenants, the most
significant of which are capital expenditure limitations and limitations on
operating losses. Under the terms of the credit agreement, ENStar is required
to make capital contributions to Americable to the extent Americable (including
Enstar Networking) incurs pretax losses in excess of specified levels. At March
31, 1999, the companies were in compliance with all covenants under this
agreement.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
CAPITAL RESOURCES AND LIQUIDITY (CONTINUED)
As of March 31, 1999, ENStar has provided an aggregate of approximately
$2,807,000 in cash to Americable and Enstar Networking pursuant to the terms of
the amended credit agreement. Additional cash investments from ENStar are
expected in 1999 to fund capital expenditures and anticipated operating losses
at Enstar Networking.
In March 1998, the Company announced a stock repurchase plan pursuant to
which the Company could repurchase up to 350,000 shares of its common stock
from time-to-time in open market or privately negotiated transactions. Through
March 31, 1999, 290,266 shares had been repurchased at an average price of
$6.46 per share for an aggregate cost of approximately $1,875,000.
On March 8, 1999, the Company reported in a press release that its Board of
Directors had established a Special Committee consisting of one of its outside
directors to consider a proposal by James Michael and Jeffrey Michael to acquire
the shares of Common Stock of ENStar Inc. not already owned by members of the
Michael family and certain entities controlled by the Michael family. See Note
11 to the Condensed Consolidated Financial Statements of ENStar.
ENStar expects to be able to fund its working capital and capital
expenditures along with any repurchases of common stock for 1999 with cash flow
from operations along with available cash and cash equivalents and amounts
available under the credit facilities of its operating companies. At May 8,
1999, ENStar had approximately $15,300,000 of cash and cash equivalents,
excluding cash of its operating subsidiaries.
YEAR 2000 ISSUES
General. The Company has completed a preliminary assessment of Year
2000 compliance with respect to the holding company as well as its operating
subsidiaries and is currently modifying its systems to accommodate the Year
2000. The Year 2000 problem relates to the fact that many computer systems
and applications were developed to recognize the year as a two-digit number,
with the digits "00" being recognized as the year 1900. The Company
commenced its assessment of Year 2000 Compliance in January 1998, and expects
to complete its Year 2000 remediation efforts in the third quarter of 1999.
<PAGE>
ENStar Inc.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
YEAR 2000 ISSUES (CONTINUED)
Company Systems. The Company has determined that through normal recurring
system upgrades, the majority of the Company's computer hardware and software
systems covering its operations, including business processes and financial
systems, are currently, or will be by September 30, 1999, Year 2000 compliant.
Products. Americable sells products to customers under non-exclusive
agreements with its suppliers. Americable is not an agent for its suppliers and
cannot make representations regarding the Year 2000 compliance or readiness
of its suppliers.
<PAGE>
ENStar Inc.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS
The Company's operations are subject to certain market risk changes,
primarily relating to fluctuations in interest rates. The Company's interest
income and expense is affected by changes in the general level of U.S.
interest rates. Changes in interest rates affect the interest earned on the
Company's cash equivalents and the interest paid on its debt. The Company
maintains significantly all of its debt with a fixed rate of interest. The
Company does not anticipate exposure to interest rate market risk will have
a material impact on the Company's future earnings, cash flow, or fair value
of debt instruments. The market risk on cash equivalents related to interest
income, as well as the fair value of cash equivalents, is not expected to have
a material impact on the Company. The Company has no history of, and does not
anticipate in the future, investing in derivative financial instruments,
derivative commodity instruments or other such financial instruments.
<PAGE>
PART II - OTHER INFORMATION
ENStar Inc. and Subsidiaries
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are being filed with this report on
Form 10-Q.
Exhibit 10.1 Severance Agreement by and between ENStar Inc.
and Jeffrey J. Michael dated April 5, 1999.
Exhibit 10.2 Severance and Retention Agreement by and between
Americable, Inc. and Peter E. Flynn dated April 5, 1999.
Exhibit 10.3 Indemnification Agreement by and between
ENStar Inc. and Richard J. Braun dated March 15, 1999.
Exhibit 27.1 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1999.
<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 May 14, 1999 by /s/ Jeffrey J. Michael
--------------------------- --------------------------
Jeffrey J. Michael
President and Chief Executive Officer
Date May 14, 1999 by /s/ Peter E. Flynn
--------------------------- --------------------------
Peter E. Flynn
Executive Vice President
and Secretary (principal
financial and accounting officer)
SEVERANCE AGREEMENT
This Agreement, made and entered into by and between ENStar Inc., a
Minnesota corporation (as further defined herein, the "Company") and Jeffrey J.
Michael (the "Employee"), effective this 5th day of April 1999.
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon the Employee's separation
from employment with the Company under any of the circumstances described herein
and in certain circumstances following a Change in Control (as defined herein);
and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interest of the Company to provide stable conditions of
employment for the Employee notwithstanding the possibility, threat, or
occurrence of certain types of changes in control, thereby enhancing the
Company's ability to attract and retain highly qualified people;
NOW, THEREFORE, in consideration of the mutual covenants, promises,
payments, and undertakings of the parties hereto, the parties agree as follows:
1. EFFECT OF AGREEMENT; TERM. The Employee shall be employed on an
at-will basis. This Agreement is not, and shall not be construed as, an
employment contract affecting in any way the duration of the Employee's
employment or any terms and conditions thereof except those set forth herein.
Except as set forth herein, the Employee or the Company may terminate their
employment relationship at any time, for any reason, or for no reason.
This Agreement will commence on the date hereof and shall continue in
effect until the second anniversary of the date hereof; provided, however, that
if a Change in Control occurs this Agreement shall continue in effect for a
period of twenty-four months following the Change in Control if such period
extends beyond the second anniversary of the date of this agreement; provided,
further, that if the Employee becomes entitled to payments or benefits in
accordance with the terms of this Agreement (or assets a claim for such
payments) during the term of this Agreement, this Agreement will thereafter
survive indefinitely to ensure that the Employee receives all payments and
benefits to which the Employee is entitled pursuant to the terms hereof.
2. TERMINATION OF EMPLOYMENT.
(a) During the term of this Agreement, the Company shall not
terminate the Employee within twenty-four months following a Change in
Control from employment with the Company except as provided in this section 2,
or as a result of the Employee's Disability (as defined in section 3(c) hereof)
or the Employee's death.
<PAGE>
(b) During the term of this Agreement, the Company shall have the
right to terminate the Employee from employment with the Company at any time
during the twenty-four month period following a Change in Control for Cause
(as defined in section 3(b) hereof), by written notice to the Employee,
specifying the particulars of the conduct of the Employee forming the basis
for such termination.
(c) During the term of this Agreement, the Company shall have the
right to terminate the Employee's employment without Cause (as defined in
section 3(b) hereof), at any time, during the twenty-four month period
following a Change in Control and in such event, Employee shall be entitled to
receive the benefits provided in Section 4 hereof.
3. DEFINITIONS.
(a) A "Change in Control" shall mean any of the following:
(i) A sale of all or substantially all of the assets of the
Company.
(ii) The acquisition of more than 50% of the Common Stock of
the Company (with all classes or series thereof treated as a single
class) by any person (except a Permitted Shareholder as hereinafter
defined) or group of persons acting in concert. A "Permitted
Shareholder" means a holder, as of the date of this Agreement, of more
than 20% of the Company's Common Stock then outstanding.
(iii) A reorganization of the Company wherein the holders of
Common Stock of the Company receive stock in another company, a merger
of the Company with another company wherein there is a more than 50%
change in the ownership of the Common Stock of the Company as a result
of such merger, or any other transaction in which the Company (other
than as the parent corporation) is consolidated for federal income tax
purposes or is eligible to be consolidated for federal income tax
purposes with another corporation.
(iv) In the event that the Common Stock of the Company is
traded on an established securities market: a public announcement that
any person, other than a Permitted Shareholder, has acquired or has
the right to acquire beneficial ownership of more than 50% of the then
outstanding Common Stock of the Company (for this purpose the terms
"person" and "beneficial ownership" shall have the meanings provided
in Section 13(d) of the Securities and Exchange Act of 1934 or related
rules promulgated by the Securities and Exchange Commission) or the
commencement of or public announcement of an intention to make a
tender offer or exchange offer for more than 50% of the then
outstanding Common Stock of the Company by a person other than a
Permitted Shareholder.
<PAGE>
(v) The Board of Directors of the Company in its sole and
absolute discretion, determines that there has been a sufficient
change in the share ownership of the Company or the Company to
constitute a change of effective ownership or control of the Company
or the Company.
(b) "Cause" shall mean:
(i) Repeated willful and deliberate neglect by the Employee
of any of his material duties or his repeated willful and deliberate
failures or omissions to carry out lawful and reasonable orders which
are not cured within a reasonable period after the Employee's receipt
of written notice thereof from the Company;
(ii) Any act or acts of personal dishonesty by the Employee
intended to result in the personal enrichment of the Employee at the
expense of the Company;
(iii) Any willful and deliberate misconduct that is materially
and demonstrably injurious to the Company; or
(iv) Any criminal indictment, presentment, charge or conviction
of the Employee for a felony, whether or not the Company is the victim
of such offense.
(c) "Disability" shall mean any physical or mental condition, which
causes the Employee to fail to render services to the Company for a period of
ninety (90) days during any one hundred eighty (180) day period. The existence
or nonexistence of the Employee's Disability will be determined in good faith by
the Board of Directors after notice in writing given to the Employee at least
thirty (30) days prior to such determination. During such thirty (30) day
period, the Employee shall be permitted to make a presentation to the Board of
Directors for its consideration.
(d) "Company" shall mean the Company and any successor to its
business and/or assets, including any successor which is required to execute
and deliver the Agreement provided for in section 7(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation
of law.
4. BENEFITS UPON TERMINATION UNDER SECTION 2(C).
(a) Following a Change in Control. Upon the termination of the
employment of the Employee pursuant to section 2(c) hereof and within
twenty-four months following a Change in Control, and subject to the other
terms and conditions of this Agreement, the Employee shall be entitled to the
benefits, to be funded from the general assets of the Company, provided below:
<PAGE>
(i) A lump sum cash payment, to be paid within 30 days
following your date of termination of employment equal to
twenty-four months of your total compensation (consisting of base
salary and target bonus) as in effect immediately prior to the
date of termination or, if greater, immediately prior to the Change
in Control.
(ii) For the twenty-four month period after the date of
termination of employment, the Company will arrange to provide the
Employee and the Employee's dependents (if applicable) with welfare
benefits (including, without limitation, medical insurance coverage),
perquisites and other employee benefits that provide substantially
similar benefits, in terms of aggregate monetary value, to the
Employee and the Employee's dependents (if applicable) at
substantially similar costs to the Employee as the welfare benefits,
perquisites and other employee benefits in effect immediately prior to
the Change in Control (or as in effect following the Change in
Control, if greater) the Employee's rights under the Consolidated
Omnibus Budget Reconciliation Act of 1985 shall commence as of the end
of the twenty-four month period covered by the paragraph.
(b) The Employee shall not be required to mitigate the amount of any
payment provided for in this section 4 by seeking other employment or otherwise.
(c) In the event that any payment or benefit received or to be
received by Employee in connection with a change in control of the Company or
termination of Employee's employment (whether payable pursuant to the terms of
this Agreement or any other plan, contract, agreement or arrangement with the
Company with any person whose actions result in a change in control of the
Company or with any person constituting a member of an "affiliated group" as
defined in Section 280G(d)(5) of the Internal Revenue Code of 1986, as amended
(the "Code"), with the Company or with any person whose actions result in a
change in control of the Company) (collectively, the "Total Payments") would
not be deductible (in whole or in part) by the Company or such other person
making such payment or providing such benefit solely as a result of Section
280G of the Code, the amount payable to Employee pursuant to this Agreement
shall be reduced until no portion of the Total Payments is not deductible
solely as a result of Section 280G of the Code or such amount payable to
Employee pursuant to this Agreement is reduced to zero. For purposes of this
limitation, (i) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Company does not
constitute a "parachute payment" within the meaning of Section 280G(b)(2) of
the Code (such as payments payable pursuant to the Company's standard of
general severance policies); (ii) the payment pursuant to this Agreement shall
be reduced only to the extent necessary so that the Total Payments (other than
those referred to in the immediately preceding clause (i)) in their entirety
<PAGE>
constitute reasonable compensation within the meaning of Section 280G(b)(4)(B)
of the Code, in the opinion of the tax counsel referred to in the immediately
preceding clause (i); and (iii) the value of any other non-cash benefit or of
any deferred cash payment included in the Total Payments shall be determined by
the independent auditors in accordance with the principles of Sections
280G(d)(3) and (4) of the Code. In case of uncertainty as to whether all or
some portion of a payment is or is not payable to Employee under this
Agreement, the Company shall initially make the payment to the Employee, and
Employee agrees to refund to the Company any amounts ultimately determined
not to have been payable under the terms hereof.
5. NONCOMPETITION COVENANT.
(a) Agreement Not to Compete. The Employee agrees that, during the
Employee's term of employment by the Company and for a period of six months
after termination of employment for any reason (including, without limitation,
voluntary termination by the Employee of the Employee's employment), the
Employee shall not directly engage in competition with the Company in any
manner or capacity (e.g., as an advisor, principal, agent, partner, officer,
employee, or otherwise) in any phase of the business that the Company is
currently conducting, including the design, development, manufacture or
selling of devices or components related to the products being sold by the
Company at the time of the Employee's termination. The Employee agrees that
entering into this Agreement and the opportunity to receive the benefits set
forth herein is full consideration for the terms of this section 5.
(b) Geographic Extent of Covenant. The obligations of the Employee
under this section 5 shall apply to any domestic or foreign city in which the
Company (i) has engaged in business during the Employee's term of employment
by the Company through production, promotional, sales or marketing activity, or
otherwise or (ii) has otherwise established its goodwill, business reputation,
or any customer or supplier relations.
(c) Limitation on Covenant. Ownership by the Employee, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in the over-the-counter market, or serving as a member of the board of
directors of a company, shall not constitute a breach of this section 5.
(d) Indirect Competition. The Employee further agrees that, during
the term of his employment by the Company and the six-month period thereafter
specified in section 5(a) above, the Employee will not, directly, or indirectly,
assist or encourage any other person in carrying out, directly or indirectly,
any activity that would be prohibited by the above provisions of this section 6,
if such activity were carried out by the Employee, either directly or
indirectly; and in particular the Employee agrees that the Employee will not,
directly or indirectly, induce any employee of the Company to carry out,
directly or indirectly, any such activity.
<PAGE>
(e) Other Employees. The Employee further agrees that, both during
the term of the Employee's employment by the Company and for a period of
six-months following termination of the Employee's employment, the Employee will
not attempt to persuade officers or employees of the Company to leave the employ
of the Company.
(f) Company Remedies. The Employee acknowledges that the remedy at
law for any breach of the foregoing covenants of this section 5 will be
inadequate, and that the Company shall be entitled, in addition to any remedy at
law, to preliminary and permanent injunctive relief.
6. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors, during the Employee's employment by the Company
or at any time thereafter the Employee shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course of the
business of the Company) any confidential or secret knowledge or information of
the Company that the Employee has acquired or become acquainted with or will
acquire or become acquainted with prior to the termination of the Employee's
employment with the Company (including employment by the Company or any
affiliates of the Company prior to the date of this Agreement), whether
developed by the Employee or by others, concerning any trade secrets,
confidential or secret designs, processes, formulae, plans, devices or material
(whether or not patented or patentable) directly or indirectly useful in any
aspect of the business of the Company, any customer or supplier lists of the
Company, or any other confidential information or secret aspects of the
business of the Company. The Employee acknowledges that the above-described
knowledge or information constitutes a unique and valuable asset of the
Company and represents a substantial investment of time and expense by the
Company and its predecessors, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company
would be wrongful and would cause irreparable harm to the Company. Both
during and after the term of this Agreement, the Employee will refrain from
any acts or omissions that would reduce the value of such knowledge or
information to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information that is now
published or that subsequently becomes generally publicly known in the
form in which it was obtained from the Company, other than as a direct or
indirect result of the breach of this Agreement by the Employee.
7. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall inure to the benefit of an be binding upon
the Company and its successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or of the assets of the Company to
expressly assume and agree to perform this Agreement.
<PAGE>
(b) This Agreement is personal to the Employee, and the Employee
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding
the foregoing, this Agreement shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees.
8. LIMITATION OF DAMAGES. If for any reason the Employee believes the
severance provisions of this Agreement have not been properly adhered to by the
Company, and if it is determined that the Company has not, in fact, properly
adhered to the severance provisions of this Agreement, the sole and exclusive
remedy to which the Employee is entitled is the severance payment to which the
Employee is entitled under the provisions of this Agreement.
9. MODIFICATION; WAIVER. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by the Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
10. NOTICE. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written
above (directed to the attention of the Board of Directors in the case of the
Company). Either party hereto may change its address for purposes of this
section by giving fifteen (15) days prior written notice to the other party
hereto.
11. SEVERABILITY. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be
determined to be invalid or unenforceable, the remainder of this Agreement or
the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
12. GOVERNING LAW. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity, and performance.
<PAGE>
13. EFFECT OF AGREEMENT; ENTIRE AGREEMENT. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to the subject matter hereof and is not intended to create any
obligation on the part of either party to continue employment. This Agreement
supersedes any and all other oral or written agreements or policies made
relating to the subject matter hereof; provided that this Agreement shall not
supersede or limit in any way the Employee's rights under any benefit plan or
program in accordance with its terms.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement by their signatures below.
ENStar Inc.
By /s/ Peter E. Flynn
--------------------------
Peter E. Flynn
Executive Vice President
By /s/ Jeffrey J. Michael
--------------------------
Jeffrey J. Michael
Employee
SEVERANCE AND RETENTION AGREEMENT
This Agreement, made and entered into by and between Americable, Inc., a
Minnesota corporation (as further defined herein, the "Company") and Peter E.
Flynn (the "Employee"), effective this 5th day of April 1999.
WHEREAS, this Agreement is intended to specify the financial arrangements
that the Company will provide to the Employee upon the Employee's separation
from employment with the Company under any of the circumstances described herein
and in certain circumstances following a Change in Control (as defined herein);
and
WHEREAS, this Agreement is entered into by the Company in the belief that
it is in the best interest of the Company to provide stable conditions of
employment for the Employee notwithstanding the possibility, threat, or
occurrence of certain types of changes in control, thereby enhancing the
Company's ability to attract and retain highly qualified people;
NOW, THEREFORE, in consideration of the mutual covenants, promises,
payments, and undertakings of the parties hereto, the parties agree as follows:
1. EFFECT OF AGREEMENT; TERM. The Employee shall be employed on an
at-will basis. This Agreement is not, and shall not be construed as, an
employment contract affecting in any way the duration of the Employee's
employment or any terms and conditions thereof except those set forth herein.
Except as set forth herein, the Employee or the Company may terminate their
employment relationship at any time, for any reason, or for no reason.
This Agreement will commence on the date hereof and shall continue in
effect until the second anniversary of the date hereof; provided, however, that
if a Change in Control occurs this Agreement shall continue in effect for a
period of twenty-four months following the Change in Control if such period
extends beyond the second anniversary of the date of this agreement; provided,
further, that if the Employee becomes entitled to payments or benefits in
accordance with the terms of this Agreement (or assets a claim for such
payments) during the term of this Agreement, this Agreement will thereafter
survive indefinitely to ensure that the Employee receives all payments and
benefits to which the Employee is entitled pursuant to the terms hereof.
2. TERMINATION OF EMPLOYMENT.
(a) During the term of this Agreement, the Company shall not
terminate the Employee from employment with the Company except as provided
in this section 2, or as a result of the Employee's Disability (as defined
in section 3(d) hereof) or the Employee's death.
<PAGE>
(b) During the term of this Agreement, the Company shall have the
right to terminate the Employee from employment with the Company at any time
during the term of this agreement for Cause (as defined in section 3(c) hereof),
by written notice to the Employee, specifying the particulars of the conduct of
the Employee forming the basis for such termination.
(c) During the term of this Agreement, (a) the Company shall have
the right to terminate the Employee's employment without Cause (as defined in
section 3(c) hereof), at any time; and (b) the Employee shall, upon the
occurrence of such termination by the Company without Cause or upon the
voluntary termination of the Employee's employment by the Employee for
Good Reason (as defined in section 3(b) hereof), be entitled to receive the
benefits provided in section 4 hereof. The Employee shall evidence a voluntary
termination for Good Reason by written notice to the Company given within ten
(10) days after the date of the occurrence of any event that the Employee knows
or should reasonably have known constitutes Good Reason for voluntary
termination. Such notice need only identify the Employee and set forth in
reasonable detail the facts and circumstances claimed by the Employee to
constitute Good Reason. Any notice given by the Employee pursuant to this
section 2 shall be effective ten (10) days after the date it is given by the
Employee.
3. DEFINITIONS.
(a) A "Change in Control" shall mean any of the following:
(i) A sale of all or substantially all of the assets of
ENStar Inc. or the Company.
(ii) The acquisition of more than 50% of the Common Stock of
ENStar Inc. or the Company (with all classes or series thereof treated
as a single class) by any person (except a Permitted Shareholder as
hereinafter defined) or group of persons acting in concert. A
"Permitted Shareholder" means a holder, as of the date of this
Agreement, of more than 20% of ENStar Inc. Common Stock then
Outstanding or, in the case of the Company, any affiliate of
ENStar Inc..
(iii) A reorganization of ENStar Inc. wherein the holders of
Common Stock of ENStar Inc. receive stock in another company, a merger
of ENStar Inc. with another company wherein there is a more than 50%
change in the ownership of the Common Stock of ENStar Inc. as a result
of such merger, or any other transaction in which ENStar Inc. (other
than as the parent corporation) is consolidated for federal income tax
purposes or is eligible to be consolidated for federal income tax
purposes with another corporation.
<PAGE>
(iv) In the event that the Common Stock of ENStar Inc. is
traded on an established securities market: a public announcement that
any person, other than a Permitted Shareholder, has acquired or has
the right to acquire beneficial ownership of more than 50% of the then
outstanding Common Stock of ENStar Inc. (for this purpose the terms
"person" and "beneficial ownership" shall have the meanings provided
in Section 13(d) of the Securities and Exchange Act of 1934 or related
rules promulgated by the Securities and Exchange Commission) or the
commencement of or public announcement of an intention to make a
tender offer or exchange offer for more than 50% of the then
outstanding Common Stock of ENStar Inc. by a person other than a
Permitted Shareholder.
(v) The Board of Directors of ENStar Inc. in its sole and
absolute discretion, determines that there has been a sufficient
change in the share ownership of the Company or ENStar Inc. to
constitute a change of effective ownership or control of the Company
or ENStar Inc.
(b) "Good Reason" shall mean the occurrence of any of the following
events, except for the occurrence of such an event in connection with the
termination or reassignment of the Employee's employment by the Company for
Cause (as defined in section 3(c) hereof), due to the Employee's Disability
(as defined in section 3(d) hereof), or due to the Employee's death:
(i) Within twenty-four months following a Change in Control,
the assignment to Employee of any duties inconsistent in any respect
with Employee's position (including status, offices, titles, and
reporting requirements), authorities, duties, or other
responsibilities as in effect immediately prior to the announcement
of any transaction that results in a Change in Control or any other
action of the Company which results in a diminishment in such
position, authority, duties, or responsibilities, which for purposes
of this definition, shall expressly include Employee's position,
authorities, duties, or other responsibilities with the Company and
with ENStar Inc.;
(ii) A reduction by the Company in the Employee's base salary as
in effect as of the date of this Agreement (or, if greater,
immediately prior to a Change in Control in connection with any such
reduction following a Change in Control) or a reduction by the Company
in the Employee's participation rate in connection with the Company's
incentive bonus program as in effect as of the date of this Agreement
(or, if greater, immediately prior to a Change in Control in
connection with any such reduction following a Change in Control);
(iii) The Company's requiring the Employee to be based at a
location that is in excess of 35 miles from the location of the
Employee's principal office as of the date of this Agreement; or
<PAGE>
(iv) During the twenty-four month period following a Change in
Control, the failure by the Company to provide employee benefit plans,
programs, policies and practices (including, without limitation,
retirement plans and medical, dental, life and disability insurance
coverage) to the Employee and the Employee's family and dependents
(if applicable) that provide substantially similar benefits, in terms
of aggregate monetary value, to the Employee and the Employee's family
and dependents (if applicable) at substantially similar costs to the
Employee as the benefits provided by those plans, programs, policies,
and practices in effect immediately prior to the Change in Control.
(c) "Cause" shall mean:
(i) Repeated willful and deliberate neglect by the Employee of
any of his material duties or his repeated willful and deliberate
failures or omissions to carry out lawful and reasonable orders which
are not cured within a reasonable period after the Employee's receipt
of written notice thereof from the Company;
(ii) Any act or acts of personal dishonesty by the Employee
intended to result in the personal enrichment of the Employee at the
expense of the Company;
(iii) Any willful and deliberate misconduct that is materially
and demonstrably injurious to the Company; or
(iv) Any criminal indictment, presentment, charge or conviction
of the Employee for a felony, whether or not the Company is the victim
of such offense.
(d) "Disability" shall mean any physical or mental condition, which
causes the Employee to fail to render services to the Company for a period of
ninety (90) days during any one hundred eighty (180) day period. The existence
or nonexistence of the Employee's Disability will be determined in good faith by
the Board of Directors after notice in writing given to the Employee at least
thirty (30) days prior to such determination. During such thirty (30) day
period, the Employee shall be permitted to make a presentation to the Board of
Directors for its consideration.
(e) "Company" shall mean the Company and any successor to its
business and/or assets, including any successor which is required to execute
and deliver the Agreement provided for in section 8(a) or which otherwise
becomes bound by all the terms and provisions of this Agreement by operation
of law.
<PAGE>
4. BENEFITS UPON TERMINATION UNDER SECTION 2(C).
(a) Prior to a Change in Control. Upon the termination
(voluntary or involuntary) of the employment of the Employee pursuant to section
2(c) hereof, prior to the occurrence of a Change in Control, and subject to the
other terms and conditions of this Agreement, the Employee shall be entitled to
the benefits, to be funded from the general assets of the Company, provided
below:
(i) A lump sum cash payment, to be paid within 30 days
following your date of termination of employment equal to
twelve months of the Employee's total compensation (consisting of base
salary and target bonus) as in effect immediately prior to the
date of termination.
(ii) For the twenty-four month period after the date of
termination of employment, the Company will arrange to provide the
Employee and the Employee's dependents (if applicable) with welfare
benefits (including, without limitation, all-paid medical and
dental insurance coverage), perquisites and other employee benefits
that provide substantially similar benefits, in terms of aggregate
monetary value, to the Employee and the Employee's dependents (if
applicable) at substantially similar costs to the Employee as the
welfare benefits, perquisites and other employee benefits that would
have been provided to the Employee from time to time if the Employee
had not had a termination of employment. The Employee's rights
under the Consolidated Omnibus Budget Reconciliation Act of 1985 shall
commence as of the end of the twenty-four month period covered by this
paragraph.
(b) Following a Change in Control. Upon the termination (voluntary)
or involuntary) of the employment of the Employee pursuant to section 2(c)
hereof and within twenty-four months following a Change in Control, and subject
to the other terms and conditions of this Agreement, the Employee shall be
entitled to the benefits, to be funded from the general assets of the Company,
provided below:
(i) A lump sum cash payment, to be paid within 30 days
following your date of termination of employment equal to twenty-four
months of your total compensation (consisting of base salary and
target bonus) as in effect immediately prior to the date of
termination or, if greater, immediately prior to the Change in
Control.
<PAGE>
(ii) For the twenty-four month period after the date of
termination of employment, the Company will arrange to provide the
Employee and the Employee's dependents (if applicable) with welfare
benefits (including, without limitation, all-paid medical and dental
insurance coverage), perquisites and other employee benefits that
provide substantially similar benefits, in terms of aggregate monetary
value, to the Employee and the Employee's dependents (if applicable)
at substantially similar costs to the Employee as the welfare
benefits, perquisites and other employee benefits in effect
immediately prior to the Change in Control (or as in effect following
the Change in Control, if greater). The Employee's rights under the
Consolidated Omnibus Budget Reconciliation Act of 1985 shall commence
As of the end of the twenty-four month period covered by this
Paragraph.
(c) The Employee shall not be required to mitigate the amount of any
payment provided for in this section 4 by seeking other employment or otherwise.
(d) In the event that any payment or benefit received or to be
received by Employee in connection with a change in control of the Company or
ENStar Inc. or termination of Employee's employment (whether payable pursuant to
the terms of this Agreement or any other plan, contract, agreement or
arrangement with the Company or ENStar Inc., with any person whose actions
result in a change in control of the Company or with any person constituting a
member of an "affiliated group" as defined in Section 280G(d)(5) of the Internal
Revenue Code of 1986, as amended (the "Code"), with the Company or with any
person whose actions result in a change in control of the Company)
(collectively, the "Total Payments") would not be deductible (in whole or in
part) by the Company or such other person making such payment or providing such
benefit solely as a result of Section 280G of the Code, the amount payable to
Employee pursuant to this Agreement shall be reduced until no portion of the
Total Payments is not deductible solely as a result of Section 280G of the Code
or such amount payable to Employee pursuant to this Agreement is reduced to
zero. For purposes of this limitation, (i) no portion of the Total Payments
shall be taken into account which in the opinion of tax counsel selected by the
Company or ENStar Inc. does not constitute a "parachute payment" within the
meaning of Section 280G(b)(2) of the Code (such as payments payable pursuant to
the Company's standard of general severance policies); (ii) the payment pursuant
to this Agreement shall be reduced only to the extent necessary so that the
Total Payments (other than those referred to in the immediately preceding clause
(i)) in their entirety constitute reasonable compensation within the meaning of
<PAGE>
Section 280G(b)(4)(B) of the Code, in the opinion of the tax counsel referred to
in the immediately preceding clause (i); and (iii) the value of any other
non-cash benefit or of any deferred cash payment included in the Total Payments
shall be determined by the independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code. In case of uncertainty
as to whether all or some portion of a payment is or is not payable to Employee
under this Agreement, the Company shall initially make the payment to the
Employee, and Employee agrees to refund to the Company any amounts ultimately
Determined not to have been payable under the terms hereof.
5. RETENTION BONUS. If the Employee is continuously employed by the
Company or ENStar Inc. from the date of this Agreement through the earlier of
(a) the consummation of any transaction considered by the Special Committee of
the Board of Directors of ENStar Inc. formed on March 8, 1999, or (b) December
31, 1999, the Employee shall receive a lump sum payment equal to 50% of his
total annual compensation within 10 days following the conclusion of such
period. Such payment shall be in addition to any bonus or incentive payments
made in connection with the achievement of goals and objectives by the Company
pursuant to separate bonus arrangements.
6. NONCOMPETITION COVENANT.
(a) Agreement Not to Compete. The Employee agrees that, during the
Employee's term of employment by the Company and for a period of six months
after termination of employment for any reason (including, without limitation,
voluntary termination by the Employee of the Employee's employment), the
Employee shall not directly engage in competition with the Company in any
manner or capacity (e.g., as an advisor, principal, agent, partner, officer,
employee, or otherwise) in any phase of the business that the Company is
currently conducting, including the design, development, manufacture or
selling of devices or components related to the products being sold by the
Company at the time of the Employee's termination. The Employee agrees that
entering into this Agreement and the opportunity to receive the benefits set
forth herein is full consideration for the terms of this section 6.
(b) Geographic Extent of Covenant. The obligations of the Employee
under this section 6 shall apply to any domestic or foreign city in which the
Company (i) has engaged in business during the Employee's term of employment
by the Company through production, promotional, sales or marketing activity, or
otherwise or (ii) has otherwise established its goodwill, business reputation,
or any customer or supplier relations.
(c) Limitation on Covenant. Ownership by the Employee, as a passive
investment, of less than five percent (5%) of the outstanding shares of capital
stock of any corporation listed on a national securities exchange or publicly
traded in the over-the-counter market shall not constitute a breach of this
section 6. In addition, serving as a member of the board of directors of a
company or providing strategic planning or financial advisory services shall not
constitute a breach of this section 6.
<PAGE>
(d) Indirect Competition. The Employee further agrees that, during
the term of his employment by the Company and the six-month period thereafter
specified in section 6(a) above, the Employee will not, directly, or indirectly,
assist or encourage any other person in carrying out, directly or indirectly,
any activity that would be prohibited by the above provisions of this section 6,
if such activity were carried out by the Employee, either directly or
indirectly; and in particular the Employee agrees that the Employee will not,
directly or indirectly, induce any employee of the Company to carry out,
directly or indirectly, any such activity.
(e) Other Employees. The Employee further agrees that, both during
the term of the Employee's employment by the Company and for a period of
six-months following termination of the Employee's employment, the Employee will
not attempt to persuade officers or employees of the Company to leave the employ
of the Company.
(f) Company Remedies. The Employee acknowledges that the remedy at
law for any breach of the foregoing covenants of this section 6 will be
inadequate, and that the Company shall be entitled, in addition to any remedy at
law, to preliminary and permanent injunctive relief.
7. CONFIDENTIAL INFORMATION. Except as permitted or directed by the
Company's Board of Directors, during the Employee's employment by the Company
or at any time thereafter the Employee shall not divulge, furnish or make
accessible to anyone or use in any way (other than in the ordinary course of the
business of the Company) any confidential or secret knowledge or information of
the Company that the Employee has acquired or become acquainted with or will
acquire or become acquainted with prior to the termination of the Employee's
employment with the Company (including employment by the Company or any
affiliates of the Company prior to the date of this Agreement), whether
developed by the Employee or by others, concerning any trade secrets,
confidential or secret designs, processes, formulae, plans, devices or material
(whether or not patented or patentable) directly or indirectly useful in any
aspect of the business of the Company, any customer or supplier lists of the
Company, or any other confidential information or secret aspects of the
business of the Company. The Employee acknowledges that the above-described
knowledge or information constitutes a unique and valuable asset of the
Company and represents a substantial investment of time and expense by the
Company and its predecessors, and that any disclosure or other use of such
knowledge or information other than for the sole benefit of the Company
would be wrongful and would cause irreparable harm to the Company. Both
during and after the term of this Agreement, the Employee will refrain from
any acts or omissions that would reduce the value of such knowledge or
information to the Company. The foregoing obligations of confidentiality,
however, shall not apply to any knowledge or information that is now
published or that subsequently becomes generally publicly known in the
form in which it was obtained from the Company, other than as a direct or
indirect result of the breach of this Agreement by the Employee.
<PAGE>
8. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall inure to the benefit of an be binding upon
the Company and its successors. The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or of the assets of the Company to
expressly assume and agree to perform this Agreement.
(b) This Agreement is personal to the Employee, and the Employee
may not assign or transfer any part of his rights or duties hereunder, or any
compensation due to him hereunder, to any other person. Notwithstanding
the foregoing, this Agreement shall inure to the benefit of, and be enforceable
by, the Employee's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees.
9. LIMITATION OF DAMAGES. If for any reason the Employee believes the
severance provisions of this Agreement have not been properly adhered to by the
Company, and if it is determined that the Company has not, in fact, properly
adhered to the severance provisions of this Agreement, the sole and exclusive
remedy to which the Employee is entitled is the severance payment to which the
Employee is entitled under the provisions of this Agreement.
10. MODIFICATION; WAIVER. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by the Employee and such officer as may be specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same or at any prior or subsequent time.
11. NOTICE. All notices, requests, demands, and all other communications
required or permitted by either party to the other party by this Agreement
(including, without limitation, any notice of termination of employment) shall
be in writing and shall be deemed to have been duly given when delivered
personally or received by certified or registered mail, return receipt
requested, postage prepaid, at the address of the other party as first written
above (directed to the attention of the Board of Directors in the case of the
Company). Either party hereto may change its address for purposes of this
section by giving fifteen (15) days prior written notice to the other party
hereto.
12. SEVERABILITY. If any term or provision of this Agreement or the
application hereof to any person or circumstances shall to any extent be
determined to be invalid or unenforceable, the remainder of this Agreement or
the application of such term or provision to persons or circumstances other
than those as to which it is held invalid or unenforceable shall not be
affected thereby, and each term and provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law.
<PAGE>
13. GOVERNING LAW. This Agreement has been executed and delivered in the
State of Minnesota and shall in all respects be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota, including all
matters of construction, validity, and performance.
14. EFFECT OF AGREEMENT; ENTIRE AGREEMENT. The Company and the Employee
understand and agree that this Agreement is intended to reflect their agreement
only with respect to the subject matter hereof and is not intended to create any
obligation on the part of either party to continue employment. This Agreement
supersedes any and all other oral or written agreements or policies made
relating to the subject matter hereof; provided that this Agreement shall not
supersede or limit in any way the Employee's rights under any benefit plan or
program in accordance with its terms.
IN WITNESS WHEREOF, the Company and the Employee have executed this
Agreement by their signatures below.
AMERICABLE, INC.
By /s/ Jeffrey J. Michael
--------------------------
Jeffrey J. Michael
President and Chief Executive Officer
of ENStar Inc. and Vice President of
Americable, Inc.
By /s/ Peter E. Flynn
--------------------------
Peter E. Flynn
Employee
INDEMNIFICATION AGREEMENT
THIS AGREEMENT, made and entered into an effective as of the 15th day of
March, 1999 ("Agreement"), by and between ENStar Inc., a Minnesota corporation
("Company"), and Richard J. Braun ("Indemnitee").
WHEREAS, prudent persons may be reluctant to serve in a special capacity
as directors or officers of the Company unless such persons are provided with
adequate protection through insurance or adequate indemnification against
inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of the Company; and
WHEREAS, the Board of Directors of the Company has determined to appoint
Indemnitee, as a disinterested director, to a Special Committee of the Board
of Directors to evaluate a proposal by the Company's majority shareholder to
purchase the outstanding shares of the Company not owned by such majority
shareholder; and
WHEREAS, it is reasonable, prudent and necessary for the Company to
obligate itself by contract to indemnify Indemnitee to the fullest extent
permitted by applicable law so that he will serve the Company free from undue
concern that he will not be so indemnified; and
WHEREAS, Indemnitee is willing to serve and to take on additional service
for or on behalf of the Company on the condition that Indemnitee be so
indemnified.
NOW, THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
ARTICLE I
DEFINITIONS
For purposes of this Agreement the following terms shall have the following
meanings:
1.1 "Board" shall mean the Board of Directors of the Company.
1.2 "Change of Control" shall mean (i) any acquisition by a person or
group of twenty percent (20%) or more of the outstanding Common Stock of the
Company, (ii) a change in control of the Company of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A (or in response to any similar item on any similar schedule or form)
promulgated under the Securities Exchange Act of 1934 (the "Act"), whether or
not the Company is then subject to such reporting requirements, (iii) approval
by the Company's stockholders of a reorganization, merger, consolidation, sale
or disposition of all or substantially all of the assets of the Company, or
<PAGE>
there occurs a proxy contest as a consequence of which members of the Board in
office immediately prior to such event constitute less than a majority of the
Board thereafter; (iv) approval by the Company's stockholders of a complete
liquidation or dissolution of the Company.
1.3 "Expenses" shall include all reasonable attorneys' fees, retainers,
court costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, and all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, or being or preparing to be a witness in a
Proceeding.
1.4 "Good Faith" shall mean Indemnitee having acted in good faith and in
a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal Proceeding, having
had no reasonable cause to believe Indemnitee's conduct was unlawful.
1.5 "Independent Counsel" means a law firm, or a member of a law firm,
that is experienced in matters of corporation law and neither presently is, nor
in the past five years has been, retained to represent: (i) the Company or any
affiliate of the Company, the Michael family, James Michael, Jeffrey Michael or
any relative or affiliate of James Michael or Jeffrey Michael, or Indemnitee in
any matter, or (ii) any other party to the Proceeding giving rise to a claim for
indemnification hereunder. Notwithstanding the foregoing, the term "Independent
Counsel" shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's rights under this Agreement.
1.6 "Proceeding" includes any action, suit, arbitration, alternate
dispute resolution mechanism, investigation, administrative hearing or any
other actual, threatened or completed proceeding whether civil, criminal,
administrative or investigative, other than one initiated by Indemnitee, arising
out of or in connection with (i) Indemnitee's service on the Special Committee,
(including, without limitation, Indemnitee's recommendation for or against the
Proposal or any other proposed Change of Control), or (ii) the Proposal or the
consummation or non-consummation of any transaction arising out of the Proposal,
or (iii) any other Change of Control of the Company which is evaluated by the
Special Committee. For purposes of the foregoing sentence, a "Proceeding" shall
not be deemed to have been initiated by Indemnitee where Indemnitee seeks
pursuant to Article VIII of this Agreement to enforce Indemnitee's rights under
this Agreement.
1.7 "Proposal" shall mean the proposal by James Michael and Jeffrey
Michael to purchase all of the publicly traded shares of common stock of the
Company not owned by them or members of their family or affiliated entities.
1.8 "Special Committee" shall mean the Special Committee of the Board of
Directors of the Company, comprised of Indemnitee as a disinterested director,
appointed March 8, 1999, for the purpose of evaluating the Proposal on behalf of
the Board of Directors of the Company.
<PAGE>
ARTICLE II
TERM OF AGREEMENT
This Agreement shall continue until and terminate upon the later of:
(a) 10 years after the date that Indemnitee shall have ceased to serve as a
director, officer, employee, agent or fiduciary of the Company or of any other
enterprise affiliated with the Company; or (b) the final termination of all
pending Proceedings in respect of which Indemnitee is granted rights of
indemnification or advancement of expenses hereunder and of any proceeding
commenced by Indemnitee pursuant to Article VIII of this Agreement relating
thereto.
ARTICLE III
SERVICES BY INDEMNITEE, NOTICE OF PROCEEDINGS
3.1 Services. Indemnitee agrees to serve on the Special Committee of the
Board of Directors of the Company for the purpose of evaluating the Proposal on
behalf of the Board of Directors of the Company or any other proposals received
in connection with or responses to the Proposal which would result in a Change
of Control of the Company. Indemnitee may at any time and for any reason resign
from such position (subject to any other contractual obligation or any
obligation imposed by operation of law).
3.2 Notice of Proceeding. Indemnitee agrees to notify the Company
promptly, in writing, upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification or advancement of Expenses
covered hereunder.
ARTICLE IV
INDEMNIFICATION
4.1 In General. In connection with any Proceeding, the Company shall
indemnify, hold harmless and advance Expenses to Indemnitee as provided in this
Agreement and to the fullest extent permitted by applicable law in effect on the
date hereof and to such greater extent as applicable law may thereafter from
time to time permit.
4.2 Proceedings Other Than Proceedings by or in the Right of the Company.
Indemnitee shall be entitled to the rights of indemnification provided in this
Section 4.2 if Indemnitee is, or is threatened to be made, a party to any
Proceeding, other than a Proceeding by or in the right of the Company.
Indemnitee shall be indemnified against Expenses, judgments, penalties, fines
and amounts paid in settlement actually and reasonably incurred by Indemnitee or
on Indemnitee's behalf in connection with such Proceeding or any claim, issue or
matter therein, if Indemnitee acted in Good Faith.
<PAGE>
4.3 Poceedings by or in the Right of the Company. Indemnitee shall be
entitled to the rights of indemnification provided in this Section 4.3 if
Indemnitee is, or is threatened to be made, a party to any Proceeding brought by
or in the right of the Company to procure a judgment in its favor. Indemnitee
shall be indemnified against Expenses, judgments, penalties, and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection with such Proceeding if Indemnitee acted in Good Faith.
Notwithstanding the foregoing, no such indemnification shall be made in respect
of any claim, issue or matter in such Proceeding as to which Indemnitee shall
have been adjudged to be liable to the Company if applicable law prohibits such
indemnification; provided, however, that, if applicable law so permits,
indemnification shall nevertheless be made by the Company in such event if and
only to the extent that the court in which such Proceeding shall have been
brought or is pending, or other court of competent jurisdiction, shall
determine.
4.4 Indemnification of a Party Who Is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee is a party to and is successful, on the merits or otherwise, in any
Proceeding, Indemnitee shall be indemnified to the maximum extent permitted by
law, against all Expenses, judgments, penalties, fines, and amounts paid in
settlement, actually and reasonably incurred by Indemnitee or on Indemnitee's
behalf in connection therewith. If Indemnitee is not wholly successful in such
Proceeding but is successful, on the merits or otherwise, as to one or more but
less than all claims, issues or matters in such Proceeding, the Company shall
indemnify Indemnitee to the maximum extent permitted by law, against all
Expenses, judgments, penalties, fines, and amounts paid in settlement, actually
and reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section 4.4 and without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter, so long as
there has been no finding (either adjudicated or pursuant to Article VI) that
Indemnitee did not act in Good Faith.
4.5 Indemnification for Expenses of a Witness. Notwithstanding any other
provision of this Agreement, to the extent that Indemnitee is a witness in any
Proceeding, Indemnitee shall be indemnified against all Expenses actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in connection
therewith.
ARTICLE V
ADVANCEMENT OF EXPENSES
Notwithstanding any provision to the contrary in Article VI, the Company
shall advance all reasonable Expenses which were incurred by or on behalf of
Indemnitee in connection with any Proceeding, within twenty days after the
receipt by the Company of a statement or statements from Indemnitee requesting
<PAGE>
such advance or advances, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses if it shall
ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advance and undertakings to repay pursuant to this
Article V shall be unsecured and interest free.
ARTICLE VI
PROCEDURES FOR DETERMINATION OF
ENTITLEMENT TO INDEMNIFICATION
6.1 Initial Request. To obtain indemnification under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall
promptly advise the Board in writing that Indemnitee has requested
indemnification.
6.2 Method of Determination. A determination (if required by applicable
law) with respect to Indemnitee's entitlement to indemnification shall be made
by Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee.
6.3 Selection, Payment, Discharge, of Independent Counsel. In the event
the determination of entitlement to indemnification is to be made, the
Independent Counsel shall be selected, paid, and discharged in the following
manner:
(a) If a Change of Control has not occurred, the Independent
Counsel shall be selected by the Board, and the Company shall give written
notice to Indemnitee advising Indemnitee of the identity of the Independent
Counsel so selected.
(b) If a Change of Control has occurred, the Independent Counsel
shall be selected by Indemnitee (unless Indemnitee shall request that such
selection be made by the Board, in which event clause (a) of this section
shall apply), and Indemnitee shall give written notice to the Company
advising it of the identity of the Independent Counsel so selected.
(c) Following the initial selection described in clauses (a) and
(b) of this Section 6.3, Indemnitee or the Company, as the case may be,
may, within 7 days after such written notice of selection has been given,
deliver to the other party a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel
so selected does not meet the requirements of "Independent Counsel" as
<PAGE>
defined in Section 1.5 of this Agreement, and the objection shall set forth
with particularity the factual basis of such assertion. Absent a proper
and timely objection, the person so selected shall act as Independent
Counsel. If such written objection is made, the Independent Counsel so
selected may not serve as Independent Counsel unless and until a court has
determined that such objection is without merit.
(d) Either the Company or Indemnitee may petition the District
Court of the State of Minnesota or other court of competent jurisdiction if
the parties have been unable to agree on the selection of Independent
Counsel within 20 days after submission by Indemnitee of a written request
for indemnification pursuant to Section 6.1 of this Agreement. Such
petition may request a determination whether an objection to the party's
selection is without merit and/or seek the appointment as Independent
Counsel of a person selected by the Court or by such other person as the
Court shall designate. A person so appointed shall act as Independent
Counsel under Section 6.2 of this Agreement.
(e) The Company shall pay any and all reasonable fees and expenses
of Independent Counsel incurred by such Independent Counsel in connection
with acting pursuant to this Agreement, and the Company shall pay all
reasonable fees and expenses incident to the procedures of this Section
6.3, regardless of the manner in which such Independent Counsel was
selected or appointed.
(f) Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 8.1(c) of this Agreement, Independent
Counsel shall be discharged and relieved of any further responsibility in
such capacity (subject to the applicable standards of professional conduct
then prevailing).
6.4 Cooperation. Indemnitee shall cooperate with the person, persons or
entity making the determination with respect to Indemnitee's entitlement to
indemnification under this Agreement, including providing to such person,
persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
6.5 Payment. If it is determined that Indemnitee is entitled to
indemnification, payment to Indemnitee shall be made within ten (10) days after
such determination.
<PAGE>
ARTICLE VII
PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS
7.1 Burden of Proof. In making a determination with respect to
entitlement to indemnification hereunder, the person or persons or entity making
such determination shall presume that Indemnitee is entitled to indemnification
under this Agreement if Indemnitee has submitted a request for indemnification
in accordance with Section 6.1 of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
7.2 Effect of Other Proceedings. The termination of any Proceeding or
of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in Good Faith.
7.3 Reliance as Safe Harbor. For purposes of any determination of Good
Faith, Indemnitee shall be deemed to have acted in Good Faith if Indemnitee's
action is based on the records or books of account of the Company, including
financial statements, or on information supplied to Indemnitee by the officers
or agents of the Company or Special Committee in the course of their duties, or
on the advice of legal counsel for the Company or Special Committee or on
information or records given or reports made to the Company or Special Committee
by an independent certified public accountant or by an investment banker,
appraiser or other expert selected with reasonable care by the Company or
Special Committee. The provisions of this Section 7.3 shall not be deemed to
be exclusive or to limit in any way the other circumstances in which the
Indemnitee may be deemed to have met the applicable standard of conduct set
forth in this Agreement.
7.4 Actions of Others. The knowledge and/or actions, or failure to act,
of any director, officer, agent or employee of the Company or Special Committee
shall not be imputed to Indemnitee for purposes of determining the right to
indemnification under this Agreement.
ARTICLE VIII
REMEDIES OF INDEMNITEE
8.1 Application. This Article VIII shall apply in the event of a
Dispute. For purposes of this Article, "Dispute" shall mean any of the
following events:
(a) a determination is made pursuant to Article VI of this
Agreement that Indemnitee is not entitled to indemnification under this
Agreement;
(b) advancement of Expenses is not timely made pursuant to
Article V of this Agreement;
<PAGE>
(c) the determination of entitlement to be made pursuant to Section
6.2 of this Agreement has not been made within 90 days after receipt by the
Company of the request for indemnification;
(d) payment of indemnification is not made pursuant to Section 4.5
of this Agreement within ten (10) days after receipt by the Company of a written
request therefor; or
(e) payment of indemnification is not made within ten (10) days
after a determination has been made that Indemnitee is entitled to
indemnification.
8.2 Adjudication. In the event of a Dispute, Indemnitee shall be
entitled to an adjudication in an appropriate court of the State of Minnesota,
or in any other court of competent jurisdiction, of Indemnitee's entitlement to
such indemnification or advancement of Expenses. Alternatively, Indemnitee, at
Indemnitee' s option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules of the American Arbitration Association.
Indemnitee shall commence such proceeding seeking an adjudication or an award in
arbitration within 180 days following the date on which Indemnitee first has the
right to commence such proceeding pursuant to this Section 8.2. The Company
shall not oppose Indemnitee's right to seek any such adjudication or award in
arbitration.
8.3 De Novo Review. In the event that a determination shall have been
made pursuant to Article VI of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Article VIII shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination. In any such proceeding or arbitration, the Company
shall have the burden of proving that Indemnitee is not entitled to
indemnification or advancement of Expenses, as the case may be.
8.4 Company Bound. If a determination shall have been made or deemed to
have been made pursuant to Article VI of this Agreement that Indemnitee is
entitled to indemnification, the Company shall be bound by such determination in
any judicial proceeding or arbitration absent (i) a misstatement by Indemnitee
of a material fact, or an omission of a material fact necessary to make
Indemnitee's statement not materially misleading, in connection with the request
for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
8.5 Procedures Valid. The Company shall be precluded from asserting in
any judicial proceeding or arbitration commenced pursuant to this Article VIII
that the procedures and presumptions of this Agreement are not valid, binding
and enforceable and shall stipulate in any such court or before any such
arbitrator that the Company is bound by all the provisions of this Agreement.
<PAGE>
8.6 Expenses of Adjudication. In the event that Indemnitee, pursuant to
this Article VIII, seeks a judicial adjudication or an award in arbitration to
enforce Indemnitee's rights under, or to recover damages for breach of, this
Agreement, Indemnitee shall be entitled to recover from the Company, and shall
be indemnified by the Company against, any and all expenses (of the types
described in the definition of Expenses in Section 1.3 of this Agreement)
actually and reasonably incurred by Indemnitee in such adjudication or
arbitration, but only if Indemnitee prevails therein. If it shall be determined
in such adjudication or arbitration that Indemnitee is entitled to receive part
but not all of the indemnification or advancement of expenses sought, the
expenses incurred by Indemnitee in connection with such adjudication or
arbitration shall be appropriately prorated.
ARTICLE IX
NON-EXCLUSIVITY, INSURANCE, SUBROGATION
9.1 Non-exclusivity. The rights of indemnification and to receive
advancement of Expenses as provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may at any time be entitled
under applicable law, the Articles of Incorporation, the By-Laws, any agreement,
a vote of stockholders or a resolution of directors, or otherwise. No
amendment, alteration, rescission or replacement of this Agreement or any
provision hereof shall be effective as to Indemnitee with respect to any action
taken or omitted by such Indemnitee prior to such amendment, alteration,
rescission or replacement.
9.2 Insurance. The Company may maintain an insurance policy or policies
against liability arising out of this Agreement or otherwise. In addition to
the indemnities contained herein, the Company shall maintain in full force and
effect, in reasonable amounts from reputable insurers, directors and officers
liability insurance to cover certain liabilities which may be incurred by its
officers and Directors in the performance of their services for the Company
("D&O Insurance") unless such insurance becomes not reasonably available or if,
in the reasonable business judgment of the Company's Board of Directors (as
comprised at the time), either (a) the premium cost of such insurance is
substantially disproportionate to the amount of coverage, or (b) the coverage
provided by such insurance is so limited by exclusions that there is
insufficient benefit from such insurance. If the Company does not maintain
D&O Insurance, the Company agrees to self insure the Indemnitee to the full
extent of the coverage which would have otherwise been provided for the benefit
of the Indemnitee pursuant to the D&O Insurance policy in effect as of the date
hereof. This section is in no way limited by, and in no way limits, the
indemnities otherwise provided herein.
9.3 Subrogation. In the event of any payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents
as are necessary to enable the Company to bring suit to enforce such rights.
<PAGE>
9.4 No Duplicative Payment. The Company shall not be liable under this
Agreement to make any payment of amounts otherwise indemnifiable hereunder if
and to the extent that Indemnitee has otherwise actually received such payment
under any insurance policy, contract, agreement or otherwise.
ARTICLE X
GENERAL PROVISIONS
10.1 Successors and Assigns. This Agreement shall be binding upon the
Company and its successors and assigns and shall inure to the benefit of
Indemnitee and Indemnitee's heirs, executors and administrators.
10.2 Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason whatsoever:
(a) the validity, legality and enforceability of the remaining
provisions of this Agreement (including without limitation, each portion of
any Section of this Agreement containing any such provision held to be
invalid, illegal or unenforceable, that is not itself invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any Section of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall
be construed so as to give effect to the intent manifested by the provision
held invalid, illegal or unenforceable.
10.3 Identical Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
10.4 Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
10.5 Modification and Waiver. No supplement, modification or amendment
of this Agreement shall be binding unless executed in writing by both of the
parties hereto. No waiver of any of the provisions of this Agreement shall be
deemed or shall constitute a waiver of any other provisions hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
<PAGE>
10.6 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
If to Indemnitee, to: As shown with Indemnitee's Signature below.
If to the Company, to: ENStar Inc.
7450 Flying Cloud Drive
Eden Prairie, MN 55344
Attention: Peter E. Flynn
Exec. Vice Pres.
or to such other address as may have been furnished in writing to Indemnitee by
the Company or to the Company by Indemnitee, as the case may be.
10.8 Entire Agreement. This Agreement constitutes the entire agreement
and understanding between the parties hereto in reference to all the matters
herein agreed upon. This Agreement replaces in full all prior indemnification
agreements or understandings of the parties hereto, and any and all such prior
agreements or understandings are hereby rescinded by mutual agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
ATTEST: ENSTAR INC.
/s/ Thomas S. Wargolet By /s/ Peter E. Flynn
--------------------------
Peter E. Flynn
Executive Vice President
ATTEST: INDEMNITEE
/s/ James L. Grant By /s/ Richard J. Braun
--------------------------
Richard J. Braun
Mailing Address of Indemnitee:
402 W. Country Road D
St. Paul, MN 55112
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