<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 2)
ENStar Inc.
-----------
(Name of Issuer)
Common Stock, par value $.01 per share
--------------------------------------
(Title of Class of Securities)
29358M 10 8
-----------
(CUSIP Number)
Jeffrey J. Michael
President and Chief Executive Officer
ENStar Inc.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
(612) 942-3800
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
December 1, 1999
----------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check
the following box: [ ]
<PAGE>
SCHEDULE 13D
------------
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
ENStar Acquisition, Inc.
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
- ---------------------
7) SOLE VOTING POWER
-0-
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES -0-
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
-0-
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
-0-
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.0%
- ----------------------
14) TYPE OF REPORTING PERSON
CO
- ----------------------
<PAGE>
SCHEDULE 13D
------------
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
James H. Michael
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- ---------------------
7) SOLE VOTING POWER
-0-
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES 962,164
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
962,164
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
962,164
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
49.9%
- ----------------------
14) TYPE OF REPORTING PERSON
IN
- ----------------------
(1) All shares held by 4J2R1C Limited Partnership, of which James H.
Michael is a general partner.
SCHEDULE 13D
------------
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
4J2R1C Limited Partnership
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
- ---------------------
7) SOLE VOTING POWER
962,164
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES -0-
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING 962,164
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
-0-
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
962,164
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
49.9%
- ----------------------
14) TYPE OF REPORTING PERSON
PN
- ----------------------
<PAGE>
SCHEDULE 13D
------------
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
Jeffrey J. Michael
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
United States of America
- ---------------------
7) SOLE VOTING POWER
967,392
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES 962,164
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING 967,392
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
962,164
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,929,556
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
100%
- ----------------------
14) TYPE OF REPORTING PERSON
IN
- ----------------------
(1) Includes: (a) 865,666 shares held by 3J2R Limited Partnership of which
Jeffrey J. Michael is managing general partner; and (b) 101,726 shares held
by the Michael Acquisition Corporation Trust U/A Dated Effective July 29, 1999
of which Jeffrey J. Michael is the sole trustee.
<PAGE>
SCHEDULE 13D
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
3J2R Limited Partnership
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
- ---------------------
7) SOLE VOTING POWER
865,666
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES -0-
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING 865,666
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
-0-
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
865,666
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
44.9%
- ----------------------
14) TYPE OF REPORTING PERSON
PN
- ----------------------
<PAGE>
SCHEDULE 13D
------------
CUSIP No. 29358M-10-8
- ---------------------
1) NAME OF REPORTING PERSON AND S.S. OR I.R.S. IDENTIFICATION NO. OF
ABOVE PERSON
Michael Acquisition Corporation Trust U/A Dated Effective
July 29, 1999
- ---------------------
2) CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [X]
- ---------------------
3) SEC USE ONLY
- ---------------------
4) SOURCE OF FUNDS
Not applicable.
- ---------------------
5) CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(D) OR 2(E) [ ]
- ---------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION
Minnesota
- ---------------------
7) SOLE VOTING POWER
101,726
-----------------------
NUMBER OF 8) SHARED VOTING POWER
SHARES -0-
BENEFICIALLY -----------------------
OWNED BY EACH 9) SOLE DISPOSITIVE POWER
REPORTING 101,726
PERSON -----------------------
WITH 10) SHARED DISPOSITIVE POWER
-0-
- ----------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
101,726
- ----------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN
SHARES [X] Excludes shares held by other group members
- ----------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
5.3%
- ----------------------
14) TYPE OF REPORTING PERSON
OO
- ----------------------
SCHEDULE 13D
------------
This amendment No. 2 to Schedule 13D hereby amends a Schedule 13D dated
July 19, 1999 filed by ENStar Acquisition, Inc., Jeffrey J. Michael, James H.
Michael, 4J2R1C Limited Partnership and 3J2R Limited Partnership and
Amendment No. 1 thereto dated August 13, 1999.
ITEM 1. SECURITY AND ISSUER.
This Statement on Schedule 13D relates to the common stock, par value $.01 per
share (the "Common Stock"), of ENStar Inc., a Minnesota corporation ("ENStar").
The address of the principal executive offices of ENStar is 7450 Flying Cloud
Drive, Eden Prairie, Minnesota 55344.
ITEM 2. IDENTITY AND BACKGROUND.
(a) This statement is filed by and on behalf of ENStar Acquisition,
Inc. ("Acquisition Co."), James H. Michael, 4J2R1C Limited Partnership,
Jeffrey J. Michael, 3J2R Limited Partnership and the Michael Acquisition
Corporation Trust (collectively, the "Reporting Persons"). James H. Michael
and Jeffrey J. Michael are the general partners of 4J2R1C Limited Partnership
and Jeffrey J. Michael is the managing general partner of 3J2R Limited
Partnership. Jeffrey J. Michael is the sole director, President, Treasurer
and Secretary of Acquisition Co. and the sole trustee of the Michael
Acquisition Corporation Trust.
(b) The principal business address of each of the Reporting Persons is
6479 City West Parkway, Eden Prairie, Minnesota 55344-3246. Both 4J2R1C
Limited Partnership and 3J2R Limited Partnership are Minnesota limited
partnerships that are principally engaged in the business of real estate,
equity and other forms of investment. Acquisition Co. is a Minnesota
corporation that was formed for the purpose of acquiring the Common Stock of
ENStar.
(c) James H. Michael is a member of the Board of Directors of ENStar.
Jeffrey J. Michael is the President and Chief Executive Officer and a member
of the Board of Directors of ENStar. ENStar is a holding company. Its
principal subsidiaries are Americable, Inc. and Enstar Networking
corporation. ENStar also owns 2,050,000 shares of common stock of CorVel
Corporation, or an approximate 25% interest. ENStar also owns 1,350,000
shares in Vicom Incorporated, or an approximate 38.5% interest.
(d) None of the Reporting Persons has, during the last five years, been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) None of the Reporting Persons has, during the last five years, been
a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject
to a judgment, decree or final order enjoining future violations of, or
prohibiting or mandating activities subject to, United States federal or
state securities laws or finding any violation with respect to such laws.
<PAGE>
(f) Both James H. Michael and Jeffrey J. Michael are United States
citizens.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
On December 1, 1999, Acquisition Co. merged with and into ENStar, with
ENStar being the surviving corporation (the "Merger"), pursuant to an
agreement and plan of merger dated August 13, 1999 among ENStar, Acquisition
Co. and, for certain purposes set forth therein, Jeffrey J. Michael, James H.
Michael, 4J2R1C Limited Partnership and 3J2R Limited Partnership and Jeffrey
J. Michael, as Trustee of the Michael Acquisition Corporation Trust (the
"Merger Agreement"). The Merger Agreement was approved by ENStar's
shareholders at a meeting held on December 1, 1999. The Merger became
effective on December 1, 1999 after the filing of the Articles of Merger with
the Secretary of State of the State of Minnesota. As a result of the Merger,
each share of Common Stock of ENStar outstanding immediately prior to the
Merger not owned or controlled by the Reporting Persons converted into the
right to receive $12.50 in cash. The transaction was financed by proceeds
from a revolving loan of up to $8.0 million and a term loan of $6.0 million
and ENStar's existing cash balances.
ITEM 4. PURPOSE OF TRANSACTION.
On December 1, 1999, Acquisition Co. merged with and into ENStar, with
ENStar being the surviving corporation. The Merger Agreement was approved by
ENStar's shareholders at a meeting held on December 1, 1999. The Merger
became effective on December 1, 1999 after the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota. As a result of
the Merger, each share of Common Stock of ENStar outstanding immediately
prior to the Merger not owned or controlled by the Reporting Persons
converted into the right to receive $12.50 in cash. The transaction was
financed by proceeds from a revolving loan of up to $8.0 million and a term
loan of $6.0 million and ENStar's existing cash balances.
ENStar intends to file a Form 15 terminating the registration of the
Common Stock under the Securities Exchange Act of 1934, as amended, and
delist the Common Stock from the Nasdaq National Market effective as of the
end of the day on December 1, 1999. In addition, effective as of the
effective time of the Merger, James H. Michael was elected a director of
ENStar. As soon as reasonably practicable after the consummation of the
Merger, ENStar intends to amend and restate its articles of incorporation
primarily to be consistent with the articles of incorporation of Acquisition
Co., except that the provision in ENStar's current articles of incorporation
requiring indemnification of ENStar's officers and directors will remain
intact.
The foregoing summary of the Merger Agreement is qualified in its
entirety by reference to a copy of the Merger Agreement incorporated by
reference as Exhibit 1 to Amendment No. 1 to Schedule 13D and incorporated
herein in its entirety by reference.
<PAGE>
Except as otherwise provided in this Item 4 and other than as to matters
that Jeffrey J. Michael as President and Chief Executive Officer of ENStar,
and James H. Michael, as a member of the Board of Directors of ENStar, may
consider and discuss with other ENStar officers and board members from time
to time, none of the Reporting Persons has any present plans or proposals
which relate to or would result in:
- the acquisition by any person of additional securities of ENStar or
the disposition of securities of ENStar;
- an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving ENStar;
- a sale or transfer of a material amount of assets of ENStar;
- any change in the present board of directors or management of ENStar,
including any plans or proposals to change the number or term of
directors or to fill any existing vacancies on the board;
- any material change in the present capitalization or dividend policy
of ENStar;
- any other material change in ENStar's business or corporate structure;
- changes in ENStar's articles of incorporation, bylaws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of ENStar by any person;
- causing a class of securities of ENStar to be delisted from a national
securities exchange or to cease to be authorized to be quoted in an
inter-dealer quotation system of a registered national securities
association;
- a class of equity securities of ENStar becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Securities Exchange Act of 1934; or
- any action similar to any of those listed above.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) After the consummation of the Merger, each of the Reporting Persons
beneficially owns the following amounts of Common Stock:
1. Acquisition Co. beneficially owns no shares of Common Stock.
2. James H. Michael beneficially owns 962,164 shares (49.9% of the
Common Stock). He has shared voting and dispositive power with respect
to all such shares. All such shares are held by 4J2R1C Limited
Partnership.
3. Jeffrey J. Michael beneficially owns 1,929,556 shares (100% of
the Common Stock). He has sole voting and dispositive power with
respect to 967,392 of such shares and shared voting and dispositive
power with respect to 962,164 of such shares. Included within the
967,392 shares of Common Stock of which Jeffrey J. Michael has sole
voting and dispositive power are 865,666 shares of Common Stock held by
3J2R Limited Partnership and 101,726 shares of Common Stock held by the
Michael Acquisition Corporation Trust. The 962,164 shares of Common
Stock of which Jeffrey J. Michael has shared voting and dispositive
power are held by 4J2R1C Limited Partnership.
<PAGE>
4. 4J2R1C Limited Partnership beneficially owns 962,164 shares
(49.9% of the Common Stock). 4J2R1C Limited Partnership has sole voting
and dispositive power with respect all such shares.
5. 3J2R Limited Partnership beneficially owns 865,666 shares
(44.9% of the Common Stock). 3J2R Limited Partnership has sole voting
and dispositive power with respect all such shares.
6. The Michael Acquisition Corporation Trust beneficially owns
101,726 shares (5.3% of the Common Stock). Jeffrey J. Michael as sole
trustee of the Trust has sole voting and dispositive power with respect
to all such shares.
7. The Reporting Persons beneficially own all of the outstanding
shares of Common Stock.
(b) See Item 5(a) above. Except as otherwise provided in this Item,
each of the Reporting Persons disclaims beneficial ownership in the shares
owned by the other Reporting Persons.
(c) Except for the entering into of the Merger Agreement, the
cancellation of shares of Common Stock held by the Reporting Persons and the
conversion of shares of common stock of Acquisition Co. into shares of Common
Stock in connection with the Merger and the following contributions of Common
Stock to the Michael Acquisition Corporation Trust by James H. Michael and
Jeffrey J. Michael and his affiliates, none of the Reporting Persons has
effected any transactions in the Common Stock of ENStar during the past 60
days.
James H. Michael 53,301
Jeffrey J. Michael 3,316
Spouse of Jeffrey J. Michael 3,083
Minor child of Jeffrey J. Michael 1,683
(d) Not applicable.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
As described under "Item 4. Purpose of Transaction," on December 1,
1999, Acquisition Co. merged with and into ENStar. See "Item 4. Purpose of
Transaction" for more detail.
Pursuant to Rule 13d-1(f) promulgated under the Exchange Act, the
Reporting Persons have entered into an agreement with respect to the joint
filing of this Schedule 13D, and any amendment or amendments hereto, a copy
of which has been filed as Exhibit 2 to this Schedule 13D and is incorporated
herein by this reference.
<PAGE>
Except as described herein, there are no contracts, arrangements,
understandings or relationships among the persons named in Item 2 or between
such persons and any other person with respect to any securities of ENStar.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS.
Exhibit 1 Agreement and Plan of Merger dated August 13, 1999 among
ENStar Inc., ENStar Acquisition, Inc., and, for certain
purposes set forth therein, Jeffrey J. Michael, James H.
Michael, 4J2R1C Limited Partnership, 3J2R Limited
Partnership and Jeffrey J. Michael, as trustee of the
Michael Acquisition Corporation Trust (incorporated by
reference to Exhibit 2.1 to the Quarterly Report on Form
10-Q for the quarter ended June 30, 1999 filed by ENStar
Inc.).
Exhibit 2 Agreement among ENStar Acquisition, Inc., Jeffrey J.
Michael, James H. Michael, 4J2R1C Limited Partnership,
3J2R Limited Partnership and Jeffrey J. Michael, as
trustee of the Michael Acquisition Corporation Trust
(incorporated by reference to Exhibit 2 to Amendment No. 1
to Schedule 13D dated August 13, 1999 filed by ENStar
Acquisition, Inc., Jeffrey J. Michael, James H. Michael,
4J2R1C Limited Partnership, 3J2R Limited Partnership and
Jeffrey J. Michael, as trustee of the Michael Acquisition
Corporation Trust).
Exhibit 3 Revolving Credit and Term Loan Agreement dated as of
November 29, 1999 among 3J2R Limited Partnership, 4J2R1C
Limited Partnership, Jeffrey J. Michael, as Trustee of the
Michael Acquisition Corporation Trust and National City
Bank of Minneapolis (filed herewith).
<PAGE>
SIGNATURES
----------
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
DECEMBER 1, 1999 ENSTAR ACQUISITION, INC.
By: /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
President
/s/ James H. Michael
--------------------
James H. Michael, Individually
4J2R1C LIMITED PARTNERSHIP
By: /s/ James H. Michael
--------------------
James H. Michael
General Partner
By: /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
General Partner
/s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael, Individually
MICHAEL ACQUISITION CORPORATION
TRUST U/A DATED EFFECTIVE JULY 29, 1999
By: /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
Trustee
3J2R LIMITED PARTNERSHIP
By: /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
Managing General Partner
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Method
No. Description of Filing
- -------- ------------ ---------
1 Agreement and Plan of Merger dated Incorporated by
August 13, 1999 among ENStar Inc., reference to Exhibit
ENStar Acquisition, Inc., and, for 2.1 to the Quarterly
certain purposes set forth therein, Report on Form 10-Q
Jeffrey J. Michael, James H. Michael, for the quarter ended
4J2R1C Limited Partnership, 3J2R Limited June 30, 1999 filed
Partnership and Jeffrey J. Michael, as by ENStar Inc.
trustee of the Michael Acquisition
Corporation Trust.
2 Agreement among ENStar Acquisition, Inc., Incorporated by
Jeffrey J. Michael, James H. Michael, reference to Exhibit 2
4J2R1C Limited Partnership, 3J2R Limited to Amendment No. 1 to
Partnership and Jeffrey J. Michael, as Schedule 13D dated
trustee of the Michael Acquisition August 13, 1999 filed
Corporation Trust. by ENStar Acquisition,
Inc., Jeffrey J.
Michael, James H.
Michael, 4J2R1C
Limited Partnership,
3J2R Limited
Partnership and
Jeffrey J. Michael,
as trustee of the
Michael Acquisition
Corporation Trust
3 Revolving Credit and Term Loan Agreement
dated as of November 29, 1999 among 3J2R
Limited Partnership, 4J2R1C Limited
Partnership, Jeffrey J. Michael, as
Trustee of the Michael Acquisition
Corporation Trust and National City
Bank of Minneapolis. Filed herewith
<PAGE>
EXHIBIT 3
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Dated as of November 29, 1999
3J2R Limited Partnership, a Minnesota limited partnership, 4J2R1C
Limited Partnership, a Minnesota limited partnership and Jeffrey J. Michael,
as Trustee of the Michael Acquisition Corporation Trust, Established Under
Agreement Dated July 29, 1999 (individually a "Borrower" and collectively the
"Borrowers"), each with an address at 6479 City West Parkway, Eden Prairie,
Minnesota 55344 and National City Bank of Minneapolis, a national banking
association (the "Bank"), located at 651 Nicollet Mall, Minneapolis,
Minnesota 55402-1611, agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.1. DEFINITIONS. As used in this Agreement the following
terms shall have the following meanings (such meanings to be equally
applicable to singular and plural forms of the terms defined):
(a) "Acquisition Corporation" means either or both of ENStar, Inc.
and ENStar Acquisition, Inc. Upon a merger of such entities with each
other or with a third party, the surviving entity or entities shall be
the Acquisition Corporation.
(b) "Affiliate" means any of the following Persons:
(i) any director, officer or employee of any Borrower;
(ii) any person who, individually or with his immediate
family, beneficially owns or holds 5% or more of the equity or
beneficial interests of any Borrower; or
(iii) any company in which any Person described above
owns a 5% or greater equity interest.
(c) "Business Day" means any day other than a Saturday, Sunday or
a public holiday or the equivalent under the laws of the State of
Minnesota or the United States of America.
(d) "Debt" means (i) indebtedness for borrowed money or for the
deferred purchase price of property or services, (ii) obligations as
lessee under leases that shall have been or should be, in accordance
with generally accepted accounting principles, recorded as capital
leases, (iii) obligations under direct or indirect guaranties in respect
of, and obligations (contingent or otherwise) to purchase or otherwise
acquire, or otherwise to assure a creditor against loss in respect of,
indebtedness or obligations of others of the kinds referred to in clause
<PAGE>
(i) or (ii) above, and (iv) liabilities in respect of unfunded vested
benefits under plans covered by Title IV of ERISA.
(e) "Event of Default" means one of the events specified in
Section 6.1.
(f) "Investment Collateral" has the meaning given to that term in
Section 3.1(b).
(g) "LIBOR" means, on any day, one-month, three-month or six-month
(as selected under Section 2.5) LIBOR as reported on the immediately
preceding Business Day in the Wall Street Journal, or, if the Wall
Street Journal does not report LIBOR of the selected duration on such
Business Day, as reported in such other comparable source for interest
rates as the Bank may select in its discretion.
(h) "Loan Documents" means this Agreement, the Notes, the Security
Agreements, the Pass-Through Loan Documents and all other documents to
be executed in connection with this Agreement.
(i) "Loan Party" means any Person obligated under any Loan
Document, Acquisition Corporation and any Person whose property is
pledged in any Loan Document.
(j) "Notes" means both the Revolving Note described in Section 2.2
and the Term Note described in Section 2.3.
(k) "Pass-Through Loan Documents" means the documents executed by
Acquisition Corporation and described in Section 3.1(g).
(l) "Person" means an individual, corporation, partnership, joint
venture, trust or unincorporated organization or governmental agency or
political subdivision thereof.
Section 1.2. ACCOUNTING AND OTHER TERMS. All accounting terms not
specifically defined in this Agreement shall be construed in accordance with
generally accepted accounting principles consistently applied as such
principles may change from time to time. Other terms defined herein shall
have the meanings ascribed to them herein.
ARTICLE II.
THE LOANS
Section 2.1. COMMITMENT FOR REVOLVING LOAN. The Bank agrees, in
accordance with the terms of this Agreement, to make advances (the
"Advances") to the Borrowers, jointly and severally, from time to time from
the date hereof to and including October 31, 2002 (the "Termination Date") or
the earlier termination of the Commitment under the terms of this Agreement,
in an aggregate amount not to exceed $8,000,000.00 (the "Commitment").
Within the limits of the Commitment the Borrowers may borrow, prepay pursuant
to Section 2.6 and reborrow under this Section 2.1.
<PAGE>
Section 2.2. THE REVOLVING NOTE. The Advances made by the Bank shall
be evidenced by a promissory note (the "Revolving Note") that is in
substantially the form of Exhibit A attached hereto and is delivered to the
Bank pursuant to Article III.
Section 2.3. TERM LOAN. The Bank hereby lends to the Borrowers, and
the Borrowers hereby, jointly and severally, borrow from the Bank, the amount
of $6,000,000.00 (the "Term Loan"). The Term Loan shall be evidenced by a
promissory note (the "Term Note") that is in substantially the form of
Exhibit B attached hereto and is delivered to the Bank pursuant to Article
III.
Section 2.4. MAKING OF ADVANCES AND THE TERM LOAN. The Borrowers may
request Advances under this Agreement by giving notice to the Bank,
specifying the date of the requested Advance and the amount thereof. Any
request for an Advance shall be deemed to be a representation that the
Borrower's representations and warranties contained in Section 4.1 are true
and correct as of the date of the Advance as though made on and as of such
date and that no event has occurred and is continuing, or will result from
such Advance, that constitutes an Event of Default or would constitute an
Event of Default but for the requirement that notice be given or time elapse
or both. The Bank may disburse each requested Advance and the Term Loan by
crediting immediately available funds in the amount of the Advance to the
demand deposit account of 4J2R1C Limited Partnership maintained with the Bank
or to such other account maintained with the Bank as the Borrowers shall
collectively advise the Bank in writing. Each Borrower acknowledges that
notwithstanding the fact that Advances and the Term Loan may be disbursed to
the deposit account of a single Borrower, each Borrower is jointly and
severally liable on all Notes as a direct and primary obligor. Neither
Borrower is acting in an accommodation capacity with respect to any Note.
The Borrowers shall be solely responsible to allocate Note proceeds among
themselves as the Borrowers deem appropriate.
Section 2.5. INTEREST AND PAYMENTS. The Borrowers, jointly and
severally, shall repay, and shall pay interest on, the aggregate unpaid
principal amount of all Advances and the Term Loan in accordance with the
Notes. The Borrowers shall at any time that any amount is outstanding under
a Note select a LIBOR interest period to apply to all amounts outstanding on
that Note. The Borrowers may select an interest period of one month, three
months or six months and may select a different interest period to apply to
each Note. Once the Borrowers notify the Bank in writing of an interest
period selection for a Note, such selection shall be irrevocable. If the
Borrowers shall fail to notify the Bank in writing of an interest period for
any Note prior to the end of a previous interest period, the Borrowers shall
be presumed to have selected an interest period of one month for that Note
for the next interest period. After and during the continuance of an Event
of Default the Borrowers shall pay interest at an annual rate equal to 2.0%
in excess of the rate of interest otherwise provided under the Notes. In
addition, the Borrowers, jointly and severally, shall pay a late payment fee
equal to 3.0% of the amount of any payment that is paid more than 15 days
after its due date. All payments of principal, interest and fees under this
Agreement shall be made when due to the Bank in immediately available funds.
All computations of interest and the Commitment Fee shall be made by the Bank
on the basis of the actual number of days elapsed in a year of 360 days.
<PAGE>
Whenever any such payment shall be due on a non-Business Day, such payment
shall be made on the next succeeding Business Day, and such extension of time
shall be included in the computation of interest or fees, as the case may be,
but shall not be deemed to result in such payment being made after the due
date thereof. The Bank is expressly authorized to charge any principal,
interest or fee payment, when due, to the demand deposit account of any
Borrower maintained at the Bank, or, if those accounts shall not contain
sufficient funds, to any other account maintained by any Borrower at the
Bank.
Section 2.6. VOLUNTARY PREPAYMENT. The Borrower may prepay the Notes
in whole or in part; PROVIDED, HOWEVER, that any prepayment of the Term Note
shall be applied to principal installments of the Term Note in the inverse
order of their maturities and shall, in the circumstances stated in the next
sentence, be accompanied by a prepayment premium. A prepayment premium on
the Term Note shall apply to any prepayment made prior to November 1, 2002
if, and only to the extent that, the amount of that prepayment, when added to
all previous principal payments on the Term Note, exceeds 120% of the
principal payments required to have been made on the Term Note by the date of
that prepayment. The prepayment premium, if applicable, shall be equal to a
percentage of the excess prepayment selected as follows:
Percentage Premium
Applied to Excess
Date of Prepayment Prepayment Amount
------------------ ------------------
Prior to 11/1/00 3.0%
11/1/00 - 10/31/01 2.0%
11/1/01 - 10/31/02 1.0%
After 10/31/02 0.0%
No prepayment penalty shall apply to a prepayment of the Term Note
required under Section 3.1(h) or Section 5.1(k).
Section 2.7. USE OF PROCEEDS. The proceeds of the Advances and the
Term Loan from the Bank shall be used primarily to fund loans to Acquisition
Corporation under the Pass-Through Loan Documents. Any proceeds of the
Advances or the Term Loan not used for such purpose shall be used by the
Borrowers or Acquisition Corporation for general business purposes.
Section 2.8. COMMITMENT FEE. The Borrowers, jointly and severally,
agree to pay to the Bank a commitment fee (the "Commitment Fee") on the
average daily difference between the amount of the Commitment and the amount
of Advances outstanding from the date of the initial Advance until the
Termination Date at the rate of 0.125% per annum, payable on the last day of
each calendar quarter during the term of the Commitment, commencing December
31, 1999 and on the Termination Date.
Section 2.9. REDUCTION OF THE COMMITMENT. The Borrowers shall have the
right, upon at least three Business Days' notice to the Bank and not more
frequently than once in any calendar quarter, to terminate in whole or reduce
in part the unused portion of the Commitment, provided that each partial
reduction shall be in an amount of not less than $1,000,000.00.
<PAGE>
ARTICLE III
CONDITIONS OF LENDING
Section 3.1. CONDITIONS PRECEDENT TO INITIAL ADVANCE AND TERM LOAN.
The Bank shall have no obligation to make the initial Advance or the Term
Loan hereunder unless the Bank shall have received on or before the date of
such Advance or Term Loan the following documents:
(a) The Notes, properly executed and delivered on behalf of the
Borrowers.
(b) A security agreement (the "Security Agreement"), in a form
acceptable to the Bank properly executed and delivered on behalf of the
Borrowers, granting to the Bank a security interest in (i) the
Pass-Through Loan Documents, (ii) investment-grade marketable
securities, including, without limitation, shares of common stock of
Michael Foods, Inc. (the "Investment Collateral"), acceptable to the
Bank and owned by one or more of the Borrowers, with a fair market value
on the date of such Advance or Term Loan of not less than 28,000,000.00,
and (iii) other property described therein, as security for the
performance of the Borrowers' obligations under this Agreement and the
Notes, together with any control agreements, stock certificates, stock
powers, UCC-1 Financing Statements or other documents deemed necessary
or desirable by the Bank to perfect the security interest granted by the
Security Agreement.
(c) Federal Reserve Form U-1 with respect to the Investment
Collateral, together with such Rule 144 questionnaires or other
documents as the Bank may reasonably request under Federal or state
securities laws with respect to the Investment Collateral.
(d) Such authorizing resolutions and certificates of each Borrower
as the Bank shall request, approving the execution and delivery of the
Loan Documents to which that Borrower is a party, approving all matters
contemplated by this Agreement and certifying the names of the persons
authorized to sign the Loan Documents to which that Borrower is a party.
(e) Favorable opinion of counsel to the Borrowers in a form and as
to such matters as the Bank may request.
(f) A $35,000.00 facility fee with respect to the Term Loan.
(g) Copies, or originals if requested by the Bank, of all
documents (the "Pass-Through Loan Documents") executed by Acquisition
Corporation and evidencing one or more loans by the Borrowers to
Acquisition Corporation to be funded using proceeds of Advances and the
Term Loan. The Pass-Through Loan Documents shall include, without
limitation, (i) one or more promissory notes executed by Acquisition
Corporation, in favor of one or more of the Borrowers and (ii) all
documents securing such promissory notes including one or more security
agreements granting to the Borrowers a security interest in
substantially all of the assets of Acquisition Corporation. All
<PAGE>
Assigned Documents shall be in a form and content acceptable to the
Bank.
(h) Evidence acceptable to the Bank that the stock purchase
transactions by Acquisition Corporation to be funded with the loans
evidenced by the Pass-Through Loan Documents have been completed or will
be completed contemporaneously with the Advances and Term Loan. In the
event that the loans evidenced by the Pass-Through Loan Documents are
not completed within 15 Business Days after the Advances and Term Loan,
the Borrowers shall return all loan proceeds to the Bank to be applied
to Notes.
Section 3.2. CONDITIONS PRECEDENT TO EACH ADVANCE AND THE TERM LOAN.
The obligation of the Bank to make each Advance (including the initial
Advance) and the Term Loan shall be subject to the further conditions
precedent, that on the date of such Advance or Term Loan:
(a) The representations and warranties contained in Section 4.1 of
this Agreement are correct on and as of the date of such Advance or Term
Loan as though made on such date; and
(b) No event has occurred and is continuing, or will result from
such Advance or Term Loan, that constitutes an Event of Default or would
constitute an Event of Default but for the requirement that notice be
given or time elapse or both.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
Section 4.1. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. To
induce the Bank to make Advances and the Term Loan, the Borrowers represent
and warrant as follows:
(a) EXISTENCE OF BORROWERS. Each Borrower is a limited
partnership or trust duly created and validly existing under the laws of
Minnesota. No Borrower has, in the past five years, operated under any
name, including any trade name or assumed name, other than the names
indicated at the beginning of this Agreement.
(b) AUTHORITY TO EXECUTE. The execution, delivery and performance
by each Borrower of the Loan Documents to which it is a party are within
its powers, have been duly authorized by all necessary action, do not
and will not conflict with any provision of law or of the organizational
documents of that Borrower or of any agreement or contractual
restriction binding upon or affecting that Borrower or any of its
property, and need no further consent by any Person.
(c) BINDING OBLIGATION. This Agreement is, and the other Loan
Documents when delivered hereunder will be, legal, valid and binding
obligations of the Loan Parties enforceable against such Persons in
accordance with their respective terms.
<PAGE>
(d) GOVERNMENTAL APPROVAL. No consent of, or filing with, any
governmental authority is required on the part of any Loan Party in
connection with the execution, delivery or performance of any Loan
Documents.
(e) FINANCIAL STATEMENTS. The financial statements of Acquisition
Corporation as of December 31, 1998 and the 1998 Federal income tax
returns of 3J2R Limited Partnership and 4J2R1C Limited Partnership,
copies of which have been furnished to the Bank, have been prepared in
conformity with generally accepted accounting principles consistently
applied and present fairly the financial condition of Acquisition
Corporation, 3J2R Limited Partnership and 4J2R1C Limited Partnership as
of such dates, and the results of their operations for the financial
periods then ended, and since such dates, there has been no materially
adverse change in such financial condition.
(f) LITIGATION. No litigation or governmental proceeding is
pending or threatened against Acquisition Corporation or any Borrower
that may have a materially adverse effect on the financial condition or
operations of Acquisition Corporation or any Borrower.
(g) TITLE TO ASSETS. Acquisition Corporation and the Borrowers
have good and marketable title to all assets used in connection with its
trades or businesses, including the Investment Collateral, and none of
such assets is subject to any mortgage, pledge, lien, security interest
or encumbrance of any kind, except for current taxes not delinquent and
liens permitted under Section 5.2(a).
(h) TAXES. Acquisition Corporation and each Borrower has filed
all federal and state income and excess profits tax returns that are
required to be filed, and has paid all taxes shown on such returns to be
due and all other tax assessments received by it to the extent that such
assessments have become due except as such Person shall have contested
in good faith and by appropriate proceedings providing such reserves as
are required by generally accepted accounting principles.
(i) ERISA. No plan (as that term is defined in the Employee
Retirement Income Security Act of 1974 ("ERISA")) of Acquisition
Corporation or any Borrower (a "Plan") that is subject to Part 3 of
Subtitle B of Title 1 of ERISA had an accumulated funding deficiency (as
such term is defined in ERISA) as of the last day of the most recent
fiscal year of such Plan ended prior to the date hereof, or would have
had such an accumulated funding deficiency on such date if such year
were the first year of such Plan, and no material liability to the
Pension Benefit Guaranty Corporation has been, or is expected by any
Borrower to be, incurred with respect to any such Plan. No Reportable
Event (as defined in ERISA) has occurred and is continuing in respect to
any such Plan.
(j) DEFAULTS. None of Acquisition Corporation and the Borrowers
is in default in the payment of principal or interest on any
indebtedness for borrowed money and is not in default under any
instrument or agreement under or subject to which any indebtedness for
<PAGE>
borrowed money has been issued, and no event has occurred and is
continuing that, with or without the lapse of time or the giving of
notice, or both, constitutes or would constitute an event of default
under any such instrument or agreement or an Event of Default hereunder.
(k) YEAR 2000 PLANNING. Acquisition Corporation and each Borrower
has undertaken a formal review of its recordkeeping systems and its
operations to determine its vulnerability to recordkeeping and
operational difficulties attributable to the need to change computer
coding after 1999. Except as has been disclosed to the Bank in writing
contemporaneously with the execution of this Agreement, none of
Acquisition Corporation and the Borrowers anticipates that it will face
any substantial recordkeeping or operational difficulties attributable
to the need to change such computer coding.
ARTICLE V.
COVENANTS OF THE BORROWERS
Section 5.1 AFFIRMATIVE COVENANTS. So long as any Note shall remain
unpaid or the Bank shall have a Commitment hereunder, the Borrowers will,
unless the Bank shall give its prior written consent:
(a) FINANCIAL REPORTING. Furnish to the Bank: (i) as soon as
available, and in any event within 30 days after the end of each month,
a
collateral report regarding the Investment Collateral containing such
information regarding the Investment Collateral as shall be requested by
the Bank and showing compliance with Section 5.1(k); (ii) as soon as
available, and in any event within 90 days after the end of each fiscal
year of Acquisition Corporation, a copy of the financial statements for
such year for Acquisition Corporation, containing consolidated and
consolidating financial schedules for such year prepared using
procedures acceptable to the Bank by independent public accountants
acceptable to the Bank; (iii) promptly upon the sending or filing
thereof copies of all public reports, if any, issued by Acquisition
Corporation to any of its security holders, to the Securities and
Exchange Commission or to any national securities exchange; (iv)
promptly upon the filing or receiving thereof, copies of all reports
that Acquisition Corporation or any Borrower files under ERISA or
receives from the Pension Benefit Guaranty Corporation if such report
shows any material violation or potential violation by Acquisition
Corporation or any Borrower of its obligations under ERISA; (v) such
other information concerning the conditions or operations, financial or
otherwise, of Acquisition Corporation or any Borrower as the Bank from
time to time may reasonably request.
(b) VISITATION RIGHTS. Upon reasonable prior notice, at any
reasonable time and from time to time, permit the Bank or any agents or
representatives thereof, to examine and make copies of and abstracts
from the records and books of account of, and visit the properties of,
Acquisition Corporation or any Borrower, and to discuss its operations
and finances with any of its personnel. The Borrowers, jointly and
severally, will reimburse the Bank for its reasonable costs and expenses
<PAGE>
of conducting such periodic examinations, provided, that if an Event of
Default has not occurred and is continuing, the Borrowers shall not be
required to reimburse the Bank for the cost of more than one such
examination in any calendar year.
(c) NOTIFICATION OF DEFAULT, ETC. Notify the Bank as promptly as
practicable (but in any event not later than 5 Business Days) after any
Borrower obtains knowledge of: (i) the occurrence of any event which
constitutes an Event of Default or which would constitute an Event of
Default with the passage of time or the giving of notice or both; or
(ii) the commencement of any litigation or governmental proceedings of
any type that could materially adversely affect the financial condition
or business operations of Acquisition Corporation or any Borrower.
(d) KEEPING OF FINANCIAL RECORDS AND BOOKS OF ACOCUNT. Cause
Acquisition Corporation to maintain proper financial records in
accordance with generally accepted accounting principles consistently
applied that fully and correctly reflect all financial transactions and
all assets and liabilities of Acquisition Corporation. In addition, the
Borrowers shall maintain proper financial records of their own financial
transactions, assets and liabilities in such format as previously
provided by them to the Bank. The Borrowers will take all steps
necessary to avoid recordkeeping and operational difficulties
attributable to the need to change computer coding after 1999 if such
difficulties would have a material adverse effect on the business or
financial condition of such Borrower, and cause Acquisition Corporation
to do so.
(e) MAINTENANCE OF INSURANCE. Maintain, and cause Acquisition
Corporation to maintain, such insurance with reputable insurance
carriers as is normally carried by companies engaged in similar
businesses and owning similar property.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve all of
its properties, necessary or useful in the proper conduct of its
business, in good working order and condition, ordinary wear and tear
excepted, and cause Acquisition Corporation to do so.
(g) PAYMENT OF TAXES. Pay, and cause Acquisition Corporation to
pay, all taxes, assessments and governmental charges of any kind payable
by it as such taxes, assessments and charges become due and before any
penalty shall be imposed, except as Acquisition Corporation or any
Borrower shall contest in good faith and by appropriate proceedings
providing such reserves as are required by generally accepted accounting
principles.
(h) COMPLIANCE WITH ERISA. Cause each Plan to comply and be
administered in accordance with those provisions of ERISA that are
applicable to such Plan.
<PAGE>
(i) MAINTENANCE OF ACCOUNTS. Maintain, and cause Acquisition
Corporation to maintain, its corporate bank accounts at the Bank except
for such incidental accounts that reasonable business judgment requires
to be maintained elsewhere, and either (i) keep collected demand deposit
balances in such accounts in the amount necessary to compensate the Bank
for applicable activity charges in such accounts, as calculated by the
Bank and applied to such balances in a manner consistent with all
similar accounts or (ii) pay such activity charges on a monthly basis.
(j) PRESERVATION OF EXISTENCE, ETC. Preserve and maintain its
existence, rights, franchises and privileges in the jurisdiction of its
organization, and cause Acquisition Corporation to do so.
(k) COLLATERAL COVERAGE. Maintain at all times a ratio of (i) the
fair market value of the Investment Collateral in which the Bank has a
perfected, first-priority security interest to (ii) the aggregate
principal balances of the Notes, of not less than 200% at any time that
the loans under the Notes constitute "purpose credit" under Regulation U
of the Board of Governors of the Federal Reserve System and 125% at all
other times. The Borrowers may, from time to time, substitute
Investment Collateral under the Security Agreement provided that the
collateral coverage percentages described above are maintained, the
substituted Investment Collateral consists of investment grade
securities acceptable to the Bank and the substituted collateral is
delivered to the Bank or is held by an intermediary acceptable to the
Bank subject to an effective control agreement acceptable to the Bank.
In the event that the collateral coverage percentage falls below the
required level described above, the Borrowers will, within 15 calendar
days after such event, provide additional Investment Collateral
acceptable to the Bank or repay one or both Notes in an amount
sufficient to return the collateral coverage percentage to the required
level described above. In the event that the collateral coverage
percentage falls below 110%, the Bank may, if the Borrowers fail to
return the collateral coverage percentage to the required level
described above within three Business Days after notice from the Bank to
the Borrowers, sell a sufficient amount of the Investment Collateral to
return the collateral coverage percentage to the required level
described above.
(l) NEGATIVE PLEDGE. Maintain at all times unencumbered ownership
of not less than 800,000 shares of the common stock of Michael Foods,
Inc. in addition to the Investment Collateral. In the event of a stock
split, stock dividend, reverse stock split, stock issuance, stock
repurchase, merger or other transaction that results in a change to the
number of shares of stock of Michael Foods, Inc. outstanding, the number
of shares required to be maintained by the Borrowers under this Section
shall be adjusted up or down so that number of shares required to be
maintained after the transaction is substantially equivalent on a
percentage basis to the number of shares required to be maintained
before the transaction. The Borrowers may substitute a different
investment-grade marketable security acceptable to the Bank for some or
all of the Michael Foods, Inc. common stock required to be maintained
under this Section. Upon such a substitution, the number of shares of
<PAGE>
each block of stock required to be maintained under this Section shall
be adjusted accordingly. Notwithstanding the foregoing, the Bank and
the Borrowers agree that in the event the Commitment is reduced pursuant
to Section 2.9, the value of the shares of Michael Foods, Inc. common
stock required to be maintained under this Section shall be reduced by
the same proportionate reduction as the reduction of the Commitment.
Section 5.2. NEGATIVE COVENANTS. So long as any Note shall remain
unpaid or the Bank shall have a Commitment hereunder, no Borrower will,
unless the Bank shall give its prior written consent:
(a) LIENS. Create or suffer to exist any mortgage, pledge, lien,
security interest or other encumbrance with respect to any assets now
owned or hereafter acquired by any Borrower except (i) those
encumbrances made in favor of the Bank, (ii) deposits or pledges to
secure the payment of workers' compensation, re-employment insurance,
pensions or other social security obligations incurred in the ordinary
course of the business of a Borrower, (iii) liens for taxes, fees,
assessments and other governmental charges not delinquent, (iv) liens of
carriers, warehouses, mechanics, material suppliers and other like liens
arising in the ordinary course of business, for sums not due, (v) liens
incurred to secure payment of, or deposits or pledges made or given in
connection with, indemnity, performance or other similar bonds incurred
in the ordinary course of business, (vi) liens arising solely by virtue
of a statutory or common law provision relating to bankers liens, rights
of set-off or similar rights and remedies relating to deposit accounts
or other funds maintained with a depository institution, (vii)
encumbrances in the nature of zoning restrictions, easements and rights
or restrictions of record on the use of real property, (viii) the
interest of any lessor under any capitalized lease entered into, or
purchase money liens on equipment acquired, after the date of this
Agreement and without violation of this Agreement and (ix) those liens
described on Exhibit C attached hereto.
(b) DEBT. Create or suffer to exist any Debt except (i) the Debt
under this Agreement or the Notes, (ii) Debt secured by liens permitted
under Section 5.2(a) and (iii) Debt representing the deferred purchase
price of goods acquired in the ordinary course of business without
violation of this Agreement.
(c) GUARANTIES, ETC. Except as pursuant to the terms of any of
the agreements described in Exhibit C hereto, Assume, guarantee, endorse
or otherwise become liable upon the obligation of any Person except by
endorsement of negotiable instruments for collection in the ordinary
course of business.
(d) MERGER, ETC. Merge or consolidate with any other Person;
sell, transfer, convey, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or a substantial portion
of its assets (whether now owned or hereafter acquired) to any other
Person if such transaction could reasonably be expected to impair
materially the amount or investment quality of the Investment Collateral
<PAGE>
or the Bank's rights thereto. The Bank acknowledges and agrees that one
or more of the Borrowers may subsequently engage in transactions
designed to divest themselves of all or a portion of their interests in
Acquisition Corporation. The Bank consents to such transactions
provided that such transactions do not materially impair the amount or
investment quality of the Investment Collateral or any other collateral
under the Security Agreement or the Bank's rights thereto.
(e) TRANSACTIONS WITH AFFILIATES. Except as pursuant to the terms
of any of the agreements described in Exhibit C attached hereto or as
contemplated by the last sentence of Section 5.2(d), engage in any
transaction (including, without limitation, loans or financial
accommodations of any kind) with any Affiliate provided that such
transactions are permitted if they are on terms no less favorable to the
Borrowers than would be obtainable if no such relationship existed and
provided that the transaction with Acquisition Corporation described in
the Pass-Through Loan Documents is permitted.
(f) INVESTMENTS IN OTHER PERSONS. Make any loan or advance to any
Person; or purchase or otherwise acquire the capital stock, assets, or
obligations of, or any interest in, any other Person other than
investments in Acquisition Corporation, if such transaction could
reasonably be expected to impair materially the amount or investment
quality of the Investment Collateral or any other collateral under the
Security Agreement or the Bank's rights thereto.
(g) CHANGE IN NATURE OF BUSINESS. Make any material change in the
nature of the business of Acquisition Corporation, taken as a whole, as
carried on at the date hereof.
ARTICLE VI.
DEFAULT
Section 6.1. EVENTS OF DEFAULT. "Events of Default" in this Agreement
means any of the following events:
(a) Failure of the Borrowers to pay the principal of any Note when
due, provided that it shall not be an Event of Default if, not more than
four times in any calendar year, such a payment is made not more than
three Business Days after its due date;
(b) Failure of the Borrowers to pay any interest or fees required
to be paid hereunder or under any Note when due, provided that it shall
not be an Event of Default if, not more than four times in any calendar
year, such a payment is made not more than three Business Days after its
due date;
(c) Any representation or warranty made by, or on behalf of, any
Loan Party in, or pursuant to, any Loan Document shall prove to have
been incorrect in any material respect when made or any Borrower shall
dispose of any collateral described in the Security Agreement in violation of
the Security Agreement;
<PAGE>
(d) Default in performance of any other covenant or agreement of
any Loan Party in, or pursuant to, any Loan Document and continuance of
such default or breach for a period of 30 days after written notice
thereof to such Person by the Bank;
(e) Any Loan Party shall generally not pay its or his debts as
such debts become due, or shall admit in writing its or his inability to
pay its or his debts generally, or shall make a general assignment for
the benefit of creditors; or any proceeding shall be instituted by or
against any Loan Party seeking to adjudicate it or him a bankrupt or
insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, custodianship, protection, relief, or
composition of it or him or its or his debts under any law relating to
bankruptcy, insolvency or reorganization or relief of debtors, or
seeking the entry of an order for relief, or the appointment of a
receiver, custodian, trustee, or other similar official for it or him or
for any substantial part of its or his property; or any Loan Party shall
take any action to authorize any of the actions set forth above in this
subsection; and in the case of a proceeding of the type described in
this paragraph commenced against any Loan Party, that proceeding shall
not be dismissed within 60 days or that Loan Party shall consent to that
proceeding;
(f) Acquisition Corporation or any Borrower shall fail to pay any
of its Debts in excess of $50,000.00 (but excluding Debt evidenced by
any Note) or any interest or premium thereon, when due (whether by
scheduled maturity, required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the applicable grace
period, if any, specified in the agreement or instrument relating to
such Debt; or any other default under any agreement or instrument
relating to any such Debt, or any other event, shall occur and shall
continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Debt;
or any such Debt shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof; provided, however, that neither
Acquisition Corporation nor any Borrower shall be deemed to be in
default under this Section 6.1(f) with respect to a default under, or an
acceleration of, any Debt or purported Debt that Acquisition Corporation
or such Borrower has in good faith contested by appropriate proceedings
and the resolution of which it is diligently pursuing;
(g) The entry against any Loan Party of a final judgment, decree
or order for the payment of money in excess of $100,000.00 and the
continuance of such judgment, decree or order unsatisfied for a period
of 90 days without a stay of execution;
(h) Any Reportable Event (as defined in ERISA) shall have occurred
and continue for 30 days; or any Plan shall have been terminated by
Acquisition Corporation or any Borrower not in compliance with ERISA, or
a trustee shall have been appointed by a court to administer any Plan,
or the Pension Benefit Guaranty Corporation shall have instituted
<PAGE>
proceedings to terminate any Plan or to appoint a trustee to administer
any Plan;
(i) The Bank shall at any time have reasonable grounds to believe
that the prospect of due and punctual payment of any of the obligations
of the Borrowers now or hereafter existing under, or pursuant to, this
Agreement is materially impaired.
Section 6.2 RIGHTS AND REMEDIES. If any Event of Default shall occur
and be continuing, the Bank may exercise any or all of the following rights
and remedies:
(a) By written notice to the Borrowers, suspend or terminate the
Commitment, whereupon the same shall forthwith be suspended or
terminated;
(b) Declare the Notes, all interest thereon, and all other
obligations under, or pursuant to, any Loan Document to be immediately
due and payable, and upon such declaration such Notes, interest and other
obligations shall immediately be due and payable, without presentment,
demand, protest or any notice of any kind, all of which are expressly
waived;
(c) Exercise any right or remedy under the Security Agreement, or
any other right or remedy of a secured party under the Uniform
Commercial Code as in effect in Minnesota;
(d) Exercise any other right or remedy available to the Bank at
law or in equity.
ARTICLE VII.
MISCELLANEOUS
Section 7.1. NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on
the part of the Bank in exercising any right or remedy under, or pursuant to,
any Loan Document shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, remedy or power preclude other or further
exercise thereof, or the exercise of any other right, remedy or power. The
remedies in the Loan Documents are cumulative and are not exclusive of any
remedies provided by law.
Section 7.2. AMENDMENTS AND WAIVERS. No amendment or waiver of any
provision of any Loan Document shall be effective unless such amendment or
waiver is in writing and is signed by the Bank, and such amendment or waiver
shall be effective only in the specific instance and for the specific purpose
for which it was given.
Section 7.3. NOTICES, ETC. All notices and other communications
provided for hereunder shall be in writing (including telecopier
communication) and mailed or telecopied or delivered, if to the Borrowers, at
<PAGE>
their address stated in the preamble hereof, Attention: Jeffrey J. Michael;
and if to the Bank, at its address stated in the preamble hereof, Attention:
Dean E. Davidson; or, as to each party, at such other address as shall be
designated by such party in a written notice to the other party. Copies of
all notices to the Borrowers shall also be provided to Borrowers' counsel,
Burton G. Ross, Esq., at Ross Rosenblatt, Ltd., 4100 Piper Jaffray Tower, 222
South Ninth Street, Minneapolis, Minnesota 55402, or at such other address as
may be designated by such counsel in a written notice delivered to the Bank
under this Section. All such notices and communications shall, when mailed
or telecopied, be effective when deposited in the mails or transmitted by
telecopier, respectively, addressed as provided above, except that notices to
the Bank pursuant to the provisions of Article II shall not be effective
until received by the Bank. A single notice to the Borrowers effected as
stated above shall be effective against all of the Borrowers.
Section 7.4. COSTS AND EXPENSES. The Borrowers, jointly and severally,
agree to pay on demand all costs and expenses of the Bank in connection with
the preparation of the Loan Documents, including reasonable attorneys fees
and legal expenses, as well as all costs and expenses of the Bank, including
reasonable attorneys fees and expenses, in connection with the administration
and enforcement of the Loan Documents (whether suit is commenced or not).
Section 7.5. RIGHT OF SET-OFF. Upon the occurrence and during the
continuance of any Event of Default the Bank is hereby authorized at any time
and from time to time, to the fullest extent permitted by law, to set off and
apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by the
Bank to or for the credit or the account of any of the Borrowers against any
and all of the obligations of the Borrowers now or hereafter existing under
any Loan Document, irrespective of whether or not the Bank shall have made
any demand under any Loan Document and although such obligations may be
unmatured. The Bank agrees promptly to notify the Borrowers after any such
set-off and application, provided that the failure to give such notice shall
not affect the validity of such set-off and application. The rights of the
Bank under this Section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) that the Bank may
have.
Section 7.6. GOVERNING LAW. All Loan Documents shall be governed by
the laws of the State of Minnesota. Any term used in this Agreement and not
otherwise defined shall have the definition given that term in the Uniform
Commercial Code as in effect in the State of Minnesota from time to time. If
any term in this Agreement shall be held to be illegal or unenforceable, the
remaining portions of this Agreement shall not be affected, and this
Agreement shall be construed and enforced as if this Agreement did not
contain the term held to be illegal or unenforceable. The Borrowers hereby
irrevocably submit to the jurisdiction of the Minnesota District Court,
Fourth District, and the Federal District Court, District of Minnesota,
Fourth Division, over any action or proceeding arising out of or relating to
this Agreement and agree that all claims in respect of such action or
proceeding may be heard and determined in any such court.
<PAGE>
Section 7.7. CONFIDENTIALITY OF INFORMATION. The Bank shall use
reasonable efforts to assure that information about Acquisition Corporation
and each Borrower and its operations, affairs and financial condition, not
generally disclosed to the public or to trade or other creditors, that is
furnished to the Bank is used only for the purposes of this Agreement and is
not divulged to any Person other than the Bank and its employees and agents,
other than in connection with the Bank's enforcement of its rights under the
Loan Documents, in connection with participations and as may otherwise be
required or requested by any regulatory authority having jurisdiction over
the Bank or by any applicable law or judicial process. The Bank may, without
violating this Section, divulge such information in response to credit
reference inquiries from Persons purporting to be creditors or potential
creditors of Acquisition Corporation or any Borrower.
Section 7.8. BINDING EFFECT; ASSIGNMENT. All Loan Documents shall be
binding upon and inure to the benefit of the Loan Parties and the Bank and
their respective successors and assigns. No Loan Party shall have the right
to assign its rights or interest under any such agreement without the prior
written consent of the Bank. The Bank may sell one or more participations in
the Notes to other financial institutions on terms selected by the Bank and
may share all information provided to the Bank by the Borrowers under this
Agreement to participants or prospective participants, so long as each such
other financial institutions agree to comply with Section 7.7 hereof.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
3J2R Limited Partnership
By /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
Its General Partner
<PAGE>
4J2R1C Limited Partnership
By /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael
Its General Partner
By /s/ Jeffrey J. Michael
----------------------
Jeffrey J. Michael, as Trustee of
the Michael Acquisition Corporation
Trust, Established Under Agreement
Dated July 29, 1999
National City Bank of Minneapolis
By /s/
-----------------------
Its
