<PAGE>
As filed with the Securities and Exchange Commission on September 2, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13 (e) of the Securities Exchange Act of 1934)
ENSTAR INC.
(Name of Issuer)
ENSTAR INC.
ENSTAR ACQUISITION, INC.
JAMES J. MICHAEL, JEFFREY J. MICHAEL,
4J2R1C LIMITED PARTNERSHIP,
3J2R LIMITED PARTNERSHIP,
MICHAEL ACQUISITION CORPORATION TRUST
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
29358M 10 8
(CUSIP Number of Class of Securities)
Peter E. Flynn Jeffrey J. Michael
Executive Vice President President
ENStar Inc. ENStar Acquisition, Inc.
7450 Flying Cloud Drive 6479 City West Parkway
Eden Prairie, Minnesota 55344 Eden Prairie, Minnesota 55344-3246
(612) 942-3887 (612) 941-3200
(Name, Address and Telephone Number of Person Authorized
to Receive Notice and Communications on Behalf of Person(s)
Filing Statement)
Copies To:
Patrick Courtemanche Michael Zalk
Dorsey & Whitney LLP Oppenheimer Wolff & Donnelly LLP
Pillsbury Center South Plaza VII
220 South Sixth Street 45 South Seventh Street
Minneapolis, Minnesota 55402-1498 Minneapolis, Minnesota 55402-1609
(612) 340-5653 (612) 607-7000
This statement is filed in connection with:
/ / a. The filing of solicitation materials or an information statement subject
to Regulation 14A, Regulation 14C or Rule 13d-3(c) under the Securities
Exchange Act of 1934.
/ / b. The filing of a registration statement under the Securities Act of 1933.
/ / c. A Tender Offer
/ / d. None of the above.
Check the following box if the soliciting materials or information statement
referred to in check box (a) are preliminary copies: / /
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CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
Transaction Valuation * Amount of Filing Fee
<S> <C> <C>
$14,248,337 $2,850
</TABLE>
* For purposes of calculating fee only. This amount assumes the purchase at
a price of $12.50 per share of 1,047,167 outstanding shares of Company
Common Stock and the settlement of 243,752 shares subject to stock options
at an average spread of $4.7538 per share. The amount of the filing fee,
calculated in accordance with Regulation 240.0-11 of the Securities
Exchange Act of 1934, equals 1/50th of one percent of the value of the
shares purchased, plus 1/50th of one percent of the average spread of the
options settled.
/ / Check box if any part of the fee is offset as provided in Rule 0-11 (a) (2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or schedule
and the date of its filing.
Amount Previously Paid: $2,850 Filing Party: ENStar Inc.
Form or Registration No.:Proxy Statement Date Filed: September 2, 1999
<PAGE>
CROSS REFERENCE SHEET
(Pursuant to General Instruction F to Schedule 13E-3)
Introduction
This Rule 13E-3 Transaction Statement is being filed in connection with a
proposed merger (the "Merger") as contemplated by the Agreement and Plan of
Merger, dated August 13, 1999 (the "Merger Agreement"), among ENStar Inc., a
Minnesota corporation (the "Company"), ENStar Acquisition, Inc., a Minnesota
corporation wholly owned by two limited partnerships and a trust controlled by
James H. and Jeffrey J. Michael (the "Acquisition Company"), James H. and
Jeffrey J. Michael and the two limited partnerships and the trust controlled by
them (together, the "Michael Family"), pursuant to which the Acquisition
Company will be merged with and into the Company, with the Company as the
surviving corporation. Upon consummation of the Merger, (i) the separate
corporate existence of the Acquisition Company will cease and the Company will
continue as the surviving corporation wholly owned by the Michael Family, (ii)
each outstanding share of Common Stock, par value $.01 per share, of the
Company (the "Common Stock") not owned by the Michael Family will be converted
into the right to receive $12.50 in cash, except those shares as to which
dissenters' rights have been perfected under the Minnesota Business
Corporations Act, and (iii) holders of options to acquire shares of the Common
Stock of the Company, other than members of the Michael Family, will receive a
cash settlement, net of withholding taxes, equal to the excess of $12.50 over
the exercise price of such options.
The Cross Reference Sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Company's
preliminary proxy statement (the "Proxy Statement"), concurrently being filed
with the Securities and Exchange Commission (the "SEC") in connection with the
proposed Merger, of information required to be included in response to items of
this Statement. A copy of the Proxy Statement is attached hereto as Exhibit
(d)(1). The information in the Proxy Statement, including all exhibits thereto,
is hereby expressly incorporated herein by reference and the responses to each
item are qualified in their entirety by the provisions of the Proxy Statement.
All information in, or incorporated by reference in, the Proxy Statement or this
Statement concerning the Company or its advisors, or actions or events with
respect to any of them, was provided by the Company, and all information in, or
incorporated by reference in, the Proxy Statement or this Statement concerning
the Acquisition Company, the Michael Family or their affiliates, or actions or
events with respect to them, was provided by the Michael Family. The Proxy
Statement incorporated by reference in this filing is in preliminary form and
is subject to completion or amendment. In addition, the information in the
Proxy Statement is intended to be solely for the information and use of the
SEC, and should not be relied upon by any other person for any purpose.
Capitalized terms used but not defined in this Statement shall have the
respective meanings given them in the Proxy Statement.
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<TABLE>
<CAPTION>
Schedule 13E-3 Item Number and Response and/or Location in Proxy
Statement
<S> <C> <C>
Item 1. Issuer and Class of Security
Subject to the Transaction
(a) Front Cover Page and "SUMMARY-The
Company," which information is
incorporated herein by this reference.
(b) "SUMMARY-Record Date; Shareholders Entitled
to Vote; Quorum" and "THE ANNUAL MEETING -
Record Date; Stockholder Approval," which
information is incorporated herein by this
reference.
(c) "SUMMARY-Market Price and Dividend Data,"
which information is incorporated herein by
this reference.
(d) "SUMMARY-Market Price and Dividend Data,"
which information is incorporated herein by
this reference.
(e) Not applicable.
(f) "SPECIAL FACTORS-Public Offerings and
Repurchases of Common Stock," which
information is incorporated herein by this
reference.
Item 2. Identity and Background This Statement is being jointly filed by
the Company (the issuer of the equity
securities that are the subject of the
Merger), the Acquisition Company and the
members of the Michael Family. The
information required by this Item with
respect to each such entity and person is
as follows:
(a)-(d), (g) "SUMMARY-The Company" and "-the Acquisition
Company," "ELECTION OF DIRECTORS" and
"MANAGEMENT OF THE COMPANY AND THE
ACQUISITION COMPANY," which information is
incorporated herein by this reference.
James H. Michael and Jeffrey J. Michael are
citizens of the United States.
<PAGE>
(e), (f) To the best of the undersigneds' knowledge,
except as described under "MANAGEMENT OF
THE COMPANY AND THE ACQUISITION COMPANY-
Certain Proceedings" in the Proxy
Statement, which information is
incorporated herein by this reference,
none of the persons with respect
to whom information is provided in response
to this Item was during the last five years
(i) convicted in a criminal proceeding
(excluding traffic violations or similar
misdemeanors) or (ii) 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 further violations of, or
prohibiting activities subject to, federal
or state securities laws or finding any
violations of such laws.
Item 3. Past Contacts, Transactions
or Negotiations
(a)(1) Not applicable.
(a)(2), (b) "SPECIAL FACTORS-Background of the Merger"
and "-Interests of Certain Persons in the
Merger," which information is incorporated
herein by this reference.
Item 4. Terms of the Transaction
(a) Front Cover Page, "SUMMARY-The Merger,"
"THE MERGER AGREEMENT" and "EXHIBIT A-
Agreement and Plan of Merger," which
information is incorporated herein by this
reference.
(b) "SPECIAL FACTORS-Interests of Certain
Persons in the Merger," which information
is incorporated herein by this reference.
Item 5. Plans or Proposals of the
Issuer or Affiliate
(a)-(e) "SPECIAL FACTORS-Plans for the Company
After the Merger" and "MANAGEMENT OF THE
COMPANY AND THE ACQUISITION COMPANY," which
information is incorporated herein by this
reference.
(f), (g) "SPECIAL FACTORS-Certain Effects of the
Merger," which information is incorporated
herein by this reference.
Item 6. Source and Amount of Funds
or Other Consideration
(a), (b) "THE ANNUAL MEETING-Proxies," "SPECIAL
FACTORS-Opinion of Financial Advisor,"
"-Source of Funds" and "-Fees and
Expenses," which information is
incorporated herein by this reference.
<PAGE>
(c) "SPECIAL FACTORS-Source of Funds," which
information is incorporated herein by this
reference.
(d) Not applicable.
Item 7. Purpose(s), Alternatives,
Reasons and Effects
(a)-(c) "SPECIAL FACTORS-Background of the Merger,"
"-Purpose and Reasons for Structure of the
Merger," "-Recommendations of the Company's
Special Committee and Board of Directors,"
"-Position of the Michael Family and
Acquisition Company as to the Fairness of
the Merger" and "-Certain Effects of the
Merger," which information is incorporated
herein by this reference.
(d) "SUMMARY-The Merger," "-Interests of
Certain Persons in the Merger" and
"-Federal Income Tax Consequences,"
"SPECIAL FACTORS-Background of the Merger,"
"-Plans for the Company After the Merger,"
"-Certain Effects of the Merger,"
"-Interests of Certain Persons in the
Merger" and "-Certain Federal
Income Tax Consequences" and "MANAGEMENT OF
THE COMPANY AND THE ACQUISITION COMPANY,"
which information is incorporated herein by
this reference.
Item 8. Fairness of the Transaction
(a) "SUMMARY-Recommendations of the Company's
Special Committee and Board of Directors,"
"SPECIAL FACTORS-Recommendations of the
Company's Special Committee and Board of
Directors," and "-Position of the Michael
Family and Acquisition Company as to
Fairness of the Merger," which information
is incorporated herein by this reference.
(b) "SUMMARY-Recommendations of the Company's
Special Committee and Board of Directors"
and "SPECIAL FACTORS-Background of the
Merger," "-Purpose and Structure of the
Merger," "-Recommendations of the Company's
Special Committee and Board of Directors,"
"-Opinion of Financial Advisor," "-Position
of the Michael Family and Acquisition
Company as to Fairness of the Merger" and
"EXHIBIT B-Opinion of Goldsmith, Agio,
Helms Securities, Inc.," which information
is incorporated herein by this reference.
(c) "THE ANNUAL MEETING-Record Date;
Shareholder Approval," which information is
incorporated herein by this reference.
<PAGE>
(d)-(e) "SPECIAL FACTORS-Background of the Merger"
and "-Recommendation of the Company's
Special Committee and Board of Directors,"
which information is incorporated herein by
this reference.
(f) Not applicable.
Item 9. Reports, Opinions,
Appraisals and Certain Negotiations
(a)-(c) "SUMMARY-Opinion of Financial Advisor,"
"SPECIAL FACTORS-Background of the Merger"
and "-Opinion of Financial Advisor" and
"EXHIBIT B-Opinion of Goldsmith, Agio,
Helms Securities, Inc." which information
is incorporated herein by this reference.
Item 10. Interest in Securities
of the Issuer
(a) "SUMMARY-Voting of Shares Owned by the
Michael Family," "THE ANNUAL MEETING-Record
Date; Shareholder Approval," "SPECIAL
FACTORS-Background of the Merger" and
"-Interests of Certain Persons in the
Merger" and "STOCK OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS," which
information is incorporated herein by this
reference.
(b) "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS-Transactions by Certain
Persons in Common Stock," which information
is incorporated herein by this reference.
Item 11. Contracts, Arrangements "SPECIAL FACTORS-Interests of Certain
or Understandings With Respect Persons in the Merger," "THE MERGER
to the Issuer's Securities AGREEMENT" and "EXHIBIT A-Agreement and
Plan of Merger," which information is
incorporated herein by this reference.
Item 12. Present Intention and
Recommendation of Certain Persons
With Regard to the Transaction
(a),(b) "THE ANNUAL MEETING-Record Date;
Shareholder Approval," "SPECIAL FACTORS-
Background of the Merger,"
"-Recommendations of the Company's Special
Committee and Board of Directors,"
"-Position of the Michael Family
and Acquisition Company as to the Fairness
of the Merger" and "-Interests of Certain
Persons in the Merger" and "STOCK OWNERSHIP
OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS," which information is incorporated
herein by this reference.
<PAGE>
Item 13. Other Provisions of
the Transaction
(a) "SUMMARY-Dissenters' Rights," "RIGHTS OF
DISSENTING SHAREHOLDERS" and "EXHIBIT C
-Provisions of Minnesota Business
Corporation Act Relating to Dissenters'
Rights," which information is
incorporated herein by this reference.
(b), (c) Not applicable.
Item 14. Financial Information The Company's Annual Report on Form 10-K
for the year ended December 31, 1998 and
its Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999 are
incorporated by reference in the Proxy
Statement and will be delivered to
shareholders of the Company with the
Proxy Statement. The Company's
audited financial statements for the
periods covered by the Form 10-K and
unaudited financial statements for the
periods covered by the Form 10-Q are
incorporated herein by this reference.
Item 15. Person and Assets Employed,
Retained or Utilized
(a), (b) "THE ANNUAL MEETING-Proxies" and
"SPECIAL FACTORS-Source of Funds" and
"-Fees and Expenses" and "THE MERGER
AGREEMENT-Exchange and Payment
Procedures" and "-Treatment of Stock
Options," which information is
incorporated herein by this reference.
Item 16. Additional Information See the text of the Proxy Statement.
Item 17. Materials to be Filed Exhibit Number and Description (Exhibits
as Exhibits marked with an asterisk (*) are filed
herewith)
(a) (a)(1) Letter dated July 26, 1999 from
National City Bank relating to loan
commitment.*
(b) (b)(1) Opinion of Goldsmith, Agio,
Helms Securities dated August 13, 1999,
which is Exhibit B to the Proxy
Statement and is incorporated herein by
this reference.
(c) (c)(1) Agreement and Plan of Merger
dated August 13, 1999 among the Company,
the Acquisition Company and the Michael
Family which is Exhibit A to the Proxy
Statement and is incorporated herein by
this reference.
<PAGE>
(c)(2) 1996 Stock Incentive Plan, which
is incorporated by reference to Exhibit
10.1 to the Company's Registration
Statement on Form S-4 (File No. 333-
1925).
(c)(3) Severance Agreement dated April 5,
1999 between the Company and Jeffrey J.
Michael, which is incorporated by
reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1999.
(c)(4) Severance and Retention Agreement
dated April 5, 1999 between Americable,
Inc. and Peter E. Flynn, which is
incorporated by reference to Exhibit 10.2
to the Company's Quarterly Report on Form
10-Q for the quarter ended March 31,
1999.
(d) (d)(1) Preliminary copy of Letter to
Shareholders, Notice of Annual Meeting,
Proxy Statement and form of Proxy for the
Annual Meeting of Shareholders of the
Company to be held on October , 1999.*
(e) (e)(1) Sections 302A.471 and 302A.473 of
the Minnesota Business Corporation Act,
which is Exhibit C to the Proxy Statement
and is incorporated herein by this
reference.
(f) Not applicable.
</TABLE>
<PAGE>
After due 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.
September 1, 1999 ENSTAR INC.
By: /s/ JEFFREY J. MICHAEL
-----------------------
Name: Jeffrey J. Michael
Title: President and Chief Executive
Officer
September 1, 1999 ENSTAR ACQUISITION, INC.
By: /s/ JEFFREY J. MICHAEL
-----------------------
Name: Jeffrey J. Michael
Title: President
September 1, 1999 By: /s/ JAMES H. MICHAEL
-------------------------
James H. Michael
September 1, 1999 By: /s/ JEFFREY J. MICHAEL
-------------------------
Jeffrey J. Michael
September 1, 1999 4J2R1C LIMITED PARTNERSHIP
By: /s/ JAMES H. MICHAEL
-------------------------
Name: James H. Michael
Title: General Partner
September 1, 1999 3J2R LIMITED PARTNERSHIP
By: /s/ JEFFREY J. MICHAEL
-------------------------
Name: Jeffrey J. Michael
Title: Managing General Partner
September 1, 1999 MICHAEL ACQUISITION CORPORATION TRUST
By: /s/ JEFFREY J. MICHAEL
-------------------------
Name: Jeffrey J. Michael
Title: Trustee
EXHIBIT A1
[NATIONAL CITY BANK LETTERHEAD]
July 26, 1999
Mr. Jeffrey J. Michael
ENStar Inc.
6479 City West Parkway
Eden Prairie, MN 55344
Dear Jeff:
We are pleased to provide this letter to you to reflect a commitment on
the part of National City Bank of Minneapolis relating to the Loans described
below to be made available subject to satisfaction of the terms and conditions
set forth below.
1. Definitions
The following capitalized terms shall have the following meanings when
used in this Commitment:
"Assigned Documents" means (i) one or more promissory notes executed by
ENStar Inc., a Minnesota corporation, or by an affiliated entity of
ENStar Inc. to be created (collectively "ENStar"), in favor of one or
more of the Borrowers and evidencing loans from the Borrowers to ENStar
funded with the proceeds of the Loans 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 ENStar, including, without limitation, any equity interests of ENStar
in other entities. All Assigned Documents shall be in a form and content
acceptable to the Bank.
"Bank" means National City Bank of Minneapolis and, as the context
requires, its participants and assigns.
"Borrowers" means 3J2R Limited Partnership, a Minnesota limited
partnership, 4J2R1C Limited Partnership a Minnesota limited partnership
and Jeffrey J. Michael (or a successor trustee), as Trustee of the
Michael Acquisition Corporation Trust, a trust to be created.
"Loans" means the Revolving Loan and the Term Loan.
<PAGE>
July 26, 1999
Page 2
"Loan Documents" means all documents evidencing or relating to the Loans,
including a loan agreement, the notes evidencing the Loans, the Pledge
Agreement, the Assigned Documents and any financing statements required
by the Commitment.
"Pledge Agreement" means a Pledge Agreement to be entered into by the
Borrowers granting to the Bank a security interest in the Assigned
Documents and in Michael Foods, Inc. common stock owned by one or more of
the Borrowers to secure the Loans. The Pledge Agreement will include an
agreement by the Borrowers to maintain unencumbered ownership of 800,000
shares of Michael Foods, Inc. common stock, or other equivalent
securities acceptable to the Bank, in addition to the stock that is
pledged as collateral under the Pledge Agreement.
"Revolving Loan" means a revolving loan of up to $8,000,000.00 from the
Bank to the Borrowers, jointly and severally, with a maturity date not
later than three years after the date of closing.
"Term Loan" means a term loan of $6,000,000.00 from the Bank to the
Borrowers, jointly and severally, payable in installments with a final
maturity date of not later than five years after the date of closing.
2. Loan Characteristics
The Loans will have the following characteristics:
a. Interest Rate. The Revolving Loan will bear interest at a floating rate
equal to the Wall Street Journal LIBOR plus 150 basis points. The
Borrowers may elect, on or before closing, to have the Term Loan bear
interest at a floating rate equal to the Wall Street Journal LIBOR plus
175 basis points or at rate fixed for 30, 60, 90 or 180 day intervals
equal to the Wall Street Journal LIBOR plus 175 basis points. Interest
will be computed on the basis of a 360-day year and will be due monthly.
b. Loan Term. The Revolving Loan will be due three years after closing
without any required amortization. The Term Loan will be payable in five
equal annual installments.
c. Collateral. Pledge Agreement from the Borrowers and the Assigned
Documents from ENStar. The collateral under the Pledge Agreement (other
than the Assigned Documents) shall initially have a fair market value of
not less than $28,000,000. The Bank will, when permitted under
Regulation U, reduce the required collateral to $17,500,000. The Bank
will, subject to terms and conditions stated in the loan agreement,
permit the Borrowers to substitute collateral under the Pledge Agreement
provided that the collateral coverage percentages described above are
maintained, the substituted 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.
<PAGE>
July 26, 1999
Page 3
d. Guaranty. No guaranty will be required.
e. Prepayment Premium. The Revolving Loan may be prepaid in whole or in
part at any time without premium or penalty. The Term Loan may be
prepaid in whole or in part at any time but any prepayment prior to the
third anniversary date of the funding of the Term Loan will be subject
to a prepayment premium on that portion of the prepayment that exceeds
120% of the scheduled amortization of the Term Loan. The prepayment
premium shall be 3% of the excess amount prepaid in the first year, 2%
of the excess amount prepaid in the second year and 1% of the excess
amount prepaid in the third year.
f. Commitment Fee. Quarterly fee of 0.125% of the unused portion of the
Revolving Loan, payable in arrears. The Borrowers may reduce the size
of the Revolving Loan commitment in $1,000,000 increments not more
frequently than once per quarter. $35,000 fee due upon initial funding
of the Term Loan.
g. Covenants. No financial performance covenants will be applicable to
the Loans but the Loan Documents will contain operational and reporting
covenants typical for this type of transaction.
h. Purpose. The proceeds of the Loans shall be used initially and
primarily to fund loans to ENStar (evidenced by the Assigned Documents)
to permit ENStar to purchase stock or retire debt. It shall be a
condition precedent to the disbursement of any Loan proceeds under the
Assigned Documents that ENStar shall have completed the stock purchase
or debt retirement to be funded with those proceeds. Any Loan proceeds
not required to fund the primary loan purpose may be used for general
transactions entered into by ENStar or the Borrowers in the ordinary
course of business.
3. Requirements as to Collateral Coverage
The Bank will be obligated to make the Loans only if the following
aspects of the collateral under the Loan Documents are satisfactory to the
Bank:
a. The Borrowers have provided adequate collateral (in addition to the
Assigned Documents) under the Pledge Agreement to satisfy all
requirements of Regulation U of the Board of Governors of the Federal
Reserve System and the Bank's standard collateral advance rates based on
the market value of the Collateral at the time of the closing and at the
time of the funding of the Loans.
b. The nature of the collateral under the Pledge Agreement is reasonably
satisfactory to the Bank to assure that the Bank will be able to have
recourse to the collateral under Rule 144 of the Securities and Exchange
Commission without undue delay.
c. The Borrowers have delivered physical possession of the collateral under
the Pledge Agreement to the Bank or have caused the parties with control
over such collateral to enter into effective control agreements
acceptable to the Bank so that the Bank has a first, perfected security
interest in such collateral.
<PAGE>
July 26, 1999
4. Opinion Letter
The Bank will be obligated to fund the Loans only if the Bank shall have
received an opinion of counsel to the Borrowers, to the effect that:
i. The Borrowers are organized, validly existing and in good standing under
the laws of the State of Minnesota.
ii. The Borrowers have all requisite power to execute, deliver and perform
their obligations under the Loan Documents.
iii. The execution and delivery of the Loan Documents have been authorized by
all necessary action on the part of the Borrowers.
iv. The individual(s) executing the Loan Documents on behalf of the
Borrowers have the authority and legal capacity to do so.
v. The Loan Documents to which the Borrowers are parties have been validly
executed and delivered by the Borrowers, respectively.
vi. The Loan Documents to which the Borrowers are parties are legal, valid
and binding obligations of the Borrowers, enforceable in accordance with
their terms except as limited by bankruptcy, insolvency or similar laws
affecting creditors' rights generally and subject, as to enforcement, to
general principles of equity (regardless of weather enforcement is sought
in a court at law or in equity).
vii. The Borrowers' execution and delivery of the Loan Documents to which they
are parties will not (A) violate any provision of law or any regulation
of any federal or state or governmental agency or authority, (B) violate
any judgement or order of any federal or state court or governmental
agency or authority, (C) violate any agreement or other instrument to
which any Borrower is a party or by which it or any of its assets are
bound, or (D) require any registration with or any license, consent or
approval of any state, federal or other governmental agency or authority
which any Borrower has not already obtained.
5. CONDITIONS
In addition to all other conditions stated in the Commitment, it shall be
a condition to the Bank's commitment to fund the Loans that on the date of the
funding:
a. No material adverse change. There must not have occurred any material
adverse change to the Borrowers' condition or operations, financial or
otherwise, to the collateral under the Pledge Agreement or the Assigned
Documents, or to any other feature of the Loans from that which existed
on March 31, 1999.
<PAGE>
July 29, 1999
Page 4
b. Absence of change in law. There must not have occurred or exist any (i)
change in federal or state law, (ii) pending or proposed legislation,
(iii) decision or pending decision of any court or administrative body,
(iv) ruling or regulation (including any final, temporary or proposed
federal regulation), or (v) other action or event that, in the Bank's
sole judgement, materially adversely affects or may affect, directly or
indirectly (A) the transactions to be effected pursuant to this
Commitment, (B) the Borrowers' ability to comply with this Commitment or
(C) the Bank's power or authority to make the Loans.
c. Documents. All of the Loan Documents shall have been executed and
delivered in form and substance acceptable to the Bank.
d. Insurance. During the term of the Loans, the Borrowers will be required
to maintain casualty and liability insurance and name the Bank as an
additional insured and as a loss payee.
6. Closing Costs
The Borrowers, jointly and severally, shall pay the following amounts on
or before the closing date:
i. The legal fees of outside legal counsel engaged by the Bank for the
purpose of representing the Bank in connection with the Loans. Such fees
shall be computed on a time basis based on normal hourly rates.
ii. All reasonable out-of-pocket expenses (including without limitation
travel, photocopying, long-distance telephone, facsimile, messenger and
overnight deliveries) incurred by the Bank's outside legal counsel in
connection with such representation.
7. Acceptance and Expiration of this Commitment
a. Expiration. This Commitment shall expire at 5:00 p.m., Minneapolis time
on July 27, 1999 ("Expiration Date"), at which time this Commitment shall
become null and void, unless:
i. accepted by the Borrowers on or prior to the Expiration Date;
ii. extended by the Bank, in its discretion, by written notice given to
the Borrowers on or prior to the Expiration Date; or
iii. terminated by the Bank in accordance with this Commitment on or
prior to the earlier of acceptance by the Borrowers or the
Expiration Date.
b. Acceptance. If the Borrowers desire to accept this Commitment, the
Borrowers shall return an executed original of this Commitment to the
Bank at its offices in Minneapolis so that it is received at that office
not later than the Expiration Date.
<PAGE>
July 26, 1999
Page 6
c. Termination of Commitment. If this Commitment is accepted by the
Borrowers prior to the Expiration Date, this Commitment shall nevertheless
terminate if all of the conditions precedent to execution of the Loan
Documents and funding are not satisfied at or before 5:00 p.m., Minneapolis
time, on December 1, 1999.
8. Miscellaneous
a. Satisfaction and Discretion of the Bank. Whenever this Commitment
requires that a condition or document be satisfactory to, or approved by,
the Bank, such phrase shall mean that the condition or the document must
be satisfactory to the Bank in all respects, in its sole discretion.
Whenever this commitment refers to the Bank taking action or making a
determination in its discretion, that term shall mean the Bank's sole and
unqualified discretion.
b. Assignment. The Borrowers shall have no right to assign or otherwise
transfer this Commitment without the prior written consent of the Bank.
c. Exclusivity. The provisions of this Commitment are intended for the sole
and exclusive benefit of the Bank and the Borrowers and not for the
benefit of, nor for reliance by, any other party.
d. Modifications. The provisions of this Commitment may not be waived or
modified or in any way changed by implication or subsequent conduct,
correspondence or otherwise, unless such waiver, modification or change
is expressly stated as such and is specifically agreed to in writing by
the Bank and the Borrowers.
e. Merger. No statements, agreements or representations, oral or written,
which may have been made to the Borrowers with respect to the Loans shall
be of any force or effect except to the extent stated in this Commitment,
and all prior agreements and representations made with respect to the
Loans are merged into this Commitment.
f. Survival. The provisions and conditions of this Commitment shall survive
the execution and delivery of the Loan Documents and the funding of the
Loans.
g. Captions. The captions appearing in this Commitment are for descriptive
purposes only and shall not be given substantive effect.
h. Choice of Law. This Commitment shall be construed, and the rights and
obligations of the Bank and the Borrowers hereunder determined in
accordance with Minnesota law. The Bank and the Borrowers agree that any
legal actions between the Bank and the Borrowers regarding the rights and
obligations under this Commitment shall be brought in the state or
<PAGE>
July 26, 1999
Page 7
Federal courts located in Minneapolis, and the Borrowers hereby consent
to the jurisdictions and venue of such courts in connection with any such
action or proceeding.
Very truly yours,
National City Bank of Minneapolis
By /s/ Dean E. Davidson
-----------------------
Dean E. Davidson
Its: Vice President
Accepted this 27th day of July, 1999
3J2R Limited Partnership
By /s/ Jeffrey J. Michael
--------------------
Its: General Partner
4J2R1C Limited Partnership
By /s/ Jeffrey J. Michael
--------------------
Its: General Partner
<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission only (as permitted by
Rule 14a-6(c)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or 240.14a-12
ENSTAR INC.
(Name of Registrant as Specified in its Charter)
------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
common stock, par value $.01 per share
------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
1,047,167 shares and stock option settlements with respect to
243,750 shares
------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
$12.50 per share purchased ($13,089,587) and average option spread
of $4.7538 per share ($1,158,750)
------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$14,248,337
------------------------------------------------------------------------
5) Total fee paid:
$2,850
-----------------------------------------------------------------------
<PAGE>
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
-------------------------------------------
2) Form Schedule or Registration Statement No.:
---------------------
3) Filing Party:
-----------------------------------------------------
4) Date Filed:
-------------------------------------------------------
<PAGE>
ENSTAR INC.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
-----------------------
October , 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
ENStar Inc. (the "Company") to be held at the offices of the Company, 7450
Flying Cloud Drive, Eden Prairie, Minnesota, on , October , 1999
at 9:00 a.m. local time (the "Annual Meeting"). A Notice of the Annual
Meeting, a Proxy Statement, related information about the Company and a
proxy card are enclosed. All holders of the Company's outstanding shares of
common stock (the "Common Stock") as of September 14, 1999 are entitled to
notice of and to vote at the Annual Meeting.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger, dated August
13, 1999 (the "Merger Agreement"), among the Company, ENStar Acquisition,
Inc., a Minnesota corporation wholly owned by two limited partnerships and a
trust controlled by James H. and Jeffrey J. Michael (the "Acquisition
Company"), James H. and Jeffrey J. Michael and the two limited partnerships
and the trust controlled by them (together, the "Michael Family"), pursuant to
which the Acquisition Company will be merged with and into the Company (the
"Merger") with the Company as the surviving corporation. If the Merger
Agreement is approved and the Merger becomes effective, each outstanding share
of the Common Stock not owned or controlled by the Michael Family (the
"Minority Shares") will be converted into the right to receive $12.50 in cash,
and holders, other than members of the Michael Family, of options to acquire
shares of the Common Stock will receive a cash settlement, net of withholding
taxes, equal to the excess of $12.50 over the exercise price of such options.
Approval of the Merger requires the affirmative vote of a majority of all of
the outstanding shares of the Common Stock and the affirmative vote of a
majority of all of the outstanding Minority Shares. Details of the
proposed Merger and other important information are set forth in the
accompanying Proxy Statement, which you are urged to read carefully.
If the Merger Agreement is not approved and adopted, you will be asked to
vote upon the election of a Board of Directors for the ensuing year and until
their successors are elected and qualified. The affirmative vote of a
majority of the outstanding shares of the Common Stock present in person or
represented by proxy and entitled to vote at the Annual Meeting is required to
elect each of the nominees.
A Special Committee of the Board of Directors and the Board of Directors
of the Company (without James H. and Jeffrey J. Michael participating) have
approved the Merger Agreement and recommend that you vote FOR approval and
adoption of the Merger Agreement. In the event that there is a vote with
respect to the election of directors, the Board of Directors recommends that
you vote FOR the slate of directors that is set forth in the accompanying
Proxy Statement.
<PAGE>
The Merger is an important decision for the Company and its shareholders.
Whether or not you plan to attend the Annual Meeting, I urge you to complete,
sign and date the accompanying proxy card and return it in the enclosed
postage prepaid envelope. If you attend the Annual Meeting, you may revoke
such proxy and vote in person if you wish, even if you have previously
returned your proxy card.
Thank you for your interest and participation.
Sincerely,
Jeffrey J. Michael
Chief Executive Officer
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
ENStar Inc.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER , 1999
To Shareholders of ENStar Inc.:
The Annual Meeting of the Shareholders of ENStar Inc., a Minnesota
corporation (the "Company"), will be held at the offices of the Company, 7450
Flying Cloud Drive, Eden Prairie, Minnesota, on October , 1999 at
9:00 a.m. local time (the "Annual Meeting"), to consider and act upon the
following matters:
1. To consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated August 13, 1999 (the "Merger Agreement"),
among the Company, ENStar Acquisition, Inc., a Minnesota corporation wholly
owned by two limited partnerships and a trust controlled by James H. and
Jeffrey J. Michael (the "Acquisition Company"), James H. and Jeffrey J.
Michael and the two limited partnerships and the trust controlled by them
(together, the "Michael Family"), pursuant to which the Acquisition Company
will be merged with and into the Company (the "Merger") with the Company as
the surviving corporation. If the Merger Agreement is approved and the
Merger becomes effective, (i) each outstanding share of the common stock of
the Company (the "Common Stock") not owned or controlled by the Michael Family
(the "Minority Shares") will be converted into the right to receive $12.50 in
cash, and (ii) holders, other than members of the Michael Family, of options
to acquire shares of the Common Stock will receive a cash settlement, net of
withholding taxes, equal to the excess of $12.50 over the exercise price of
such options. A copy of the Merger Agreement is attached as Exhibit A to the
accompanying Proxy Statement.
2. If the Merger Agreement is not approved and adopted, to vote upon the
election of a Board of Directors for the ensuing year and until their
successors are elected and qualified.
3. To vote upon such other business as may properly come before the
Annual Meeting or any adjournment thereof.
Only holders of record of the Common Stock at the close of business
on September 14, 1999 are entitled to notice of and to vote at the Annual
Meeting. The Michael Family, which beneficially owns approximately 65.5% of
the outstanding shares of Common Stock, has agreed in the Merger Agreement to
vote its shares of the Common Stock in favor of the Merger Agreement.
However, because the Merger Agreement requires that the Merger be approved by
a majority of the Minority Shares, approval of the Merger is not assured as a
result of the voting power held by the Michael Family.
<PAGE>
Holders of the Common Stock who do not vote their shares in favor of the
Merger Agreement and who strictly comply with Sections 302A.471 and 302A.473
of the Minnesota Business Corporation Act (the "MBCA") have the right to
dissent and make written demand for payment of the "fair value" of their
shares ("Dissenting Shares"). For a description of your dissenters' rights,
see Sections 302A.471 and 302A.473 of the MBCA, a copy of which is attached as
Exhibit C to the accompanying Proxy Statement. In addition, a description of
the procedures to be followed in order to obtain payment for Dissenting Shares
is set forth under the caption "RIGHTS OF DISSENTING SHAREHOLDERS" in the
Proxy Statement.
Your attention is directed to the Proxy Statement, the Exhibits thereto
and the other materials relating to the Company that have been mailed to you
herewith for more complete information regarding the Merger Agreement and the
Company. The Special Committee of the Board of Directors and the Board of
Directors of the Company (without James H. and Jeffrey J. Michael
participating) recommend that you vote FOR approval and adoption of the Merger
Agreement. In the event that there is a vote with respect to the election of
directors, the Board of Directors recommends that you vote FOR the slate of
directors that is set forth in the accompanying Proxy Statement.
By Order of the Board of Directors
Peter E. Flynn
Secretary
Eden Prairie, Minnesota
October , 1999
YOUR VOTE IS IMPORTANT. ALL SHAREHOLDERS ARE CORDIALLY INVITED TO ATTEND
THE ANNUAL MEETING. WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE MARK, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOU
MAY NEVERTHELESS VOTE IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
<PAGE>
ENStar Inc.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
-----------------------
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS
To Be Held on October , 1999
This Proxy Statement is being furnished to the shareholders of ENStar
Inc., a Minnesota corporation (the "Company" or "ENStar"), in connection with
the solicitation by the Board of Directors of the Company of proxies to be
voted at the Annual Meeting of Shareholders of the Company to be held at the
offices of the Company, 7450 Flying Cloud Drive, Eden Prairie, Minnesota, on
October , 1999 at 9:00 a.m. local time, and any adjournments or
postponements thereof (the "Annual Meeting"). At the Annual Meeting, the
shareholders of the Company will consider and vote upon:
1. A proposal to approve and adopt an Agreement and Plan of Merger,
dated August 13, 1999 (the "Merger Agreement"), by and among the Company,
ENStar Acquisition, Inc., a Minnesota corporation wholly owned by two limited
partnerships and a trust controlled by James H. and Jeffrey J. Michael (the
"Acquisition Company"), James H. and Jeffrey J. Michael and the two limited
partnerships and the trust controlled by them (together, the "Michael
Family"), pursuant to which the Acquisition Company will be merged with and
into the Company (the "Merger"), with the Company as the surviving
Corporation. If the Merger Agreement is approved and the Merger becomes
effective, (i) each outstanding share of the common stock of the Company (the
"Common Stock") not owned or controlled by the Michael Family (the "Minority
Shares"), except those Minority Shares as to which dissenters' rights have
been perfected ("Dissenting Shares"), will be converted into the right to
receive $12.50 in cash, without interest, and (ii) holders, other than members
of the Michael Family, of options to acquire shares of the Common Stock will
receive a cash settlement, net of withholding taxes, equal to the excess of
$12.50 over the exercise price of such options. See "THE MERGER
AGREEMENT-Consideration To Be Received by Shareholders" and "-Treatment of
Stock Options." The Michael Family beneficially owns approximately 65.5% of
the outstanding Common Stock. Jeffrey J. Michael is the Company's President
and Chief Executive Officer and is a member of the Company's Board of
Directors. James H. Michael is the Company's Chairman of the Board of
Directors.
2. If the Merger Agreement is not approved and adopted, the election of
members of the Board of Directors of the Company for the ensuing year and
until their successors are elected and qualified. See "ELECTION OF
DIRECTORS."
3. Such other business as may properly come before the Annual Meeting
or any adjournment thereof.
This Proxy Statement is accompanied by copies of the Company's Annual
Report on Form 10-K for the year ended December 31, 1998 and its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999. These materials are
specifically incorporated by reference in this Proxy Statement and are
included to aid shareholders in their consideration of the Merger.
<PAGE>
Only holders of record of the Common Stock of the Company at the close of
business on September 14, 1999 are entitled to notice of and to vote at the
Annual Meeting. This Proxy Statement is first being sent to shareholders on
or about , 1999.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
SUMMARY 1
Date, Time and Place of Annual Meeting 1
Record Date; Shareholders Entitled to Vote; Quorum 1
Purpose of the Meeting 1
The Merger 1
Vote Required 2
Conditions to the Merger; Termination 2
Effective Time of the Merger 2
Voting of Shares Owned by the Michael Family 3
Recommendations of the Company's Special Committee
and Board of Directors 3
Opinion of Financial Advisor 3
Interests of Certain Persons in the Merger 3
Federal Income Tax Consequences 4
Additional Factors to be Considered 4
Payment for Shares and Options 4
Dissenters' Rights 4
The Company 4
The Acquisition Company 5
Market Price and Dividend Data 5
Selected Historical Consolidated Financial Data 6
Forward-Looking Statements 9
THE ANNUAL MEETING 10
General 10
Proposals to be Considered at the Annual Meeting 10
Record Date; Shareholder Approval 10
Proxies 11
SPECIAL FACTORS 11
Background of the Merger 11
Purpose and Reasons for Structure of the Merger 15
Recommendations of the Company's Special Committee
and Board of Directors 16
Opinion of Financial Advisor 18
Position of the Michael Family and Acquisition
Company as to Fairness of the Merger 26
Plans for the Company After the Merger 26
Certain Effects of the Merger 28
Conduct of the Company's Business
if the Merger is Not Completed 29
Interests of Certain Person in the Merger 30
Source of Funds 31
Fees and Expenses 31
Certain Federal Income Tax Consequences 32
Accounting Treatment 33
Public Offerings and Repurchases of Common Stock 33
Regulatory Approvals 33
-i-
<PAGE>
THE MERGER AGREEMENT 34
The Merger 34
Effective Time 34
Consideration to be Received by Shareholders 34
Exchange and Payment Procedures 34
Treatment of Stock Options 35
Operations of the Company Prior to the Merger 36
No Solicitation 36
Other Agreements 38
Conditions to Consummation of the Merger 39
Termination 40
RIGHTS OF DISSENTING SHAREHOLDERS 41
ELECTION OF DIRECTORS 44
General 44
Nominees 45
Information Concerning the Board of Directors 46
Compensation of Directors 46
EXECUTIVE COMPENSATION AND STOCK OPTIONS 47
Report of the Compensation Committee
on Executive Compensation 47
Summary of Cash and Certain Other Compensation 49
Employment Contracts and Termination of
Employment Arrangements 52
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS 53
Stock Ownership 53
Transactions by Certain Persons in Common Stock 55
Section 16(a) Beneficial Ownership Reporting Compliance 55
MANAGEMENT OF THE COMPANY AND THE ACQUISITION COMPANY 55
The Company 55
The Acquisition Company 56
Certain Proceedings 56
SHAREHOLDER PROPOSALS 57
INDEPENDENT PUBLIC ACCOUNTANTS 57
INFORMATION INCORPORATED BY REFERENCE 57
AVAILABLE INFORMATION 58
ADDITIONAL INFORMATION 58
EXHIBIT A -- MERGER AGREEMENT A-1
EXHIBIT B -- OPINION OF GOLDSMITH, AGIO, HELMS SECURITIES, INC. B-1
EXHIBIT C -- MINNESOTA BUSINESS CORPORATION ACT SECTIONS
DEALING WITH DISSENTERS' RIGHTS C-1
-ii-
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. The following summary is not intended to be complete
and is qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement, in the materials accompanying this Proxy
Statement, in the Exhibits hereto and in the documents incorporated herein by
reference. Shareholders are urged to review the entire Proxy Statement and
accompanying materials carefully.
Date, Time and Place of Annual Meeting
The Annual Meeting of Shareholders of ENStar Inc. will be held on
, October , 1999 at 9:00 a.m. local time at the offices
of the Company, 7450 Flying Cloud Drive, Eden Prairie, Minnesota.
Record Date; Shareholders Entitled to Vote; Quorum
Only holders of record of shares of the Common Stock at the close of
business on September 14, 1999 (the "Record Date") are entitled to notice of
and to vote at the Annual Meeting. On that date, there were approximately
shares of Common Stock outstanding, held of record by
approximately shareholders. See "THE ANNUAL MEETING-Record
Date; Shareholder Approval." The presence, in person or by proxy, at the
Annual Meeting of a majority of the outstanding shares of the Common Stock is
necessary to constitute a quorum at the Annual Meeting.
Purpose of the Meeting
At the Annual Meeting, shareholders will consider and vote upon a
proposal to approve and adopt the Merger Agreement, a copy of which is
attached as Exhibit A to this Proxy Statement. If the Merger Agreement is
not approved and adopted, the shareholders will vote for the election of
directors of the Company to serve until the next annual meeting of
shareholders. See "THE ANNUAL MEETING-Proposals To Be Considered at the
Annual Meeting." The Merger Agreement provides for the merger of the
Acquisition Company with and into the Company, with the Company being the
surviving corporation (the "Surviving Corporation") and wholly owned by the
Michael Family. See "THE MERGER AGREEMENT-The Merger."
The Merger
Pursuant to the Merger Agreement, the Acquisition Company will merge with
and into the Company, with the Company being the Surviving Corporation. Each
Minority Share (except Dissenting Shares) will be converted into the right to
receive from the Surviving Corporation $12.50 in cash, without interest (the
"Merger Consideration"), and holders of options to acquire shares of the
Common Stock of the Company, other than members of the Michael Family, will
receive a cash settlement, net of withholding taxes, equal to the excess of
$12.50 over the exercise price of such options. See "THE MERGER
<PAGE>
AGREEMENT-Consideration To Be Received by Shareholders" AND "-Treatment of
Stock Options." After the Merger, the Michael Family will own all of the
outstanding shares of capital stock of the Surviving Corporation. The shares
of the Common Stock will no longer be traded on the Nasdaq Stock Market and
the registration of the Common Stock under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), will be terminated. See "SPECIAL
FACTORS-Certain Effects of the Merger."
Vote Required
Approval of the Merger requires the affirmative vote of a majority of the
outstanding shares of the Common Stock and the affirmative vote of a majority
of all of the Minority Shares. See "THE ANNUAL MEETING-Record Date;
Shareholder Approval."
Conditions to the Merger; Termination
The Merger is subject to various closing conditions, including the
absence of any event that would have a material adverse effect on the assets,
properties, liabilities, obligations, financial condition, results of
operations or business of the Company. The Merger Agreement may, under other
specified circumstances, be terminated and the Merger abandoned at any time
prior to the filing of Articles of Merger with the Minnesota Secretary of
State, notwithstanding approval of the Merger Agreement by the shareholders of
the Company. For example, the Merger Agreement may be terminated by the
Acquisition Company if the Dollar Weighted Trading Price (as hereinafter
defined) of CorVel Corporation ("CorVel") common stock is less than $20.00 and
by the Company if the Dollar Weighted Trading Price of CorVel common stock is
greater than $26.00 per share. The "Dollar Weighted Trading Price" means the
quotient of (A) the product of (i) the total number of shares of CorVel traded
during the 15 trading days immediately prior to the date of the Annual Meeting
of Shareholders, multiplied by (ii) the price paid per share, divided by (B)
the total number of shares of CorVel traded during such 15 day period. In
addition, the Merger Agreement may be terminated by the Acquisition Company if
the holders of more than 5% of the outstanding Common Stock of the Company
exercise dissenters' rights. See "THE MERGER AGREEMENT-Conditions to
Consummation of the Merger" and "-Termination."
Effective Time of the Merger
Unless otherwise agreed by the parties to the Merger Agreement or
otherwise provided by law, the Merger will become effective upon the
acceptance for filing of the Articles of Merger by the Minnesota Secretary of
State (the "Effective Time"). Subject to approval of the Merger at the Annual
Meeting and the satisfaction or waiver of the terms and conditions in the
Merger Agreement, the Effective Time is expected to occur as soon as
practicable after the Annual Meeting. See "THE MERGER AGREEMENT-Effective
Time."
-2-
<PAGE>
Voting of Shares Owned by the Michael Family
The Michael Family, which beneficially owns approximately 65.5% of the
outstanding Common Stock, has agreed in the Merger Agreement to vote its
shares of the Common Stock in favor of the Merger. However, because the
Merger Agreement requires that the Merger also be approved by holders of a
majority of the Minority Shares, approval of the Merger is not assured as a
result of the voting power held by the Michael Family. See "THE ANNUAL MEETING-
Record Date; Shareholder Approval."
Recommendations of the Company's Special Committee and Board of Directors
A special committee of the Board of Directors of the Company (the
"Special Committee") and the Board of Directors of the Company (without
James H. and Jeffrey J. Michael participating) have determined that the Merger
is fair from a financial point of view to and in the best interests of the
Company's shareholders other than the Michael Family (the "Minority
Shareholders"). The Special Committee and the Board of Directors
(without James H. and Jeffrey J. Michael participating) have approved the
Merger Agreement and recommend that shareholders vote in favor of the proposal
to approve and adopt the Merger Agreement. See "SPECIAL FACTORS-Recommendations
of the Company's Special Committee and Board of Directors."
Opinion of Financial Advisor
On August 13, 1999, Goldsmith, Agio, Helms Securities, Inc. ("GAHS")
delivered a written opinion to the Special Committee to the effect that the
Merger Consideration to be received by the Minority Shareholders pursuant to
the Merger is fair to such shareholders from a financial point of view. A
copy of the written opinion of GAHS is attached as Exhibit B to this Proxy
Statement. Shareholders of the Company are urged to read this opinion in its
entirety. For discussion of the factors considered and assumptions made by
GAHS in reaching its opinion, see "SPECIAL FACTORS-Opinion of Financial
Advisor."
Interests of Certain Persons in the Merger
In considering the recommendations of the Special Committee and the Board
of Directors of the Company with respect to the Merger Agreement and the
transactions contemplated thereby, shareholders should be aware that certain
officers and directors of the Company have interests in connection with the
consummation of the Merger that may conflict with the interests of the
Company's shareholders. In particular, the Michael Family beneficially owns
approximately 65.5% of the outstanding Common Stock. Jeffrey J. Michael is
the Company's President and Chief Executive Officer and is a member of the
Company's Board of Directors. James H. Michael is the Company's Chairman of
the Board of Directors. See "SPECIAL FACTORS-Interests of Certain Persons in
the Merger."
-3-
<PAGE>
Federal Income Tax Consequences
For federal income tax purposes, the Merger will be treated as a taxable
sale or exchange of shares of the Common Stock for cash by each holder of the
Common Stock (including any holder of Dissenting Shares). The amount of gain
or loss to be recognized by each shareholder will be measured by the
difference between the amount of cash received by such shareholder in
connection with the Merger for his or her shares of Common Stock (including
Dissenting Shares) and such shareholder's tax basis in such shares of Common
Stock at the Effective Time. See "SPECIAL FACTORS-Certain Federal Income Tax
Consequences."
Additional Factors to be Considered
Shareholders of the Company should also consider the additional special
factors discussed elsewhere in this Proxy Statement under the caption "SPECIAL
FACTORS."
Payment for Shares and Options
As promptly as possible after the Effective Time, instructions will be
furnished to the Minority Shareholders regarding procedures to be followed to
surrender their certificates and receive payment for their shares.
Instructions will also be furnished to holders of options to purchase the
Common Stock (other than members of the Michael Family) concerning their
rights to receive payments in settlement of the options and procedures to be
followed to exercise those rights. See "THE MERGER AGREEMENT-Exchange and
Payment Procedures" and "-Treatment of Stock Options."
Dissenters' Rights
Under the Minnesota Business Corporation Act (the "MBCA"), any holder of
the Common Stock who does not vote in favor of the Merger Agreement and who
strictly complies with the procedural requirements of Sections 302A.471 and
302A.473 of the MBCA, the full text of which is attached as Exhibit C to this
Proxy Statement, will have the right to dissent and make written demand for
the payment of the "fair value" of such holder's shares of the Common Stock.
See "RIGHTS OF DISSENTING SHAREHOLDERS."
The Company
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 communication service providers,
integrators and commercial customers. Enstar Networking is a network security
integrator providing solutions to design, manage and secure corporate network
infrastructures. The Company also owns 2,050,000 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. The investments in CorVel and Vicom are accounted for as
unconsolidated subsidiaries using the equity method of accounting.
-4-
<PAGE>
The principal executive office of the Company is located at 7450 Flying
Cloud Drive, Eden Prairie, Minnesota 55344, and the Company's telephone number
is (612) 942-3887.
The Acquisition Company
ENStar Acquisition, Inc., a Minnesota corporation, was organized in
connection with the Merger and has not carried on any activities to date other
than those incident to its formation and the consummation of the Merger. As
of the date of this Proxy Statement, all of the issued and outstanding capital
stock is owned by 4J2R1C Limited Partnership, 3J2R Limited Partnership and the
Michael Acquisition Corporation Trust. 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 trustee of the Michael Acquisition Corporation Trust.
See "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS" and
"MANAGEMENT OF THE COMPANY AND THE ACQUISITION COMPANY-The Acquisition
Company."
The offices of the Acquisition Company are located at 6479 City West
Parkway, Eden Prairie, Minnesota 55344-3246, and its telephone number is (612)
941-3200.
Market Price and Dividend Data
The Common Stock is traded on the Nasdaq National Market under the symbol
"ENSR." The following table sets forth the high and low sales prices per
share of the Common Stock on the Nasdaq Stock Market for the periods
indicated. These prices do not include adjustments for retail markups,
markdowns or commissions.
High Low
------ ------
1997
First Quarter (beginning March 3) $ 9.00 $ 5.75
Second Quarter 6.50 4.38
Third Quarter 9.38 5.88
Fourth Quarter 9.00 7.38
1998
First Quarter $ 7.88 $ 5.94
Second Quarter 7.63 6.38
Third Quarter 8.50 5.63
Fourth Quarter 9.25 6.75
1999
First Quarter $10.00 $ 6.75
Second Quarter 10.00 8.75
Third Quarter (through August 30, 1999) 11.94 9.50
On March 8, 1999, the last full day of trading prior to the announcement
by the Company that the Michael Family had made a proposal to acquire all of
the Minority Shares for $10.00 per share, the reported high and low trading
prices per share of the Common Stock were $8.19 and $8.00, respectively. On
-5-
<PAGE>
July 19, 1999, the last full day of trading prior to the announcement by the
Company that it had signed a letter of intent with the Michael Family relating
to the Merger, such reported high and low trading prices per share of the
Common Stock were each $10.00. On August 13, 1999, the last full day of
trading prior to the announcement by the Company that it had entered into the
Merger Agreement, such reported high and low trading prices per share of the
Common Stock were each $10.06. On October , 1999, the last full day of
trading prior to the printing of this Proxy Statement, the reported high and
low trading prices per share of the Common Stock were $ and
$ respectively. Shareholders are urged to obtain current market
quotations for their shares.
On the record date for the Annual Meeting, there were approximately
holders of record of the Company's Common Stock. The Company has not
paid any dividends to date. In addition, under the Merger Agreement, the
Company has agreed not to pay any dividends on its Common Stock before the
closing of the Merger.
The following graph and table compare the percentage change in the
cumulative total shareholder return on ENStar's Common Stock during the period
beginning March 3, 1997 and ending December 31, 1998, with the cumulative
total return on each of the S&P 500 Index, the S&P Healthcare Sector Index and
the S&P Computers (Networking) Index. The component S&P indices represent
indices relating to ENStar's operating subsidiaries (S&P Computers Networking
Index) and ENStar's investment in CorVel Corporation (S&P Healthcare Sector
Index). The comparison assumes $100 was invested on March 3, 1997 in ENStar's
Common Stock and in each of the foregoing indices and assumes reinvestment of
dividends.
</TABLE>
<TABLE>
<CAPTION>
3/3/97 12/31/97 12/31/98
------- -------- --------
<S> <C> <C> <C> <C>
ENStar Inc. 100 91 85
S&P 500 100 125 160
S&P Computers (Networking) 100 129 278
S&P Healthcare Sector 100 128 184
</TABLE>
Selected Historical Consolidated Financial Data
Set forth below is a summary of selected consolidated financial data with
respect to the Company excerpted or derived from the information contained in
the Company's Annual Reports on Form 10-K for the years ended December 31,
1998, 1997 and 1996, and its Quarterly Report on Form 10-Q for the quarterly
periods ended June 30, 1999 and 1998. More comprehensive financial
information is included in such reports and other documents filed by the
Company with the Securities and Exchange Commission (the "Commission"), and
the following summary is qualified in its entirety by reference to such
reports and other documents and all of the financial information (including
any related notes) contained therein. Such reports and other documents may be
inspected and copies may be obtained from the offices of the Commission. See
"AVAILABLE INFORMATION." In addition, copies of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998 and its Quarterly Report on
Form 10-Q for the quarterly period ended June 30, 1999 accompany this Proxy
Statement being provided to shareholders and are incorporated herein by
reference. See "INFORMATION INCORPORATED BY REFERENCE."
-6-
<PAGE>
<TABLE>
<CAPTION>
(Unaudited)
Six Months Ended Years Ended
June 30, December 31,
---------------- ---------------------------------------
1999 1998 1998 1997 1996 1995 1994
---------------- ---------------------------------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA (1)
Revenues $17,932 $21,473 $43,358 $38,632 $48,667 $42,159 $36,940
Operating income
(loss) (504) (2,163) (3,689) (4,767) 44 110 (1,053)
Interest expense,
net (581) (611) (1,336) (722) (169) (232) (337)
Loss before income
taxes and equity
in earnings of
unconsolidated
subsidiary (1,085) (2,774) (5,025) (5,489) (125) (122) (1,390)
Income (loss) from:
Continuing
operations (238) (2,039) (1,663) (2,062) 1,154 1,024 86
Discontinued
operations -- 32 3,436 (199) (82) 548 200
------- ------- ------- ------- ------- ------- -------
Net income
(loss) $ (238) $(2,007) $ 1,773 $(2,261) $ 1,072 $ 1,572 $ 286
======= ======= ======= ======= ======= ======= =======
Basic and diluted
net income (loss)
per share(2)
Income (loss) from:
Continuing
operations $ (0.08) $ (0.63) $ (0.53) $ (0.63) $ 0.34 $ 0.32 $ 0.03
Discontinued
operations -- 0.01 1.09 (0.06) (0.02) 0.17 0.06
------- ------- ------- ------- ------- ------- -------
Net income (loss)
per share $ (0.08) $ (0.62) $ 0.56 $ (0.69) $ 0.32 $ 0.49 $ 0.09
======= ======= ======= ======= ======= ======= =======
Basic and diluted
weighted average
common and common
equivalent shares
outstanding (2) 2,977 3,256 3,152 3,289 3,309 3,217 3,235
-7-
<PAGE>
CONSOLIDATED BALANCE SHEET
DATA(1) (END OF PERIOD)
Total assets $40,320 $46,097 $43,573 $41,106 $32,817 $33,603 $30,520
Long-term debt,
including
current
maturities 16,288 18,285 19,003 16,127 944 1,071 3,607
Shareholders'
equity 13,271 12,231 13,585 14,937 20,947 19,694 18,176
OTHER DATA:
Period end
book value
per share $ 4.46 $ 3.78 $ 4.56 $ 4.57 $ 6.34 $ 6.25 $ 5.78
Cash dividends
declared
per share -- -- -- -- -- -- --
Ratio of
earnings to
fixed charges (0.56) (2.76) (2.16) (4.26) 0.69 0.73 (1.56)
- ---------------
</TABLE>
(1) Amounts are restated for discontinued operations as discussed in
Note 3 to Consolidated Financial Statements contained in the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
(2) Basic and diluted net income (loss) per share for 1994 to 1996 was
computed using the weighted average number of outstanding shares of
NSU Common Stock during each period presented adjusted for the
distribution of one share of ENStar Common Stock for every three
shares of NSU Common Stock outstanding.
The Company has not provided any pro forma data giving effect to the
proposed Merger as it does not believe such information is material to its
shareholders in evaluating the Merger Agreement since the proposed Merger
Consideration is all cash and if the proposed Merger is completed, the
Company's Common Stock would cease to be publicly traded.
The Company has also not provided any separate financial information for
Acquisition Company since it is a special purpose entity formed in connection
with the proposed Merger and has no independent operations.
-8-
<PAGE>
Forward-Looking Statements
This Proxy Statement contains certain forward-looking statements which
are made in reliance upon 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, risks relating to "Year 2000" issues, 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 of the Company relating to its formation.
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.
-9-
<PAGE>
THE ANNUAL MEETING
General
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company for the Annual Meeting of
Shareholders to be held on October , 1999 at 9:00 a.m. local time at the
offices of the Company, 7450 Flying Cloud Drive, Eden Prairie, Minnesota, and
at any adjournments thereof. Shares represented by properly executed proxies
received by the Company will be voted at the Annual Meeting or any adjournment
thereof in accordance with the terms of such proxies, unless such proxies are
revoked. See "-Proxies" below.
Proposals to be Considered at the Annual Meeting
At the Annual Meeting, the shareholders of the Company will consider and
vote upon a proposal to approve and adopt the Merger Agreement. Pursuant to
the Merger Agreement, the Acquisition Company will merge with and into the
Company, the separate corporate existence of the Acquisition Company will
cease, and the Company will be the Surviving Corporation. At the Effective
Time, each outstanding share of the Common Stock (except Dissenting Shares)
will be converted into the right to receive $12.50 in cash, without interest,
and holders of options to acquire shares of the Common Stock of the Company
(other than members of the Michael Family) will receive a cash settlement, net
of withholding taxes, equal to the excess of $12.50 over the exercise
price of such options. Holders of Dissenting Shares will be entitled to
receive from the Surviving Corporation a cash payment in the amount of the
"fair value" of such shares as determined, under Sections 302A.471 and
302A.473 of the MBCA. After the Effective Time, such shares will not
represent any interest in the Surviving Corporation other than the right to
receive such cash payment. See "RIGHTS OF DISSENTING SHAREHOLDERS." A copy
of the Merger Agreement is attached as Exhibit A to this Proxy Statement.
If the Merger Agreement is not approved and adopted, the shareholders
will be asked to vote upon the election of a Board of Directors for the
ensuing year and until their successors are elected and qualified. In
addition, shareholders of the Company may be asked to approve a proposal to
adjourn the Annual Meeting to permit further solicitation of proxies in the
event there are not sufficient votes at the time of the Annual Meeting to
approve and adopt the Merger Agreement. It is not anticipated that any other
matters will be brought before the Annual Meeting. However, if other matters
should come before the Annual Meeting, it is intended that the holders of
proxies solicited hereby will vote thereon in their discretion, unless such
authority is withheld.
Record Date; Shareholder Approval
Only holders of record of the Common Stock at the close of business on
September 14, 1999 are entitled to notice of and to vote at the Annual
Meeting. On that date, there were approximately shares of
Common Stock outstanding, which were held of record by approximately
shareholders. Each share of Common Stock entitles its holder
to one vote. A majority of the outstanding shares of Common Stock entitled to
vote, represented in person or by proxy, will constitute a quorum.
Abstentions and broker non-votes (shares held by brokers in street name,
voting on certain matters due to discretionary authority or instructions from
the beneficial owner but not voting on other matters due to lack of authority
-10-
<PAGE>
to vote on such matters without instructions from the beneficial owner) are
counted for the purpose of establishing a quorum and will have the same effect
as a vote against the approval of the Merger Agreement. Approval of the
Merger Agreement requires the affirmative vote of a majority of all of the
outstanding shares of the Common Stock and the affirmative vote of a majority
of all of the outstanding Minority Shares. The Michael Family has agreed in
the Merger Agreement to vote its shares of Common Stock in favor of the Merger
Agreement. Because the Merger Agreement must be approved by a majority of the
Minority Shares, approval of the Merger Agreement is not assured as a result
of the voting power held by the Michael Family.
Although they have not expressly agreed to do so (except in the case of
the Michael Family), the Company believes that each of its directors and
executive officers will vote the shares of Common Stock with respect to which
he has voting power in favor of the Merger. Such shares represent 69% of the
shares entitled to vote at the Annual Meeting and 13.8% of the Minority
Shares entitled to vote at the Annual Meeting.
Proxies
Any shareholder entitled to vote at the Annual Meeting may vote either in
person or by duly authorized proxy. All shares of the Common Stock
represented by properly executed proxies received prior to or at the Annual
Meeting and not revoked will be voted in accordance with the instructions
indicated in such proxies. If no instructions are indicated, such proxies
will be voted for the proposal to approve and adopt the Merger Agreement and,
if necessary, for the election of the nominees for director and, in the
discretion of the persons named in the proxy, on such other matters as may
properly be presented at the Annual Meeting.
A shareholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Annual Meeting and voting in
person. Attendance at the Annual Meeting will not in itself constitute the
revocation of a proxy.
Expenses in connection with the solicitation of proxies will be paid by
the Company. The Company's directors, officers and employees may, without
compensation other than their regular compensation, solicit proxies by
telephone, e-mail, facsimile, personal conversation or other similar means.
In addition, upon request, the Company will reimburse brokers, dealers and
banks, or their nominees, for reasonable expenses incurred in forwarding
copies of the proxy material to the beneficial owners of the Common Stock
which such persons hold of record.
SPECIAL FACTORS
Background of the Merger
In August 1998, the Company engaged GAHS to assist the Company in
analyzing alternatives to maximize values with respect to its operating
subsidiaries. GAHS also advised the Company regarding strategic alternatives
relating to transactions involving the Company's holdings in CorVel common
stock. At this time, GAHS did not examine the alternative of a "going
private" transaction involving the Michael Family.
-11-
<PAGE>
During the fall of 1998, GAHS assisted the Company in selling two of its
subsidiaries, Transition Networks, Inc. and the Midwest Division of Enstar
Networking. Also, representatives of the Company and GAHS held discussions
with CorVel and its tax and legal advisors with respect to various transaction
structures involving a potential merger of the Company with CorVel. CorVel
was not interested in pursuing any proposed form of transaction with the
Company during this time. The Company also had informal, preliminary
discussions with certain parties regarding potential transactions relating to
the Company's operating subsidiaries; however, no further discussions
resulted.
On February 23, 1999, a meeting was held at the offices of the Company
attended by Jeffrey J. Michael, the Company's President and Chief Executive
Officer, Peter E. Flynn, the Company's Executive Vice President, and a
representative of GAHS and the Company's outside law firm. At this meeting,
Mr. Michael asked questions regarding the potential structure and related
issues regarding a "going private" transaction.
On March 3, 1999, a special meeting of the Board of Directors of the
Company was held to consider the strategic alternatives available to the
Company. Peter Flynn reported that the Michael Family was considering making
an offer to acquire the approximately 35% of the Company's outstanding Common
Stock not controlled by them. The Board discussed the issues raised by the
potential offer and decided to consider them further at another special
meeting within a week.
On March 8, 1999, a special meeting of the Board was held to discuss
further the potential offer by the Michael Family to acquire the approximately
35% of the Company's outstanding common stock not controlled by them.
Jeffrey Michael informed the Board that the Michael Family was interested in
pursuing such an acquisition and wished to commence negotiations of acceptable
terms and structure for an acquisition. Mr. Michael informed the Board that
the proposal would be for a purchase price of $10.00 per share in cash. The
Board then established a Special Committee of the Board, consisting of Richard
Braun, the sole disinterested director. The Special Committee was authorized
to evaluate and negotiate a transaction with the Michael Family or any third
party proposal that might be made, and to report its recommendations to the
Board.
The Company issued a press release on March 8, 1999, disclosing the
Michael Family's preliminary proposal to acquire the approximately 35% of the
Company's outstanding shares of common stock not controlled by them for $10.00
per share and creation of the Special Committee to evaluate the fairness of
the proposal.
During the balance of March and early April, 1999, the Special Committee
retained GAHS as its financial advisor and retained legal counsel. In
connection with this engagement, GAHS suspended activity under its August
1998 engagement with the Company. During the same period, the Michael Family
retained legal counsel and formulated its offer to acquire the Minority
Shares.
On April 13, 1999, a meeting was held between the Michael Family and its
representatives and advisors and the Special Committee and its advisors. The
Michael Family delivered a written proposal to purchase the approximately 35%
-12-
<PAGE>
of the Company's shares of Common Stock not controlled by them for a purchase
price of $10.00 per share in cash. The offer represented a 25% premium to the
Company's Common Stock price prior to announcement of the Michael Family's
interest in making an offer. The proposal contemplated a merger of the
Company with a newly created corporation controlled by the Michael Family.
The offer was conditioned upon, among other things, the Michael Family
obtaining financing for the acquisition.
On April 27, 1999, the Special Committee and its advisors met with
Jeffrey Michael and the Michael Family's advisors. The Special Committee
reported that based on its consultations with GAHS, it was unable to conclude
that the $10.00 per share proposal was fair to the Minority Shareholders. The
Committee also stated that unless an offer in excess of $12.00 per share were
made by the Michael Family, the Special Committee would find it necessary to
investigate whether alternative transactions might be available at a higher
price per share.
On May 10, 1999, the Michael Family informed the Special Committee of its
view that the $10.00 per share proposal was fair and that the offer would
remain open through June 15, 1999. The Michael Family declined to increase
its offer at that time.
On May 12, 1999, a special meeting of the Board of Directors of the
Company was held to hear the report of the Special Committee regarding the
Michael Family offer. The Special Committee reported that, in its view, the
$10.00 per share offer was inadequate and that an offer in excess of $12.00
per share was warranted, based on the financial analysis of GAHS. The Board
considered whether an additional grant of authority was necessary to authorize
the Special Committee to solicit third party transactions. The Board
adjourned, taking no action pending a review of additional information.
On May 17, 1999, a special meeting of the Board of Directors of the
Company was held at which the Board authorized the Special Committee to
solicit third parties to determine whether interest existed in an acquisition
of the Minority Shares or another transaction.
Thereafter, the Special Committee, directly and through GAHS, contacted
11 parties to determine whether they had an interest in a possible transaction
with the Company. Included among the 11 was CorVel Corporation, a health care
company in which the Company holds approximately 25% of the outstanding common
stock. CorVel's Chief Executive Officer conveyed a lack of interest in a
transaction directly to the Special Committee and to GAHS. Similarly, the
remaining 10 parties communicated a lack of interest, in several cases citing
the unrelated nature of the businesses owned by the Company or in which the
Company held investments. On June 11, 1999, at the request of the Special
Committee and during the period that third parties were being contacted, the
Michael Family extended until June 30, 1999, the time during which its offer
would remain open.
On June 30, 1999, the Special Committee distributed a written report to
the Board of Directors and to James and Jeffrey Michael. The report stated
that the $10.00 per share offer from the Michael Family was inadequate and
that a price in excess of $12.00 per share was warranted. This conclusion
was based on an analysis of the Company by GAHS. In the absence of a
third party acquirer, the Special Committee recommended to the Board a
restructuring of the Company consisting of a sale or spin-off of the Company's
-13-
<PAGE>
operating subsidiaries and pursuit of a combination with CorVel, possibly
after acquiring a health care company. Mr. Braun also stated that in the
absence of a higher offer from the Michael Family, and in light of the absence
of interested third parties, the Special Committee's duties were complete and
he tendered his resignation on the basis that no further acceptable offer from
the Michael Family was forthcoming.
On July 2, 1999, the Michael Family, through its legal counsel, proposed
to the Special Committee in writing a revised offer to acquire the Company
shares not owned by the Michael Family. That offer was for $11.25 in cash
plus a distribution of one-half of a share of common stock of Vicom
Incorporated to each selling shareholder. The Vicom shares, which were held
by the Company, were to be fully registered.
On July 6, 1999, the Special Committee informed the Michael Family in
writing, via their respective legal counsel, that the revised offer of July 2,
1999, did not, in the Special Committee's view, reach the $12.00 plus level
that the Special Committee believed would constitute a fair price. The
Special Committee reiterated that absent an offer in excess of $12.00, the
Committee's resignation would stand.
During the period of July 6, 1999 to July 13, 1999, discussions occurred
among the Special Committee, GAHS and the Michael Family as to the content
of a proposal which the Special Committee would deem fair.
On July 13, 1999, the Michael Family delivered a written offer to the
Special Committee proposing a merger of a newly created corporation with the
Company pursuant to which the Minority Shares would be purchased for $12.50
per share in cash. The offer also proposed a price collar around the CorVel
stock owned by the Company and which constituted the Company's principal
asset. The collar would allow the Company to terminate the transaction if the
closing price of CorVel stock was above $28.00 per share on each of the five
trading days preceding the merger closing. The Michael Family could terminate
the merger if the CorVel closing price was less than $18.00 per share on each
of the five trading days preceding the merger closing.
In light of the revised Michael Family offer, the Special Committee, with
the concurrence of the Board of Directors, withdrew its resignation on July
19, 1999 and discussions ensued regarding the revised Michael Family offer.
On July 19, 1999, the Michael Family and the Special Committee executed a
letter of intent containing a modified version of the Michael Family's July
13, 1999 offer. The letter of intent provided for the same $12.50 per share
cash merger as the July 13, 1999 offer but altered the terms of the CorVel
stock price collar. The collar's parameters were narrowed to $20.00 per share
on the low side and $26.00 per share on the high side. The applicable period
to compute the average CorVel stock price was extended from 5 trading days
prior to the Merger closing to 15 trading days prior to the Merger closing.
The Company issued a press release announcing the letter of intent on
July 20, 1999.
On July 26, 1999, the Michael Family obtained a written financing
commitment for the transaction from National City Bank.
-14-
<PAGE>
Negotiation of a definitive agreement culminated on August 13, 1999 with
execution of the Merger Agreement. GAHS delivered its written fairness
opinion to the Special Committee on the same date. The Special Committee and
the Company's Board of Directors, with James and Jeffrey Michael not
participating, approved the Merger Agreement prior to its execution and
recommended its adoption by the Company's shareholders. The Merger Agreement
requires approval by the affirmative vote of a majority of the Minority Shares
and a majority of all outstanding shares of Common Stock, including those
controlled by the Michael Family. The Michael Family agreed to vote their
shares of Common Stock in favor of the Merger Agreement.
A press release announcing the execution of a definitive Merger Agreement
was issued by the Company on August 13, 1999.
Purpose and Reasons For Structure of the Merger
The purpose for the Merger is to enable the Michael Family to acquire the
entire equity interest in the Company. The transaction has been structured as
cash merger in order to provide the shareholders of the Company with cash for
all of their shares and to provide a prompt and orderly transfer of complete
ownership of the Company from the Minority Shareholders of the Company to the
Michael Family.
The Merger is motivated largely by the continuing low valuation placed on
the Company in the public markets. The low public market valuation has led to
pressure on Company management from public shareholders to take actions to
increase shareholder value. Management considered alternatives based on
enhancing the value of the Company's Common Stock, including a possible sale
of the Company, additional sales of subsidiaries or acquisitions of other
companies in businesses related to the businesses of the Company's operating
subsidiaries. Upon concluding that such sales or other form of restructuring
was not feasible on acceptable terms, the Michael Family approached the
Company's Board of Directors regarding the Merger. The Michael Family did not
consider other alternatives with respect to the structure of the transaction.
The primary benefit of the Merger to the Minority Shareholders is the
opportunity to sell all of their Common Stock at a price which represents a
substantial premium over trading prices in effect immediately prior to the
announcement by the Michael Family of their proposal to acquire the Minority
Shares for $10.00 per share and the announcement of the Merger Agreement,
pursuant to which the Minority Shares will be acquired for $12.50 per share,
without interest. The structure of the transaction as a cash merger provides
a cash payment at a premium price to all Minority Shareholders and ensures the
acquisition by the Michael Family of all the outstanding shares of the
Company.
The primary reason for the Company entering into the Merger Agreement is
the Board of Directors' belief that it would be difficult for the Company to
significantly enhance shareholder value in the immediate future. The Board of
Directors believes, based upon the factors discussed below under
"-Recommendations of the Special Committee and the Company's Board of
Directors," that an internal restructuring of the Company's operations in
order to enhance its growth and profitability would not yield as favorable a
result to the Company's shareholders in the foreseeable future as would the
Merger, and that it is not possible for the Company to enter into a strategic
-15-
<PAGE>
business combination that would significantly enhance shareholder value.
Consequently, the Board of Directors believes that the Merger is the best
available opportunity to maximize shareholder value at the present time. The
$12.50 per share price to be received by the Minority Shareholders represents
a premium of approximately 25% over the reported closing price of the Common
Stock on the trading day immediately prior to the announcement of the Merger
Agreement, and approximately 56% over the reported closing price of the
Common Stock on the trading day immediately prior to announcement of the
Michael Family's proposal to purchase the Minority Shares for $10.00 per
share.
Recommendations of the Company's Special Committee and Board of Directors
On August 13, 1999, the Company's Board of Directors, by unanimous vote
(with the exception of James H. and Jeffrey J. Michael, who did not
participate in the deliberations or the vote) at a special board meeting held
on that date, determined that the transactions contemplated by the Merger are
fair from a financial point of view to and in the best interests of the
Minority Shareholders, approved the Merger Agreement and resolved to recommend
that the Company's shareholders approve the Merger Agreement. In reaching its
determination, the Board of Directors relied primarily on the determination of
the Special Committee formed for the purpose of evaluating the proposed
transaction involving the Michael Family. The Special Committee, in an action
taken on August 13, 1999, prior to the meeting of the Company's Board of
Directors, recommended approval of the Merger Agreement by the Board of
Directors and the shareholders of the Company.
Special Committee. In arriving at its recommendation and determination
that the Merger is fair to and in the best interests of the Minority
shareholders, the Special Committee carefully considered the terms of the
Merger Agreement. As part of this process, the Special Committee considered
the advice and assistance of its outside financial and legal advisors
regarding fairness to the Minority Shareholders of the terms of the
Merger Agreement.
In determining to approve and adopt the Merger Agreement, and in
determining the fairness of the terms of the Merger, the Special Committee
considered, among others, the following factors, each of which, in the Special
Committee's view, supported the determination to recommend the Merger
Agreement:
(i) the Special Committee's knowledge of the financial condition,
results of operations, liquidity, business and prospects of the
Company, as well as the risks involved in achieving those
prospects, current market and economic conditions and the going
concern value of the Company (as reflected in part by its
historical and projected operating results);
(ii) the value of the Company as reflected in the analysis of GAHS
described below under the caption "-Opinion of Financial Advisor,"
which, on a per share basis, was projected to be less than the
$12.50 per share offered by the Michael Family;
-16-
<PAGE>
(iii) the historical trading prices of and recent trading activity in
the Company's Common Stock, particularly the fact that the Merger
will enable the Minority Shareholders to realize a significant
premium over the prices at which the Common Stock traded prior to
the Company's public announcement of the Michael Family's proposal
to acquire the Minority Shares for $10.00 per share and prior to
the announcement of the Merger Agreement;
(iv) the written opinion of GAHS that the Merger Consideration to be
received by the Minority Shareholders pursuant to the Merger is
fair to such shareholders, from a financial point of view;
(v) the terms and conditions of the Merger Agreement, including in
particular, the "fiduciary out" provision negotiated by the
Company, which allows the Company to consider unsolicited offers;
(vi) the fact that the Company may terminate the Merger Agreement in
certain circumstances, including if the Dollar Weighted Trading
Price of CorVel common stock for the 15 days preceding the Annual
Meeting of Shareholders exceeds $26.00 per share;
(vii) the fact that there is no termination fee payable if the Merger
Agreement is terminated by the Company; and
(viii) the Merger Agreement requires that the Merger be submitted to the
Minority Shareholders for approval, which allows for an informed
vote of shareholders on the merits of the transaction, and may be
terminated in the event this approval is not obtained;
(ix) Minnesota law entitles the Company's shareholders to dissenters'
rights if the Merger is completed;
(x) the conditions to closing in the Merger Agreement, including
the financing contingency;
(xi) the fact that the Merger Consideration will consist entirely of
cash; and
(xii) the fact that the 11 parties contacted by the Special Committee
and GAHS expressed no interest in a possible transaction with the
Company.
The foregoing list of the factors considered and given weight by the
Special Committee is not intended to be exhaustive. In view of the variety
of factors considered in connection with its evaluation of the Merger, the
Special Committee did not find it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific factors
considered in reaching its conclusions.
Board of Directors. The Company's Board of Directors unanimously formed
the Special Committee to act solely on behalf of the Minority Shareholders for
purposes of negotiating the Merger Agreement and considering the Merger. The
Special Committee, in turn, retained GAHS to prepare and deliver an opinion
as to the fairness of the Merger Consideration to the Minority Shareholders
from a financial point of view.
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In reaching its determination referred to above, the Board of Directors
considered and relied upon:
(i) the process conducted by the Special Committee in considering the
Merger (including contacting the 11 parties who the Special
Committee and GAHS thought might be interested in a possible
transaction with the Company);
(ii) the Special Committee's conclusions, recommendations and approval
concerning the Merger Agreement and the transactions contemplated
thereby; and
(iii) the opinion of GAHS that, as of the date of such opinion, based
upon and subject to various considerations, assumptions and
limitations stated therein, the $12.50 per share in cash to be
received by the Minority Shareholders in the Merger was fair to
such shareholders from a financial point of view, and the related
analyses presented by GAHS.
The Board of Directors believes that sufficient procedural safeguards
to ensure fairness of the transaction and to permit the Special Committee
to effectively represent the interests of the Minority Shareholders were
present. The Merger was approved by all of the directors of the Company
who are not employees of the Company (other than James H. Michael, who
did not participate in the deliberation or vote). These non-employee
directors believed there was no need for them to retain any additional
unaffiliated representative to act on behalf of the Minority Shareholders.
The Board of Directors reached this conclusion in view of:
(i) the fact that the Special Committee consisted of a disinterested
director whose sole purpose was to represent the interests of
the Minority Shareholders;
(ii) retention by the Special Committee of independent legal counsel
and financial advisors;
(iii) the fact that the Special Committee, even though consisting of
a director of the Company and therefore not completely unaffiliated
with the Company, is a mechanism well recognized to provide for
fairness in transactions of this type; and
(iv) the fully arms' length negotiations that had taken place between
the Michael Family and the Special Committee.
Opinion of Financial Advisor
As described under "SPECIAL FACTORS-Background of the Merger" above,
the Special Committee engaged GAHS to act as its exclusive financial advisor
in connection with the Company's review of the Michael Family proposal to
acquire the Minority Shares. In connection with the transaction discussed
herein and pursuant to the terms of the engagement, the Special Committee
requested that GAHS evaluate the fairness to the Minority Shareholders from a
financial point of view, of the consideration to be received by them pursuant
to the Merger. On August 13, 1999, GAHS delivered to the Special Committee
GAHS's oral opinion, which was confirmed subsequently in writing, to the
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effect that, as of such date, and subject to the assumptions, procedures and
limitations set forth therein, the proposed Merger Consideration to be
received by the Minority Shareholders pursuant to the Merger Agreement is fair
to such shareholders from a financial point of view.
A copy of GAHS's opinion dated August 13, 1999, which sets forth the
assumptions made, matters considered, and limits on the review taken, is
attached as Exhibit B to this Proxy Statement and is incorporated herein by
reference. The Company's shareholders are urged to read the GAHS opinion in
its entirety. The description set forth below of GAHS's opinion is qualified
in its entirety by reference to the full text of such opinion. GAHS's
opinion is rendered for the benefit and use of the Special Committee in
connection with the Special Committee's consideration of the Merger and does
not constitute a recommendation to any holder of Company Common Stock as to
how such shareholder should vote with respect to the Merger Agreement.
In arriving at its opinion, GAHS undertook such reviews, analyses and
inquiries as it deemed necessary and appropriate under the circumstances.
Among other things, GAHS (i) reviewed the Merger Agreement; (ii) analyzed
financial and other information that is publicly available relating to the
Company, CorVel, and Vicom and their respective assets and liabilities; (iii)
analyzed certain financial and operating data of the Company that was
made available to GAHS by the Company, which data did not include non-public
financial and operating data for CorVel or Vicom; (iv) visited certain
facilities of the Company and discussed with management of the Company the
financial condition, operating results, business outlook and prospects of the
Company (GAHS did not visit CorVel's or Vicom's facilities and did not hold
discussions with CorVel or Vicom regarding their future business outlook); (v)
held discussions with certain third parties with respect to their interest in
acquiring or merging with all or part of the Company's various assets; (vi)
consulted with the Company's tax advisors regarding the tax implications
associated with the sale of the Company's assets in a managed sale process;
(vii) analyzed the possible adverse effect on the market price of CorVel
common stock which might occur in he event of a public market sale of the
Company's 25% ownership position in CorVel; (viii) analyzed the valuations of
publicly traded companies that GAHS deemed comparable to the Company's
operating businesses; (ix) performed a comparable merger and acquisition
analysis for the Company's operating businesses; (x) performed discounted cash
flow analyses related to the Company's primary operating business, Americable
and (xi) analyzed premiums paid for small capitalization stocks.
In arriving at its opinion, GAHS relied upon and assumed the accuracy,
completeness, and fairness of the financial statements and other information
furnished by, or publicly available relating to, the Company or otherwise made
available to GAHS, and did not assume responsibility independently to verify
such information. GAHS further relied upon assurances by the Company that the
information provided to GAHS had a reasonable basis, and with respect to
projections and other business outlook information, reflects the best
currently available estimates, and that the Company is not aware of any
information or fact that would make the information provided to GAHS
incomplete or misleading. In arriving at its opinion, GAHS did not perform
any appraisals or valuations of specific assets or liabilities of the Company
and expressed no opinion regarding the liquidation value of the Company or any
of its assets. GAHS's opinion is based upon the information available to it
and the facts and circumstances as they existed and were subject to evaluation
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on the date of such opinion. In this regard, GAHS relied upon, and noted in
its opinion that, recent trading prices of CorVel common stock, have been
within the range established by Sections 7.02 and 7.03 of the Merger
Agreement. Events occurring after the date of GAHS's opinion, including
changes in the price of CorVel common stock, could materially affect the
assumptions used in preparing such opinion, and the conclusions reached
herein. However, GAHS does not have any obligation to update, revise or
reaffirm its opinion.
GAHS relied, with respect to legal and accounting matters related to the
Merger Agreement, on the advice of the Special Committee's and the Company's
legal and accounting advisors. GAHS made no independent investigation of any
legal or accounting matters that may affect the Company and assumed the
correctness of the legal and accounting advice provided to the Special
Committee, the Company and its Board of Directors.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The
summary of the GAHS analyses set forth below does not purport to be a complete
description of the presentation by GAHS to the Special Committee. In arriving
at its opinion, GAHS did not attribute any particular weight to any analysis
or factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, GAHS
believes that its analyses and the summary set forth below must be considered
as a whole and that selecting portions of its analyses, or of the summary,
without considering all factors and analyses, could create an incomplete view
of the processes underlying the analyses set forth in GAHS's presentation to
the Special Committee and its opinion.
The analyses performed by GAHS (and summarized below) are not necessarily
indicative of actual values or actual future results, which may be
significantly more or less favorable than those suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to
be appraisals or to reflect the prices at which businesses actually may be
acquired.
Overview of Analysis. The analysis of the Company's value incorporated
several components. In addition to the two operating companies that are part
of the Company (Americable and Enstar Networking), the Company also has
other associated assets and liabilities. These assets include cash
(approximately $12,645,000 on June 30, 1999), a 38.5% ownership interest in
Vicom, and a 25% ownership interest in CorVel. The CorVel stock ownership
represents the primary asset of the Company. The liabilities associated with
the Company include long term note obligations, income tax liabilities which
would be incurred in the event of a sale of certain assets, lease obligations
related to a facility in the United Kingdom, potential liabilities associated
with the Company's historical relationship with Michael Foods, and estimated
transaction costs associated with the proposed transaction. The value of the
Company's CorVel stock ownership must be considered together with the
potential tax liability that would be incurred if such stock were sold,
liquidated or potentially distributed to its shareholders. GAHS analyzed the
Company's various operating entities separately, and then combined the results
with the other assets and liabilities of the Company. The following
summarizes the analyses performed relative to the Company.
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CorVel. GAHS analyzed the value of the Company's 25% (2,050,000 shares)
ownership interest in CorVel based upon its current market value and the taxes
associated with the sale of the Company's CorVel stock under the current
Company corporate structure. Based upon analysis and review of the market for
large block trading, GAHS determined that the sale of a large block of CorVel
in the market would require a discount of approximately 10% from current
market prices due to CorVel's low average daily trading volume.
GAHS's analysis of CorVel's common stock trading history consisted of
historical analyses of the trading prices and volumes of stock traded. GAHS
considered the high and low closing prices for CorVel common stock over the
one-year period ended March 5, 1999, the last trading day before the date on
which the Michael Family made its initial offer. On March 31, 1998, CorVel's
common stock reached a one-year high closing price of $19.88 and on August
31,1998, reached a one-year low closing price of $16.81. The average daily
volume of CorVel's Common Stock for the 12 months ended on March 8, 1999,
the date of the original announcement regarding the Michael Family's proposal,
was 16,337 shares.
GAHS used two scenarios in its analysis of the Company's CorVel stock
ownership. In the first scenario, GAHS assumed that the Company would sell
all of its CorVel stock in the open market at a 10% discount from an assumed
market price of $21.00 per share of CorVel common stock (August 10, 1999
closing price). This would result in proceeds having a pre-tax value of
$12.03 per share of the Company's Common Stock and an after-tax value of $8.23
per share of the Company's Common Stock (assuming 3,220,473 shares of the
Company's Common Stock outstanding, which is equal to the outstanding shares
plus options held by persons other than members of the Michael Family).
In the second scenario, GAHS assumed that the Company would make a
taxable distribution of the bulk of its CorVel shares to its shareholders,
while selling in the open market a sufficient number of CorVel shares to cover
the Company's anticipated statutory federal and state corporate tax
obligations. In this scenario, GAHS assumed that tax obligations would
require the sale of approximately 800,000 shares and that such sale would take
place at a 10% discount from an assumed $21.00 market price. The remaining
shares would be distributed to the Company's existing shareholders with an
assumed value equal to the market price of $21.00 per CorVel share. The
second scenario results in a pre-tax value of $12.85 per share of the
Company's Common Stock and an after tax value of $8.75 per share of the
Company's Common Stock.
GAHS calculated the taxes associated with the sale of the Company's
CorVel shares assuming a total tax basis of $700,000 and giving effect
to a $4,000,000 net operating loss from the Company that would have been
credited against the Company's taxable gain incurred in connection with the
sale or distribution of the Company's ownership in CorVel.
Americable.
(i) Analysis of Publicly Traded Comparable Companies.
GAHS analyzed selected historical and projected financial, operating, and
stock market data of Americable, and other publicly traded companies that GAHS
deemed to be comparable to Americable. The five companies deemed by GAHS to
be reasonably comparable to Americable in terms of products and services
offered, markets served and business prospects were: (1) Anixter International
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Inc., (2) Arrow Electronics, Inc., (3) Nortech Systems Incorporated,
(4) Anicom Inc., and (5) Waters Instruments Inc. (the "Americable Comparable
Companies"). No company utilized in the comparable company analysis is
identical to Americable. Accordingly, an analysis of the results of the
foregoing necessarily involves complex considerations and judgments concerning
the differences in financial and operating characteristics of Americable and
other factors that could affect the public trading value of the comparable
companies to which it is being compared.
GAHS examined certain publicly available financial data of the Americable
Comparable Companies including the ratio of firm value (equity value plus
total debt less cash and equivalents) to latest-twelve-month ("LTM") revenue;
and the ratio of firm value to LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA"). GAHS implied a 25% discount to the
Americable Comparable Companies ratios because all of the Americable
Comparable Companies were significantly larger than Americable in sales and
profitability. GAHS selected 25% as the appropriate discount in this and in
subsequent analyses based upon its experience in mergers, acquisitions and
valuations involving companies of various sizes and the relative values
applied in such transactions.
This analysis showed that after application of the 25% discount, the
Americable Comparable Companies had a multiple of firm value to LTM revenue
ranging from 0.2x to 0.5x, with a median of 0.3x and a multiple of firm value
to EBITDA ranging from 2.5x to 8.3x, with a median of 6.5x.
By applying median ratios derived from the Americable Comparable Company
analysis to the historical and projected operating results of Americable,
Americable's implied equity value ranged from $1.31 to $1.49 per share of the
Company's Common Stock, net of Americable debt of $2.3 million (as of June 30,
1999) and potential capital gains taxes or credits.
(ii) Analysis of Selected Merger and Acquisition Transactions.
GAHS compared the valuations of Americable with selected comparable
merger and acquisition transactions. No transaction analyzed in the
comparable transaction analysis is identical to Americable. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of Americable and other factors that could affect the
acquisition value of the companies to which it is being compared.
GAHS performed an analysis of eight merger and acquisition transactions
involving data network component manufacturing companies that occurred between
April 1, 1997 and August 10, 1999. GAHS's analysis focused on multiples of
transaction value to revenues and earnings before interest and taxes ("EBIT")
because other income statement measures were not publicly available for most
of the acquired companies. GAHS implied a 25% discount to the multiples
generated from these merger and acquisition transactions due to Americable's
small size relative to the other transactions. This analysis of eight merger
and acquisition transactions showed that after application of the 25%
discount, transaction value to revenue multiples ranged from 0.1x to 1.3x and
EBIT multiples ranged from 1.5x to 7.0x. with a median of 0.4x and 4.2x
respectively. By applying the median multiples derived from the selected
merger and acquisition transactions to the projected revenue and EBIT of
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Americable, Americable's implied equity value ranged from $0.93 to $1.65 per
share of the Company's Common Stock, net of Americable debt of $2.3 million
and potential capital gains taxes or credits.
(iii) Discounted Cash Flow.
GAHS analyzed the valuation of Americable based on the discounted cash
flow of the projected five-year financial performance estimates of Americable
prepared by the Company's management. Americable's weighted average cost of
capital for purposes of this analysis was calculated to range from 10 to 20%.
Terminal values were calculated by applying both an EBITDA multiple of 5.0x to
the projected EBITDA of Americable in fiscal year 2004 and by applying a 2%
perpetual growth rate to the projected free cash flow in fiscal year 2004.
Based on this analysis, Americable's implied equity values ranged from $0.89
to $2.14 per share of the Company's Common Stock, net of capital gains taxes
or credits.
(iv) Book Value.
GAHS also reviewed the book value of Americable, which was $6,539,000 as
of June 30, 1999, in determining its valuation range for Americable. This
book value gives an implied equity value of $1.70 per share of the Company's
Common Stock, net of capital gains taxes. The book value of Americable
includes a total of $4,405,000 of intangible assets and $1,350,000 of
value associated with the Company's investment in Vicom.
Enstar Networking (Dallas Operation).
(i) Analysis of Publicly Traded Comparable Companies.
GAHS analyzed selected historical and projected financial, operating, and
stock market data of Enstar Networking, and other publicly traded companies
that GAHS deemed to be comparable to Enstar Networking. The five companies
deemed by GAHS to be reasonably comparable to Enstar Networking in terms of
products and services offered, markets served and business prospects were
(1) Secure Computing Corporation, (2) Datatec Systems, Inc., (3) Vanstar
Corporation, (4) Inacom Corp. and (5) Compucom Systems, Inc. (the "Enstar
Networking Comparable Companies"). No company utilized in the Comparable
Company Analysis is identical to Enstar Networking. Accordingly, an analysis
of the results of the foregoing necessarily involves complex considerations
and judgments concerning the differences in financial and operating
characteristics of Enstar Networking and other factors that could affect the
public trading value of the comparable companies to which it is being
compared.
GAHS examined certain publicly available financial data of the Enstar
Networking Comparable Companies including the ratio of firm value (equity
value plus total debt less cash and equivalents) to 1999 projected revenue;
and the ratio of firm value to 1999 projected EBITDA. For this analysis,
projected revenues and EBITDA were used due to Enstar Networking's historical
losses which would have made any LTM estimates meaningless and because of
Enstar Networking's recent change in business strategy. GAHS implied a 25%
discount to the Enstar Networking Comparable Companies ratios because all of
the Enstar Networking Comparable Companies were significantly larger than
Enstar Networking.
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This analysis showed that after application of the 25% discount, the
Enstar Networking Comparable Companies had a multiple of firm value to
projected revenue ranging from 0.1x to 0.7x, with a median of 0.2x; and a
multiple of firm value to projected EBITDA ranging from 1.2x to 4.1x, with a
median of 2.5x.
By applying the median ratios derived from the Enstar Networking
Comparable Company analysis to the projected operating results of Enstar
Networking, Enstar Networking's implied equity value ranged from $0.43 to
$1.00 per share of the Company's Common Stock, net of capital gains taxes or
credits.
(ii) Other Methodologies.
GAHS did not conduct a discounted cash flow analysis for Enstar
Networking because of historical operating losses for that business and
difficulty in predicting whether future earnings can be sustained. GAHS did
not conduct an analysis of comparable merger and acquisition transactions
because it was unable to identify any transactions with sufficient
similarities to make such analysis meaningful.
(iii) Book Value.
GAHS also reviewed the book value of Enstar Networking, which was
$574,000 as of June 30, 1999, in determining its valuation range for Enstar
Networking. This book value gives an implied equity value of $0.18 per share
of the Company's Common Stock.
Vicom.
GAHS's analysis of the Company's investment in Vicom consisted of
historical analysis of the trading prices of Vicom. The Company owns 38.5% of
Vicom. On January 1, 1999, Vicom's Common Stock reached a one-year high of
$3.00 and on April 1, 1998, reached a one-year low of $0.31. Vicom's average
daily volume for the twelve months ended March 8, 1999 was 2,532 shares. GAHS
applied a 25% discount from Vicom's stock price of $2.00 in August 1999, and
discounted the Vicom note receivable by a present value factor of 15%, to
arrive at an implied equity value of $0.74 per share of the Company's Common
Stock. A 25% discount was applied due to the low trading volume and small
market capitalization of Vicom. Similarly, a 15% discount was applied to the
note receivable from Vicom due to the risk factors associated with Vicom's
ongoing business.
Cash.
The Company had $12,645,000 in cash as of June 30, 1999.
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Other Liabilities.
GAHS considered several liabilities associated with the Company's
operations. First, the Company had approximately $16.2 million of obligations
associated with its debenture program as of June 30, 1999 ($5.02
per share). Second, as incorporated in the preceding analyses of the
Company's assets, the Company would incur tax liabilities of approximately
$12.8 million associated with any sale or distribution of its operating assets
($3.98 per share).
GAHS also considered a $100,000 lease obligation associated with one of
the Company's former operations in the United Kingdom, $750,000 in fees
and expenses associated with the proposed transaction and the costs of
insuring against potential tax liabilities associated with the Company's 1997
spin-off from Michael Foods of $300,000 ($0.36 per share in the aggregate).
Composite Analysis.
Using the analyses described above, GAHS developed an estimated composite
valuation of the Company. The composite valuation was determined by adding
the average valuations derived from the valuation ranges for each asset and
subtracting the Company's liabilities, with such valuations stated per share
of the Company's Common Stock. For example, the preceding analysis of the
Company's CorVel stock stated that the after tax value of the Company's CorVel
stock was determined to be within the range of $8.23 to $8.74 per share of the
Company's Common Stock. The value of the CorVel stock used in the composite
valuation was $8.49, the average of the values in the range. The preceding
analysis of Americable used four different methodologies which indicated that
the value of Americable was within the range of $0.89 and $2.14, after
considering applicable capital gains taxes or credits. The value of
Americable used in the composite valuation was $1.22, the average of the
values in the range. The preceding analysis of Enstar Networking used two
different methodologies that indicated that the value of Enstar Networking was
within the range of $0.18 to $1.00, after applicable taxes or credits. The
value of Enstar Networking used in the composite analysis was $0.68, the
average of the values in the range. The Company's investment in Vicom as
described in the preceding analysis was estimated to have a value of $0.74.
The Company's cash was added and liabilities were subtracted (net value of
($0.85) per share from the total to arrive at an estimated composite valuation
of $10.28 per share of the Company's common stock. The proposed Merger
Consideration of $12.50 per share compares favorably to the estimated
composite valuation of $10.28.
Acquisition Premiums Analysis.
GAHS analyzed the premiums paid for 44 recent mergers and acquisitions of
publicly traded companies with transaction values under $100 million that were
executed in the period including 1997 through March 1999. The mean and the
median premium paid over targets' stock prices four weeks before the
announcement date were 31.7% and 28%, respectively, one week before
the announcement date were 27.2% and 25.3%, respectively, and one day before
the announcement date were 23.9% and 20.7%, respectively. The premium of the
$12.50 price for the Minority Shares to be paid by the Michael Family over the
Company's closing price on March 8, 1999 (the last trading day before the
Michael Family's initial offer), is 56.3%.
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Common Stock Trading History.
GAHS's analysis of the Company's Common Stock trading history consisted
of historical analyses of the trading prices and volumes of the Company's
Common Stock traded. GAHS considered the high and low closing prices for the
Company over the one-year period ended March 5, 1999. On November 16, 1998
the Company's Common Stock reached a one-year high closing price of $9.25 and
on August 3, 1998, reached a one-year low closing price of $5.88. The average
daily volume for the twelve months ended on the trading day before March 8,
1999 was 5,214 shares.
<PAGE>
Fee and Other Information.
GAHS was engaged to render an opinion to the Special Committee in
connection with the Merger Agreement based upon its qualifications, expertise
and reputation, including the fact that GAHS is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, underwriting, sales and distributions of listed and unlisted
securities, private placements and valuations for corporate and other
purposes.
Pursuant to a letter agreement with the Company dated June 7, 1999 (the
"Engagement Letter"), GAHS was entitled to a fee of $125,000 after delivering
its opinion. Upon consummation of the Merger, GAHS is entitled to additional
cash compensation of approximately $75,000. GAHS received a retainer of
$30,000 upon being engaged by the Special Committee. This retainer will be
credited against the total fee to be paid at closing. The Company has agreed
to reimburse GAHS for out-of-pocket expenses, including reasonable fees and
expenses of counsel, and to indemnify GAHS for liabilities and expenses
arising out of the Merger Agreement or transactions in connection therewith,
including liabilities under federal securities laws. The terms of the fee
agreement with GAHS, which are customary in transactions of this nature, were
negotiated at arm's length between the Company and GAHS, and the Special
Committee and Board of Directors were aware of such arrangement. Prior to
such engagement, GAHS was engaged by the Company on August 27, 1998 to pursue
various strategic alternatives. During this engagement, GAHS received
$338,683 in connection with the sale of the Company's subsidiary, Transition
Networks, Inc. on December 10, 1998 and $50,000 in connection with the sale of
a division of the Company, Enstar Networking (Midwest division) on January 8,
1999.
Position of the Michael Family and Acquisition Company as to Fairness of the
Merger
The Michael Family and Acquisition Company have considered the analyses
and findings of the Special Committee and the Company's Board of Directors
(described in detail in "-Recommendations of the Company's Special Committee
and Board of Directors") with respect to the fairness of the Merger to the
Minority Shareholders. Based upon (1) the reasons set forth under
"-Recommendations of the Company's Special Committee and Board of
Directors" which were made known to the Michael Family and Acquisition Company
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subsequent to the Special Committee's and the Company's Board of Directors
determination that the Merger Consideration was fair to and in the best
interests of the Minority Shareholders, (2) the Michael Family's understanding
of and familiarity with the Company's business, (3) the Michael Family's due
diligence investigation of the Company and (4) the fact that GAHS delivered
its opinion to the Special Committee, the Michael Family and Acquisition
Company believe that the Merger Consideration is fair to the Minority
Shareholders from a financial point of view.
Neither the Michael Family nor Acquisition Company attached specific
weights to any factors in reaching its belief as to fairness and did not
perform any independent analysis with respect thereto. In addition, neither
the Michael Family nor Acquisition Company received any report, opinion or
appraisal from an outside party which is materially related to the Merger
Agreement or the Merger. In particular, neither the Michael Family nor
Acquisition Company received any report, opinion or appraisal relating to the
fairness of the Merger Consideration to the Minority Shareholders.
Plans for the Company After the Merger
After the Merger, the Michael Family anticipates that it will continue
its review of the Company and its assets, businesses, operations, properties,
policies, corporate structure, dividend policy, capitalization and management
and will consider whether any changes would be desirable in light of the
circumstances then existing. Effective upon consummation of the Merger,
Jeffrey J. Michael, the sole director of the Acquisition Company, will be the
initial director of the Surviving Corporation. It is currently contemplated,
however, that James H. Michael will become a director of the Surviving
Corporation shortly after the consummation of the Merger. The Michael Family
anticipates that it may cause the Surviving Corporation to redeem certain of
its publicly offered debentures following the Merger. If such indebtedness
would be refinanced, the Surviving Corporation would be relieved of reporting
obligations under the Exchange Act. Following the Merger, the Michael Family
will consider the desirability of making an election to treat the Company as
an "S corporation" for purposes of the Internal Revenue Code of 1986, as
amended.
Except for the foregoing, and as otherwise indicated in this Proxy
Statement, the Michael Family does not have any other present plans or
proposals which relate to or would result in an extraordinary corporate
transaction, such as a merger, reorganization or liquidation, involving the
Company or any of its subsidiaries, a sale or transfer of a material amount of
assets of the Company or any of its subsidiaries or any material change in the
Company's capitalization or any other material changes in the Company's
corporate structure or business or the composition of the Company's Board of
Directors or management. However, the Michael Family has informed the Company
that it reserves the right to change its plans for the Company after the
Merger at any time.
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Certain Effects of the Merger
Pursuant to the Merger Agreement, following approval of the Merger by the
shareholders and subject to the fulfillment or waiver of certain conditions,
Acquisition Company will be merged with and into the Company, and the Company
will continue as the surviving corporation in the Merger. As a result of the
Merger, the Minority Shareholders will be entitled to receive $12.50 in cash,
without interest, for each of their shares of Common Stock outstanding at the
time of the Merger. The Merger Consideration represents approximately a 24%
premium over the $10.063 closing price of the Company's Common Stock on August
13, 1999, the day the Merger Agreement was announced, and approximately a 56%
premium over the $8.00 closing price of the Company's Common Stock on March 8,
1999, the day of the announcement of the Michael Family's proposal to purchase
the Minority Shares for $10.00 per share. As a result of the Merger, the
entire equity interest of the Company will be owned by the Michael Family, and
the Minority Shareholders will have no continuing interest in the Company.
Therefore, following the Merger, the Minority Shareholders will no longer
benefit from any increases in the value of the Company and will no longer bear
the risk of any decreases in the value of the Company. In addition, the
Minority Shareholders may recognize a taxable gain as a result of the Merger.
See "SPECIAL FACTORS-Certain Federal Income Tax Consequences."
In order to complete the Merger, Acquisition Company will be required to
borrow funds which debt will become an obligation of the Surviving Corporation
following the Merger. Following the Merger, the Michael Family will own 100%
of the Company and will have complete control over the management and conduct
of the Company's business, all income generated by the Company and any future
increase in the Company's value. Similarly, the Michael Family will also bear
the risk of any losses incurred in the operation of the Company and any
decrease in the value of the Company.
Following the Merger, the Common Stock will no longer meet the
requirements of the Nasdaq National Market for continued listing and will,
therefore, be delisted from Nasdaq. The Common Stock is currently registered
as a class of securities under the Exchange Act. Registration of the Common
Stock under the Exchange Act may be terminated upon application of the Company
to the Commission if the Common Stock is not listed on a national securities
exchange or quoted on Nasdaq and there are fewer than 300 record holders of
the Common Stock. Termination of registration of the Common Stock under the
Exchange Act would substantially reduce the information required to be
furnished by the Company to its shareholders and to the Commission and would
make certain provisions of the Exchange Act, such as the short-swing trading
provisions of Section 16(b), the requirement of furnishing a proxy statement
in connection with shareholders' meetings pursuant to Section 14(a), and the
requirements of Rule 13e-3 under the Exchange Act with respect to "going
private" transactions, no longer applicable to the Company. It is the present
intention of the Michael Family to cause the Company to make an application
for the termination of the registration of the Common Stock under the Exchange
Act as soon as practicable after the Effective Time of the Merger.
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<PAGE>
At the close of the Merger, unexercised options to purchase Common Stock
under the Company's stock option plan, other than those held by members of the
Michael Family, will be converted into cash. See "THE MERGER AGREEMENT-
Treatment of Stock Options." The Company's articles of incorporation and
bylaws in effect immediately before the Merger will remain the Company's
articles of incorporation and bylaws immediately after the Merger.
The Company's executive officers immediately before the Merger will
remain the Company's executive officers immediately after the Merger. Jeffrey
J. Michael, the sole director of the Acquisition Company immediately before
the Merger, will become the Company's initial director after the Merger.
Conduct of the Company's Business if the Merger is Not Completed
If the Merger is not approved by the Company's shareholders and the
Merger does not occur, the Company expects to continue its current operations
as an independent company. There are no plans in such circumstances to
operate the business in a manner different from present operations.
Interests of Certain Persons in the Merger
In considering the recommendations of the Special Committee and the Board
of Directors of the Company with respect to the Merger Agreement and the
transactions contemplated thereby, shareholders should be aware that certain
members of the management and the Board of Directors of the Company have
certain interests in the Merger in addition to the interests of shareholders
of the Company generally or have certain relationships, including those
referred to below, that present actual or potential, or the appearance of
actual or potential, conflicts of interest in connection with the Merger. In
connection with the Special Committee's and the Board of Directors'
determination that the Merger is fair to the Minority Shareholders, the
Special Committee and the Board of Directors were aware of the following
potential or actual conflicts of interest and carefully considered them along
with other matters described under "-Recommendations of the Company's Special
Committee and Board of Directors."
Relationship Between the Company and the Michael Family. The Michael
Family beneficially owns approximately 65.5% of the outstanding Common Stock.
Jeffrey J. Michael is the Company's President and Chief Executive Officer and
is a member of the Company's Board of Directors. James H. Michael is the
Company's Chairman of the Board of Directors.
Employment Agreements. Certain agreements relating to the employment of
two executive officers of the Company and the termination of their employment
are described in the section of this Proxy Statement captioned "EXECUTIVE
COMPENSATION AND STOCK OPTIONS-Employment Contracts and Termination of
Employment Arrangements." Pursuant to a Severance and Retention Agreement
between Americable and Peter E. Flynn dated April 5, 1999, the Company's
Executive Vice President and Americable's President, Mr. Flynn will be
entitled to a bonus payment equal to 50% of his annual compensation
(approximately $100,000) if he continues to be employed with the Company
through December 31, 1999 or earlier upon consummation of the Merger.
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<PAGE>
Stock Options. Under the terms of the Merger Agreement, the Merger will
cause the acceleration of vesting of all outstanding stock options of the
Company, and all such options will be canceled as of the Effective Time. The
Michael Family will not receive any payments with respect to the canceled
options held by its members. The following table sets forth, with respect to
each employee and director of the Company, information concerning cash
settlements of "in-the-money" stock options that will be paid in connection
with the consummation of the Merger. See "THE MERGER AGREEMENT-Treatment of
Stock Options" and "MANAGEMENT OF THE COMPANY AND THE ACQUISITION COMPANY-The
Company." The cash settlement amounts are based upon the spread between
$12.50 and the exercise price of such options and do not take into account any
withholding of taxes that may be required.
<TABLE>
<CAPTION>
Cash
Number of Exercise Settlement
Option Shares Price Amount
------------- -------- ----------
<S> <C> <C> <C>
Richard J. Braun 4,000 $ 9.00 $ 14,000
(Director) 10,000 7.375 51,250
1,000 6.50 6,000
Miles E. Efron 4,000 9.00 14,000
(Director) 10,000 7.375 51,250
1,000 6.50 6,000
Peter E. Flynn 23,500 9.00 82,250
(Executive Vice President) 90,000 7.375 461,250
Thomas S. Wargolet 14,250 9.00 49,875
(Former Chief Financial Officer) 50,000 7.375 256,250
William P. Dease 11,000 9.00 38,500
(Vice President, Human Resources) 25,000 7.375 128,125
</TABLE>
Special Committee Compensation. In connection with serving as the sole
member of the Special Committee, Richard J. Braun received $50,000, all of
which has been paid. The Company and Mr. Braun entered into an agreement
providing for indemnification of Mr. Braun against claims and actions relating
to his service on the Special Committee.
Indemnification of Officers and Directors. The Merger Agreement provides
that, following the Effective Time, the Surviving Corporation will maintain in
effect all rights of indemnification of the officers, directors, employees or
agents of the Company and its subsidiaries provided in its articles of
incorporation, bylaws or in indemnification agreements with the Company or any
of its subsidiaries, and will indemnify and hold harmless such persons to the
full extent permitted by law against losses, claims, damages, liabilities,
costs, expenses, judgments, fines and amounts paid in settlement in connection
with any threatened or actual claim, action, suit, proceeding or
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<PAGE>
investigation, asserted or arising before or after the Effective Time. The
Acquisition Company has also agreed to cause the Surviving Corporation to
maintain, for the benefit of such persons, for a period of not less than six
years after the Effective Time, any current officer's and director's liability
insurance policies maintained by the Company, or policies with substantially
the same coverage, provided that if the cost of such continuing coverage
exceeds 200% of the annual premium currently paid by the Company, the
Surviving Corporation will purchase as much comparable insurance as possible
for an annual premium equal to such maximum amount.
Source of Funds
The amount of funds required to (1) fund the payment of the Merger
Consideration and the settlement of outstanding stock options; and (2) pay the
fees and expenses in connection with the Merger is estimated to be
approximately $15 million. The Acquisition Company and the Michael Family
intend to obtain approximately $13.1 million of these funds under a revolving
credit facility and term loan agreement and the remainder from the Company's
existing cash balances.
On July 26, 1999, the Michael Family entered into a commitment letter
agreement with National City Bank under which National City Bank agreed to
provide the Michael Family a revolving loan of up to $8.0 million and a term
loan of $6.0 million, the proceeds of which will then be loaned by the
Michael Family to the Acquisition Company. This commitment is subject to
customary conditions, including the negotiation, execution and delivery of
definitive documentation with respect to such commitment. As of the date of
this Proxy Statement, the terms of the new credit facility and loan agreement
have not yet been agreed upon. The Michael Family's loan to the Acquisition
Company will then become an obligation of the Surviving Corporation upon the
consummation of the Merger.
Fees and Expenses
The Company and Acquisition Company estimate that merger-related fees and
expenses, consisting primarily of financial advisory fees, SEC filing fees,
fees and expenses of investment bankers, attorneys and accountants and other
related charges, will total approximately $750,000, assuming the Merger is
completed. This amount consists of the following estimated fees:
<TABLE>
<CAPTION>
Description Amount
------------------------------------ -----------
<S> <C> <C>
Investment banking fees and expenses $250,000
Legal fees and expenses 200,000
Printing and mailing fees 120,000
Accounting fees and expenses 25,000
SEC filing fee 2,850
Exchange agent fees 15,000
Miscellaneous expenses 137,150
--------
Total $750,000
========
</TABLE>
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<PAGE>
For information regarding GAHS's engagement by the Special Committee,
see "-Opinion of Financial Advisor." Certain of the Company's officers
and directors will receive certain payments if the Merger is consummated.
See "-Interest of Certain Persons in the Merger."
Certain Federal Income Tax Consequences
Under currently existing provisions of the Internal Revenue Code of 1986,
as amended (the "Code"), the Treasury Regulations promulgated thereunder,
applicable judicial decisions and administrative rulings, all of which are
subject to change, the federal income tax consequences described below are
expected to arise in connection with the Merger. Due to the complexity of the
Code, the following discussion is limited to the material federal income tax
aspects of the Merger for a Company shareholder who is a citizen or resident
of the United States. The general tax principles discussed below are subject
to retroactive changes that may result from subsequent amendments to the Code.
The following discussion does not address potential foreign, state, local and
other tax consequences, nor does it address taxpayers subject to special
treatment under the federal income tax laws, such as insurance companies,
tax-exempt organizations, S corporations and taxpayers subject to the
alternative minimum tax. In addition, the following discussion may not apply
to Company shareholders who acquired their shares upon the exercise of
employee stock options or otherwise as compensation. Neither the Company, the
Acquisition Company nor the Michael Family has requested either the Internal
Revenue Service or counsel to rule or issue an opinion on the federal income
tax consequences of the Merger. All shareholders are urged to consult their
own tax advisors regarding the federal, foreign, state and local tax
consequences of the disposition of their shares in the Merger.
For federal income tax purposes, the Merger will be treated as a taxable
sale or exchange of shares of Common Stock for cash by each holder of such
shares (including any holder of Dissenting Shares). Accordingly, the federal
income tax consequences to the holders of Common Stock will generally be as
follows:
(a) Assuming that the shares of Common Stock exchanged by a Company
shareholder for cash in connection with the Merger are capital assets in the
hands of the shareholder at the Effective Time, such shareholder will
recognize capital gain or loss by reason of the consummation of the Merger.
(b) The capital gain or loss, if any, will be long-term with respect to
shares of Common Stock held for more than 12 months as of the Effective Time
and short-term with respect to such shares held for 12 months or less as of
the Effective Time.
(c) The amount of capital gain or loss to be recognized by each holder
of Common Stock will be measured by the difference between the amount of cash
payable for the account of such shareholder in connection with the Merger
(including cash received for Dissenting Shares) and such shareholder's tax
basis in the Common Stock at the Effective Time.
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<PAGE>
Cash payments made pursuant to the Merger (including any cash paid to
holders of Dissenting Shares) will be reported to the extent required by the
Code to shareholders of the Company and the Internal Revenue Service. Such
amounts will ordinarily not be subject to withholding of federal income tax.
However, backup withholding of such tax at a rate of 31% may apply to certain
shareholders by reason of the events specified in Section 3406 of the Code and
the Treasury Regulations promulgated thereunder, which include failure of a
shareholder to supply the Company or its agent with such shareholder's
taxpayer identification number. Accordingly, each Company shareholder will be
asked to provide the shareholder's correct taxpayer identification number on a
Substitute Form W-9 which is to be included in the letter of transmittal to be
sent to shareholders relating to their shares of Common Stock. Withholding
may also apply to Company shareholders who are otherwise exempt from such
withholding, such as a foreign person, if such person fails to properly
document its status as an exempt recipient.
The cash settlement amounts distributed in connection with the Merger to
holders of options to acquire shares of the Common Stock will constitute
"wages," and will be subject to income tax withholding. The gross amount due,
the withheld amount and the net payment will be included in each option
holder's W-2 form for 1999.
Accounting Treatment
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger will be allocated among
the Surviving Corporation's consolidated assets and liabilities based on the
fair values of the assets acquired and liabilities assumed.
Public Offerings and Repurchases of Common Stock
The Company has not made an underwritten public offering for cash since
it became a publicly held company in March 1997. Pursuant to a stock
repurchase program, the Company purchased a total of 290,266 shares of its
Common Stock during the second and third quarters of 1998. The price per
share of such repurchases ranged from $6.25 to $6.65 and the quarterly average
repurchase prices were as follows: $6.625 in the second quarter of 1998 and
$6.44 in the third quarter of 1998.
Regulatory Approvals
In connection with the Merger, the Company and Acquisition Company will
be required to file Articles of Merger with the Secretary of State of the
State of Minnesota in accordance with the Minnesota Business Corporation Act
after the approval of the Merger Agreement by the Company's shareholders, and
comply with federal and state securities laws. It is not expected that any
other state or federal regulatory approvals will be required in connection
with the Merger.
-33-
<PAGE>
THE MERGER AGREEMENT
On August 13, 1999, the Company entered into the Merger Agreement with
Acquisition Company and the Michael Family. The following is a summary of the
material provisions of the Merger Agreement. Because it is a summary, it does
not include all of the information that is included in the Merger Agreement.
The text of the Merger Agreement, which is attached as Appendix A to this
Proxy Statement, is incorporated into this section by reference. Shareholders
are encouraged to read the Merger Agreement carefully in its entirety.
The Merger
If the shareholders of the Company approve the Merger Agreement, the
Acquisition Company will be merged with and into the Company, and the separate
corporate existence of the Acquisition Company will cease. The Company will
be the Surviving Corporation and will be wholly owned by the Michael Family.
At the Effective Time each share of the Common Stock held by the Minority
Shareholders (other than Dissenting Shares) will be converted automatically
into the right to receive $12.50 in cash without interest. See
"-Consideration to be Received by Shareholders." The shares of the Common
Stock will no longer be listed or traded on Nasdaq, and the
registration of the Common Stock under the Exchange Act will be terminated.
Effective Time
If the Merger Agreement is adopted by the requisite vote of the Company's
shareholders, the Merger will be consummated and become effective upon the
acceptance for record of the Articles of Merger by the Minnesota Secretary of
State on a date as soon as practicable after conditions to the Merger are
satisfied (or waived to the extent permitted), or such other date agreed on by
the parties. It is currently contemplated that the Effective Time will occur
on or about October , 1999. There can be no assurance that all conditions
to the Merger will be satisfied. See "- Conditions to Consummation of the
Merger."
<PAGE>
Consideration to be Received by Shareholders
In connection with the Merger, each share of Common Stock outstanding
immediately prior to the Effective Time (other than Dissenting Shares) will be
converted into the right to receive $12.50 in cash, without interest.
Dissenting Shares will be converted to cash in the manner described under the
caption "RIGHTS OF DISSENTING SHAREHOLDERS."
Exchange and Payment Procedures
Norwest Bank Minnesota, National Association (the "Exchange Agent") will
act as the Exchange Agent for payment of the Merger Consideration to the
holders of the Common Stock. Instructions with regard to the surrender of
certificates formerly representing shares of Common Stock, together with the
letter of transmittal to be used for that purpose, will be mailed to
shareholders as soon as practicable after the Effective Time. As soon as
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<PAGE>
practicable following receipt from the shareholder of a duly executed letter
of transmittal, together with certificates formerly representing Common Stock
and any other items specified by the letter of transmittal, the Exchange Agent
will pay the Merger Consideration to such shareholder, by check or draft.
After the Effective Time, the holder of a certificate formerly
representing Common Stock will cease to have any rights as a shareholder of
the Company, and such holder's sole right will be to receive the Merger
Consideration with respect to such shares (or, in the case of Dissenting
Shares, the statutorily determined "fair value"). If payment is to be made to
a person other than the person in whose name the surrendered certificate is
registered, it will be a condition of payment that the certificates so
surrendered be properly endorsed or otherwise in proper form for transfer and
that the person requesting such payment shall pay any transfer or other taxes
required by reason of such payment or establish to the satisfaction of the
Surviving Corporation that such taxes have been paid or are not applicable.
No transfer of shares outstanding immediately prior to the Effective Time will
be made on the stock transfer books of the Surviving Corporation after the
Effective Time.
Any portion of the Merger Consideration remaining undistributed upon
termination of the Exchange Agent's appointment will be returned to the
Surviving Corporation, and any holders of theretofore unsurrendered Common
Stock certificates may thereafter surrender to the Surviving Corporation such
stock certificates and (subject to abandoned property, escheat or similar
laws) receive in exchange therefor the Merger Consideration to which they are
entitled.
Shareholders of the Company should not forward their stock certificates
to the Exchange Agent without a letter of transmittal, and should not return
their stock certificates with the enclosed proxy.
Treatment of Stock Options
As of the Effective Time, all outstanding options to purchase shares of
the Common Stock will be canceled. In consideration of such cancellation, the
Michael Family will cause the Surviving Corporation to pay to the holder of
each such option, other than members of the Michael Family, whether or not
such option has vested, an amount (the "Option Settlement Amount") determined
by multiplying (1) the excess of $12.50 over the exercise price per share of
the option by (2) the number of shares subject to the option. The amount
paid shall be net of tax withholding. No interest will be paid on the
Option Settlement Amount. Under the Merger Agreement, the Company has agreed
to take such actions as are necessary to fully advise holders of options of
their rights under the Merger Agreement and their respective stock option
agreements. After the Effective Time, no holder of an option will have any
rights other than to receive payment for such holder's options equal to the
Option Settlement Amount.
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<PAGE>
Operations of the Company Prior to the Merger
The Company has agreed that, prior to the Effective Time, the business of
the Company will be conducted in accordance with certain restrictions set
forth in the Merger Agreement. Among other things, the Company has agreed
that unless the Acquisition Company otherwise agrees in writing, the Company
will, and will cause its subsidiaries of which it owns, directly or
indirectly, more than 50% of the equity interest therein ("Company
Subsidiaries") to, operate only in the ordinary course of business,
substantially consistent with past practice, use its reasonable best efforts
to maintain its business organization and the services of its officers,
employees and consultants, and preserve its current relationships with
customers, suppliers and others. The Company has also agreed that prior to
the Effective Time it will not do any of the following: (a) amend or change
its articles of incorporation or bylaws, (b) issue , sell, pledge, dispose of,
grant or encumber any shares of capital stock of the Company or Company
Subsidiaries or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock except pursuant to
stock options outstanding on August 13, 1999, or any of the Company's or
Company Subsidiaries' assets, except for sales in the ordinary course of
business consistent with past practice, except pursuant to stock options
outstanding on August 13, 1999, (c) declare, set aside, make or pay any
dividend or other distribution in respect of any of its capital stock, whether
in cash, stock, property or otherwise, (d) reclassify, combine, split,
subdivide or redeem, purchase or otherwise acquire, directly or indirectly,
any of its capital stock, (e) except in the ordinary course of business
consistent with past practice, acquire any business entity or assets, incur,
guarantee or endorse any indebtedness, enter into any material contracts, make
any capital expenditure not budgeted prior to August 13, 1999, increase the
compensation of, grant any bonus to, or enter into any employment or severance
agreement with any officer, director or employee, enter into or amend any
collective bargaining agreement, or establish, adopt, enter into or amend any
employee benefit plan or agreement, or (f) settle or compromise any pending or
threatened litigation which is material or which relates to the transactions
contemplated by the Merger Agreement, unless, after consultation with
independent counsel, the Company's Board of Directors believes that such
action is necessary to comply with its fiduciary duties.
No Solicitation
In addition, the Company has agreed that until the earlier of the
termination of the Merger Agreement or the Effective Time, neither the Company
nor any Company Subsidiaries will, and each of them shall direct and use its
best efforts to cause its officers, directors and other representatives not
to, directly or indirectly, initiate, solicit or knowingly encourage, or take
any other action to facilitate knowingly, any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Competing Transaction (as defined below), or enter into or continue
discussions or negotiations with any person or entity in furtherance of such
inquiries or to obtain a Competing Transaction, or agree to or endorse any
Competing Transaction, or authorize any of the officers, directors or
employees of the Company or any Company Subsidiary or any representative
-36-
<PAGE>
retained by the Company to take any such action, and the Company has agreed to
notify the Acquisition Company promptly of all inquiries or proposals which
the Company or any Company Subsidiary may receive relating to any of such
matters and if such inquiry or proposal is in writing, the Company shall
deliver to the Michael Family a copy of such inquiry or proposal. Nothing in
the Merger Agreement, however, prohibits the Special Committee or the Board of
Directors of the Company from:
(a) furnishing information to, or entering into discussions or
negotiations with, any person or entity that makes an unsolicited,
bona fide proposal that constitutes, or may reasonably be expected
to lead to, any Competing Transaction, if, and only to the extent
that, (i) the Special Committee or the Board of Directors, after
consultation with its independent legal counsel, determines in good
faith that such action is necessary for the Special Committee or
the Board of Directors to comply with its fiduciary duties to the
Minority Shareholders under applicable law, and (ii) prior to
furnishing such information to, or entering into discussions or
negotiations with, such person or entity, the Company provides
prompt written notice to the Michael Family of such activities,
receives from such person or entity an executed agreement to the
effect that such person or entity will not disclose any
confidential information of the Company and the Company's
subsidiaries, and keeps the Michael Family informed of the status
(but not the terms) of any such discussions or negotiations;
(b) complying with Rule 14e-2 promulgated under the Exchange Act with
regard to a tender or exchange offer; or
(c) failing to make or withdrawing or modifying the recommendation of
the Special Committee and the Board of Directors to the Company's
shareholders to approve the Merger Agreement or modifying or
halting the solicitation of proxies for shareholder approval
following the making of a proposal that constitutes a Competing
Transaction if the Special Committee or the Board of Directors of
the Company, after consultation with its independent legal counsel,
determines in good faith that such action is necessary for the
Special Committee or the Board of Directors of the Company to
comply with its fiduciary duties to the Minority Shareholders under
applicable law.
If the Company receives a proposal for a Competing Transaction, the
Company is required to notify the Acquisition Company of the material terms
and conditions of the Competing Transaction, and is required to afford the
Acquisition Company the opportunity, for a period of five business days after
the Acquisition Company's receipt of such notice, to make a revised offer for
consideration by the Special Committee and during such five business days the
Company may not enter into a written agreement with respect to such Competing
Transaction.
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<PAGE>
A Competing Transaction is defined in the Merger Agreement as a proposal
for any (i) merger, consolidation, share exchange, business combination or
other similar transaction involving the Company (other than the Merger or
certain sale transactions involving Company Subsidiaries), (ii) sale, lease,
exchange, mortgage, pledge, transfer or other disposition, in a single
transaction or a series of transactions, of any assets of the Company and its
subsidiaries representing 25% or more of the consolidated assets of the
Company and its subsidiaries, (iii) tender offer or exchange offer or the
filing of a registration statement in connection with the acquisition of more
than 25% of the outstanding shares of Common Stock, (iv) transaction in which
any person or group of persons will acquire beneficial ownership or the right
to acquire beneficial ownership of 25% or more of the outstanding shares of
Common Stock, or (v) any public announcement of a proposal, plan or intention
to enter into any of the foregoing transactions. To be considered a Competing
Transaction, the proposal must be a bona fide, unsolicited written proposal to
engage in such a transaction that the Special Committee determines, in good
faith, after consultation with its financial and legal advisors, and taking
into account all the terms and conditions, is more favorable to the Minority
Shareholders than the Merger and for which financing to the extent required is
then fully committed or reasonably determined to be available by the Special
Committee.
Other Agreements
The Company has agreed in the Merger Agreement to take certain actions,
as promptly as practicable following the execution of the Merger Agreement,
relating to necessary Commission filings in connection with the Merger, mail
this Proxy Statement to the Company's shareholders and include the
recommendation of the Special Committee and the Board of Directors unless
otherwise necessary due to applicable fiduciary duties of the directors of the
Company. The Company and the Acquisition Company have agreed to use their
best efforts to (a) take all appropriate action and do all things necessary,
proper or advisable under applicable law or required to be taken by any
governmental authority or otherwise to consummate and make effective the
Merger as promptly as practicable, (b) obtain from any governmental
authorities any consents, approvals and the like in connection with the Merger
Agreement and consummation of the Merger and (c) as promptly as practicable,
make all necessary filings and other required submissions with respect to the
Merger Agreement and the Merger required under securities laws and other
applicable laws. The Company and the Acquisition Company have further agreed
to take certain actions with respect to notices to third parties and the
receipt of third party consents in connection with the Merger and to notify
the other party of threatened actions, proceedings or investigations by
governmental authorities or others in connection with the Merger.
The Michael Family and the Acquisition Company have agreed in the Merger
Agreement to use their reasonable best efforts to cause the Acquisition
Company and/or the Michael Family to enter into a binding credit facility or
loan agreement with respect to a financing to allow the Acquisition Company to
transfer to the Surviving Corporation the aggregate Merger Consideration.
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<PAGE>
Conditions to Consummation of the Merger
Mutual Closing Conditions. The Merger will occur only if the following
conditions have been satisfied: (A) the Merger Agreement and the Merger have
been approved and adopted by (i) the affirmative vote of a majority of the
Minority Shares and (ii) the affirmative vote of a majority of all of the
outstanding shares of Company Common Stock, (B) no governmental authority or
federal or state court of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any order, executive order, stay, decree,
judgment or injunction (each an "Order") or statute, rule or regulation which
is in effect and which has the effect of making the Merger illegal or
otherwise prohibiting consummation of the Merger, and (C) all actions by, or
filings with, any governmental authority required to permit the consummation
of the Merger shall have been completed or obtained. Consummation of the
Merger also is subject to the satisfaction of certain other conditions
specified in the Merger Agreement, unless such conditions are waived (to the
extent such waiver is permitted by law). The failure of any such condition to
be satisfied, if not waived, would prevent consummation of the Merger.
Additional Closing Conditions for Acquisition Company's Benefit. The
obligations of the Acquisition Company to consummate the Merger are subject to
satisfaction of, among others, the following conditions: (a) the Company
shall have performed in all material respects all of its obligations under the
Merger Agreement required to be performed by it at or prior to the Effective
Time, (b) except to the extent expressly permitted under the Merger Agreement,
the representations and warranties of the Company contained in the Merger
Agreement shall be true as of the Effective Time as if made at and as of such
time, (c) the Dollar Weighted Trading Price of the CorVel shares shall not be
less than $20.00, (d) holders of no more than 5% of the outstanding Common
Stock shall have exercised dissenters' rights, (e) there shall not be
instituted or pending any action or proceeding by any government or
governmental authority that has a reasonable likelihood of success, before any
court or governmental authority, (i) challenging or seeking to make illegal,
to delay materially or otherwise directly or indirectly to restrain or
prohibit the consummation of the Merger or seeking to obtain material damages
or otherwise directly or indirectly relating to the transactions contemplated
by the Merger Agreement, (ii) seeking to restrain or prohibit the Surviving
Corporation's (including its subsidiaries and affiliates) ownership or
operation of all or any material portion of the business or assets of the
Company and Company Subsidiaries, taken as a whole, or to compel the Surviving
Corporation or any of its subsidiaries or affiliates to dispose of or hold
separate all or any material portion of the business or assets of the Company
and Company Subsidiaries, taken as a whole, (iii) seeking to impose or confirm
material limitations on the ability of the Surviving Corporation or any of its
subsidiaries or affiliates to effectively control the business or operations
of the Company and Company Subsidiaries, taken as a whole, or the ability of
the Michael Family effectively to exercise full rights of ownership of
any shares of the Surviving Corporation or any of its subsidiaries or
affiliates prior to the Effective Time on all matters properly presented to
the Surviving Corporation's shareholders, or (iv) seeking to require
divestiture by the Michael Family of any shares of the Surviving
Corporation, and no court, arbitrator or governmental body, agency or official
shall have issued any judgment, order, decree or injunction, and there shall
not be any statute, rule regulation proposed, adopted or enacted, that, in the
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sole judgment of the Acquisition Company, is likely, directly or indirectly,
to result in any of the consequences referred to in the preceding clauses (i)
through (iv), (f) the Acquisition Company shall have received all documents it
may reasonably request relating to the existence of the Company and Company
Subsidiaries and the authority of the Company for the Merger Agreement, all in
form and substance satisfactory to the Acquisition Company, (g) funds in an
amount sufficient to pay the Merger Consideration shall have been transferred
by the Acquisition Company to or in the manner directed by Company or the
Surviving Corporation for the account of the Surviving Corporation, or the
Acquisition Company shall have otherwise demonstrated to the sole satisfaction
of the Special Committee that it has immediate access to sufficient funds to
enable performance of the obligations of the Acquisition Company under the
Merger Agreement and (h) the Acquisition Company shall have received such
documents as it may reasonably request that evidence that the modifications to
the Company stock options required under the Merger Agreement have been duly
approved by the Company and that the holders of such stock options have duly
consented to, and approved such modifications.
Additional Closing Conditions for the Company's Benefit. The obligations
of Company to consummate the Merger are subject to satisfaction of the
following conditions, among others: (a) the Acquisition Company shall have
performed in all material respects all of its obligations under the Merger
Agreement required to be performed by it at or prior to the Effective Time,
(b) except to the extent expressly permitted under the Merger Agreement, the
representations and warranties of the Acquisition Company contained in the
Merger Agreement shall be true in all material respects at and as of the
Effective Time as if made at and as of such time, (c) the Dollar Weighted
Trading Price of the CorVel shares shall not be greater than $26.00, (d) the
Acquisition Company shall have entered into the binding credit facility or
loan agreement or otherwise demonstrated to the sole satisfaction of the
Special Committee that it has immediate access to sufficient funds to enable
performance by it of its obligations under the Merger Agreement and (e) the
Company shall have received a certificate signed, on behalf of the Company by
the Chief Executive Officer of Company, to the effect that, to the best of his
knowledge, all the representations and warranties made by the Company in the
Merger Agreement are true, correct and complete in all material respects as of
the Effective Time.
Termination
The Merger Agreement may be terminated and the Merger abandoned at any
time prior to the filing of Articles of Merger with the Minnesota Secretary of
State whether before or after action by the Company's shareholders and without
further approval by the Company's shareholders under any of the following
circumstances: (i) by mutual written consent of the Company, the Special
Committee and the Acquisition Company; (ii) by either the Company or the
Acquisition Company, if the Effective Time shall not have occurred on or
before December 15, 1999 so long as the terminating party is not then in
breach in any material respect of its obligations under the Merger Agreement;
(iii) by either the Company or the Acquisition Company, if there shall be any
law or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining the
Acquisition Company or the Company from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and
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<PAGE>
nonappealable; (iv) by the Acquisition Company if the Special Committee shall
have (x) withdrawn or modified or amended in a manner adverse to the
Acquisition Company, its approval or recommendation of the Merger Agreement
and the Merger or its recommendation that shareholders of the Company adopt
and approve the Merger Agreement and the Merger or (y) approved, recommended
or endorsed any proposal for a Competing Transaction or (z) if the Company has
failed to mail notice of a meeting of the Company's shareholders or failed to
mail the proxy statement relating to the Merger to its shareholders within 20
days after being cleared by the Securities and Exchange Commission or failed
to include in such statement the recommendation referred to above; (v) by the
Company, if in the exercise of its good faith judgment (after consultation
with legal counsel) as to its fiduciary duties to the Minority Shareholders
under applicable law, the Special Committee, or the Board of Directors of the
Company, determines that such termination is required by such fiduciary duties
by reason of a proposal for a Competing Transaction; (vi) by either the
Acquisition Company or the Company, if a majority of the Minority Shareholders
of the Company shall have failed to approve and adopt the Merger Agreement and
the Merger at a meeting duly convened therefor; (vii) by the Acquisition
Company, upon a breach of any material representation, warranty, covenant or
agreement on the part of the Company set forth in the Merger Agreement, or if
any material representation or warranty of the Company shall have become
untrue, subject to certain exceptions; (vii) by the Company, upon breach of
any material representations, warranty, covenant or agreement on the part of
the Acquisition Company set forth in the Merger Agreement, or if any material
representation or warranty of the Acquisition Company shall have become
untrue, subject to certain exceptions; (viii) by the Company if the Dollar
Weighted Trading Price of CorVel shares is greater than $26.00 per share; (ix)
by the Acquisition Company, if the Dollar Weighted Trading Price of CorVel
shares is less than $20.00 per share; and (x) by the Acquisition Company, if
the holders of more than 5% of the outstanding shares of the Common Stock
shall have exercised dissenters' rights.
RIGHTS OF DISSENTING SHAREHOLDERS
Under the Minnesota Business Corporation Act ("MBCA"), the holders of
Common Stock are entitled to certain dissenters' rights with respect to the
Merger. The following is a summary of the rights of the shareholders of the
Company who dissent from the Merger. The summary does not purport to be
complete and is qualified in its entirety by reference to Sections 302A.471
and 302A.473 of the MBCA (the "Minnesota Dissenters' Rights Statute"), a copy
of which is attached as Exhibit C hereto.
Under the MBCA, shareholders have the right to dissent from the Merger
and, subject to certain conditions provided for under Minnesota law, are
entitled to receive payment for the fair value of their shares of Common
Stock. Assuming shareholder approval of the Merger Agreement, shareholders
will be bound by the terms of the Merger Agreement unless they dissent by
complying with all of the requirements of the Minnesota Dissenters' Rights
Statute. Any shareholder contemplating exercising the right to demand such
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payment should carefully review the Minnesota Dissenters' Rights Statute, a
copy of which is included as Exhibit C to this Proxy Statement, and in
particular the procedural steps.
Set forth below, to be read in conjunction with the full text of the
Minnesota Dissenters' Rights Statute, is a summary of the procedures relating
to the exercise of dissenters' rights by shareholders of the Company.
Any shareholder who wishes to dissent must deliver to the Company, prior
to the vote on the Merger Agreement, a written notice of intent to demand
payment for such shareholder's shares if the applicable transaction is
effectuated. In addition, such shareholder must not vote his or her shares of
Common Stock in favor of the Merger Agreement. A shareholder who fails to
deliver the notice on time or who votes in favor of the Merger Agreement will
not have any dissenters' rights. If a shareholder returns a signed proxy but
does not specify a vote against approval of the Merger Agreement or a
direction to abstain, the proxy will be voted for approval of the Merger
Agreement, which will have the effect of waiving such shareholder's
dissenters' rights.
If the Merger Agreement is approved by the Company's shareholders, the
Company is required to deliver a written dissenters' notice to all of its
shareholders who gave timely notice of intent to demand payment and who did
not vote in favor of the Merger Agreement. The notice must (i) state where
the payment demand and certificates of certificated shares must be sent in
order to obtain payment and the date by which they must be received; (ii)
inform shareholders of uncertificated shares to what extent transfer of the
shares will be restricted after the payment demand is received; (iii) supply a
form for demanding payment and requiring the dissenting shareholder to certify
the date on which such shareholder acquired his or her shares of Common Stock;
and (iv) be accompanied by a copy of the Minnesota Dissenters' Rights Statute.
In order to receive fair value for the shares of Common Stock, a
shareholder who is sent the dissenters' notice described above must demand
payment within 30 days following the date of notice, deposit such
shareholder's certificates representing shares of Common Stock and complete
other information as required by such notice. A shareholder who demands
payment and deposits such shareholder's certificates representing shares of
Common Stock as requested by the dissenters' notice retains all other rights
of a shareholder of the Company until such rights are canceled by the
consummation of the Merger. The Company may restrict the transfer of
uncertificated shares from the date of the demand for payment until the Merger
is consummated; however, the holder of uncertificated shares retains all other
rights of a shareholder of the Company until those rights are canceled by the
consummation of the Merger.
Except for shares of Common Stock acquired by a dissenting shareholder
after the date of the first announcement to the public of the transaction from
which such dissenting shareholder dissents, upon the consummation of the
Merger, or upon receipt of the payment demand (whichever is later), the
Company must pay each dissenting shareholder who complies with the foregoing
requirements the amount the Company estimates to be the fair value of the
dissenting shareholder's shares of Common Stock plus accrued interest. The
payment must be accompanied by certain financial information concerning the
Company, a statement of the Company's estimate of the fair value of the
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shares, an explanation of the method used to reach the estimate, a brief
description of the procedure to be followed to demand supplemental payment and
a copy of the Minnesota Dissenters' Rights Statute.
If a dissenting shareholder believes the payment received from the
Company is less than fair value for the shares of Common Stock plus interest,
the dissenting shareholder must give written notice to the Company of his or
her own estimate of the fair value of the shares (with interest) within 30
days after the date of the Company's remittance to the dissenting shareholder
and must demand payment of the difference between his or her estimate and the
Company's remittance. If the dissenting shareholder fails to give written
notice of such estimate to the Company within the 30-day time period, such
dissenting shareholder will be entitled only to the amount remitted by the
Company.
If the Company and the dissenting shareholder cannot settle the
dissenting shareholder's demand within 60 days after the Company receives the
dissenting shareholder's estimate of the fair value of his or her shares, then
the Company will file an action in a court of competent jurisdiction in
Hennepin County, Minnesota, asking the court to determine the fair value of
the shares. All dissenting shareholders whose demands are not settled within
the applicable 60-day settlement periods shall be made parties to this
proceeding.
After notice to such dissenting shareholders, the court will institute
proceedings to determine the fair value of the shares. The court may appoint
one or more persons as appraisers to receive evidence and make recommendations
to the court. Dissenting shareholders will be entitled to discovery on the
same basis as any other party to a civil action. The court will determine the
fair value of the shares, taking into account any and all factors the court
finds relevant. The fair value of the shares will be computed by any method
or combination of methods that the court, in its discretion, sees fit to use.
The fair value of the shares, as determined by the court, is binding on all
dissenting shareholders. If the court determines that the fair value of the
shares is in excess of the Company's estimate of the fair value of the shares,
then the court will enter a judgment in favor of the holders in an amount by
which the value determined by the court exceeds the Company's estimated value,
plus interest.
If a shareholder is considering exercising his or her dissenters' rights,
the shareholder should bear in mind that the fair value of his or her shares
determined under Sections 302A.471 and 302A.473 of the Minnesota Business
Corporation Act could be more than, the same as or, in certain circumstances,
less than the consideration the shareholder would receive pursuant to the
Merger Agreement if the shareholder does not seek appraisal of his or her
shares. Furthermore, the opinion of any investment banking firm as to
fairness, from a financial point of view, is not an opinion as to fair value
under Sections 302A.471 and 302A.473.
Cash received pursuant to the exercise of dissenters' rights may be
subject to federal or state income tax. See "SPECIAL FACTORS-Certain Federal
Income Tax Consequences."
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Any holder who fails to comply fully with the statutory procedure
summarized above will forfeit his or her rights of dissent and will receive
the Merger Consideration for his or her shares. See Exhibit C.
ELECTION OF DIRECTORS
General
In the event that the Merger Agreement is not approved and adopted, the
shareholders will be asked to vote on the election of directors of the
Company. If the Merger is approved and adopted, no such vote will be taken,
and Jeffrey J. Michael, the sole director of the Acquisition Company, will,
upon the effectiveness of the Merger, become the initial director of the
Surviving Corporation.
In the event that directors are to be elected, the Board of Directors has
recommended that the number of directors to be elected for the coming year be
set at four. The Board of Directors has nominated and recommends that the
shareholders elect the four nominees named below as directors of the Company
for the ensuing year and until their respective successors are duly elected
and qualified.
Unless otherwise indicated thereon, the persons named in the enclosed
form of proxy intend to vote FOR the election of the four nominees listed
below. The affirmative vote of a majority of the shares of the Company's
Common Stock present or represented by proxy and entitled to vote at the
Annual Meeting is required to elect each of the nominees as directors for the
ensuing year or until their successors are elected and have qualified. All of
the nominees are members of the present Board of Directors. If for any reason
any nominee shall be unavailable for election to the Board of Directors, votes
will be cast pursuant to authority granted by the enclosed proxy for such
other candidate or candidates as may be nominated by the Board of Directors.
The Board of Directors has no reason to believe that any of the nominees
listed below will be unable to serve if elected to office.
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<PAGE>
Nominees
Certain information concerning the nominees for director follows:
<TABLE>
<CAPTION>
Name Biographical Information
- --------------------------- --------------------------------------------
<S> <C>
James H. Michael (age 79) Mr. James H. Michael has served as Chairman of
the Board of ENStar since March 1996. Mr.
Michael served on the Board of Directors of
North Star Universal, Inc. ("NSU"), of which
ENStar was a wholly owned subsidiary prior to
February 1997, and was the Chairman of the Board
of NSU prior to July 1991. Also prior to March
1996, Mr. Michael was Chairman of the Board of
Michael Foods, Inc. "Michael Foods"), into which
NSU was merged in February 1997. Mr. Michael is
the father of Jeffrey J. Michael, ENStar's
President and Chief Executive Officer.
Miles E. Efron (age 73) Mr. Miles E. Efron has served on the Board of
Directors of ENStar since March 1996. From July
1991 until February 1997, Mr. Efron served as
Chairman of the Board of Directors of NSU. Mr.
Efron also is a director of Medtox Scientific,
Inc.
Richard J. Braun (age 55) Mr. Richard J. Braun has served as a director of
ENStar since March 1996. Mr. Braun served on
the Board of Directors of NSU from 1994 to 1996.
Since July 1996 he also has served as Chief
Executive Officer and a Director of Medtox
Scientific, Inc., a company that provides
laboratory and diagnostic testing services.
From 1994 to 1996, Mr. Braun acted as a private
investor and provided management consulting
services to the health care and technology
industries. From 1992 to 1994, Mr. Braun served
as Chief Operating Officer and a Director of
Employee Benefit Plans, Inc. (NYSE: EBP).
Jeffrey J. Michael (age 43) Mr. Jeffrey J. Michael has served as the
President and Chief Executive Officer of the
Company since March 1996. Mr. Michael was an
initial director and officer (serving as
President and Secretary) of ENStar at the time
it was organized by NSU in December 1995. Mr.
Michael served as President and Chief Executive
Officer of NSU from December 1990 until February
1997. Mr. Michael is the son of James H.
Michael. Mr. Michael also is a director of
Michael Foods and CorVel.
</TABLE>
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<PAGE>
Information Concerning the Board of Directors
The Board of Directors met three times in 1998. The Board of Directors
has established an Audit Committee and a Compensation Committee. The Board of
Directors has not established a nominating committee.
The Audit Committee, consisting of Mr. Efron and Mr. Braun, met one time
in 1998. The Audit Committee reviews and makes recommendations and reports to
the Board with respect to (i) the independent auditors, (ii) the quality and
effectiveness of internal controls, (iii) engagement or discharge of the
independent auditors, (iv) professional services provided by the independent
auditors, and (v) the review and approval of major changes in the Company's
accounting principals and practices.
The Compensation Committee, consisting of Mr. Efron and Mr. Braun,
took written action once in 1998. The Compensation Committee considers and
recommends to the Board salaries, bonuses and other remuneration for the
Company's executive officers. This committee also administers the ENStar 1996
Stock Incentive Plan (the "Stock Incentive Plan").
During 1998, all of the directors attended all of the meetings of the
Board of Directors and Messrs. Efron and Braun both attended the meeting of
the Audit Committee.
Compensation of Directors
In 1998, the Company's non-employee directors received an annual retainer
of $8,000 for serving as members of the Company's Board of Directors.
Directors incurring travel expenses to attend meetings are reimbursed in full.
Under the Stock Incentive Plan, each non-employee director of ENStar,
upon his or her initial election as a director, is granted an option to
purchase 4,000 shares of Common Stock. Starting with the 1997 Annual Meeting,
each non-employee director of ENStar is also granted an option to purchase
1,000 shares of Common Stock on the date of the annual meeting of shareholders
each year if the director will remain in office immediately following such
meeting. The exercise price of each option is equal to 100% of the fair
market value per share of Common Stock on the date of grant. Such options are
non-qualified stock options, become exercisable six months after the date of
grant and terminate on the fifth anniversary of the date of grant or earlier,
under certain circumstances.
On March 8, 1999 the Board of Directors appointed a Special Committee of
the Board consisting of Richard A. Braun to consider the proposal by the
Michael Family to acquire the shares of Common Stock of the Company not
already owned by members of the Michael Family. For serving on the Special
Committee, Mr. Braun received $50,000 in fees pursuant to this arrangement,
which have been paid in full.
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EXECUTIVE COMPENSATION AND STOCK OPTIONS
Report of the Compensation Committee on Executive Compensation
The Compensation Committee of the Board of Directors submitted the
following report on the matters discussed therein.
General. The Compensation Committee of the Board of Directors (the
"Committee") establishes the specific compensation for the Company's executive
officers who do not have direct operating responsibilities at one of the
Company's operating subsidiaries. The Committee also is responsible for
administering the Company's Stock Incentive Plan. Compensation for officers
of the Company's operating subsidiaries, Americable and Enstar Networking,
generally is determined by the Company's Chief Executive Officer, consistent
with the salary structure and bonus programs at such operating subsidiaries.
Executive Compensation Philosophy and Goals. The Company has only one
executive officer who does not have direct operating responsibilities at any
of its operating subsidiaries, Jeffrey J. Michael, President and Chief
Executive Officer. The compensation arrangements for Mr. Michael are designed
to motivate and reward the executive for attaining financial and strategic
objectives essential to the Company's overall success and continued growth,
while at the same time allowing the Company to retain high caliber executives.
The key components of the Company's compensation programs are base salaries,
cash bonuses and stock options.
The Company's other current named executive officers include Peter E.
Flynn, Executive Vice President and Secretary of the Company who is also
President of Americable, and Ronald D. Newman, President of Enstar Networking.
The compensation arrangements for Messrs. Flynn and Newman are designed to
motivate and reward these executives primarily for the financial performance
of the operating subsidiaries for which they perform services, although,
certain of Mr. Flynn's compensation is based on his additional
responsibilities as an executive officer of the Company.
Base Salaries. The Committee generally believes executive officers' base
salaries should be moderate, yet competitive in relation to salaries commanded
by persons in similar positions; however, the Committee also believes that a
portion of each executive officer's compensation should be contingent and
based on the Company's and such officer's performance.
In setting an executive officer's base salary, the Company considers the
personal performance of the officer, the relative importance of the functions
the officer performs, the scope of the officer's ongoing responsibilities and
estimated salary levels in effect at comparable companies for comparable
positions. The weight given to each of these factors varies between
individuals and is a subjective determination by the Committee or, in the case
of the named executive officers at the Company's operating subsidiaries, the
Company's Chief Executive Officer after consultation with the members of the
Committee. In 1998, Mr. Michael's base salary was $180,000 until April 1998,
at which time it was reduced to $160,000. In 1998, Mr. Flynn's base salary
was $157,500 until April 1998, at which time it was reduced to $145,000. The
base salaries were reduced in April 1998 to place more emphasis on cash
bonuses as an incentive mechanism, as well as to adjust for a greater emphasis
on stock options, which were granted in December 1997.
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<PAGE>
Cash Bonuses. Annual bonuses for executives with direct operating
responsibility at the Company's operating subsidiaries are designed to reward
such executives for personal contributions to the success of such operating
subsidiary and generally are earned under a structured formula. Individual
performance targets are established based on an annual operating budget, which
is submitted for review and approved by the Chief Executive Officer of the
Company after consultation with the members of the Committee. At the end of
the calendar year, the Chief Executive Officer evaluates actual financial
performance against individual performance targets. The potential cash
bonuses range from 10% to 40% of the executive's annual base salary, beginning
when operating profits exceed minimum levels of performance (80% of budget)
and increasing incrementally up to the maximum when the profits equal or
exceed a superior performance target (120% of budget).
The annual cash bonuses for Messrs. Michael and Flynn are largely
discretionary based on each such officer's contribution to the achievement of
strategic goals of the Company. Mr. Michael received a bonus of $40,000 with
respect to 1998 and Mr. Flynn received a bonus of $83,000 with respect to
1998. These bonuses reflect the achievement of strategic goals, in particular
the sale of the Company's former subsidiary, Transition Networks, Inc.
("Transition"), in December 1998 and substantial progress in the sale of
certain assets of Enstar Networking during 1998. Mr. Flynn's bonus also
reflects the achievement of operating goals at Americable.
Stock Options. The Company has in the past granted, and may grant in the
future, stock options to executive officers in the belief that the limited use
of stock options for the Company's corporate staff will motivate executives to
achieve positive long-term financial results increasing shareholder value. In
1998, the only executive officer to receive stock options was Thomas S.
Wargolet, the former Chief Financial Officer and Secretary.
The Company's operating subsidiaries have established separate stock
option programs. The Committee believes that the use of separate stock option
programs at the operating subsidiary level will cause those persons with
operating responsibilities at an operating subsidiary to focus more directly
on the performance of such subsidiary.
1998 CEO Compensation. During 1998, Mr. Jeffrey J. Michael, as President
and Chief Executive Officer of ENStar, had overall responsibility for the
strategic direction of ENStar and the performance of ENStar's operating
subsidiaries. Mr. Michael first was elected President of NSU in December
1990, and was elected President of ENStar at the time of its initial
organization.
Mr. Michael's compensation at ENStar in 1998 consisted of base salary and
a cash bonus. Mr. Michael's compensation was determined based on
consideration of the factors discussed under the headings "Base Salaries" and
"Cash Bonuses" appearing above.
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<PAGE>
This report of the Committee shall not be deemed incorporated by
reference by any general statement incorporating by reference this proxy
statement into any filing under the Securities Act of 1933, as amended, or
under the Securities Exchange Act of 1934, as amended, except to the extent
that the Company specifically incorporates this information by reference, and
shall not otherwise be deemed filed under such acts.
Miles E. Efron
Richard J. Braun
Members of the Compensation Committee
Summary of Cash and Certain Other Compensation
The following table provides certain summary information concerning
compensation paid or accrued by the Company to or on behalf of the President
and Chief Executive Officer and the four other most highly compensated
executive officers (the "Named Executive Officers") for each of the last
three fiscal years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation
------------------- -------------
<S> <C> <C> <C> <C>
Name and Salary Bonus Stock All Other
Principal Position Year ($) ($) Options(#)(1) Compensation
- ------------------- ---- --------- ------- ------------- ---------
Jeffrey J. Michael 1998 $165,385 $40,000 0 7,196(2)
President and Chief 1997 187,654 0 125,000 7,146
Executive Officer 1996(3) -- -- 28,500 --
Peter E. Flynn 1998 148,365 83,000 0 6,590(4)
Executive Vice 1997 157,939 0 90,000 6,889
President 1996(5) -- -- 23,500 --
C.S. Mondelli 1998 140,000 48,296 0 51,951(6)
President and Chief 1997 138,058 16,250 0 4,087
Executive Officer 1996 120,000 24,000 70,000(7) 2,769
of Transition
Ronald D. Newman 1998 145,385 15,000 125,000(8) 4,010(9)
President of 1997 124,000 13,347 20,000(10) 1,718
Enstar Networking 1996 85,000 10,150 25,000(10) 476
Thomas S. Wargolet 1998 90,000 5,625 50,000 2,869(9)
Chief Financial 1997 90,000 0 0 4,404
Officer and Secretary 1996 87,231 26,100 49,250(11) 2,890
- ----------------------
</TABLE>
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<PAGE>
(1) None of the Named Executive Officers held or received any awards of
restricted shares.
(2) Consists of $4,800 contributed to the Company's 401(k) plan for the
benefit of Mr. Michael and $2,396 of which represents life and
disability insurance premiums paid by ENStar for the benefit of Mr.
Michael.
(3) During 1996, Mr. Michael did not receive any cash compensation from
the Company. Mr. Michael did receive an annual salary of $235,000
from NSU, and $7,196 in other compensation, $4,750 of which
represents amounts contributed by NSU for the benefit of Mr.
Michael pursuant to NSU's 401(k) plan, and $2,466 of which
represents life and disability insurance premiums paid by NSU for
the benefit of Mr. Michael.
(4) Consists of $4,451 contributed to the Company's 401(k) plan for the
benefit of Mr. Flynn and $2,139 of which represents life and
disability insurance premiums paid by ENStar for the benefit of Mr.
Flynn.
(5) During 1996, Mr. Flynn did not receive any cash compensation from
the Company. Mr. Flynn did receive an annual salary of $161,330
and a bonus of $100,000 from NSU, and $6,889 in other compensation,
$4,750 of which represents amounts contributed by NSU for the
benefit of Mr. Flynn pursuant to NSU's 401(k) plan, and $2,139 of
which represents life and disability insurance premiums paid by NSU
for the benefit of Mr. Flynn.
(6) Consists of $4,800 contributed to the Company's 401(k) plan for the
benefit of Mr. Mondelli and $47,151 relating to the termination of
options to purchase Transition stock in connection with the sale of
Transition in December 1998.
(7) Represents options to purchase shares of Transition common stock.
(8) Represents options to purchase shares of Enstar Networking common
stock.
(9) Amount contributed to the Company's 401(k) plan for the benefit of
employee.
(10) Represents options to purchase shares of Americable. Such options
were terminated in connection with the January 1998 grant of
options to purchase Enstar Networking common stock.
(11) Includes options to purchase 35,000 shares of Americable which have
subsequently been cancelled.
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Option Grants During 1998. The following table sets forth individual
grants of stock options made to the Named Executive Officers during the year
ended December 31, 1998:
<TABLE>
<CAPTION>
Potential
Realizable Value
Percent of At Assumed Annual
Number of Total Exercise Rates of
Securities Options Price or Stock Price
Underlying Granted to Base Appreciation
Options Employees in Price/ for Option
Granted Fiscal Year Share Expiration Term (1)
Name (#) (%) ($) Date 5%($) 10%($)
- ----------------------------- ----------- -------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
Jeffrey J. Michael 0 -- -- -- -- --
Peter E. Flynn 0 -- -- -- -- --
C.S. Mondelli 0 -- -- -- -- --
Ronald D. Newman 125,000(2) 29%(2) $1.00 1/1/08 $78,612 $199,218
Thomas S. Wargolet 50,000(3) 100% $7.375 12/31/08 $231,905 $587,692
- --------------------------
</TABLE>
(1) The compounding assumes a ten year exercise period for all option
grants. The 5% and 10% assumed annual rates of compounded stock
price appreciation are mandated by rules of the Securities and
Exchange Commission and do not represent ENStar's estimate or
projection of future common stock prices. These amounts represent
certain assumed rates of appreciation only. Actual gains, if any,
on stock option exercises are dependent on the future performance
of the common stock of ENStar and overall stock market conditions.
The amounts represented in the table may not necessarily be
achieved.
(2) Each option represents the right to purchase one share of common
stock of Enstar Networking. The options are all non-qualified
stock options. The options become exercisable with respect to
one-third of such shares each year over a period of three years
from the date of grant and have a term of ten years. To the extent
not already exercisable, the options generally become exercisable
in the event of a merger in which ENStar is not the surviving
corporation, a transfer of all the stock of ENStar, a sale of
substantially all the assets, or a dissolution or liquidation, of
ENStar.
(3) Each option represents the right to purchase one share of common
stock of the Company. The options are all non-qualified stock
options. The options become exercisable with respect to 25% of
such shares each year over a period of four years from the date of
grant and have a term of ten years. To the extent not already
exercisable, the options generally become exercisable in the event
of a merger in which ENStar is not the surviving corporation, a
transfer of all the stock of ENStar, a sale of substantially all
the assets, or a dissolution or liquidation, of ENStar.
-51-
<PAGE>
Aggregated Option Exercises in 1998 and Year End Option Values. The
following table provides information concerning stock option exercises and the
value of unexercised options at December 31, 1998, for the Named Executive
Officers:
<TABLE>
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options At Options at
Acquired Year End (#) Year End ($)
On Value --------------- ----------------
Exercise Realized Exer- Unexer- Exer- Unexer-
Name (#) ($) cisable cisable cisable cisable
- ------------------ -------- -------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Jeffrey J. Michael 0 $ 0 45,500 108,000 0 0
Peter E. Flynn 0 34,250 79,250 0 0
C.S. Mondelli (1) 0 0 0 0 0
Ronald D. Newman 0 0 125,000(2) 0 0
Thomas S. Wargolet 0 7,125 57,125 0 0
- ------------------
</TABLE>
(1) Mr. Mondelli's employment terminated in December 1998. See
"-Summary Compensation Table" above.
(2) Represents the right to purchase shares of Enstar Networking.
Americable and Enstar Networking maintain separate stock option
plans. The exercise price of the options granted pursuant to the
plans of the operating subsidiaries are determined by the Board of
Directors of the respective operating subsidiaries, based on the
then current fair value of the common stock. Pursuant to the terms
of the applicable option agreements under the plans, the shares of
common stock that may be purchased pursuant to the options are
subject to restrictions on transfer and certain repurchase rights
by each of the respective issuers and by ENStar, based on a
valuation formula. The option agreements also include certain
covenants with respect to nondisclosure of confidential information
and non-competition.
Employment Contracts and Termination of Employment Arrangements
The Company has entered into severance agreements with certain of its
executive officers and employees, including Messrs. Flynn and Michael.
Pursuant to Mr. Flynn's agreement, he will be entitled to severance payments
and benefits if the Company terminates his employment within 24 months
following a change in control of the Company or Americable if the termination
is by the Company without "cause" or by Mr. Flynn for "good reason," as
defined in the agreement. The Merger is not a change in control for purposes
of this agreement. The agreement provides for a lump sum payment equal to 24
-52-
<PAGE>
months of total compensation as in effect prior to the termination plus
continuation of benefits for 24 months. The agreement also provides that if
such a termination of employment occurs that is not in connection with a
change in control, Mr. Flynn will be entitled to 12 months of total
compensation and continuation of benefits for 24 months. Mr. Flynn will be
entitled to a bonus payment equal to 50% of his annual compensation if he
continues to be employed with the Company through December 31, 1999 or
earlier upon consummation of the Merger. The Company is obligated to
compensate Mr. Flynn for certain taxes and penalties resulting from payments
and benefits under the agreement and other arrangements.
Pursuant to Mr. Michael's agreement, he will be entitled to severance
payments and benefits if the Company terminates his employment within 24
months following a change in control if the termination is by the Company
without "cause," as defined in the agreement. The events constituting a
change in control specifically exclude a change in control relating to a
transaction with Mr. Michael and his family members. The agreement provides
for a lump sum payment equal to 24 months of total compensation as in effect
prior to the termination plus continuation of benefits for 24 months. The
Company is obligated to compensate Mr. Michael for certain taxes and penalties
resulting from payments and benefits under the agreement and other
arrangements.
Mr. Wargolet received a severance payment in the amount of $45,000
pursuant to the terms of an employment agreement in connection with
terminating his employment with the Company in March 1999. Mr. Wargolet is
acting as a consultant to the Company through December 31, 1999 and is being
paid a fee of $2,500 per month.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
Stock Ownership
The following table sets forth certain information concerning beneficial
ownership of the Common Stock of the Company as of August 25, 1999, with
respect to (i) all persons known by the Company to be the beneficial owners of
more than 5% of the outstanding Common Stock of the Company, (ii) each
director of the Company, (iii) each officer of the Company, and (iv) all
directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Name of Beneficial Owner Ownership(1) Of Class
- ------------------------ ----------------- --------
<S><C> <C> <C>
James H. Michael 969,664(2) 32.5%
Jeffrey J. Michael 1,982,181(3) 65.4%
Miles E. Efron 152,467(4) 5.1%
Peter E. Flynn 40,125(5) 1.3%
Thomas S. Wargolet 11,488(6) *
Richard J. Braun 7,500(7) *
C.S. Mondelli 0 *
Ronald D. Newman 0 *
All officers and directors
as a group (8 persons) 2,201,261(8) 70.9%
- --------------
</TABLE>
-53-
<PAGE>
* Less than one percent.
The address for each 5% shareholder is: c/o ENStar Inc., 7450 Flying Cloud
Drive, Eden Prairie, Minnesota 55344.
(1) Beneficial ownership is determined in accordance with the rules of the
Commission, and includes generally voting power and/or investment power
with respect to securities. Shares of Common Stock subject to options
or warrants currently exercisable within 60 days of the date hereof
("Currently Exercisable Options") are deemed outstanding for computing
the percentage beneficially owned by the person holding such options,
but are not deemed outstanding for computing the percentage
beneficially owned by any other person.
(2) Includes 962,164 shares of Common Stock held by 4J2R1C Limited
Partnership, as to which Mr. James H. Michael, is a general
partner and exercises shared voting and dispositive power. Mr. James
H. Michael has disclaimed any beneficial ownership of the shares
beneficially owned by Mr. Jeffrey J. Michael. Also includes 7,500
shares of Common Stock issuable pursuant to Currently Exercisable
Options.
(3) Includes (a) 865,666 shares of Common Stock held by 3J2R Limited
Partnership, as to which Mr. Jeffrey J. Michael, as general partner,
exercises sole voting and dispositive power, (b) 962,164 shares held by
4J2R1C Limited Partnership of which Mr. Jeffrey J. Michael is a general
partner and exercises shared voting and dispositive power, (c) 101,726
shares held by the Michael Acquisition Corporation Trust U/A dated
effective July 29, 1999 of which Mr. Jeffrey J. Michael is the sole
trustee, and (d) 52,625 shares issuable pursuant to Currently
Exercisable Options.
(4) Includes 7,500 shares of Common Stock issuable pursuant to Currently
Exercisable Options.
(5) Consists of 40,125 shares of Common Stock issuable pursuant to
Currently Exercisable Options.
(6) Includes 10,688 shares of Common Stock issuable pursuant to Currently
Exercisable Options.
(7) Consists of 7,500 shares of Common Stock issuable pursuant to Currently
Exercisable Options.
(8) Shares shown as beneficially owned include 125,938 shares not
outstanding, but which may be acquired pursuant to Currently
Exercisable Options.
-54-
<PAGE>
Transactions by Certain Persons in Common Stock
Except for entering into the Merger Agreement 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
persons named in the table above has effected any transactions in the Common
Stock during the past 60 days.
James H. Michael 53,301 shares
Jeffrey J. Michael 3,316 shares
Spouse of Jeffrey J. Michael 3,083 shares
Minor child of Jeffrey J. Michael 1,683 shares
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company's directors,
executive officers, certain employees and persons who own more than 10% of a
registered class of the Company's equity securities, to file with the
Securities and Exchange Commission initial reports of ownership and changes in
ownership of Common Shares and other equity securities of the Company.
Officers, directors and greater than 10% shareholders are required by SEC
regulation to furnish the Company with all Section 16(a) forms they file.
To the Company's knowledge, all Section 16(a) filing requirements
applicable to officers, directors and greater than 10% shareholders were
satisfied during 1998.
MANAGEMENT OF THE COMPANY
AND THE ACQUISITION COMPANY
Certain information concerning the directors and executive officers of
the Company and the Acquisition Company is set forth below. Unless otherwise
indicated, each such person is a citizen of the United States and the address
of each such person is that of the Company or the Acquisition Company, as the
case may be. Such addresses are set forth under the caption "SUMMARY-The
Company" and "-The Acquisition Company."
The Company
Except as set forth under the caption "ELECTION OF DIRECTORS-Nominees"
above, the names, ages, principal occupations and employment history for the
past five years of the directors and executive officers of the Company are set
forth below.
Mr. Peter E. Flynn has served as Executive Vice President of the Company
since March 1996 and as Secretary of the Company since April 1999. In
addition, Mr. Flynn has served as President of Americable since June 1997.
Prior to such time, Mr. Flynn served as Executive Vice President, Chief
Financial Officer and Secretary of NSU. Prior to joining NSU in 1989, Mr.
Flynn was an Audit Manager with Arthur Andersen & Co. Mr. Flynn also serves
as a director of CorVel and as a director of Vicom.
-55-
<PAGE>
Mr. Ronald D. Newman has served as President of Enstar Networking since
September 1997 and as Chief Operating Officer of Enstar Networking since March
1997. Mr. Newman was the Regional Manager - Southwest Operations from March
1993 to February 1997 and prior to that served in various sales capacities for
Americable.
As of the Effective Time, the officers of the Company will become the
officers of the Surviving Corporation. As of the Effective Time, Jeffrey J.
Michael, the sole director of the Acquisition Company, will become the initial
director of the Surviving Corporation. It is currently anticipated that James
H. Michael will become a director of the Surviving Corporation after the
consummation of the Merger.
The Acquisition Company
ENStar Acquisition, Inc., a Minnesota corporation, was organized in
connection with the Merger and has not carried on any activities to date other
than those incident to its formation and the consummation of the Merger. As
of the date of this Proxy Statement, all of the issued and outstanding capital
stock is owned by 4J2R1C Limited Partnership, 3J2R Limited Partnership and the
Michael Acquisition Corporation Trust. 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 trustee of the Michael Acquisition Corporation Trust.
Jeffrey J. Michael is the sole officer (President, Treasurer and
Secretary) and director of the Acquisition Company. It is currently
contemplated that James H. Michael will become a director of the Surviving
Corporation after the consummation of the Merger. Their ages, principal
occupations and employment histories for the past five years are set forth
under the caption "ELECTION OF DIRECTORS-Nominees."
Certain Proceedings
During the past five years, neither the Company, the Acquisition Company,
nor any member of the Michael Family or any director or executive officer of
the Company has been convicted in a criminal proceeding (excluding traffic
violations and similar misdemeanors), or been a party to a civil proceeding of
a judicial or administrative body of competent jurisdiction and as a result of
such proceeding been or become subject to a judgment, decree or final order
enjoining future violations of, or prohibiting or mandating activities subject
to, federal or state securities laws of finding any violation with respect to
such laws.
-56-
<PAGE>
SHAREHOLDER PROPOSALS
The proxy rules of the Securities and Exchange Commission permit
shareholders, after timely notice to issuers, to present proposals for
shareholder action in issuer proxy statements where such proposals are
consistent with applicable law, pertain to matters appropriate for shareholder
action and are not properly omitted by company action in accordance with proxy
rules. In the event the Merger is not consummated for any reason, the
Company's annual meeting of shareholders for the year ending December 31, 1999
is expected to be held on or about July 13, 2000. Shareholder proposals for
that meeting under Rule 14a-8 of the SEC's proxy rules must be prepared in
accordance with the proxy rules and received by the Company on or before
February 5, 2000. Any other shareholder proposals intended to be presented at
the 2000 annual meeting must be received by the Company on or before April 20,
2000. Shareholders should mail any proposals by certified mail return receipt
requested.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1998, December 31, 1997, and December 31, 1996, and for each of the years in
the three-year period ended December 31, 1998, incorporated by reference in
this Proxy Statement, have been audited by Grant Thornton LLP, independent
public accountants. The Board of Directors of the Company has appointed Grant
Thornton LLP as independent auditors for the Company for the year ending
December 31, 1999. Representatives of Grant Thornton LLP will be present at
the Annual Meeting and will be given an opportunity to make a statement, if
they desire to do so, and to respond to appropriate questions raised at the
meeting.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1998, its Quarterly Reports on Form 10-Q for the quarters ended March 31,
1999, June 30, 1999, and its Current Report on Form 8-K filed July 21, 1999 as
filed by the Company with the Commission (Commission File No. 0-29026), are
incorporated by reference into this Proxy Statement.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Proxy Statement and prior
to the date of the Annual Meeting shall be deemed to be incorporated by
reference herein and to be a part hereof from the date of filing of such
documents. Copies of the documents (without exhibits) incorporated by
reference in this Proxy Statement are available without charge upon written or
oral request from Peter E. Flynn, Executive Vice President and Secretary,
ENStar Inc., 7450 Flying Cloud Drive, Eden Prairie, Minnesota 55344,
(telephone (612) 942-3887). To obtain timely delivery, requests for copies
should be made no later than , 1999 (five business days
before the date of the Annual Meeting).
-57-
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and
other information can be inspected and copies made at the public reference
facilities of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 and the Commission's regional offices at Seven World Trade Center,
Suite 1300, New York, New York 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also
be obtained from the Public Reference Section of Commission at its Washington,
D.C. address at prescribed rates. The Commission also maintains a web site
address, http://www.sec.gov. The Company's Common Stock is quoted and traded
on the Nasdaq National Market, and such reports, proxy statements and other
information may be inspected at the offices of Nasdaq Operations, 1735 K
Street, N.W., Washington, D.C. 20006.
ADDITIONAL INFORMATION
This Proxy Statement contains information disclosed pursuant to Rule
13e-3 under the Exchange Act, which governs so-called "going private"
transactions by certain issuers and their affiliates. As of August 25, 1999,
the Michael Family beneficially owned 1,989,681 shares of the Common Stock,
which represents approximately 65.5% of the outstanding Common Stock. The
Michael Family, the Acquisition Company and the Company are filing a Rule
13e-3 Transaction Statement ("Schedule 13E-3") with the Commission to furnish
information with respect to the transactions described herein. This Proxy
Statement does not contain all of the information set forth in the Schedule
13E-3, parts of which are omitted in accordance with the regulations of the
Commission. The Schedule 13E-3, and any amendments thereto, including
exhibits filed as part thereof, will be available for inspection and copying
at the offices of the Commission as set forth above.
By Order of the Board of Directors
Peter E. Flynn
Secretary
Eden Prairie, Minnesota
October , 1999
-58-
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AMONG
ENSTAR INC.,
ENSTAR ACQUISITION, INC.,
AND, FOR CERTAIN PURPOSES SET FORTH HEREIN,
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
DATED AUGUST 13, 1999
<PAGE>
TABLE OF CONTENTS
ARTICLE I THE MERGER
1.01. The Merger 1
1.02. Effective Time; Closing 1
1.03 Effect of the Merger 2
1.04 Articles of Incorporation; By-laws 2
1.05 Directors and Officers 2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
2.01. Conversion of Securities 2
2.02. Exchange of Certificates 3
2.03 Stock Transfer Books 4
2.04 Stock Options 5
2.05 Dissenting Shares 5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.01. Organization and Qualification; Subsidiaries 6
3.02. Articles of Incorporation and By-laws 6
3.03. Capitalization 6
3.04. Authority Relative to This Agreement 7
3.05. No Conflict; Required Filings and Consent 7
3.06. Permits; Compliance 8
3.07 SEC Filings; Financial Statements 8
3.08. Absence of Certain Changes or Events 9
3.09. Absence of Litigation 9
3.10. Employee Benefit Plans 9
3.11. Labor Matters 10
3.12. Intellectual Property 10
3.13. Taxes 10
3.14. Environmental Matters 11
3.15. Opinion of Financial Advisor 11
3.16. Vote Required 11
3.17. Brokers 11
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ACQUISITION CO.
4.01. Organization and Qualification; Subsidiaries 12
4.02. Articles of Incorporation and By-laws 12
4.03. Capitalization 12
4.04. Authority Relative to This Agreement 12
4.05. No Conflict; Required Filings and Consents 12
4.06. Absence of Litigation 13
4.07. Operations of Acquisition Co. 13
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER
5.01. Conduct of Business by the Company
Pending the Merger 13
<PAGE>
ARTICLE VI ADDITIONAL AGREEMENTS
6.01. Proxy Statement; Schedule 13E-3 15
6.02. Stockholders' Meeting 16
6.03. Appropriate Action; Consents; Filings 16
6.04. No Solicitation of Transactions 17
6.05. Directors' and Officers' Indemnification
and Insurance 18
6.06. Further Assurances 19
6.07. Public Announcements 19
6.08. Employee Matters 19
6.09. Delivery of SEC Documents 20
6.10. Financing 20
6.11. Resignation of Directors 20
6.12. Access to Information 20
ARTICLE VII CONDITIONS TO THE MERGER
7.01. Conditions to the Obligations of Each Party 20
7.02. Conditions to the Obligations of
Acquisition Co. 21
7.03. Conditions to the Obligations of the Company 22
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER
8.01. Termination 23
8.02. Fees and Expenses 24
8.03. Amendment 24
8.04. Waiver 25
ARTICLE IX GENERAL PROVISIONS
9.01. Non-Survival of Representations, Warranties
and Agreements 25
9.02 Notices 25
9.03 Certain Definitions 26
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated August 13, 1999 (this "Agreement"),
among ENStar Inc., a Minnesota corporation ("Company"), ENStar Acquisition,
Inc., a Minnesota corporation ("Acquisition Co."), and, for certain purposes
expressly set forth herein Jeffrey J. Michael, James H. Michael, 4J2R1C
Limited Partnership, 3J2R Limited Partnership and Jeffrey J. Michael, as
Trustee of the Michael Acquisition Corporation Trust (collectively the
"Majority Shareholders").
WHEREAS, the Majority Shareholders own approximately sixty-five percent
(65%) of the issued and outstanding shares of common stock of the Company and
all of the outstanding shares of capital stock of Acquisition Co.;
WHEREAS, Acquisition Co. desires to acquire those issued and outstanding
shares of common stock of the Company that the Majority Shareholders do not
already own through a merger;
WHEREAS, Acquisition Co., upon the terms and subject to the conditions
of this Agreement and in accordance with the Minnesota Business Corporation
Act ("Minnesota Law"), will merge with and into the Company (the "Merger");
and
WHEREAS, a Special Committee of the Board of Directors of the Company
and the Board of Directors of the Company (with the interested directors
abstaining) each have (i) determined that the Merger is in the best interests
of the Company and its stockholders and approved and adopted this Agreement
and the transactions contemplated hereby and (ii) recommended approval and
adoption of this Agreement and approval of the Merger by the stockholders of
the Company.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Majority Shareholders, Acquisition Co. and the Company hereby agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions
set forth in Article VII, and in accordance with Minnesota Law, at the
Effective Time (as hereinafter defined), Acquisition Co. shall be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Acquisition Co. shall cease and the Company shall continue as
the surviving corporation of the Merger (the "Surviving Corporation").
<PAGE>
SECTION 1.02. Effective Time; Closing. As promptly as practicable and
in no event later than the first business day following the satisfaction of
or, if permissible, waiver of the conditions set forth in Article VII (or
such other date as may be agreed in writing by each of the parties hereto),
the parties hereto shall cause the Merger to be consummated by filing
articles of merger (the "Articles of Merger") with the Secretary of State of
the State of Minnesota in such form as is required by, and executed in
accordance with the relevant provisions of, Minnesota Law. The term
"Effective Time" means the date and time of the filing of the Articles of
Merger with the Secretary of State of the State of Minnesota (or such later
time as may be agreed in writing by each of the parties hereto and specified
in the Articles of Merger). Immediately prior to the filing of the Articles
of Merger, a closing will be held at the offices of Hinshaw & Culbertson, 222
South Ninth Street, Suite 3100, Minneapolis, Minnesota 55402 (or such other
place as the parties may agree).
SECTION 1.03. Effect of the Merger. At the Effective Time, the effect
of the Merger shall be as provided in the applicable provisions of Minnesota
Law. Without limiting the generality of the foregoing, and subject thereto,
at the Effective Time all the property, rights, privileges, powers and
franchises of the Company and Acquisition Co. shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of each of the Company and Acquisition Co. shall
become the debts, liabilities, obligations, restrictions, disabilities and
duties of the Surviving Corporation.
SECTION 1.04. Articles of Incorporation; By-laws. (a) At the Effective
Time, the Articles of Incorporation of the Company, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation of the
Surviving Corporation until thereafter amended as provided by law and such
Articles of Incorporation.
(b) At the Effective Time, the By-laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-laws of the
Surviving Corporation until thereafter amended as provided by law, the
Articles of Incorporation of the Surviving Corporation and such By-laws.
SECTION 1.05. Directors and Officers. The directors of Acquisition Co.
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-laws of the Surviving Corporation, and the officers of
the Company immediately prior to the Effective Time shall be the initial
officers of the Surviving Corporation, in each case until their respective
successors are duly elected or appointed and qualified.
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Acquisition Co.,
the Company, the Surviving Corporation or the holders of any of the following
securities:
<PAGE>
(a) Each share of common stock, par value $.01 per share, of the
Company ("Company Common Stock") (all issued and outstanding shares of
Company Common Stock being hereinafter collectively referred to as the
"Shares") issued and outstanding immediately prior to the Effective Time
(other than any Shares to be cancelled pursuant to Section 2.01(b) and
Dissenting Shares (as hereinafter defined)) shall be converted, subject to
Section 2.02(e), into the right to receive $12.50 in net cash per Share
without any interest thereon (such payment being the "Merger Consideration").
(b) Each Share owned by the Majority Shareholders (listed on Schedule
2.01(b)) immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof and no payment shall be made with
respect thereto.
(c) Each share of common stock of Acquisition Co. issued and
outstanding immediately prior to the Effective Time shall be exchanged by
conversion into one validly issued fully paid and nonassessable share of
common stock of the Surviving Corporation with the same rights, powers and
privileges as the shares so converted.
SECTION 2.02. Exchange of Certificates.
(a) Exchange Agent. At the Effective Time, Acquisition Co. shall, as
may be directed by the Company or the Surviving Corporation, cause to be
deposited (for the account of Surviving Corporation) with Norwest Bank
Minnesota, National Association, or such other bank or trust company that
may be designated by Acquisition Co. and is reasonably satisfactory to the
Company (the "Exchange Agent"), for the benefit of the holders of Shares for
exchange in accordance with this Article II ("Exchanging Shareholders")
through the Exchange Agent, cash representing the aggregate Merger
Consideration pursuant to Section 2.01, as of the Effective Time, (such cash
being hereinafter referred to as the "Exchange Fund"), in exchange for
outstanding Shares. The Exchange Agent shall, pursuant to irrevocable
instructions, deliver the Merger Consideration contemplated to be paid
pursuant to Section 2.01 out of the Exchange Fund. Except as contemplated by
Section 2.02(c) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As promptly as practicable after the
Effective Time, Acquisition Co. shall cause the Exchange Agent to mail to
each Exchanging Shareholder which is a holder of a certificate or
certificates which immediately prior to the Effective Time represents
outstanding Shares (the "Certificates") (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to
the Certificates shall pass, only upon proper delivery of the Certificates to
the Exchange Agent and shall be in customary form) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for cash
pursuant to Section 2.01. Upon surrender to the Exchange Agent of a
Certificate for cancellation, together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably required pursuant to such instructions,
<PAGE>
the holder of such Certificate shall be entitled to receive in exchange
therefor such cash to which such holder is entitled pursuant to Section
2.02(a), and the Certificate so surrendered shall forthwith be cancelled. In
the event of a transfer of ownership of Shares which is not registered in the
transfer records of the Company, cash to which such holder is entitled
pursuant to Section 2.02(a) may be paid to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by
all documents required to evidence and effect such transfer and by evidence
that any applicable stock transfer taxes have been paid. Until surrendered
as contemplated by this Section 2.02, each Certificate shall be deemed at any
time after the Effective Time to represent only the right to receive upon
such surrender the cash to which such holder is entitled pursuant to Section
2.02(a) and the holders of such Certificates shall cease to have any rights
with respect to such Shares except as otherwise provided herein or by law.
To the extent not immediately required for payment on surrendered Shares,
proceeds in the Exchange Fund shall be invested by the Exchange Agent, as
directed by the Surviving Corporation (as long as such directions do not
impair the rights of holders of Shares), in direct obligations of the United
States of America, obligations for which the faith and credit of the United
States of America is pledged to provide for the payment of principal and
interest, commercial paper rated of the highest quality by Moody's Investors
Service, Inc. or Standard & Poor's Ratings Group, or certificates of deposit
issued by a commercial bank having at least $5 billion in assets, and any net
earnings with respect thereto shall be paid to the Surviving Corporation as
and when requested by the Surviving Corporation.
(c) Termination of Exchange Fund. Any portion of the Exchange Fund
which remains undistributed to the Exchanging Shareholders twelve (12) months
after the Effective Time shall be delivered to Surviving Corporation, upon
demand, and any holders of such Shares who have not theretofore complied with
this Article II shall thereafter look only to Surviving Corporation for the
cash to which they are entitled pursuant to Section 2.02(a). Any portion of
the Exchange Fund remaining unclaimed by holders of such Shares as of a date
which is immediately prior to such time as such amounts would otherwise
escheat to or become property of any government entity shall, to the extent
permitted by applicable law, become the property of Surviving Corporation
free and clear of any claims or interest of any person previously entitled
thereto.
(d) No Liability. Neither Acquisition Co. nor the Surviving
Corporation shall be liable to any holder of Shares for any such Shares (or
dividends or distributions with respect thereto), or cash delivered to a
public official pursuant to any abandoned property, escheat or similar Law.
(e) Withholding Rights. The Surviving Corporation shall be entitled
to deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of Shares such amounts as it is required to
deduct and withhold with respect to the making of such payment under the
Internal Revenue Code of 1986, as amended (the "Code"), or any provision of
state, local or foreign tax law. To the extent that amounts are so withheld
<PAGE>
by Surviving Corporation such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the Shares
in respect of which such deduction and withholding was made by Surviving
Corporation.
(f) Lost Certificates. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the
person claiming such Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond
in such reasonable amount as the Surviving Corporation may direct as
indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen
or destroyed Certificate the cash to which they are entitled pursuant to
Section 2.02(a).
SECTION 2.03. Stock Transfer Books. At the Effective Time, the stock
transfer books of the Company shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of the Company.
From and after the Effective Time, the holders of certificates representing
Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided
herein or by law. On or after the Effective Time, any Certificates presented
to the Exchange Agent, the Surviving Corporation or Majority Shareholders for
any reason shall be converted into cash to which the holders thereof are
entitled pursuant to Section 2.02(a).
SECTION 2.04. Stock Options. (a) All options to purchase Company
Common Stock (the "Company Options") outstanding, whether or not exercisable,
whether or not vested, and whether or not performance-based, under the
Company's 1996 Stock Incentive Plan (the "Company Stock Option Plan") which
are held by the Majority Shareholders shall be cancelled by the Company at
the Effective Time. All other Company Options outstanding, whether or not
exercisable, whether or not vested and whether or not performance based,
under the Company Stock Option Plan, shall at or immediately prior to the
Effective Time, be converted into the right to receive cash (subject to any
required withholding of taxes) in an amount equal to the difference, if
positive, between $12.50 per share and the option exercise price per share
specified in the applicable option agreement without any interest thereon.
(b) Prior to the Effective Time, the Company shall use its reasonable
best efforts (i) to obtain any consents of holders of Company Options and
(ii) to make any amendments to the terms of such stock option or compensation
plans or arrangements that are necessary to give effect to the transactions
contemplated by Section 2.04(a).
SECTION 2.05. Dissenting Shares. (a) Notwithstanding any provision of
this Agreement to the contrary, Shares that are outstanding immediately prior
to the Effective Time and which are held by stockholders who shall have not
voted in favor of the Merger and who shall have demanded properly in writing
and perfected his or her demand for the fair value for such Shares in
<PAGE>
accordance with Sections 302A.471 and 302A.473 of Minnesota Law and as of the
Effective Time has neither effectively withdrawn nor lost his or her right to
such appraisal (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the fair value of such
Shares held by them in accordance with the provisions of such Section
302A.473, except that all Dissenting Shares held by stockholders who shall
have failed to perfect or who effectively shall have withdrawn or lost their
rights to appraisal of such Shares under such Section 302A.473 shall
thereupon be deemed to have been converted into and to have become
exchangeable for, as of the Effective Time, the right to receive the Merger
Consideration, without any interest thereon, upon surrender, in the manner
provided in Section 2.02, of the Certificate or Certificates that formerly
evidenced such Shares.
(b) The Company shall give Acquisition Co. (i) prompt notice of any
demand for fair value of Shares, or notice of intent to demand fair value of
Shares, received by the Company and withdrawals of such demand and (ii) the
opportunity to participate in all negotiations and proceedings with respect
to demands for fair value under Minnesota Law. The Company shall not, except
with the prior written consent of Acquisition Co., make any payment (except
to the extent that any such payment is made pursuant to a final, non-
appealable court order) with respect to any demands for the fair value of
Shares or offer to settle or settle any such demands.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as disclosed in the Company SEC Reports (as defined below) filed
prior to the date hereof, the Company hereby represents and warrants to
Acquisition Co. that:
SECTION 3.01. Organization and Qualification; Subsidiaries. The
Company and each subsidiary of the Company (a "Company Subsidiary") is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite power and
authority and all necessary governmental approvals to own, lease and operate
its properties and to carry on its business as it is now being conducted,
except where the failure to be so organized, existing or in good standing or
to have such power, authority and governmental approvals would not,
individually or in the aggregate, have a material adverse effect on the
business, results of operations or financial condition of the Company and the
Company Subsidiaries taken as a whole (a "Material Adverse Effect"). The
Company and each Company Subsidiary is duly qualified or licensed as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated
by it or the nature of its business makes such qualification or licensing
necessary, except for such failures to be so qualified or licensed and in
<PAGE>
good standing that would not, individually or in the aggregate, have a
Material Adverse Effect. As of the date hereof, a true and complete list of
all Company Subsidiaries, together with the jurisdiction of incorporation of
each Company Subsidiary and the approximate percentage of the outstanding
capital stock of each Company Subsidiary owned by the Company and each other
Company Subsidiary, is set forth in Section 3.01 of the Company Disclosure
Schedule.
SECTION 3.02. Articles of Incorporation and By-laws. The Company has
heretofore furnished or made available to Acquisition Co. a complete and
correct copy of the Articles of Incorporation and the By-laws or equivalent
organizational documents, each as amended to date, of the Company and each
Company Subsidiary other than those Company Subsidiaries, that individually
or in the aggregate, are not material to the business, results of operations
or financial condition of the Company and the Company Subsidiaries taken as a
whole.
SECTION 3.03. Capitalization. The authorized capital stock of the
Company consists of 80,000,000 Shares and 20,000,000 shares of preferred
stock, par value $.01 per share. As of the date of this Agreement (a)
2,976,723 Shares were issued and outstanding, all of which are validly
issued, fully paid and nonassessable, (b) no Shares were held by the Company
Subsidiaries, (c) 412,250 Shares were reserved for future issuance pursuant
to outstanding employee stock options granted pursuant to the Company Stock
Option Plan, (d) no shares were reserved for future issuance pursuant to
outstanding warrants and no shares of preferred stock were issued and
outstanding. Except as set forth in this Section 3.03 and Section 3.03 of
the Company Disclosure Schedule, as of the date of this Agreement, there are
no options, warrants or other rights, agreements, arrangements or commitments
of any character relating to the issued or unissued capital stock of the
Company or any Company Subsidiary obligating the Company or any Company
Subsidiary to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any Company Subsidiary. All Shares subject to
issuance as aforesaid, upon issuance on the terms and conditions specified in
the instruments pursuant to which they are issuable, will be duly authorized,
validly issued, fully paid and nonassessable. There are no outstanding
contractual obligations of the Company or any Company Subsidiary to
repurchase, redeem or otherwise acquire any Shares or any capital stock of,
or any equity interests in, any Company Subsidiary. Each outstanding share of
capital stock of each Company Subsidiary is duly authorized, validly issued,
fully paid and nonassessable and each such share owned by the Company or
another Company Subsidiary is free and clear of all security interests,
liens, claims, pledges, options, rights of first refusal, agreements,
limitations on the Company's or such other Company Subsidiary's voting
rights, charges and other encumbrances of any nature whatsoever.
SECTION 3.04. Authority Relative to This Agreement. The Company has
all necessary power and authority to execute and deliver this Agreement, to
perform its obligations hereunder and to consummate the Merger. The
execution and delivery of this Agreement by the Company and the consummation
by the Company of the Merger have been duly and validly authorized by all
<PAGE>
necessary corporate action, except the approval of the Merger by the
Company's stockholders. This Agreement has been duly and validly executed
and delivered by the Company and, assuming the due authorization, execution
and delivery by Majority Shareholders and Acquisition Co., constitutes a
legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, moratorium or other similar laws relating to creditors' rights
and general principles of equity.
SECTION 3.05. No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, (i)
conflict with or violate the Articles of Incorporation or By-laws or
equivalent organizational documents of the Company or any Company Subsidiary,
(ii) except as disclosed in Section 3.05(a)(ii) of the Company's Disclosure
Schedule, conflict with or violate any domestic (federal, state or local) or
foreign law, rule, regulation, order, judgment or decree (collectively,
"Laws") applicable to the Company or any Company Subsidiary or by which any
property or asset of the Company or any Company Subsidiary is bound or
affected, or (iii) except as specified in Section 3.05(a)(iii) of the Company
Disclosure Schedule, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default)
under, or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any property or asset of the Company or any Company Subsidiary pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any Company Subsidiary is a party or by which the Company or any Company
Subsidiary or any property or asset of the Company or any Company Subsidiary
is bound or affected.
(b) The execution and delivery of this Agreement by the Company do
not, and the performance of this Agreement by the Company will not, require
any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic, foreign
or supranational, except (i) for applicable requirements, if any, of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Securities Act of 1933, as amended (the "Securities Act"), state securities
or "blue sky" laws ("Blue Sky Laws") and state takeover laws, and filing and
recordation of appropriate merger documents as required by Minnesota Law,
(ii) as specified in Section 3.05(b) of the Company Disclosure Schedule and
(iii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent or delay
consummation of the Merger, or otherwise prevent the Company from performing
its obligations under this Agreement, and would not, individually or in the
aggregate, have a Material Adverse Effect.
<PAGE>
SECTION 3.06. Permits; Compliance. Each of the Company and the Company
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exceptions, consents, certificates,
approvals and orders of any Governmental Authority necessary for the Company
or any Company Subsidiary to own, lease and operate its properties or to
carry on its business as it is now being conducted (the "Company Permits"),
except where the failure to have, or the suspension or cancellation of, any
of the Company Permits would not, individually or in the aggregate, have a
Material Adverse Effect, and, as of the date hereof, no suspension or
cancellation of any of the Company Permits is pending or, to the actual
knowledge of the executive officers of the Company, threatened.
SECTION 3.07. SEC Filings; Financial Statements.
(a) The Company has filed all forms, reports and documents required to
be filed by it with the Securities and Exchange Commission ("SEC") and has
heretofore made available to Majority Shareholders, in the form filed with
the SEC, all such forms, reports and other registration statements filed by
the Company with the SEC since December 31, 1997 (the forms, reports and
other documents referred to herein, collectively, as the "Company SEC
Reports"). The Company SEC Reports, including all Company SEC Reports filed
after the date hereof and prior to the Effective Time, (i) were (in the case
of Company SEC Reports filed before the date hereof) or will be prepared in
accordance with the requirements of the Securities Act, and the Exchange Act,
as the case may be, and the rules and regulations thereunder and (ii) did not
(in the case of Company SEC Reports filed before the date hereof) at the time
they were filed, or will not at the time they are filed, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements made therein, in
the light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any notes thereto) contained in the Company SEC Reports, including all
Company SEC Reports filed after the date hereof and prior to the Effective
Time, was (in the case of Company SEC Reports filed before the date hereof)
or will be prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods indicated
(except as may be indicated in the notes thereto) and each fairly presented
(in the case of Company SEC Reports filed before the date hereof) in all
material respects or will fairly present in all material respects the
consolidated financial position, results of operations and cash flows of the
Company and the consolidated Company Subsidiaries as at the respective dates
thereof and for the respective periods indicated therein in accordance with
generally accepted accounting principles (subject, in the case of unaudited
statements, to normal and recurring year-end adjustments which would not,
individually or in the aggregate, have a Material Adverse Effect).
SECTION 3.08. Absence of Certain Changes or Events. Since December 31,
1998, except as contemplated by, or disclosed pursuant to, this Agreement
<PAGE>
including Section 3.08 of the Company Disclosure Schedule or disclosed in
writing by the Company to Majority Shareholders or Acquisition Co. on or
prior to the date hereof, or disclosed in any Company SEC Report filed since
December 31, 1998 and prior to the date of this Agreement, the Company and
the Company Subsidiaries have conducted their businesses only in the ordinary
course and in a manner consistent with past practice and, since December 31,
1998, there has not been (a) any event or events, individually or in the
aggregate, having a Material Adverse Effect, (b) any material change by the
Company in its accounting methods, principles or practices, (c) any entry by
the Company or any Company Subsidiary into any commitment or transaction
material to the Company and the Company Subsidiaries taken as a whole, except
in the ordinary course of business and consistent with past practice, (d) any
declaration, setting aside or payment of any dividend or distribution in
respect of any capital stock of the Company or any redemption, purchase or
other acquisition of any of its securities, or (e) other than pursuant to the
Plans (as defined in Section 3.10), any increase in or establishment of any
bonus, insurance, severance, deferred compensation, pension, retirement,
profit sharing, stock option, stock purchase or other employee benefit plan,
except in the ordinary course of business consistent with past practice.
SECTION 3.09. Absence of Litigation. Except as disclosed in Section
3.09 of the Company Disclosure Schedule or the Company SEC Reports filed
prior to the date of this Agreement, as of the date hereof, there is no
claim, action, proceeding or investigation pending or, to the actual
knowledge of the executive officers of the Company, threatened against the
Company or any Company Subsidiary, before any court, arbitrator or
Governmental Authority (as hereinafter defined), which (a) individually or in
the aggregate, would reasonably be expected to have a Material Adverse Effect
or (b) seeks to delay or prevent the consummation of the Merger. As of the
date hereof, neither the Company nor any Company Subsidiary nor any property
or asset of the Company or any Company Subsidiary is in violation of any
order, writ, judgment, injunction, decree, determination or award.
SECTION 3.10. Employee Benefit Plans. For purposes of this Section
3.10, the term "Plans" means all employee benefit plans, programs and
arrangements maintained for the benefit of any current or former employee,
officer or director of the Company or any Subsidiary and the term "Company
Employment Contracts" means all written contracts and agreements relating to
employment which provide for annual base compensation in excess of $125,000
and all severance agreements providing for payment of more than $125,000,
with any of the directors, officers or employees of the Company or the
Company Subsidiaries (other than, in each case, any such contract or
agreement that is terminable by the Company or any Company Subsidiary at will
without penalty or other adverse consequence). Section 3.10 of the Company
Disclosure Schedule defines each of the Plans and each of the Company
Employment Contracts. The Company has made available to Majority
Shareholders or Acquisition Co. a copy of each Plan and has made available
upon request each material document prepared in connection with each Plan and
each Company Employment Contract. Each Plan intended to be qualified under
<PAGE>
Section 401(a) of the Code has received a favorable determination letter from
the Internal Revenue Service that it is so qualified and nothing has occurred
since the date of such letter to affect the qualified status of such Plan.
Each Plan has been operated in accordance with its terms and the requirements
of applicable law except where the failure to so operate would not have a
Material Adverse Effect. Neither the Company nor any Company Subsidiary has
incurred any direct or indirect liability under, arising out of or by
operation of Title IV of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), in connection with the termination of, or withdrawal
from, any Plan or other retirement plan or arrangement, and, as of the date
hereof, no fact exists or event has occurred that would reasonably be
expected to give rise to any such liability. No Plan is or has been covered
by Title IV of ERlSA or Section 412 of the Code. The Company and the Company
Subsidiaries have not incurred any liability under, and have complied in all
respects with, the Worker Adjustment Retraining Notification Act, and no fact
or event exists that could give rise to liability under such act.
SECTION 3.11. Labor Matters Neither the Company nor any Company
Subsidiary is a party to any collective bargaining agreement or other labor
union contract applicable to persons employed by the Company or any Company
Subsidiary.
SECTION 3.12. Intellectual Property. "Company Intellectual Property"
means all trademarks, trademark rights, trade names, trade name rights,
patents, patent rights, industrial models, inventions, copyrights,
servicemarks, trade secrets, applications for trademarks and for
servicemarks, know-how and other proprietary rights and information used or
held for use in connection with the business of the Company and the Company
Subsidiaries as currently conducted, together with all applications currently
pending for any of the foregoing. The Company and Company Subsidiaries own
or possess adequate licenses or other rights to use all Company Intellectual
Property necessary to conduct the business now operated by them, except where
the failure to own or possess such licenses or rights would not be reasonably
likely to have a Material Adverse Effect. To the knowledge of the Company,
the Company Intellectual Property does not conflict with or infringe upon any
Intellectual Property Rights of others to the extent that, if sustained, such
conflict or infringement has had and would be reasonably likely to have a
Material Adverse Effect.
SECTION 3.13. Taxes. The Company and each of the Company Subsidiaries
have (i) filed all federal, state, local and foreign tax returns required to
be filed by them prior to the date of this Agreement (taking into account
extensions), (ii) paid or accrued all taxes shown to be due on such returns
and have paid all applicable ad valorem and value added taxes as are due, and
(iii) paid or accrued all taxes for which a notice of assessment or
collection has been received (other than amounts being contested in good
faith by appropriate proceedings), except in the case of clause (i), (ii) or
(iii) for any such filings, payments or accruals which would not,
individually or in the aggregate, have a Material Adverse Effect. Except as
<PAGE>
set forth on Section 3.13 of the Company Disclosure Schedule, neither the
Internal Revenue Service nor any other taxing authority has asserted any
claim for taxes, or to the actual knowledge of the executive officers of the
Company, is threatening to assert any claims for taxes, which claims,
individually or in the aggregate, would have a Material Adverse Effect. The
Company has open years for federal, state and local income tax returns only
as set forth in the Section 3.13 of Company Disclosure Schedule. The Company
and each Company Subsidiary have withheld or collected and paid over to the
appropriate governmental authorities (or are properly holding for such
payment) all taxes required by law to be withheld or collected, except for
amounts which would not, individually or in the aggregate, have a Material
Adverse Effect. Neither the Company nor any Company Subsidiary has made an
election under Section 341(f) of the Code.
SECTION 3.14. Environmental Matters. As of the date hereof: (i)
neither the Company nor any Company Subsidiary has received any notice of
noncompliance with, violation of, or liability or potential liability under,
any Laws relating to pollution and the discharge of hazardous materials into
the environment ("Environmental Laws"); (ii) neither the Company nor any
Company Subsidiary has entered into or agreed to any consent decree or order,
nor is subject to any judgment, decree or judicial order, under any
Environmental Laws or relating to the cleanup of any hazardous materials
contamination and (iii) neither the Company nor any Company Subsidiary has
agreed to undertake, or has undertaken, any other cleanup of hazardous
materials contamination, whether with respect to each of the foregoing, such
matter related to properties owned or leased by the Company or any Company
Subsidiary or to any off-site location.
SECTION 3.15. Opinion of Financial Advisor. The Company has received
the written opinion of Goldsmith, Agio, Helms and Company on the date of this
Agreement, to the effect that, as of the date of this Agreement, the Merger
Consideration is fair to the Minority Shareholders (as hereinafter defined)
from a financial point of view and the Company will promptly, after the date
of this Agreement, deliver a copy of such opinion to Acquisition Co.
SECTION 3.16. Vote Required. The affirmative vote of (i) the holders
of a majority of the outstanding shares of Company Common Stock and (ii) the
holders of a majority of the outstanding shares of Company Common Stock not
held by the Majority Shareholders ("Minority Shareholders"), are the only
votes of the holders of any class or series of capital stock of the Company
necessary to approve the Merger.
SECTION 3.17. Brokers. No broker, finder or investment banker (other
than Goldsmith, Agio, Helms and Company) is entitled to any brokerage,
finder's or other fee or commission in connection with the Merger based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Majority Shareholders a correct copy of all agreements between
the Company and Goldsmith, Agio, Helms and Company pursuant to which such
firm would be entitled to any payment relating to the Merger.
<PAGE>
SECTION 3.18. Inapplicability of Certain Restrictions. No "fair
price", "moratorium", "business combination", "control share acquisition", or
other form of anti-takeover statute or regulation under Minnesota law limits,
prevents, contravenes or is breached by the Merger, the execution and
performance of this Agreement or the consummation of any other transaction
contemplated hereby. Prior to the execution hereof, the Merger, the
execution and performance of this Agreement and the consummation of the
transactions contemplated hereby was approved by a committee consisting of
all "disinterested" directors as defined in Minnesota Statutes, Section
302A.673 subd. 1(d)(3).
SECTION 3.19. Rights Plan. The Company has not entered into, and its
Board of Directors has not adopted or authorized the adoption of, a
shareholder rights plan or similar agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ACQUISITION CO.
Acquisition Co. hereby represents and warrants to the Company that:
SECTION 4.01. Organization and Qualification; Subsidiaries.
Acquisition Co. is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite power and authority and all necessary governmental approvals to
own, lease and operate its properties and to carry on its business as it is
now being conducted. Acquisition Co. is not qualified or licensed as a
foreign corporation to do business in any jurisdiction.
SECTION 4.02. Articles of Incorporation and By-laws. Acquisition Co.
has heretofore furnished or made available to the Company a complete and
correct copy of the Articles of Incorporation and the By-laws, each as
amended to date, of Acquisition Co..
SECTION 4.03. Capitalization. As of the date of this Agreement, the
authorized capital stock of Acquisition Co. consists of 80,000,000 shares of
Acquisition Co. common stock, having no par value, of which, 1,929,556 shares
are issued and outstanding and held by the Majority Shareholders.
SECTION 4.04. Authority Relative to This Agreement. Acquisition Co. has
all necessary corporate and other power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate the
Merger. The execution and delivery of this Agreement by Acquisition Co. and
the consummation by Acquisition Co. of the Merger have been duly and validly
authorized by all necessary corporate action (other than, with respect to the
Merger, the filing and recordation of appropriate merger documents as
required by Minnesota Law). This Agreement has been duly and validly
executed and delivered by Acquisition Co. and, assuming the due
authorization, execution and delivery by the Company, constitutes a legal,
valid and binding obligation of Acquisition Co. enforceable against
Acquisition Co. in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to
creditors' rights and general principles of equity.
<PAGE>
SECTION 4.05. No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by Acquisition Co. do not, and the
performance of this Agreement by Acquisition Co. will not, (i) conflict with
or violate the Articles of Incorporation or By-laws of Acquisition Co., (ii)
conflict with or violate any Law applicable to Acquisition Co. or by which
any of its property or assets is bound or affected, or (iii) result in any
breach of or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of
Acquisition Co. pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation to which Acquisition Co. is a party or by which Acquisition Co. or
any of its property or assets is bound or affected, except for any such
breaches, defaults or other occurrences which would not, individually or in
the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by Acquisition Co. do
not, and the performance of this Agreement by Acquisition Co. will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic, foreign
or supranational, except for applicable requirements, if any, of the Exchange
Act, the Securities Act, Blue Sky Laws and state takeover laws, and filing
and recordation of appropriate merger documents as required by Minnesota Law.
SECTION 4.06. Absence of Litigation. As of the date hereof there is no
claim, action, proceeding or investigation pending or, to the actual
knowledge of the executive officers of Acquisition Co., threatened against
Majority Shareholders or Acquisition Co. before any court, arbitrator or
Governmental Authority which (a), individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect or (b) seeks to
delay or prevent the consummation of the Merger. As of the date hereof,
neither Majority Shareholders nor Acquisition Co. nor any property or asset
of Majority Shareholders or Acquisition Co. is in violation of any order,
writ, judgment, injunction, decree, determination or award.
SECTION 4.07. Operations of Acquisition Co. Acquisition Co. is wholly
owned by the Majority Shareholders and its assets, as of immediately prior to
the Effective Time, shall consist substantially of the Merger Consideration.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01. Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that, between the date of this Agreement and
the Effective Time, except as contemplated by any other provision of this
Agreement, unless Acquisition Co. shall otherwise agree in writing, (1) the
businesses of the Company and the Company Subsidiaries shall be conducted
only in, and the Company and the Company Subsidiaries shall not take any
action except in, the ordinary course of business and in a manner
substantially consistent with past practice, (2) Company shall use its
<PAGE>
reasonable best efforts to preserve substantially intact its business
organization, to keep available the services of the current officers,
employees and consultants of the Company and the Company Subsidiaries and to
preserve the current relationships of the Company and the Company
Subsidiaries with customers, suppliers and other persons with which the
Company or any Company Subsidiary has significant business relations and (3)
the Company shall not:
(a) amend or otherwise change its Articles of Incorporation or By-laws
or equivalent organizational documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize the
issuance, sale, pledge, disposition, grant or encumbrance of, (i) any shares
of capital stock of the Company or any Company Subsidiary of any class, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company or any
Company Subsidiary (except for the issuance of shares of capital stock
issuable pursuant to currently outstanding Company Options) or (ii) any of
the Company's or the Company Subsidiaries' assets, except for sales in the
ordinary course of business and in a manner consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, other business organization or any division thereof
or any assets, other than the acquisition of assets in the ordinary course of
business consistent with past practice; (ii) incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or endorse,
or otherwise as an accommodation become responsible for, the obligations of
any person, or make any loans or advances, except for indebtedness incurred
in the ordinary course of business and consistent with past practice; (iii)
enter into any contract or agreement material to the business, results of
operations or financial condition of the Company and the Company Subsidiaries
taken as a whole other than in the ordinary course of business, consistent
with past practice; (iv) authorize any capital expenditure, other than
capital expenditures reflected in the capital expenditure budget for the
fiscal year ending December 31, 1999 previously provided to Majority
Shareholders or Acquisition Co.; or (v) enter into or amend any contract,
agreement, commitment or arrangement with respect to any matter set forth in
this subsection (e);
<PAGE>
(f) except in the ordinary course of business consistent with past
practice and except in the case of officers for annual increases in
compensation payable or to become payable to any officer of the Company
consistent with past practices of the Company, (i) increase the compensation
payable or to become payable to any director, officer or other employee, or
grant any bonus, to, or grant any severance or termination pay to, or enter
into any employment or severance agreement with any director, officer or
other employee of the Company or any Company Subsidiary or enter into or
amend any collective bargaining agreement, or (ii) establish, adopt, enter
into or amend any bonus, profit sharing, thrift, compensation, stock option,
restricted stock, pension, retirement, deferred compensation or other plan,
trust or fund for the benefit of any director, officer or class of employees;
or
(g) settle or compromise any pending or threatened litigation which is
material or which relates to the transactions contemplated hereby, provided
that nothing in this Section 5.01(g) will prohibit the Company's Board of
Directors from settling or compromising any such litigation if, after
consultation with independent counsel, the Company's Board of Directors
believes that such action is necessary to comply with its fiduciary duties.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Proxy Statement; Schedule 13E-3.
(a) As promptly as practicable after the execution of this Agreement,
(i) Company, with the good faith assistance of Acquisition Co., shall prepare
and file with the SEC a preliminary proxy statement relating to the meeting
of the Company's stockholders to be held in connection with the Merger
(together with any amendments thereof or supplements thereto, the "Proxy
Statement") and use its reasonable best efforts to obtain and furnish the
information required to be included by the SEC in the Proxy Statement and,
after consultation with the Majority Shareholders, to respond promptly to any
comments made by the SEC with respect to the Proxy Statement; provided that
Acquisition Co. and its counsel shall be given an opportunity to review and
comment on the Proxy Statement (and any amendment or supplement thereto)
prior to its being filed with the SEC and (ii) Company shall prepare and file
with the SEC a transaction statement on Schedule 13E-3 (together with all
amendments thereto, the "Transaction Statement") in which the Proxy Statement
shall be included, in connection with the going private transaction under the
Securities Exchange Act pursuant to the Merger. As promptly as practicable,
the Company shall mail the definitive Proxy Statement to its stockholders.
The Proxy Statement shall include the recommendation of the Special Committee
of the Board of Directors of the Company and the Board of Directors of the
Company that shareholders of the Company vote in favor of the Merger and the
adoption of this Agreement, unless otherwise necessary due to the applicable
fiduciary duties of the directors of the Company as provided in Section 6.04.
<PAGE>
(b) The information supplied by Acquisition Co. regarding Acquisition
Co. and the information supplied by the Majority Shareholders regarding the
Majority Shareholders for inclusion in the Transaction Statement and the
Proxy Statement shall not, at (i) the time the Transaction Statement is filed
with the SEC, (ii) the time the Proxy Statement (or any amendment thereof or
supplement thereto) is first mailed to the stockholders of the Company, (iii)
the time of the Stockholders' Meeting (as hereinafter defined), and (iv) the
Effective Time, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order
to make the statements therein not misleading. If at any time prior to the
Effective Time any event or circumstance relating to the Majority
Shareholders, Acquisition Co., or Acquisition Co.'s officers or directors,
should be discovered by the Majority Shareholders or Acquisition Co. which
should be set forth in an amendment or a supplement to the Transaction
Statement or Proxy Statement, the Majority Shareholders or Acquisition Co.,
as the case may be, shall promptly inform the Company. All documents that
the Company is responsible for filing with the SEC in connection with the
transactions contemplated herein will comply as to form and substance in all
material aspects with the applicable requirements of the Securities Act and
the rules and regulations thereunder and the Exchange Act and the rules and
regulations thereunder.
(c) The Proxy Statement and the information supplied by the Company
for inclusion in the Transaction Statement shall not, at (i) the time the
Transaction Statement is filed with the SEC, (ii) the time the Proxy
Statement (or any amendment thereof or supplement thereto) is first mailed to
the stockholders of the Company, (iii) the time of the Stockholders' Meeting,
and (iv) the Effective Time, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary
in order to make the statements therein not misleading. If at any time prior
to the Effective Time any event or circumstance relating to the Company or
any Company Subsidiary, or their respective officers or directors, should be
discovered by the Company which should be set forth in an amendment or a
supplement to the Transaction Statement or Proxy Statement, the Company shall
promptly inform Acquisition Co. All documents that Majority Shareholders or
Acquisition Co. are responsible for filing with the SEC in connection with
the transactions contemplated herein will comply as to form and substance in
all material respects with the applicable requirements of the Securities Act
and the rules and regulations thereunder and the Exchange Act and the rules
and regulations thereunder.
SECTION 6.02. Stockholders' Meeting. The Company shall call and hold a
meeting of its stockholders (the "Stockholders' Meeting") as promptly as
practicable for the purpose of voting upon the approval of the Merger.
Company shall use its reasonable best efforts to solicit from the Minority
Shareholders proxies in favor of the approval of the Merger, and shall take
all other action necessary or advisable to secure the vote or consent of
stockholders required by Minnesota Law, to obtain such approvals, unless
otherwise necessary under the applicable fiduciary duties of the directors of
the Company as provided in Section 6.04. The Majority Shareholders shall
vote all of the shares of Company Common Stock beneficially owned by them in
favor of the Merger.
<PAGE>
SECTION 6.03. Appropriate Action; Consents; Filings. (a) The Company
and Acquisition Co. shall use their best efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or required to be taken
by any Governmental Authority or otherwise to consummate and make effective
the Merger as promptly as practicable, (ii) obtain from any Governmental
Authorities any consents, licenses, permits, waivers, approvals,
authorizations or orders required to be obtained or made by Acquisition Co.
or the Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation
of the Merger, and (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect to
this Agreement and the Merger required under (A) the Securities Act and the
Exchange Act, and any other applicable federal or state securities Laws, and
(B) any other applicable Law; provided that Acquisition Co. and the Company
shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the non-filing
party and its advisors prior to filing and, if requested, to accept all
reasonable additions, deletions or changes suggested in connection therewith.
The Company and Acquisition Co. shall use reasonable best efforts to furnish
to each other all information required for any application or other filing to
be made pursuant to the rules and regulations of any applicable Law
(including all information required to be included in the Proxy Statement and
the Transaction Statement) in connection with the transactions contemplated
by this Agreement.
(b) (i) Each of Acquisition Co. and the Company shall give (or shall
cause their respective subsidiaries to give) any notices to third parties,
and use, and cause their respective subsidiaries to use, their reasonable
best efforts to obtain any third party consents, (A) necessary to consummate
the Merger, (B) disclosed or required to be disclosed in the Company
Disclosure Schedule or (C) required to prevent a Material Adverse Effect from
occurring prior to or after the Effective Time.
(ii) In the event that Acquisition Co. or the Company shall fail
to obtain any third party consent described in subsection (b)(i) above, it
shall use its reasonable best efforts, and shall take any such actions
reasonably requested by the other party, to minimize any adverse effect upon
the Company and Acquisition Co., their respective subsidiaries, and their
respective businesses resulting, or which could reasonably be expected to
result after the Effective Time, from the failure to obtain such consent.
(c) From the date of this Agreement until the Effective Time, each
party shall promptly notify the other party of any pending or, to the actual
knowledge of the executive officers of the first party, threatened action,
proceeding or investigation by any Governmental Authority or any other person
(i) challenging or seeking material damages in connection with the Merger or
the conversion of the Company Common Stock into the Merger Consideration
pursuant to the Merger or (ii) seeking to restrain or prohibit the
consummation of the Merger or otherwise limit the right of Acquisition Co. to
own or operate all or any portion of the businesses or assets of the Company
or the Company Subsidiaries.
<PAGE>
SECTION 6.04. No Solicitation of Transactions. Neither the Company nor
any Company Subsidiary shall, and each of them shall direct and use its best
efforts to cause its respective officers, directors, employees, agents and
representatives (including, without limitation, any investment banker,
attorney or accountant retained by it or any Company Subsidiary) not to,
directly or indirectly, initiate, solicit or knowingly encourage (including
by way of furnishing non-public information or assistance), or take any other
action to facilitate knowingly, any inquiries or the making of any proposal
that constitutes, or may reasonably be expected to lead to, any Competing
Transaction (as defined below), or enter into or continue discussions or
negotiations with any person or entity in furtherance of such inquiries or to
obtain a Competing Transaction, or agree to or endorse any Competing
Transaction, or authorize any of the officers, directors or employees of the
Company or any Company Subsidiary or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Company
or any Company Subsidiary to take any such action, and the Company shall
notify Acquisition Co. promptly of all inquiries or proposals which the
Company or any Company Subsidiary may receive relating to any of such matters
and if such inquiry or proposal is in writing, the Company shall deliver to
Majority Shareholders a copy of such inquiry or proposal; provided, however,
that nothing contained in this Section 6.04 or in any other provision of this
Agreement shall prohibit the Special Committee of the Board of Directors of
the Company or the Board of Directors of the Company from (i) furnishing
information to, or entering into discussions or negotiations with, any person
or entity that makes an unsolicited, bona fide proposal that constitutes, or
may reasonably be expected to lead to, any Competing Transaction (as defined
below), if, and only to the extent that, (A) the Special Committee of the
Board of Directors of the Company or the Board of Directors of the Company,
after consultation with its independent legal counsel (who may be the
Company's regularly engaged independent legal counsel), determines in good
faith that such action is necessary for the Special Committee of the Board of
Directors of the Company or the Board of Directors of the Company to comply
with its fiduciary duties to the Minority Stockholders under applicable law
and (B) prior to furnishing such information to, or entering into discussions
or negotiations with, such person or entity, the Company (x) provides prompt
written notice to Majority Shareholders to the effect that it is furnishing
information to, or entering into discussions or negotiations with, such
person or entity, (y) receives from such person or entity an executed
agreement to the effect that such person or entity will not disclose any
confidential information of the Company and the Company Subsidiaries and (z)
keeps Majority Shareholders informed of the status (but not the terms) of any
such discussions or negotiations, (ii) complying with Rule 14e-2 promulgated
under the Exchange Act with regard to a tender or exchange offer or (iii)
failing to make or withdrawing or modifying recommendation referred to in
Section 6.01(a) or modifying or halting the solicitation of proxies referred
to in Section 6.02 following the making of a proposal that constitutes a
Competing Transaction if the Special Committee of the Board of Directors of
the Company or the Board of Directors of the Company, after consultation with
<PAGE>
its independent legal counsel (who may be the Company's regularly engaged
independent legal counsel), determines in good faith that such action is
necessary for the Special Committee of the Board of Directors of the Company
or the Board of Directors of the Company to comply with its fiduciary duties
to the Minority Stockholders under applicable law. In the event of receipt
of a proposal for a Competing Transaction, the Company shall notify
Acquisition Co. of the material terms and conditions of such Competing
Transaction, and shall afford Acquisition Co. the opportunity, for a period
of five (5) business days after Acquisition Co.'s receipt of such notice, to
make a revised offer for consideration by the Special Committee of the Board
of Directors of the Company and during such five (5) business days shall not
enter into a written agreement with respect to such Competing Transaction.
For purposes of this Agreement, "Competing Transaction" shall mean any bona
fide, unsolicited written proposal to engage in any of the following
transactions, and that the Special Committee of the Board of Directors of the
Company determines, in good faith, after consultation with its financial and
legal advisors, and taking into account all the terms and conditions, is more
favorable to the Minority Stockholders than the Merger and for which
financing to the extent required is then fully committed or reasonably
determined to be available by the Special Committee (considering such factors
as the Special Committee shall deem reasonably appropriate including, without
limitation, the financial strength and creditworthiness of the party making
such written proposal) (1) any merger, consolidation, share exchange,
business combination, or other similar transaction involving the Company
(other than the Merger contemplated hereby or such sale transactions
involving any Company Subsidiary that are prohibited pursuant to Section
5.01); (2) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 25% or more of the assets of the Company and the Company
Subsidiaries, taken as a whole, in a single transaction or series of
transactions; (3) any tender offer or exchange offer for 25% or more of the
Shares or the filing of a registration statement under the Securities Act in
connection therewith; (4) any person having acquired beneficial ownership or
the right to acquire beneficial ownership of, or any "group" (as such term is
defined under Section 13(d) of the Exchange Act and the rules and regulations
promulgated thereunder) having been formed which beneficially owns or has the
right to acquire beneficial ownership of, 25% or more of the Shares (other
than through arbitrage transactions); or (5) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing.
SECTION 6.05. Directors' and Officers' Indemnification and Insurance.
(a) Acquisition Co. shall cause the Surviving Corporation to keep in
effect the provisions in its Articles of Incorporation and By-Laws containing
the provisions with respect to exculpation of director and officer liability
and indemnification set forth in the Articles of Incorporation and By-Laws of
the Company on the date of this Agreement to the fullest extent permitted
under Minnesota Law, which provisions shall not be amended, repealed or
<PAGE>
otherwise modified except as required by applicable Law or except to make
changes permitted by Law that would enlarge the exculpation or rights of
indemnification thereunder. Acquisition Co. acknowledges that the Company
has entered into certain indemnification agreements including, without
limitation, an agreement to indemnify members of the Special Committee of the
Company's Board of Directors. Acquisition Co. hereby consents that such
agreements shall remain enforceable obligations of the Surviving Corporation
after the Effective Time.
(b) From and after the Effective Time, Acquisition Co. hereby agrees
to guarantee and to cause the Surviving Corporation to perform all of its
obligations under the Articles of Incorporation and By-laws of the Company
with respect to indemnification and under any indemnification agreements
currently in effect between the Company and any officer or director of the
Company.
(c) The Surviving Corporation shall maintain in effect for six years
from the Effective Time directors' and officers' liability insurance covering
the persons who are currently covered in their capacities as such directors
and officers by the Company's existing directors' and officers' policies and
on terms substantially no less advantageous than such existing insurance
coverage; provided however, that in no event shall the Surviving Corporation
be required to expend pursuant to this Section 6.05 more than an amount per
year equal to 200% of the current annual premiums (which premium the Company
represents and warrants to be approximately $46,000 in the aggregate) paid by
the Company for such existing insurance coverage (the "Cap"); provided
further, however, that if equivalent coverage cannot be obtained, or can be
obtained only by paying an annual premium in excess of the Cap, the Surviving
Corporation shall only be required to obtain as much coverage as can be
obtained by paying an annual premium equal to the Cap.
(d) The rights under this Section 6.05 shall be in addition to any
other rights under Minnesota law or otherwise. This Section 6.05 shall
survive the consummation of the Merger.
SECTION 6.06. Further Assurances. Acquisition Co. shall, and the
Majority Shareholders shall undertake reasonable best efforts to cause
Acquisition Co. to, take all action necessary to perform Acquisition Co.'s
obligations under this Agreement.
SECTION 6.07. Public Announcements. Acquisition Co. and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to this Agreement or the Merger and
shall not issue any such press release or make any such public statement
prior to such consultation, except as may be required by Law or any listing
agreement with the National Association of Securities Dealers, Inc. or any
national securities exchange to which the Company is a party. The parties
have agreed on the text of a joint press release by which Acquisition Co. and
the Company will announce the execution of this Agreement.
<PAGE>
SECTION 6.08. Employee Matters. Acquisition Co. agrees that, for the
period from the Effective Time to December 31, 1999, subject to applicable
law, the Surviving Corporation and its subsidiaries will provide benefits to
its employees which will, in the aggregate, be comparable to those currently
provided by the Company and Company Subsidiaries to their employees (other
than any stock option or other equity based incentive plan currently provided
by the Company). Notwithstanding the foregoing, nothing herein shall
otherwise limit the Surviving Corporation's right to amend, modify or
terminate any Plan (as defined in Section 3.10 hereof.).
SECTION 6.09. Delivery of SEC Documents. Each of the Company and
Acquisition Co. shall promptly deliver to the other true and correct copies,
of any report, statement or schedule filed with the SEC subsequent to the
date of this Agreement.
SECTION 6.10. Financing. A written commitment letter from a lending
institution has been obtained which will provide financing sufficient in
amount to allow Acquisition Co. to transfer to the Surviving Corporation the
aggregate Merger Consideration at the Effective Time as provided in Article
II. Prior to the Effective Time, the Majority Shareholders and Acquisition
Co. shall use their reasonable best efforts to cause Acquisition Co. and/or
the Majority Shareholders to enter into a binding credit facility or loan
agreement with respect to a financing to allow Acquisition Co. to transfer to
the Surviving Corporation the aggregate Merger Considerations.
SECTION 6.11. Resignation of Directors. Prior to the Effective Time,
the Company shall deliver to Acquisition Co. evidence satisfactory to
Acquisition Co. of the resignation of all directors of the Company (except as
requested by Acquisition Co.) effective at the Effective Time.
SECTION 6.12. Access to Information. From the date hereof until the
Effective Time, the Company will give Acquisition Co., its counsel, financial
advisors, auditors and other authorized representatives reasonable access to
the offices, properties, books and records of the Company and Company
Subsidiaries, will furnish to Acquisition Co., its counsel, financial
advisors, auditors and other authorized representatives such financial and
operating data and other information as such persons may reasonably request
and will instruct the Company's employees, counsel and financial advisors to
cooperate with Acquisition Co., in its investigation of the business of the
Company and Company Subsidiaries; provided that no investigation pursuant to
this Section 6.11 shall affect any representation or warranty given by the
Company to Acquisition Co. hereunder.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01. Conditions to the Obligations of Each Party. The
obligations of the Company and Acquisition Co. to consummate the Merger are
subject to the satisfaction of the following conditions:
<PAGE>
(a) this Agreement and the Merger contemplated hereby shall have been
approved and adopted by (i) the affirmative vote of a majority of the shares
of Company Common Stock held by the Minority Shareholders and (ii) the
affirmative vote of a majority of all of the outstanding shares of Company
Common Stock in accordance with Minnesota Law and the Company's Articles of
Incorporation;
(b) no Governmental Authority or federal or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
order, executive order, stay, decree, judgment or injunction (each an
"Order") or statute, rule, regulation which is in effect and which has the
effect of making the Merger illegal or otherwise prohibiting consummation of
the Merger; and
(c) all actions by or in respect of or filings with any Governmental
Authority required to permit the consummation of the Merger shall have been
completed or obtained.
SECTION 7.02. Conditions to the Obligations of Acquisition Co.. The
obligations of Acquisition Co. to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) the Company shall have performed in all material respects
all of its obligations hereunder required to be performed by it at or prior
to the Effective Time, (ii) except to the extent expressly permitted under
this Agreement, the representations and warranties of the Company contained
in this Agreement and in any certificate or other writing delivered by the
Company pursuant hereto (x) that are qualified by materiality or Material
Adverse Effect shall be true at and as of the Effective Time as if made at
and as of such time, and (y) that are not qualified by materiality or
Material Adverse Effect shall be true in all material respects at and as of
the Effective Time as if made and as of such time and (iii) Acquisition Co.
shall have received a certificate signed by an executive officer of the
Company to the foregoing effect;
(b) the Dollar Weighted Trading Price (as hereinafter defined) of
CorVel, Inc. ("CorVel") common stock shall not be less than $20.00. For
purposes of this Agreement, "Dollar Weighted Trading Price" shall mean the
quotient of (A) the product of (i) the total number of shares of CorVel
traded during the fifteen (15) trading days immediately prior to the date of
the Stockholder's Meeting, multiplied by (ii) the price paid per share,
divided by (B) the total number of shares of CorVel traded during such
fifteen (15) day period;
(c) holders of no more than five percent (5%) of the outstanding
Company Common Stock shall have exercised dissenters' rights; and
<PAGE>
(d) there shall not be instituted or pending any action or proceeding
by any government or Governmental Authority that has a reasonable likelihood
of success, before any court or Governmental Authority, (i) challenging or
seeking to make illegal, to delay materially or otherwise directly or
indirectly to restrain or prohibit the consummation of the Merger or seeking
to obtain material damages or otherwise directly or indirectly relating to
the transactions contemplated by this Agreement, (ii) seeking to restrain or
prohibit the Surviving Corporation's (including it subsidiaries and
affiliates) ownership or operation of all or any material portion of the
business or assets of the Company and Company Subsidiaries, taken as a whole,
or to compel the Surviving Corporation or any of its subsidiaries or
affiliates to dispose of or hold separate all or any material portion of the
business or assets of the Company and Company Subsidiaries, taken as a whole,
(iii) seeking to impose or confirm material limitations on the ability of the
Surviving Corporation or any of its subsidiaries or affiliates to effectively
control the business or operations of the Company and Company Subsidiaries,
taken as a whole, or the ability of the Majority Shareholders effectively to
exercise full rights of ownership of any shares of the Surviving Corporation
or any of its subsidiaries or affiliates prior to the Effective Time on all
matters properly presented to the Surviving Corporation's stockholders, or
(iv) seeking to require divestiture by the Majority Shareholders of any
shares of the Surviving Corporation, and no court, arbitrator or governmental
body, agency or official shall have issued any judgment, order, decree or
injunction, and there shall not be any statute, rule regulation proposed,
adopted or enacted, that, in the sole judgment of Acquisition Co. is likely,
directly or indirectly, to result in any of the consequences referred to in
the preceding clauses (i) through (iv);
(e) Acquisition Co. shall have received all documents it may
reasonably request relating to the existence of the Company and Company
Subsidiaries and the authority of the Company for this Agreement, all in form
and substance satisfactory to Acquisition Co.; and
(f) funds in an amount sufficient to make the deposit required
pursuant to Section 2.02(a), as contemplated in Section 6.10, shall have been
transferred by Acquisition Co. to or in the manner directed by Company or the
Surviving Corporation for the account of the Surviving Corporation or
Acquisition Co. shall have otherwise demonstrated to the sole satisfaction of
the Special Committee of the Board of Directors that it has immediate access
to sufficient funds to enable performance of the obligations of Acquisition
Co. hereunder, provided, however, that failure of satisfaction of this
condition shall not waive or diminish the obligations of Acquisition Co. and
the Majority Shareholders under Section 6.06 and 6.10.
(g) Acquisition Co. shall have received such documents as it may
reasonably request that evidence that the modifications to the Company
Options held by holders (other than the Majority Shareholders) described in
Section 2.04(a) have been duly approved by the Company and that the holders
of such Company Options have duly consented to, and approved such
modifications.
<PAGE>
SECTION 7.03. Conditions to the Obligations of the Company. The
obligations of the Company to consummate the Merger are subject to the
satisfaction of the following further conditions:
(a) (i) Acquisition Co. shall have performed in all material
respects all of its obligations hereunder required to be performed by it at
or prior to the Effective Time, (ii) except to the extent expressly permitted
under this Agreement, the representations and warranties of Acquisition Co.
contained in this Agreement and in any certificate or other writing delivered
by Acquisition Co. pursuant hereto shall be true in all material respects at
and as of the Effective Time as if made at and as of such time and (iii) the
Company shall have received a certificate signed by an executive officer of
Acquisition Co. to the foregoing effect;
(b) The Dollar Weighted Trading Price of CorVel common stock shall not
be greater than $26.00 per share.
(c) Acquisition Co. shall have entered into the binding credit
facility or loan agreement referred to in Section 6.10 and such facility or
agreement shall be in full force and effect or otherwise demonstrated to the
sole satisfaction of the Special Committee of the Board of Directors
immediate access to sufficient funds to enable performance of the obligations
of Acquisition Co. hereunder.
(d) Company shall have received a certificate signed, on behalf of the
Company, by Jeffrey J. Michael, the Chief Executive Officer of Company, to
the effect that, to the best of his knowledge, all the representations and
warranties made by the Company in this Agreement are true, correct and
complete in all material respects as of the Effective Time.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01. Termination. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time,
notwithstanding any requisite approval and adoption of this Agreement and the
transactions contemplated hereby as follows:
(a) by-mutual written consent duly authorized by the Boards of
Directors of each of Acquisition Co., the Company, and the Special Committee
of the Board of Directors of the Company;
(b) by either Acquisition Co. or the Company, if the Effective Time
shall not have occurred on or before December 15, 1999, provided that the
party seeking to exercise such right is not then in breach in any material
respect of any of its obligations under this Agreement;
<PAGE>
(c) by either the Company or Acquisition Co., if there shall be any
law or regulation that makes consummation of the Merger illegal or otherwise
prohibited or if any judgment, injunction, order or decree enjoining
Acquisition Co. or the Company from consummating the Merger is entered and
such judgment, injunction, order or decree shall become final and
nonappealable;
(d) by Acquisition Co. if the Special Committee of the Board of
Directors of the Company shall have (i) withdrawn or modified or amended in a
manner adverse to Acquisition Co., its approval or recommendation of this
Agreement and the Merger or its recommendation that stockholders of the
Company adopt and approve this Agreement and the Merger or (ii) approved,
recommended or endorsed any proposal for a Competing Transaction or (iii) if
the Company has failed to mail notice of a special meeting of the Company's
stockholders or failed to mail the Proxy Statement to its stockholders within
20 days after being cleared by the SEC or failed to include in such statement
the recommendation referred to above;
(e) by the Company, if in the exercise of its good faith judgment
(after consultation with legal counsel) as to its fiduciary duties to the
Minority Stockholders under applicable law, subject to compliance with the
terms of Section 6.04, the Special Committee of the Board of Directors of the
Company, or the Board of Directors of the Company determines that such
termination is required by such fiduciary duties by reason of a proposal for
a Competing Transaction;
(f) by either Acquisition Co. or the Company, if a majority of the
Minority Shareholders of the Company shall have failed to approve and adopt
this Agreement and the Merger at a meeting duly convened therefor;
(g) by Acquisition Co., upon a breach of any material representation,
warranty, covenant or agreement on the part of the Company set forth in this
Agreement, or if any material representation or warranty of the Company shall
have become untrue, in either case such that the conditions set forth in
Section 7.02(a) would not be satisfied (a "Terminating Company Breach");
provided, however, that, if such Terminating Company Breach is curable by the
Company in the reasonable opinion of Acquisition Co. within thirty (30) days
through the exercise of its best efforts and for so long as the Company
continues to exercise such best efforts, Acquisition Co. may not terminate
this Agreement under this Section 8.01(g);
(h) by the Company, upon breach of any material representations,
warranty, covenant or agreement on the part of Acquisition Co. set forth in
this Agreement, or if any material representation or warranty of Acquisition
Co. shall have become untrue, in either case such that the conditions set
forth in Section 7.03(a) would not be satisfied ("Terminating Breach");
provided, however, that, if such Terminating Breach is curable by Acquisition
Co. in the reasonable opinion of the Company within thirty (30) days through
best efforts and for so long as Acquisition Co. continues to exercise such
best efforts, the Company may not terminate this Agreement under this Section
8.01(h);
<PAGE>
(i) by the Company if the Dollar Weighted Trading Price of CorVel
common stock is greater than $26.00 per share;
(j) by Acquisition Co., if the Dollar Weighted Trading Price of CorVel
common stock is less than $20.00 per share;
(k) by Acquisition Co., if the holders of more than five percent (5%)
of the outstanding Company Common Stock shall have exercised dissenters'
rights.
SECTION 8.02. Fees and Expenses. Except as set forth in this Section,
all costs and expenses incurred in connection with this Agreement and the
Merger shall be paid by the party incurring such expenses, whether or not any
Merger is consummated.
SECTION 8.03. Amendment. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that,
after the approval and adoption of this Agreement and the transactions
contemplated hereby by the stockholders of the Company, no amendment may be
made which would reduce the amount or change the type of consideration into
which each Share shall be converted upon consummation of the Merger. This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
SECTION 8.04. Waiver. At any time prior to the Effective Time, any
party hereto may (a) extend the time for the performance of any obligation or
other act of any other party hereto, (b) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth
in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
and any certificate delivered pursuant hereto by any person shall terminate
at the Effective Time, except that the agreements set forth in Articles I and
II and Sections 6.05 and 6.08 shall survive the Effective Time indefinitely.
SECTION 9.02. Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt) by delivery in person,
by cable, facsimile, telegram or telex or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties at the
following addresses (or at such other address for a party as shall be
specified in a notice given in accordance with this Section 9.02):
<PAGE>
if to Acquisition Co.:
ENStar Aquisition, Inc.
6479 City West Parkway
Eden Prairie, Minnesota 55344-3246
Attn: Jeffrey J. Michael
Facsimile: 612-947-8660
with a copy to:
Burton G. Ross, Esq.
Ross Rosenblatt, Ltd.
4100 Piper Jaffray Tower
222 South Ninth Street
Minneapolis, Minnesota 55402
Facsimile: 6112-338-1131
if to the Company:
ENStar Inc.
7450 Flying Cloud Drive
Eden Prairie, MN 55344
Attn: Peter Flynn
with a copy to:
Richard Braun
Special Committee of the Board of Directors
c/o MEDTOX Scientific, Inc.
402 West County Road D
St. Paul, MN 55112
Facsimile: 651-628-6102
and
Robert R. Ribeiro, Esq
Hinshaw & Culbertson
222 South Ninth Street, Suite 3100
Minneapolis, Minnesota 55402
Facsimile: 612-334-8888
<PAGE>
and
Patrick Courtemanche, Esq.
Dorsey & Whitney
Pillsbury Center South
220 South Sixth Street
Minneapolis, Minnesota 55402
Facsimile: 612-340-8827
SECTION 9.03. Certain Definitions. For purposes of this Agreement, the
term:
(a) "affiliate" of a specified person means a person who directly or
indirectly through one or more intermediaries controls, is controlled by, or
is under common control with, such specified person;
(b) "beneficial owner" with respect to any shares means a person who
shall be deemed to be the beneficial owner of such shares (i) which such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) which such person or any of its affiliates or associates
has, directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to
any agreement, arrangement or understanding or upon the exercise of
consideration rights, exchange rights, warrants or options, or otherwise, or
(B) the right to vote pursuant to any agreement, arrangement or understanding
or (iii) which are beneficially owned, directly or indirectly, by any other
persons with whom such person or any of its affiliates or associates or any
person with whom such person or any of its affiliates or associates has any
agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any such shares;
(c) "business day" means any day on which the principal offices of the
SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of Minneapolis;
(d) "Company Disclosure Schedule" means the disclosure schedule
provided by the Company pursuant to this Agreement;
(e) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management and
policies of a person, whether through the ownership of voting securities, as
trustee or executor, by contract or credit arrangement or otherwise;
(f) "Governmental Authority" means any United States (federal, state
or local) or foreign government, or governmental, regulatory or
administrative authority, agency or commission;
<PAGE>
(g) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the Exchange Act), trust, association or
entity or government, political subdivision, agency or instrumentality of a
government; and
(h) "subsidiary" or "subsidiaries" of any person means any orporation,
partnership, joint venture or other legal entity of which such person (either
above or through or together with any other subsidiary), owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders
of which are generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
SECTION 9.04. Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
Law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the Merger is not affected in any manner materially
adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Merger be consummated as originally
contemplated to the fullest extent possible.
SECTION 9.05. Assignment; Binding Effect; Benefit. Neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other parties. Subject
to the preceding sentence, this Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns. Notwithstanding anything contained in this Agreement to the
contrary, except for the provisions of Article II and Sections 6.05 and 6.08
(collectively, the "Third Party Provisions"), nothing in this Agreement,
expressed or implied, is intended to confer on any person other than the
parties hereto or their respective successors and assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
The Third Party Provisions may be enforced by the beneficiaries thereof.
SECTION 9.06. Incorporation of Exhibits. The Company Disclosure
Schedule and all Exhibits attached hereto and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
SECTION 9.07. Specific Performance. The parties hereto agree that
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
shall be entitled to specific performance of the terms hereof, in addition to
any other remedy at law or equity.
<PAGE>
SECTION 9.08. Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Minnesota applicable
to contracts executed in and to be performed in that State. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in any Minnesota state or federal court sitting in the County of
Hennepin, State of Minnesota.
SECTION 9.09. Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect
in any way the meaning or interpretation of this Agreement.
SECTION 9.10. Counterparts. This Agreement may be executed and
delivered (including by facsimile transmission) in one or more counterparts,
and by the different parties hereto in separate counterparts, each of which
when executed and delivered shall be deemed to be an original but all of
which taken together shall constitute one and the same agreement.
SECTION 9.11. Waiver of Jury Trial. Each of the Company and
Acquisition Co. hereby irrevocably waives all right to trial by jury in any
action, proceeding or counterclaim (whether based on contract, tort or
otherwise) arising out of or relating to this Agreement or the actions of the
Company or Acquisition Co. in the negotiation, administration, performance
and enforcement thereof.
SECTION 9.12. Entire Agreement. This Agreement, the Exhibits, the
Company Disclosure Schedule, and any documents delivered by the parties in
connection herewith constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement shall be binding upon any
party hereto unless made in writing and signed by all parties hereto.
IN WITNESS WHEREOF, Majority Shareholders, Acquisition Co. and the
Company have caused this Agreement to be executed as of the date first
written above by their respective officers thereunto duly authorized.
ENSTAR INC.
By: /s/Peter E. Flynn
---------------------
Name: Peter E. Flynn
Title: Executive Vice President
<PAGE>
ENSTAR ACQUISITION, INC.
By: /s/Jeffrey J. Michael
-------------------------
Name: Jeffrey J. Michael
Title: President
JEFFREY J. MICHAEL
/s/Jeffrey J. Michael\
-----------------------
JAMES H. MICHAEL
/s/James H. Michael
-----------------------
4J2R1C LIMITED PARTNERSHIP
/s/James H. Michael
-----------------------
By: James H. Michael
Its: General Partner
3J2R LIMITED PARTNERSHIP
/s/Jeffrey J. Michael
-----------------------
By: Jeffrey J. Michael
Its: Managing General Partner
MICHAEL ACQUISITION CORPORATION TRUST
U/A DATED EFFECTIVE JULY 29, 1999
By: /s/Jeffrey J. Michael
--------------------------
Jeffrey J. Michael
Trustee
<PAGE>
EXHIBIT B
GOLDSMITH, AGIO, HELMS SECURITIES, INC.
Member: National Association Securities Dealers
First Bank Place, The Forty-Sixth Floor
601 Second Avenue South, Minneapolis, Minnesota 55402
Tel 612 339 0500 Fax 612 339 0507
- -----------------------------------------------------------------------------
13 August 1999
PERSONAL AND CONFIDENTIAL
Special Independent Committee of the Board of Directors
ENStar, Inc.
7450 Flying Cloud Drive
Eden Prairie, MN 55344-3720
Gentlemen:
In connection with the proposed going private merger of a newly formed
corporation owned by the Michael family and its affiliates ("Newco") with and
into ENStar Corporation ("ENStar or "the Company"), you have requested our
opinion as to the fairness, from a financial point of view, to the Company's
minority shareholders of the consideration to be received by such
shareholders for their common stock in the proposed going private merger(the
"Merger"). The terms of the Merger are set forth in an Agreement and Plan of
Merger dated August 13, 1999 (the "Merger Agreement") by and between the
Company and Enstar Inc., ENStar Acquisition, Inc., Jeffery J. Michael, James
H. Michael, Michael Acquisition Corporation Trust, 4J2RIC Limited
Partnership, and 3J2R Limited Partnership ("Newco"). Pursuant to the Merger
Agreement, Newco will merge with and into the Company and all of the shares
of Common Stock held by the Company's shareholders, other than the Michael
family and its affiliates and any dissenting shareholders, will be canceled
and converted into the right to receive $12.50 per share in cash (the "Merger
Consideration").
As a customary part of its investment banking business, Goldsmith, Agio,
Helms Securities, Inc. ("GAHS") is engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, private placements,
and valuations for estate, corporate, and other purposes. In return for our
services in connection with providing this opinion, the Company, through its
Special Committee, will pay us a fee for this fairness opinion, which fee is
not contingent upon the consummation of the Merger, and indemnify us against
certain liabilities. We are also acting as a financial advisor to the
Special Committee in connection with the Merger for which we will receive an
additional fee which is contingent upon the consummation of the Merger.
In arriving at our opinion, we have undertaken such reviews, analyses and
inquiries as we deemed necessary and appropriate under the circumstances.
Among other things, we have:
<PAGE>
(i) Reviewed a draft of the Merger Agreement;
(ii) Analyzed financial and other information that is publicly
available relating to ENStar, CorVel Corporation ( "CorVel"),
and Vicom, Inc. ("Vicom") and their respective assets and
liabilities.
(iii) Analyzed certain financial and operating data of the Company that
has been made available to us by ENStar, which data did not
include financial and operating data for CorVel or Vicom.
(iv) Visited certain facilities of the Company and discussed with
management of the Company the financial condition, operating
results, business outlook and prospects of the Company. We did
not visit CorVel or Vicom's facilities and did not hold
discussions with CorVel or Vicom regarding their future business
outlook.
(v) Held discussions with certain third parties with respect to their
interest in acquiring or merging with all or part of the
Company's various assets.
(vi) Consulted with the Company's tax advisors regarding the tax
implications associated with the sale of ENStar's assets in a
managed sale process.
(vii) Analyzed the possible adverse effect on the market price of
CorVel common stock, which might occur in the event of a public
market sale of ENStar's 25 percent ownership position in CorVel.
(viii) Analyzed the valuations of publicly traded companies that we
deemed comparable to the Company's operating businesses.
(ix) Performed a comparable merger and acquisition analysis for the
Company's operating businesses.
(x) Performed discounted cash flow analyses related to the Company's
primary operating business, Americable, Inc.
(xi) Analyzed premiums paid for small capitalization stocks.
In arriving at our conclusions, we have relied upon and assume the accuracy,
completeness, and fairness of the financial statements and other information
furnished by, or publicly available relating to, the Company or otherwise
made available to us, and have not assumed responsibility independently to
verify such information. We have further relied upon assurances by the
Company that the information provided to us has a reasonable basis, and with
respect to projections and other business outlook information, reflects the
best currently available estimates, and that the Company is not aware of any
information or fact that would make the information provided to us incomplete
or misleading. In arriving at our opinion, we have not performed any
<PAGE>
appraisals or valuations of specific assets or liabilities of the Company and
express no opinion regarding the liquidation value of the Company or any of
its assets. Our opinion is based upon the information available to us and
the facts and circumstances as they exist and are subject to evaluation on
the date hereof. In this regard, we have relied upon, and noted that, recent
trading prices of CorVel common stock, have been within the range established
by Section 7.02 and 7.03 of the Merger Agreement. Events occurring after the
date hereof, including changes in the price of CorVel common stock, could
materially affect the assumptions used in preparing this opinion, and the
conclusions reached herein. However, we do not have any obligation to
update, revise or reaffirm this opinion.
We have relied, with respect to legal and accounting matters related to the
Merger, on the advice of the Special Committee's and the Company's legal and
accounting advisors. We have made no independent investigation of any legal
or accounting matters that may affect the Company and have assumed the
correctness of the legal and accounting advice provided to the Special
Committee, the Company and its Board of Directors.
Our opinion is rendered for the benefit and use of the Special Committee of
the Board of Directors of the Company in connection with the Board's
consideration of the Merger and does not constitute a recommendation to any
holder of Company common stock as to how such shareholder should vote with
respect to the Merger. We have not been asked to, nor do we express an
opinion as to the relative merits of the Merger as compared to any
alternative business strategies that might exist for the Company or the
effect of any other transaction in which the Company might engage. This
opinion may not be published or otherwise used or referred to publicly
without our written consent; provided, however, that this opinion may be
included in its entirety in any filing with the Securities and Exchange
Commission with respect to the Merger.
Based upon and subject to the foregoing, and based upon such other facts as
we consider relevant, it is our opinion that, as of the date hereof, the
Merger Consideration to be received by the Company's minority shareholders
for their common stock in the proposed Merger is fair to such shareholders
from a financial point of view.
Sincerely,
By: /s/ Goldsmith, Agio Helms Securities, Inc.
- -----------------------------------------------
Goldsmith, Agio, Helms Securities, Inc.
<PAGE>
EXHIBIT C
MINNESOTA BUSINESS CORPORATIONS ACT SECTIONS
DEALING WITH DISSENTERS' RIGHTS
302A.471 RIGHTS OF DISSENTING SHAREHOLDERS - Subdivision 1. Actions
creating rights. A shareholder of a corporation may dissent from, and obtain
payment for the fair value of the shareholder's shares in the event of, any of
the following corporate actions:
(a) An amendment of the articles that materially and adversely
affects the rights or preferences of the shares of the dissenting shareholder
in that it:
(1) alters or abolishes a preferential right of the shares;
(2) creates, alters, or abolishes a right in respect of the
redemption of the shares, including a provision respecting a sinking fund for
the redemption or repurchase of the shares;
(3) alters or abolishes a preemptive right of the holder of the
shares to acquire shares, securities other than shares, or rights to purchase
shares or securities other than shares;
(4) excludes or limits the right of a shareholder to vote on a
matter, or to cumulate votes, except as the right may be excluded or limited
through the authorization or issuance of securities of an existing or new
class or series with similar or different voting rights; except that an
amendment to the articles of an issuing public corporation that provides that
section 302A.671 does not apply to a control share acquisition does not give
rise to the right to obtain payment under this section;
(b) A sale, lease, transfer, or other disposition of all or
substantially all of the property and assets of the corporation, but not
including a transaction permitted without shareholder approval in section
302A.661, subdivision 1, or a disposition in dissolution described in section
302A.725, subdivision 2, or a disposition pursuant to an order of a court, or
a disposition for cash on terms requiring that all or substantially all of the
net proceeds of disposition be distributed to the shareholders in accordance
with their respective interests within one year after the date of disposition;
(c) A plan of merger, whether under this chapter or under chapter
322B, to which the corporation is a constituent organization, except as
provided in subdivision 3;
<PAGE>
(d) A plan of exchange, whether under this chapter or under chapter
322B, to which the corporation is a party as the corporation whose shares will
be acquired by the acquiring corporation, if the shares of the shareholder are
entitled to be voted on the plan; or
(e) Any other corporate action taken pursuant to a shareholder vote
with respect to which the articles, the bylaws, or a resolution approved by
the board directs that dissenting shareholders may obtain payment for their
shares.
Subd. 2. Beneficial owners. (a) A shareholder shall not assert
dissenters' rights as to less than all of the shares registered in the name of
the shareholder, unless the shareholder dissents with respect to all the
shares that are beneficially owned by another person but registered in the
name of the shareholder and discloses the name and address of each beneficial
owner on whose behalf the shareholder dissents. In that event, the rights of
the dissenter shall be determined as if the shares as to which the shareholder
has dissented and the other shares were registered in the names of different
shareholders.
(b) A beneficial owner of shares who is not the shareholder may
assert dissenters' rights with respect to shares held on behalf of the
beneficial owner, and shall be treated as a dissenting shareholder under the
terms of this section and section 302A.473, if the beneficial owner submits to
the corporation at the time of or before the assertion of the rights a written
consent of the shareholder.
Subd. 3. Rights not to apply. (a) Unless the articles, the bylaws, or a
resolution approved by the board otherwise provide, the right to obtain
payment under this section does not apply to a shareholder of the surviving
corporation in a merger, if the shares of the shareholder are not entitled to
be voted on the merger.
(b) If a date is fixed according to section 302A.445, subdivision
1, for the determination of shareholders entitled to receive notice of and to
vote on an action described in subdivision 1, only shareholders as of the date
fixed, and beneficial owners as of the date fixed who hold through
shareholders, as provided in subdivision 2, may exercise dissenters' rights.
Subd. 4. Other rights. The shareholders of a corporation who have a
right under this section to obtain payment for their shares do not have a
right at law or in equity to have a corporate action described in subdivision
1 set aside or rescinded, except when the corporate action is fraudulent with
regard to the complaining shareholder or the corporation.
(b) "Corporation" means the issuer of the shares held by a
dissenter before the corporate action referred to in section 302A.471,
subdivision 1 or the successor by merger of that issuer.
(c) "Fair value of the shares" means the value of the shares of a
corporation immediately before the effective date of the corporate action
referred to in section 302A.471, subdivision 1.
<PAGE>
(d) "Interest" means interest commencing five days after the
effective date of the corporate action referred to in section 302A.471,
subdivision 1 up to and including the date of payment, calculated at the rate
provided in section 549.09 for interest on verdicts and judgments.
Subd. 2. Notice of action. If a corporation calls a shareholder meeting
at which any action described in section 302A.471, subdivision 1 is to be
voted upon, the notice of the meeting shall inform each shareholder of the
right to dissent and shall include a copy of section 302A.471 and this section
and a brief description of the procedure to be followed under these sections.
Subd. 3. Notice of dissent. If the proposed action must be approved by
the shareholders, a shareholder who is entitled to dissent under section
302A.471 and who wishes to exercise dissenters' rights must file with the
corporation before the vote on the proposed action a written notice of intent
to demand the fair value of the shares owned by the shareholder and must not
vote the shares in favor of the proposed action.
Subd. 4. Notice of procedure; deposit of shares. (a) After the proposed
action has been approved by the board and, if necessary, the shareholders, the
corporation shall send to all shareholders who have complied with subdivision
3 and to all shareholders entitled to dissent if no shareholder vote was
required, a notice that contains:
(1) The address to which a demand for payment and certificates of
certified shares must be sent in order to obtain payment and the date by which
they must be received;
(2) Any restrictions on transfer of uncertificated shares that will
apply after the demand for payment is received;
(3) A form to be used to certify the date on which the shareholder,
or the beneficial owner on whose behalf the shareholder dissents, acquired the
shares or an interest in them and to demand payment; and
(4) A copy of section 302A.471 and this section and a brief
description of the procedures to be followed under these sections.
(b) In order to receive the fair value of the shares, a dissenting
shareholder must demand payment and deposit certificated shares or comply with
any restrictions on transfer of uncertificated shares within 30 days after the
notice was given, but the dissenter retains all other rights of a shareholder
until the proposed action takes place.
Subd. 5. Payment; return of shares. (a) After the corporate action
takes effect, or after the corporation receives a valid demand for payment,
whichever is later, the corporation shall remit to each dissenting shareholder
who has complied with subdivisions 3 and 4 the amount the corporation
estimates to be the fair value of the shares, plus interest, accompanied by:
(1) the corporation's closing balance sheet and statement of income
for a fiscal year ending not more than 16 months before the effective date of
the corporate action, together with the latest available interim financial
statements;
<PAGE>
(2) an estimate by the corporation of the fair value of the shares
and a brief description of the method used to each the estimate; and
(3) a copy of section 302A.471 and this section, and a brief
description of the procedure to be followed in demanding supplemental payment.
(b) The corporation may withhold the remittance described in
paragraph (a) from a person who was not a shareholder on the date the action
dissented from was first announced to the public or who is dissenting on
behalf of a person who was not a beneficial owner on that date. If the
dissenter has complied with subdivisions 3 and 4, the corporation shall
forward to the dissenter the materials described in paragraph (a), a statement
of the reason for withholding the remittance, and an offer to pay to the
dissenter the amount listed in the materials if the dissenter agrees to accept
that amount in full satisfaction.
The dissenter may decline the offer and demand payment under
subdivision 6. Failure to do so entitles the dissenter only to the amount
offered. If the dissenter makes demand, subdivisions 7 and 8 apply.
(c) If the corporation fails to remit payment within 60 days of the
deposit of certificates or the imposition of transfer restrictions on
uncertificated shares, it shall return all deposited certificates and cancel
all transfer restrictions. However, the corporation may again give notice
under subdivision 4 and require deposit or restrict transfer at a later time.
Subd. 6. Supplemental payment; demand. If a dissenter believes that the
amount remitted under subdivision 5 is less than the fair value of the shares
plus interest, the dissenter may give written notice to the corporation of the
dissenter's own estimate of the fair value of the shares, plus interest,
within 30 days after the corporation mails the remittance under subdivision 5,
and demand payment of the difference. Otherwise, a dissenter is entitled only
to the amount remitted by the corporation.
Subd. 7. Petition; determination. If the corporation receives a demand
under subdivision 6, it shall, within 60 days after receiving the demand,
either pay to the dissenter the amount demanded or agreed to by the dissenter
after discussion with the corporation or file in court a petition requesting
that the court determine the fair value of the shares, plus interest. The
petition shall be filed in the county in which the registered office of the
corporation is located, except that a surviving foreign corporation that
receives a demand relating to the shares of a constituent domestic corporation
shall file the petition in the county in this state in which the last
registered office of the constituent corporation was located. The petition
shall name as parties all dissenters who have demanded payment under
subdivision 6 and who have not reached agreement with the corporation. The
corporation shall, after filing the petition, serve all parties with a summons
and copy of the petition under the rules of civil procedure. Nonresidents of
this state may be served by registered or certified mail or by publication as
provided by law. Except as otherwise provided, the rules of civil procedure
apply to this proceeding. The jurisdiction of the court is plenary and
exclusive. The court may appoint appraisers, with powers and authorities the
court deems proper, to receive evidence on and recommend the amount of the
fair value of the shares. The court shall determine whether the shareholder
or shareholders in question have fully complied with the requirements of this
<PAGE>
section, and shall determine the fair value of the shares, taking into account
any and all factors the court finds relevant, computed by any method or
combination of methods that the court, in its discretion, sees fit to use,
whether or not used by the corporation or by a dissenter. The fair value of
the shares as determined by the court is binding on all shareholders, wherever
located. A dissenter is entitled to judgment in cash for the amount by which
the fair value of the shares as determined by the court, plus interest,
exceeds the amount, if any, remitted under subdivision 5, but shall not be
liable to the corporation for the amount, if any, by which the amount, if any,
remitted to the dissenter under subdivision 5 exceeds the fair value of the
shares as determined by the court, plus interest.
Subd. 8. Costs; fees; expenses. (a) The court shall determine the costs
and expenses of a proceeding under subdivision 7, including the reasonable
expenses and compensation of any appraisers appointed by the court, and shall
assess those costs and expenses against the corporation, except that the court
may assess part or all of those costs and expenses against a dissenter whose
action in demanding payment under subdivision 6 is found to be arbitrary,
vexatious, or not in good faith.
(b) If the court finds that the corporation has failed to comply
substantially with this section, the court may assess all fees and expenses of
any experts or attorneys as the court deems equitable. These fees and
expenses may also be assessed against a person who has acted arbitrarily,
vexatiously, or not in good faith in bringing the proceeding, and may be
awarded to a party injured by those actions.
(c) The court may award, in its discretion, fees and expenses to an
attorney for the dissenters out of the amount awarded to the dissenters, if
any.
<PAGE>
FORM OF PROXY
FRONT OF PROXY CARD
ENSTAR INC.
7450 Flying Cloud Drive
Eden Prairie, Minnesota 55344
Notice of Annual Meeting of Shareholders October , 1999
This Proxy is solicited on Behalf of the Board of Directors
The undersigned appoints Peter E. Flynn and Richard J. Braun, and each of
them, with power to act without the other and with all the right of
substitution in each, the proxies of the undersigned to vote all shares of
Common Stock of ENStar Inc. (the "Company") held by the undersigned on
September 14, 1999, at the Annual Meeting of Shareholders of the Company, to
be held on October , 1999 at 9:00 a.m. local time at the offices of the
Company, 7450 Flying Cloud Drive, Eden Prairie, Minnesota, and all
adjournments thereof, with all powers the undersigned would possess if present
in person. All previous proxies given with respect to the meeting are
revoked.
Receipt of Notice of Annual Meeting of Shareholders and Proxy Statement
is acknowledged by your execution of this proxy. Complete, sign, date, and
return this proxy in the addressed envelope, no postage required. Please mail
promptly to save further solicitation expenses.
1. Approval of Merger Agreement, [] FOR the Merger [] AGAINST the Merger
dated August 13, 1999, by [] ABSTAIN
and among ENStar Inc.,
ENStar Acquisition, Inc.
and the Michael Family
(continued, and to be dated and signed, on other side)
BACK OF PROXY CARD
2. If the Merger Agreement is not approved, and unless otherwise indicated
below by a line through the name of a nominee, for the election of the
nominees for director indicated below:
James H. Michael Jeffrey J. Michael Miles E. Efron Richard J. Braun
3. To vote with discretionary authority upon such other matters as may come
before the meeting. (Discretionary authority will only be exercised with
respect to votes in favor or abstentions.)
[ ] APPROVED [ ] WITHHELD
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS PROVIDED BY THE
UNDERSIGNED SHAREHOLDER, THIS PROXY WILL BE VOTED "FOR" ITEM 1 LISTED HEREIN,
AND "FOR" EACH DIRECTOR NAMED IN ITEM 2. UPON ALL OTHER MATTERS, THE PROXIES
SHALL VOTE AS THEY DEEM IN THE BEST INTERESTS OF THE COMPANY.
<PAGE>
SIGNATURE(S)
---------------------------
---------------------------
DATED: , 1999
-----------
INSTRUCTION: When shares are held by joint tenants, all joint tenants should
sign. When signing as attorney, executor, administrator, trustee, custodian,
or guardian, please give full title as such. If shares are held by a
corporation, this proxy should be signed in full corporate name by its
president or other authorized officer. If a partnership holds the shares
subject to this proxy, an authorized person should sign in the name of such
partnership.
