<PAGE>
As filed with the Securities and Exchange Commission on March 23, 1994.
REGISTRATION NO. 33-46418
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
NORTH STAR UNIVERSAL, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0498850
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
610 PARK NATIONAL BANK BUILDING
5353 WAYZATA BOULEVARD
MINNEAPOLIS, MINNESOTA 55416
(612) 546-7500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
PETER E. FLYNN
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
NORTH STAR UNIVERSAL, INC.
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
(612) 546-7500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copy to:
J. ANDREW HERRING, ESQ.
DORSEY & WHITNEY
220 South Sixth Street
Minneapolis, Minnesota 55402
(612) 340-5683
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. / /
If the Registrant elects to deliver its latest annual report to security
holders, or a complete and legible facsimile thereof, pursuant to Item
11(a)(1) of this form, check the following box. /X/
<PAGE>
North Star Universal, Inc.
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
Item Number and Caption Heading in Prospectus
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1. Forepart of the Registration Forepart of the Registration
Statement and Outside Front Statement and Outside Front
Cover Page of Prospectus. Cover Page of Prospectus.
2. Inside Front and Outside Back Inside Front and Outside Back
Cover Pages of Prospectus. Cover Pages of Prospectus.
3. Summary Information, Risk Prospectus Summary, Special
Factors and Ratio of Earnings Factors.
to Fixed Charges.
4. Use of Proceeds. Special Factors and Use of
Proceeds.
5. Determination of Offering Price. *
6. Dilution. *
7. Selling Security Holders. *
8. Plan of Distribution. Plan of Distribution.
9. Description of Securities to Description of Time Certificates.
be Registered.
10. Interests of Named Experts and *
Counsel.
11. Information with Respect to the Outside Front Cover Page,
Registrant. Prospectus Summary and Special
Factors.
12. Incorporation of Certain Incorporation of Certain
Information by Reference. Information by Reference.
13. Disclosure of Commission *
Position on Indemnification
for Securities Act Liabilities.
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*Not applicable.
<PAGE>
$40,000,000
NORTH STAR UNIVERSAL, INC.
<TABLE>
<CAPTION>
SUBORDINATED EXTENDIBLE TIME CERTIFICATES SUBORDINATED FIXED-TERM TIME CERTIFICATES
<S> <C>
4.50% Six Month 7.75% Two Year
5.25% Twelve Month 9.25% Five Year
10.25% Ten Year
Minimum Investment of $1,000
</TABLE>
------------------------------
The Time Certificates offered hereby are unsecured obligations of North
Star Universal, Inc. (the "Company") and subordinated to all Senior Indebtedness
(as defined in the Indenture) of the Company.
The interest rates of the Time Certificates are expected to change from
time to time based on the Company's financial needs and current market
conditions, but any such change will not affect the interest rate of any Time
Certificates purchased prior to the effective date of such change. Any changes
in interest rates of the Time Certificates will be made by post-effective
amendment to this Prospectus setting forth such changes to the interest rates.
See "Plan of Distribution."
Interest rates on Extendible Time Certificates will be adjusted (upon
notice to the holder) each six or twelve months from the date of issuance
thereof, as applicable (each such date is herein called a "Roll-Over Date"). On
any Roll-Over Date or within ten business days thereafter, Extendible Time
Certificates are redeemable at the option of the Time Certificate holder. Both
the Extendible and Fixed-Term Time Certificates may be redeemed at any time, in
whole or in part, at the election of the Company. See "Description of Time
Certificates."
The Time Certificates are offered by officers and employees of the Company
directly without an underwriter and on a continuous basis without an expected
termination date. There is no assurance that all or any portion of the offered
Time Certificates will be sold and, even if all of the Time Certificates offered
hereby are sold, it is not expected that there will be a trading market for the
Time Certificates. The Company reserves the right to reject any subscription,
in whole or in part.
THE TIME CERTIFICATES OFFERED HEREBY ARE NOT DEPOSITS OR ACCOUNTS WITH A
BANK, SAVINGS AND LOAN ASSOCIATION OR OTHER FINANCIAL INSTITUTION REGULATED BY
FEDERAL OR STATE BANKING AUTHORITIES AND SUCH SECURITIES ARE NOT ENTITLED TO ANY
OF THE REGULATORY PROTECTIONS APPLICABLE TO DEPOSITS OR ACCOUNTS WITH SUCH
REGULATED FINANCIAL INSTITUTIONS, INCLUDING DEPOSIT INSURANCE OR GOVERNMENTAL
GUARANTEES. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET
FORTH UNDER "SPECIAL FACTORS."
This Prospectus is accompanied by the Company's 1993 Annual Report to
Shareholders, portions of which are incorporated herein by reference. See
"Incorporation of Certain Information by Reference."
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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Underwriting
Price to Discount and Proceeds to
Public Other Commissions Company(1)
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<S> <C> <C> <C>
Per Time Certificate 100% None 100%
Total $40,000,000 None $40,000,000
<FN>
(1) Before deducting expenses estimated at $150,000.
</TABLE>
The Date of this Prospectus is March 23, 1994
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information can be inspected
and copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C., and its regional
offices located at 7 World Trade Center, 13th Floor, New York, New York 10007
and Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such materials can also be obtained from the
Public Reference Section of the Commission, Washington, D.C. 20549, at
prescribed rates. The common stock of the Company is listed on the Pacific
Stock Exchange, and reports, proxy statements and other information filed by the
Company with the Commission may be inspected at the offices of the Pacific Stock
Exchange, 301 Pine Street, San Francisco, California 94104.
The Company furnishes to its shareholders annual reports containing audited
financial statements and quarterly reports containing unaudited financial
information for the first three quarters of each year. Copies of such reports
are available upon written request.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company hereby incorporates by reference in the Prospectus the
following documents filed with the Commission (File No. 0-15638):
(1) The Company's Annual Report on Form 10-K for the year ended December
31, 1993.
(2) The following portions of the Company's 1993 Annual Report to
Shareholders:
(a) Description of the Company's business furnished in accordance
with Rule 14a-3(b)(6) under the Exchange Act on the inside front
cover; all of the information found on page 1 under the heading
Financial Highlights and the text under the heading "To Our
Shareholders" on pages 2 and 3 are specifically excluded from
incorporation herein.
(b) Audited consolidated financial statements of the Company and the
report of independent certified public accountants furnished in
accordance with Rule 14a-3(b)(1) under the Exchange Act on pages
8 through 20.
(c) Selected financial data relating to the Company furnished as
required by Item 301 of Regulation S-K on page 20.
(d) Information relating to industry segments, classes of similar
products or services, foreign and domestic operations, and export
sales furnished as required by paragraphs (b), (c)(l)(i) and (d)
of Item 101 of Regulation S-K on page 19.
(e) Supplementary financial information furnished as required by Item
302 of Regulation
S-K on page 21.
(f) Management's discussion and analysis of results of operations and
financial condition furnished as required by Item 303 of
Regulation S-K on pages 4 through 7.
Any statement contained in any document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as modified or superseded, to constitute part of this Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the request of such person, a copy of any document
incorporated by reference in this Prospectus, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Written or telephone requests should be directed to Investment
Department, North Star Universal, Inc., 610 Park National Bank Building, 5353
Wayzata Boulevard, Minneapolis, Minnesota 55416, Telephone (612)-546-7500.
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<PAGE>
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
THE COMPANY
North Star Universal, Inc. ("North Star" or the "Company"), is a holding
company. North Star's direct and indirect wholly owned subsidiaries include
Americable, Inc. ("Americable"), Transition Engineering, Inc. ("Transition
Engineering") and C.E. Services, Inc. and its United Kingdom subsidiary, C.E.
Services (Europe) Limited (together, "C.E. Services"). Americable is a provider
of voice and data communications networking products, systems and services.
Transition Engineering is a manufacturer of connectivity devices and equipment
used in local area network ("LAN") applications. C.E. Services remarkets,
reconfigures, refurbishes and warehouses mainframe computers and peripherals and
provides related technical and maintenance services.
Additionally, at March 1, 1994, the Company owned approximately 38% of the
outstanding common stock of Michael Foods, Inc. ("Michael Foods"). Michael
Foods is a food processing and distribution company, which the Company brought
public in 1987. In June of 1991, the Company's health care services subsidiary,
CorVel Corporation (formerly FORTIS Corporation) ("CorVel"), completed an
initial public offering of its common stock. As of March 1, 1994, the Company's
ownership in CorVel was approximately 40%. The Company directly employs six
management and administrative employees.
Americable provides products, systems and services in the field of voice
and data communication networking. Americable seeks to be a single-source
provider for all of its customers' needs. As a value-added reseller and
distributor, Americable supplies cables and connectors, network products,
patch panels and fiber optics to various customers in the voice and data
communications aftermarket, including resellers, other distributors, installers
and end-users. Americable also manufactures a wide variety of cable assemblies,
sub-assemblies and specialty products for its customers. While some of the
products are manufactured to standard specifications for sale by Americable
as part of its product inventory, most are custom designed and manufactured to
its customers' specifications. Additionally, Americable designs and
supervises the implementation of the physical layer of LAN systems for its
customers. In connection with such projects, the company offers products and
services for all levels of computing, including mainframe, mini- and micro-
workstations and personal computer based LAN systems.
Transition Engineering designs, manufactures and markets hardware equipment
that provides physical connectivity for LAN's and mini- and mainframe networks.
Physical connectivity devices enable computing and other electronic devices to
communicate over a network. These devices include transceivers, baluns,
concentrators, adapters and related communications modules.
C.E. Services remarkets, reconfigures, refurbishes and warehouses IBM and
IBM-compatible computers, particularly mainframe computers and provides related
technical and maintenance services. Many of the company's services are
especially valuable to computer leasing and credit companies that acquire large
quantities of computer components and supply many different configurations of
computer equipment to their end-user customers.
Michael Foods is a diversified producer and distributor of food products in
five basic areas -- eggs and egg products, distribution of refrigerator case
products, refrigerated and frozen potato products, specialty dairy products and
refrigerated soups and salads. Michael Foods, through its eggs and egg products
division, is one of the largest producers, processors and distributors of shell
eggs, extended shelf-life liquid eggs and dried, hard-cooked and frozen egg
products in the United States. The refrigerated distribution division also
distibutes a broad line of refrigerated grocery products directly to
supermarkets, including cheese, shell eggs, bagels, butter, margarine, muffins,
potato products, juices and ethnic foods. The potato products division
processes and distributes refrigerated
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<PAGE>
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and frozen potato products for the United States foodservice and retail
markets. The dairy products division processes and distributes ice milk
mix, ice cream mix, frozen yogurt mix and extended shelf-life, ultrapasteurized
milk, ice milk and specialty dairy products to fast food businesses, other
foodservice outlets, independent retailers and ice cream manufacturers. The
prepared foods division processes and distributes refrigerated soups and salads
for foodservice and retail markets, primarily in the eastern United States.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address the escalating medical costs of
workers compensation. CorVel's services include automated medical fee
auditing, medical case management, independent medical examinations, utilization
review and vocational rehabilitation services. Such services are provided to
insurance companies, third party administrators and self-administered employers
to assist them in managing the medical costs and monitoring the quality of care
associated with workers' compensation claims.
The Company's principal executive offices are located at 610 Park National
Bank Building, 5353 Wayzata Boulevard, Minneapolis, Minnesota 55416. Telephone:
(612) 546-7500.
THE OFFERING
SECURITIES OFFERED . The Company is offering up to $40,000,000 principal
amount Subordinated Time Certificates (the "Time
Certificates"). The Six and Twelve Month Subordinated
Extendible Time Certificates (together, the "Extendible
Time Certificates"), unless earlier redeemed by the
holder thereof on or within ten days after
their respective Roll-Over Dates, mature four years
from the date of issuance. The Two, Five and Ten Year
Subordinated Fixed-Term Time Certificates
(collectively, the "Fixed-Term Time Certificates") have
maturities of two, five and ten years, respectively,
and mature on the first day of the month immediately
following the second, fifth and tenth anniversary of
the date of issuance, respectively. See "Description of
Time Certificates-General."
INTEREST RATE AND
PAYMENT . . . . . . . Interest on the Time Certificates will accrue from the
date of issuance. Interest will be payable with respect
to Extendible Time Certificates semi-annually and with
respect to the Fixed-Term Time Certificates, quarterly
or at maturity at the option of the Certificate holder.
If the interest is paid at maturity only, it will be
compounded quarterly. Additionally, holders of Fixed-
Term Time Certificates in denominations of $5,000 or
more, may elect to receive interest payments monthly.
The interest rate applicable to each Six and Twelve
Month Extendible Time Certificate will automatically
adjust each six and twelve months, respectively, on
each Roll-Over Date, unless redeemed by the Time
Certificate holder. Not less than ten business days
prior to the Roll-Over Date, the Company will mail to
holders of Extendible Time Certificates a notice of the
upcoming Roll-Over Date and the new interest rate that
will be payable with respect to the Extendible Time
Certificates until the next Roll-Over Date. See
"Description of Time Certificates-Extendible Time
Certificates." Once issued, the interest rate
applicable to a Fixed-Term Time Certificate will not
adjust prior to maturity. See "Description of Time
Certificates-Fixed-Term Time Certificates."
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<PAGE>
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REDEMPTION . . . . . The Extendible Time Certificates are redeemable in
whole or in part at the option of the holder on or
within ten business days after any Roll-Over Date.
See "Description of Time Certificates-Extendible Time
Certificates-Interest Rate Adjustment and Roll-Over."
Both the Extendible Time Certificates and the Fixed-
Term Certificates are redeemable at the Company's
option, in whole or in part, at any time. See
"Description of Time Certificates-Provisions Relating
to All Time Certificates-Redemption at the Option of
the Company."
REPAYMENT UPON
DEATH OR
DISABILITY . . . . . Under certain circumstances, the Company will repay up
to $25,000 in aggregate principal amount of Time
Certificates at par upon the death or disability of a
Time Certificate holder. See "Description of Time
Certificates-Provisions Relating to All Time
Certificates-Redemption by the Holder Upon Death or
Disability."
SUBORDINATION . . . . The Time Certificates are unsecured obligations of the
Company and subordinated to all present and future
Senior Indebtedness of the Company, as defined in the
Indenture. There are no restrictions in the Indenture
on incurring additional Senior Indebtedness or other
indebtedness. See "Description of the Time
Certificates-Provisions Relating to All Time
Certificates-Subordination."
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<PAGE>
SPECIAL FACTORS
Prospective investors should consider, together with the other matters set
forth in this Prospectus, the following factors in evaluating an investment in
the Time Certificates:
ABSENCE OF INSURANCE AND GUARANTEES. The Time Certificates are not insured
or guaranteed by any governmental agency or any public or private entity as are
certificates of deposit or other accounts offered by banks, savings and loan
associations or credit unions. In these respects, the Time Certificates are
similar to the subordinated debt securities of other commercial entities, but
are unlike certificates of deposits or other similar accounts offered by banks
and savings institutions.
HIGH LEVERAGE AND CASH FLOW DEFICITS. Historically, the Company has had a
high debt to equity ratio and, since the formation of Michael Foods in May 1987,
the Company (exclusive of Michael Foods) has experienced operating cash flow
deficits. The Company and its consolidated subsidiaries had long term debt
(including current maturities) and short-term notes payable of approximately
$43.2 million as of December 31, 1993, and the Company's debt-to-equity ratio at
December 31, 1993, was 2.13 to 1. Also, the Company had cash flow deficits from
operations of approximately $2.8 million in 1993 and approximately $3.9 million
in 1992, and operating cash flow deficits are expected to continue. The Company
intends to fund such operating cash flow deficits through its available cash and
cash equivalents, proceeds from the sale of Time Certificates pursuant to this
offering, amounts available under the credit facilities of the Company and its
consolidated subsidiaries, and dividends from Michael Foods. The Company's
ratio of earnings to fixed charges for each of the five years ended December 31,
1989, 1990, 1991, 1992 and 1993 was 1.50, 2.46, 1.53, .02 and .28, respectively.
Because the Company remains leveraged, however, a significant decline in the
earnings of the Company's operating subsidiaries, a prolonged interruption or
significant reduction in sales of Time Certificates pursuant to this offering,
or a significant reduction in the cash dividends the Company receives from
Michael Foods, could have a material adverse effect on the Company's ability to
make scheduled payments of interest and principal on its indebtedness, including
the Time Certificates offered hereby. See "Management's Discussion and Analysis
of Results of Operations and Financial Condition-Capital Resources and
Liquidity" contained in the copy of the Company's 1993 Annual Report to
Shareholders, which accompanies this Prospectus.
RELIANCE UPON SALES OF NEW TIME CERTIFICATES. The Company relies upon the
sale of new Time Certificates to retire maturing debentures (under the Company's
earlier debenture programs) and Time Certificates and, to a much lesser extent,
to finance operations. Aggregate sales of new Time Certificates include the
reinvestment of proceeds from maturing Time Certificates or debentures into new
Time Certificates and the sale of Time Certificates unrelated to maturing Time
Certificates or debentures. During 1993, 1992 and 1991, approximately 54%, 52%,
and 52%, respectively, of the proceeds from maturing Time Certificates or
debentures was reinvested in new Time Certificates. During 1993 and 1992 total
new sales of Time Certificates (including the reinvestment of compounded
interest) exceeded redeemed Time Certificates and debentures, resulting in net
cash proceeds of approximately $680,000 and $1.3 million, respectively, to the
Company. In 1991 and 1990, however, maturing Time Certificates and debentures
exceeded total new sales of Time Certificates (including the reinvestment of
compounded interest), resulting in net cash deficits of approximately $313,000
and $2.6 million, respectively. While the Company intends to offer Time
Certificates at competitive rates relative to other comparable investment
products, no assurance can be made that future sales of Time Certificates
(including reinvested proceeds) will equal or exceed maturing Time Certificates
and debentures. Approximately $12.1 million and $10.8 million principal amount
of Time Certificates and debentures mature in 1994 and 1995, respectively. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition-Capital Resources and Liquidity" contained in the copy of the
Company's 1993 Annual Report to Shareholders, which accompanies this Prospectus.
MICHAEL FOODS AND CORVEL. Because Michael Foods and CorVel are not wholly
owned subsidiaries, the Company does not have the ability to utilize cash flow
from Michael Foods or CorVel in connection with its wholly owned operating
subsidiaries or to repay its indebtedness. The only cash the Company can obtain
from Michael Foods and CorVel are cash dividend payments made to all
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<PAGE>
Michael Foods or CorVel shareholders. During 1993, the Company received cash
dividends equal to $1,471,000, with respect to its shares of Michael Foods
common stock. Since its initial public offering, CorVel has not paid any
dividends and it has indicated that it does not anticipate doing so during the
foreseeable future. There can be no assurance that Michael Foods will continue
to declare quarterly cash dividends. Any reduction in the amount of such
quarterly cash dividends could have an adverse effect on the ability of the
Company to make scheduled payment of principal and interest on its indebtedness,
including the Time Certificates offered hereby. See "Management's Discussion
and Analysis of Results of Operations and Financial Condition-Capital Resources
and Liquidity" contained in the copy of the Company's 1993 Annual Report to
Shareholders, which accompanies this Prospectus.
SUBORDINATION OF TIME CERTIFICATES. The Time Certificates are subordinate
and junior to any and all Senior Indebtedness of the Company, as defined in the
Indenture. Also, with respect to certain of the Company's Senior Indebtedness,
the Company has pledged its shares of Michael Foods stock to secure such
indebtedness. There are no restrictions in the Indenture regarding the amount
of Senior Indebtedness of the Company, which may fluctuate. In the event of a
default on the Senior Indebtedness or the liquidation of the Company, all Senior
Indebtedness must be paid prior to any payment of principal or interest on the
Time Certificates. The Time Certificates are in parity with all of the
subordinated debentures and Time Certificates that have previously been offered
by the Company. As of December 31, 1993, the outstanding Senior Indebtedness of
the Company was $3,615,000 and there was $39,579,000 principal amount of
subordinated indebtedness of the Company outstanding (subordinated debentures
and Time Certificates), which rank in parity with the Time Certificates. See
"Description of the Time Certificates Provisions Relating to All Time
Certificates-Subordination."
NO SECURITY FOR PAYMENT. The Time Certificates offered hereby are
unsecured and do not have the benefit of a sinking fund or other similar
provision providing for retirement of the Time Certificates at their maturity.
The Company's ability to repay the Time Certificates could be adversely affected
if the Company were unable to raise additional funds through the issuance of new
debt or equity securities or the sale of Company assets. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition-Capital
Resources and Liquidity" contained in the copy of the Company's 1993 Annual
Report to Shareholders, which accompanies this Prospectus.
REDEMPTION. The Company, at its option, may at any time redeem any or all
of the outstanding Extendible or Fixed-Term Time Certificates of any type
selected by interest rate or maturity. If the Company redeems less than all of
the outstanding Time Certificates selected for redemption, the Company will
redeem the Time Certificates ratably or by lot. The Time Certificates will be
redeemed at 100% of the principal amount plus accrued but unpaid interest. See
"Description of Time Certificates-Provisions Relating to all Time Certificates-
Redemption at the Option of the Company."
NO PUBLIC TRADING MARKET FOR THE TIME CERTIFICATES. It is unlikely that
any trading market for the Time Certificates offered hereby will develop, or, if
developed, will be sustained, or that the Time Certificates offered hereunder
may be resold at any price. In addition, the Time Certificates offered
hereunder may be issued in uneven amounts which could further restrict the
ability to trade the Time Certificates.
NO FIRM UNDERWRITING COMMITMENT. The Time Certificates are being offered
by officers and employees of the Company without a firm underwriting commitment.
No assurance can be given as to the principal amount of Time Certificates that
will be sold or whether the proceeds received by the Company from the sale of
Time Certificates will be sufficient for the uses required by the Company. See
"Use of Proceeds."
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<PAGE>
USE OF PROCEEDS
The Company anticipates applying net proceeds from the sale of the Time
Certificates first to retire outstanding subordinated debentures and Time
Certificates and related accrued interest, as such subordinated debentures and
Time Certificates mature. As of December 31, 1993, $39.6 million principal
amount of subordinated debentures and Time Certificates were outstanding.
During 1994 and 1995, approximately $12.1 million and $10.8 million principal
amount of subordinated debentures and Time Certificates, respectively, will
mature. The Company's maturing subordinated debentures and Time Certificates
during 1994 and 1995 will have a weighted average to maturity interest rate of
approximately 9.8% and 9.4% respectively. In the event that proceeds from the
sale of the Time Certificates exceed the amount necessary to repay maturing
subordinated debentures and Time Certificates and prior to the maturity of such
subordinated debentures and Time Certificates, the Company will include such
proceeds in the general funds of the Company, which the Company expects to use
for corporate costs, working capital and other operating purposes.
PLAN OF DISTRIBUTION
The Company is offering hereby an aggregate of up to $40,000,000 principal
amount of Time Certificates, which will be offered by authorized officers and
employees of the Company directly without an underwriter and on a continuous
basis without an expected termination date. No underwriting discounts or
commissions of any kind will be paid to such officers or employees in connection
with this offering. No minimum amount of the Time Certificates must be sold in
order for the Company to accept and deposit the proceeds of this offering.
The Time Certificates only may be purchased by means of the offer to
purchase Time Certificates contained in the form of Subscription Agreement
provided by the Company (the "Subscription Agreement"). The Company will not
accept an offer to purchase Time Certificates or negotiate checks delivered for
payment on the sale of Time Certificates unless the prospective purchaser has
previously received this Prospectus and a current post-effective amendment
thereto, if any, setting forth changes to the initial interest rates for each
series of Time Certificates set forth on the cover page hereof.
In the event that the Company receives a properly executed Subscription
Agreement and payment for the purchase of Time Certificates from any person who
has previously received this Prospectus, but who has not received a current
post-effective amendment thereto, the Company will not accept the Subscription
Agreement nor accept any payment therefor until the lapse of five business days
following the mailing of a confirmation of sale and current post-effective
amendment to such prospective purchaser. During this five business day period,
any prospective purchaser of Time Certificates may revoke his or her offer,
orally or in writing, and the Company will promptly return any checks or funds
previously delivered to it. Once the Company accepts an offer, however, orders
to purchase Time Certificates and the issuance of such certificates will be
deemed to have occurred as of the date of receipt by the Company of a
Subscription Agreement and payment. The Company reserves the right to reject
any offer to purchase in whole or in part.
Prospective purchasers who have submitted Subscription Agreements and
payment of the purchase price for Time Certificates may revoke their offer by
writing the Company at 610 Park National Bank Building, 5353 Wayzata Boulevard,
Minneapolis, Minnesota 55416. Attention: Investment Department, or by calling
(612) 546-7500. Investors seeking information as to the current interest rates
for the Time Certificates may contact the Company at 1-800-247-1246 to receive a
current quote as to such rates.
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<PAGE>
DESCRIPTION OF TIME CERTIFICATES
GENERAL
The Time Certificates will be issued under an Indenture, dated as of April
26, 1989, as amended by that certain First Supplemental Indenture, dated as of
March 16, 1992 (as amended, the "Indenture"), between the Company and National
City Bank of Minneapolis, as Trustee (the "Trustee"). The Indenture has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part, and a copy is available for inspection at the principal executive offices
of the Trustee. The following discussion summarizes certain provisions of the
Indenture and is subject to, and is qualified in its entirety by reference to,
all of the provisions of the Indenture, including the definitions therein of
certain terms. Whenever particular provisions of or terms defined in the
Indenture are referred to in this Prospectus, such provisions or defined terms
are incorporated herein by reference. Section and article references appearing
below are to the Indenture.
The First Supplemental Indenture increased the principal amount of Time
Certificates that may be issued under the Indenture from $40 million to $80
million. As of March 1, 1994, approximately $61.4 million principal amount of
Time Certificates had been issued under the Indenture and approximately $30.2
million principal amount of Time Certificates was outstanding under the
Indenture. There is no limitation on the respective principal amount of any
type of Time Certificates that may be outstanding at any time. The Extendible
Time Certificates will mature four years after their date of issue, unless
previously redeemed at the option of the Company or, as described below, at the
option of the holder. The Fixed-Term Time Certificates will mature on the first
day of the month immediately following the second, fifth and tenth anniversary
of their respective dates of issue, unless previously redeemed at the option of
the Company.
The Time Certificates are unsecured obligations of the Company and rank on
a parity with other outstanding subordinated debt of the Company, including
previously issued debentures of the Company issued under its debenture programs,
previously issued Time Certificates issued under the Indenture and, except as
stated below, general creditors of the Company. See "Provisions Relating to All
Time Certificates- Subordination." There is no sinking fund or similar
provision for payment of the Time Certificates at maturity. Maturing Time
Certificates will be paid from general funds of the Company or from the sale of
new Time Certificates.
The initial interest rates payable on any unsold Time Certificates will be
subject to change by the Company from time to time based on market conditions
and the Company's financial requirements, but no such change will affect the
interest rate on any Time Certificate purchased prior to the effective date of
such change. The interest rate applicable to each type of Time Certificate will
be the rate set forth in this Prospectus or in a post-effective amendment to
this Prospectus, if any, in effect as of the date of issuance of such Time
Certificate. Interest payable on the Time Certificates will be calculated based
on a 365 day year.
The Time Certificates will be issued only in registered form, without
coupons, in any amount of $1,000 or more. (Section 2.02(a)).
EXTENDIBLE TIME CERTIFICATES
INTEREST. Interest on each Extendible Time Certificate will accrue from
its date of issuance and will be payable semi-annually beginning on the day
before the same calendar day of the sixth month following the date of issuance
of such certificate. If, however, the date of issuance was the 29th, 30th
or 31st day of any calendar month and the calendar month six months following
the date of issuance does not include the actual calendar day of the date of
issuance, then such interest shall be payable on the last calendar day of the
sixth month following the date of issuance. Interest on each Extendible
Time Certificate will be payable to the person in whose name the Extendible Time
Certificate is registered at the close of business on the 15th day before
interest is payable.
INTEREST RATE ADJUSTMENT AND ROLL-OVER. The interest rate applicable to
each Six Month Extendible Subordinated Time Certificate will be adjusted every
six months. The first adjustment will occur on the same calendar day of the
sixth month following the date of issuance of such certificate. If, however,
the date of issuance was the 29th, 30th or 31st day of any calendar month and
the calendar month six months following the date of issuance does not include
the actual calendar day of the date of
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<PAGE>
issuance, then the interest rate will be adjusted on the last calendar day of
the sixth month following the date of issuance. Thereafter, the interest rate
will continue to adjust every six months on the anniversary date of the date of
issuance and on the anniversary date of the date of the first interest rate
adjustment until maturity, unless earlier redeemed. The interest rate
applicable to each Twelve Month Extendible Subordinated Time Certificate will be
adjusted on each anniversary date of the date of issuance of the certificate.
Each such date, whereupon the interest rate applicable to such Extendible
Time Certificates is adjusted, is referred to as a "Roll-Over Date." From and
after the Roll-Over Date, the new interest rate will be paid by the Company with
respect to such Extendible Time Certificates until the next Roll-Over Date.
The Company will give each registered holder of an Extendible Time
Certificate written notice at least ten days prior to a Roll-Over Date
(such date is herein referred to as the "Notice Date") reminding the holder of
such date and notifying the holder of the interest rate applicable to such
Extendible Time Certificate as of the Notice Date. A holder of an Extendible
Time Certificate may elect to hold such Extendible Time Certificate at the so
announced interest rate until the next Roll-Over Date or present the Extendible
Time Certificate to the Company within ten days after the Roll-Over
Date for redemption at 100 percent of the certificate's principal amount or a
portion thereof. However, if the interest rate applicable to such Extendible
Time Certificate on the Roll-Over Date is different from the interest rate as of
the Notice Date, the holder will be notified of the change in interest rate and
be given ten business days from the date of such notice of the change in
interest rates to present the Extendible Time Certificate to the Company for
redemption. Failure by a holder to so present an Extendible Time Certificate for
redemption will be deemed an election to hold such Extendible Time Certificate
until the following Roll-Over Date. If a holder submits an Extendible Time
Certificate for redemption, no interest will be paid during the period from the
Roll-Over Date to the date of redemption. Registered holders of the Extendible
Time Certificates will be determined at the close of business on the 15th day
prior to the Roll-Over Date.
FIXED-TERM TIME CERTIFICATES
INTEREST. Interest on each Fixed-Term Time Certificate will accrue from
the date of issuance and will be payable, at the election of the initial
purchaser, quarterly, at maturity, or if the Fixed-Term Time Certificate is in a
denomination of $5,000 or more, monthly. If interest is paid at maturity only,
it will be compounded quarterly.
The election by the purchaser at the time of the purchase for payment of
interest at maturity may be changed only once to provide for the payment either
quarterly or monthly. Accrued and unpaid interest as of the effective date of
the change will be added to the principal amount of the Fixed-Term Time
Certificate and simple interest will be paid thereafter on the new principal
amount. To change the payment option a holder of a Fixed-Term Time Certificate
must: (a) furnish the Company with a written notice of such election; (b)
forward the actual certificate evidencing the Fixed-Term Time Certificate to the
Company for notation of current value and change in interest payment; and (c)
provide such additional documentation and other materials as the Company deems
necessary.
PROVISIONS RELATING TO ALL TIME CERTIFICATES
SUBORDINATION. Payment of principal and interest on the Time Certificates
is subordinated and subject to the prior payment in full of all Senior
Indebtedness. Upon (i) the maturity of such Senior Indebtedness, including by
lapse of time, acceleration or otherwise, (ii) the happening of an event of
default with respect to any Senior Indebtedness permitting the holders thereof
to accelerate the maturity thereof, or (iii) any distribution of the assets of
the Company upon the dissolution, winding up, liquidation or reorganization of
the Company, the holders of such Senior Indebtedness will be entitled to receive
payment in full before the holders of the Time Certificates are entitled to
receive any payment. (Article 10).
Under the Indenture, "Senior Indebtedness" means all Indebtedness (other
than the Time Certificates and other subordinated debentures of the Company),
whether outstanding on the date of execution of the Indenture or thereafter
created, incurred, assumed, or guaranteed by the Company (and all renewals,
extensions or refunding thereof), unless the instrument under which such
Indebtedness is
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<PAGE>
created, incurred, assumed or guaranteed expressly provides that such
Indebtedness is not senior or superior in right of payment to the Time
Certificates. "Indebtedness" means any indebtedness, contingent or otherwise, in
respect of borrowed money, or evidenced by bonds, notes, debentures or similar
instruments or letters of credit, or representing the balance deferred and
unpaid of the purchase price of any property or interest therein, except any
such balance that constitutes a trade payable.
The Indenture does not limit the amount of additional indebtedness,
including Senior Indebtedness, which the Company or any subsidiary can create,
incur, assume or guarantee. As a result of these subordination provisions,
holders of the Time Certificates may recover less ratably than holders of Senior
Indebtedness of the Company, in the event of insolvency. As of December 31,
1993, the outstanding Senior Indebtedness of the Company was $ 3.6 million.
Also, as of December 31, 1993, there was $39.6 million principal amount of
subordinated debentures and Time Certificates of the Company outstanding. The
Time Certificates currently outstanding and those to be sold pursuant to this
offering rank in parity with each other and with the outstanding subordinated
debentures.
INTEREST ACCRUAL DATE. Interest on the Time Certificates accrues from the
date of issuance, which is deemed to be the date the Company receives a properly
executed Subscription Agreement and appropriate funds, provided such are
received prior to 3:00 p.m. on a business day. Otherwise, if the Company
receives such funds on a non-business day or after 3:00 p.m. on a business day,
then the date of issuance will be deemed to be the next business day. For this
purpose, the Company's business days will be deemed to be Monday through Friday,
except for Minnesota legal holidays. (Sections 1.01 and 2.02).
TAXES. The following discussion is based on provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), applicable regulations
thereunder, judicial authority and current administrative rulings, all of which
may be retroactively subject to change. Each prospective purchaser of Time
Certificates is advised to consult his or her own tax advisor. Interest on the
Time Certificates is taxable as it accrues, including interest on Fixed-Term
Time Certificates which is payable only at maturity. As a consequence, a holder
of a Fixed-Term Time Certificate who elects payment of interest at maturity is
required to recognize the interest income on such Time Certificate as it accrues
although payment of such interest is deferred until maturity. Under the Code,
the Company is required to report the interest earned on Time Certificates with
respect to each holder to the Internal Revenue Service. No portion of interest
will be withheld for holders providing the Company with a taxpayer
identification number on Forms W-8 or W-9, except on accounts held by foreign
business entities. With respect to those investors who do not provide the
Company with a taxpayer identification number on Forms W-8 or W-9, the Company
will withhold 31% of any interest paid. It is the Company's policy that no sale
will be made to anyone refusing to provide a taxpayer identification number on
Forms W-8 or W-9.
ADDITIONAL INTEREST. In addition to the interest rates payable as set
forth above, the Company may make such additional payments of interest, premiums
or other benefits ("Additional Interest") on such of the Time Certificates, in
such amounts, in such form, on such terms and at such times as shall be
determined from time to time by the Company. Such Additional Interest payments
may be modified or discontinued at any time. For example, such Additional
Interest payments may be limited to new investors, or to current investors
increasing or renewing their investments in the Company's Time Certificates.
Also, such Additional Interest payments may be limited to current or new
investors residing in a particular geographic area. (Section 2.02).
REDEMPTION AT THE OPTION OF THE COMPANY. The Company may, at its option,
redeem any or all of the Time Certificates on at least 30 days notice to each
holder of Time Certificates to be redeemed at his or her registered address at a
price of 100 percent of the principal amount of the Time Certificates, plus
accrued interest on a daily basis to the redemption date. The Company may
select for redemption of the Time Certificates a single class, interest rate or
maturity. In the event of redemption of less than all of a series or class of
Time Certificates selected for redemption by the Company, the Time Certificates
will be chosen for redemption by the Trustee as provided in the Indenture,
generally pro rata or by lot. On and after the redemption date, interest ceases
to accrue on Time Certificates or portions of them called for redemption.
(Article 3).
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<PAGE>
REDEMPTION BY THE HOLDER UPON DEATH OR DISABILITY. A maximum principal
amount of $25,000 in one or more Time Certificates may be redeemed at the
election of the original owner (if such person is still the holder) following
such person's total permanent disability or by such person's estate, following
the holder's death, as established to the satisfaction of the Company. The
redemption price, in the event of such a death or disability, will be the
principal amount of the Time Certificate, plus interest accrued and not
previously paid, to the date of redemption. If two or more persons are joint
record owners of a Time Certificate, the election to redeem will not apply
until all record owners are either deceased or disabled, except that, if the
joint owners are husband and wife, the election may be made after the death or
total permanent disability of either spouse. (Article 3).
MODIFICATION OF INDENTURE. The Indenture may be modified by the Company
and the Trustee at any time or times with the consent of the holders of not less
than a majority in principal amount of the Time Certificates then outstanding,
but no modification of the Indenture may be made which will affect the terms of
payment of, the principal of, or any interest on any Time Certificate, without
the consent of the holder thereof, or reduce the percentage of Time Certificate
holders whose consent to modification is required. Without action by the Time
Certificate holders, the Company and the Trustee may enter into supplemental
indentures adding covenants or agreements of the Company for the protection of
the Time Certificate holders, clarifying any ambiguity or correcting any defect
in the Indenture, consistent with its terms, or making any change to the
Indenture that does not adversely affect the legal rights of the Time
Certificate holders. (Article 9). The Company and the Trustee have entered
into that certain First Supplemental Indenture dated as of March 16, 1992, which
amended the Indenture dated as of April 26, 1989, to increase the principal
amount of Time Certificates that may be issued thereunder from $40,000,000 to
$80,000,000.
PLACE, METHOD AND TIME OF PAYMENT. Principal and interest on the Time
Certificates will be payable at the principal executive office of the Company,
as it may be established from time to time, or at such other place as the
Company may designate for that purpose; provided, however, that payments may be
made at the option of the Company by check or draft mailed to the person
entitled thereto at his or her address appearing in the register which the
Company maintains for that purpose. Any payment of principal or interest which
shall be due on a non-business day will be payable by the Company on the next
business day immediately following such non-business day. (Sections 2.03 and
11.07).
EVENTS OF DEFAULT. An Event of Default is defined in the Indenture as
being a default in payment of principal on the Time Certificates which has not
been cured; a default for 30 days in payment of any installment of interest on
the Time Certificates; acceleration of maturity of any Senior Indebtedness in an
amount exceeding $500,000 under the terms of the instrument under which such
Senior Indebtedness is or may be outstanding, if such acceleration is not
annulled within 30 days after written notice; or certain events of bankruptcy,
insolvency or reorganization or default in the performance or breach of any
covenant or warranty of the Company in the Indenture and continuance of such
default in performance or breach for a period of 60 days after notice of such
default has been received by the Company from the Trustee or from the holders of
25% in principal amount of the outstanding Time Certificates. The Company is
required to file annually with the Trustee an Officer's Certificate as to the
absence of certain defaults under the terms of the Indenture. The Indenture
provides that the holders of 51% in aggregate principal amount of the Time
Certificates at the time outstanding may, on behalf of all holders, waive any
past default or Event of Default except in payment of principal or interest on
the Time Certificates. (Article 6).
Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default shall occur and be continuing, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Time Certificate
holders, unless such Time Certificate holders shall have offered to the Trustee
reasonable indemnity. Subject to such provisions for the indemnification of the
Trustee, the holders of a majority in principal amount of the Time Certificates
at the time outstanding have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee, or exercising
any power conferred on the Trustee. The Indenture contains certain limitations
on the right of an individual Time Certificate holder to institute legal
proceedings in the event of the Company's default. (Section 6.06).
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<PAGE>
SATISFACTION AND DISCHARGE OF INDENTURE. The Indenture may be discharged
upon the payment of all Time Certificates outstanding thereunder or upon deposit
in trust of funds sufficient therefor, plus compliance with certain formal
procedures. (Article 8).
REPORTS. The Company publishes annual reports containing audited financial
statements and quarterly reports containing unaudited financial information for
the first three quarters of each fiscal year. Copies of such reports will be
sent to any Time Certificate holder upon written request.
SERVICE CHARGES. The Company reserves the right to assess service charges
for issuing Certificates to replace lost or stolen Time Certificates, changing
the registration of a Certificate when such change is occasioned by a change in
name of the holder, issuing a replacement interest payment check, or a
transferring (whether by operation of law or otherwise) of the Time Certificate
by the holder to another holder. (Sections 2.05, 2.07 and 2.08).
TRANSFER AND EXCHANGE. A holder may transfer or exchange Time Certificates
in accordance with the Indenture. The Company, as the registrar under the
Indenture, may require a holder, among other things to furnish appropriate
endorsements and transfer documents, and to pay any taxes and fees required by
law or permitted by the Indenture. The Company is not required to transfer or
exchange any Fixed-Term Time Certificates selected for redemption. Also, the
Company is not required to transfer or exchange any Time Certificate for a
period of fifteen business days before the maturity of such Time Certificates.
(Section 2.07).
CONCERNING THE TRUSTEE. The Trustee acts as the trustee under that certain
Indenture, dated as of December 1, 1986, pursuant to which the Company's
Subordinated Debentures, Series 87/88 were previously issued. The Time
Certificates rank in parity with outstanding Subordinated Debentures, Series
87/88, of the Company. Also, the Indenture contains certain limitations on the
right of the Trustee, should it become a creditor of the Company, to obtain
payment of claims in certain cases, or to realize on certain property with
respect to any such claim as security or otherwise. The Trustee will be
permitted to engage in other transactions; however, if it acquires any
conflicting interest (as defined) and if any of the Indenture securities are in
default it must eliminate such conflict or resign.
The holders of a majority in principal amount of the then outstanding Time
Certificates issued under the Indenture will have the right to direct the time,
method and place of conducting any proceeding for exercising any remedy
available to the Trustee. The Indenture provides that in case an Event of
Default shall occur, and is not cured, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any of the holders of the Time Certificates issued thereunder, unless
they shall have offered to the Trustee security and indemnity satisfactory to
it.
EXPERTS
The consolidated financial statements of North Star Universal, Inc. and
Subsidiaries have been audited by Grant Thornton, independent certified public
accountants, to the extent and for the periods indicated in their report
appearing in the copy of the Company's 1993 Annual Report to Shareholders, which
accompanies this Prospectus.
Such financial statements are included in the copy of the Company's 1993
Annual Report to Shareholders, which accompanies this Prospectus, and
incorporated by reference herein in reliance upon such report of such firm given
upon their authority as an expert in accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Time
Certificates will be passed upon for the Company by the law firm of Dorsey &
Whitney, Minneapolis, Minnesota.
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TABLE OF CONTENTS
Available Information . . . . . . 2
Incorporation of Certain Information
by Reference . . . . . . . . . . 2 $40,000,000
Prospectus Summary . . . . . . . . 3
Special Factors . . . . . . . . . . 6 SIX AND TWELVE MONTH SUBORDINATED
Use of Proceeds . . . . . . . . . . 8 EXTENDIBLE TIME CERTIFICATES
Plan of Distribution . . . . . . . 8
Description of Time Certificates . 9 TWO, FIVE AND TEN YEAR SUBORDINATED
Experts . . . . . . . . . . . . . . 13 FIXED-TERM TIME CERTIFICATES
Legal Matters . . . . . . . . . . . 13
No person has been authorized in
connection with the offering to give any
information or to make any
representations not contained in this
prospectus, and if given or made, such ---------------
information or representations must not
be relied upon as having been authorized PROSPECTUS
by the Company. This Prospectus does not
constitute an offer or solicitation by ---------------
anyone in any state in which such offer
or solicitation is not authorized, or in
which the person making such offer or
solicitation is not qualified to do so,
or to any person to whom it is unlawful
to make such offer or solicitation.
Neither the delivery of this Prospectus
nor any sales made hereunder shall,
under any circumstances, create any
implication that there has been no
change in the affairs of the Company
since the date of this Prospectus.
North Star
Universal, Inc.
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, MN 55416
The date of this Prospectus is
March 23, 1994
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
With the exception of the SEC registration fee, the following expenses
to be paid by the Registrant in connection with the distribution of
the Time Certificates being registered have been estimated.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee . $ 12,250
Printing . . . . . . . . 30,000
Legal fees and expenses 50,000
Accounting fees . . . . 35,000
Trustee's fee . . . . . 10,000
Miscellaneous . . . . . 12,750
--------
Total . . . . . . . $150,000
--------
--------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 302A.521 of the Minnesota Statutes provides in substance that,
unless prohibited by its articles of incorporation, a corporation must
indemnify an officer or director who is made or threatened to be made
a party to a proceeding because of his or her capacity as an officer
or director, against judgments, penalties and fines and reasonable
expenses, including attorneys' fees and disbursements incurred by such
person in connection with the proceeding, if certain criteria are met.
These criteria, all of which must be met by the person seeking
indemnification are (a) that no other organization has paid the
expenses for which indemnification is requested; (b) that such person
must have conducted himself or herself in good faith; (c) that no
improper personal benefits were obtained by such person and such
person did not engage in self-dealing as defined in the Minnesota
Business Corporation Act; (d) that if the action is a criminal
prosecution, there must have been no reasonable cause for such person
to have believed that the conduct was unlawful; and (e) that such
person must have acted in a manner reasonably believed to have been in
the best interests of the corporation. Provision is made in the
statute for determinations as to eligibility for indemnification. The
determination is made by the members of the corporation's board of
directors who are at the time not a party to the proceedings under
consideration, by special legal counsel selected by the board of
directors, by the shareholders who are not parties to the proceedings
or by a court in the State of Minnesota. Article V of the Restated
By-laws of the Company provide that the Company shall indemnify such
persons, for such liabilities, in such manner, under such
circumstances, and to such extent as permitted by Section 302A.521, as
now enacted or hereafter amended.
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<PAGE>
ITEM 16. EXHIBITS.
4.1 Form of Indenture, dated as of April 26, 1989, between the Company and
National City Bank of Minneapolis, as trustee (filed as Exhibit 4.1 to
Registration No. 33-26176 and incorporated herein by reference).
4.2 Form of First Supplemental Indenture, dated as of March 16, 1992,
amending the Indenture described in Exhibit 4.1 above.
4.3 Proposed form of Six and Twelve Month Subordinated Extendible Time
Certificates (included as part of Exhibit 4.2 above).
4.4 Proposed form of Two, Five and Ten Year Subordinated Fixed-Term Time
Certificates (included as part of Exhibit 4.2 above).
4.5 Form of Subscription Agreement for use in connection with offers to
purchase the Time Certificates by prospective purchasers (filed as
Exhibit 4.4 to Registration No. 33-26176 and incorporated herein by
reference).
5.1 Opinion and consent of counsel to the Registrant with respect to the
legality of the Time Certificates.
9.1 Voting Agreement, dated May 16, 1991, between the Company and V.
Gordon Clemons relating to the common stock of FORTIS Corporation
(filed as Exhibit 9.1 to Registration No. 33-40629 and incorporated
herein by reference).
10.1 Employment Agreement, dated October 1, 1988, between the Company and
Miles E. Efron (filed as Exhibit 10.1 to Registration No. 33-26176 and
incorporated herein by reference).
10.2 Severance Agreement, dated December 31, 1990, between the Company and
Miles E. Efron (filed as Exhibit 10.1(a) to Registration No. 33-26176
and incorporated herein by reference).
10.3 North Star Universal, Inc. Deferred Compensation Plan (filed as
Exhibit 10.10 to Registration No. 33-10558 and incorporated herein by
reference).
10.4 North Star Universal, Inc. Incentive Stock Option Plan, including the
form of Stock Option Agreement related thereto (filed as Exhibit 10.19
to Registration No. 33-10558 and incorporated herein by reference).
10.5 North Star Universal, Inc. Non-Qualified Stock Option Plan, including
the form of Stock Option Agreement related thereto (filed as Exhibit
10.19 to Registration No. 33-10558 and incorporated herein by
reference).
10.6 Letter Agreement, dated March 25, 1987, between North Star Universal,
Inc. and Michael Foods, Inc., pursuant to which the Company agreed not
to acquire any additional food related businesses as long as it owns
25% of the capital stock of Michael Foods, Inc. (filed as Exhibit
10.34 to Registration No. 33-10558 and incorporated herein by
reference).
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<PAGE>
10.7 Indenture, dated as of December 1, 1986, between the Company and
National City Bank of Minneapolis, as Trustee, relating to $25,000,000
principal amount of Subordinated Debentures Series 87/88 (filed as
Exhibit 4.1 to Registration No. 33-10558 and incorporated herein by
reference).
10.8 Indenture, dated as of September 1985, between the Company and
American National Bank and Trust Company, as Trustee, relating to
$14,000,000 principal amount of Subordinated Debentures, Series 1985
(filed as Exhibit 4 to Registration No. 2-99100 and incorporated
herein by reference).
10.9 Restated and Amended Credit Loan Agreement, dated May 17, 1990,
between the Company and First Bank National Association ("First Bank")
(filed as Exhibit 19.1 to the Company's quarterly report on Form 10-Q
for the quarter ended June 30, 1990, and incorporated herein by
reference).
10.10 Amendment to Restated and Amended Revolving Credit Loan Agreement,
dated January 11, 1991, between the Company and First Bank, amending
the Restated and Amended Revolving Credit Loan Agreement described in
Exhibit 10.9 above (filed as Exhibit 10.11(d) to Registration
Statement No. 33-26176 and incorporated herein by reference).
10.11 Letter Agreement, dated February 28, 1991, amending the terms of the
Amendment to Restated and Amended Revolving Credit Loan Agreement
described in 10.10 above (filed as Exhibit 10.11(e) to Registration
No. 33-26176 and incorporated herein by reference).
10.12 Second Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated January 2, 1992, between the Company and First Bank,
amending the Restated and Amended Revolving Credit Loan Agreement
described in Exhibit 10.9 above, including a promissory note executed
in connection therewith (filed as Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the year ending December 31, 1991 and
incorporated herein by reference).
*10.12(a) Third Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated November 18, 1992, between the Company and First
Bank, amending the terms of the Restated and Amended Revolving Credit
Loan Agreement described in 10.9 above.
10.13 Promissory Note, dated June 14, 1989, in the original principal amount
of $1,100,000 executed by the Company as maker and payable to The
Canadian Life Assurance Company (filed as Exhibit 10.12 to
Registration No. 33-26176 and incorporated herein by reference).
10.14 Promissory Note, dated April 22, 1987, in the original amount of
$1,500,000 executed by the Company as maker and payable to The
Canadian Life Assurance Company (filed as Exhibit 10.12(a) to
Registration No. 33-26176 and incorporated herein by reference).
10.15 Mortgage and Security Agreement and Financing Statement, dated June
14, 1989, securing the Promissory Note described in Exhibit 10.13
above, executed by the Company as mortgagor, granting The Canadian
Life Assurance Company a security interest in certain real property
owned by the Company at Kasota Industrial Park, Hennepin County,
Minnesota (filed as Exhibit 10.13 to Registration No. 33-26176 and
incorporated herein by reference).
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<PAGE>
10.16 Mortgage and Security Agreement and Fixture Financing Statement, dated
April 22, 1987, securing the Promissory Note described in Exhibit
10.14 above, executed by the Company as mortgagor, granting The
Canadian Life Assurance Company a security interest in certain real
property owned by the Company at Kasota Industrial Park, Hennepin
County, Minnesota (filed as Exhibit 10.13(a) to Registration No. 33-
26176 and incorporated herein by reference).
10.17 Assumption Agreement, dated June 28, 1991, among the Company, The
Canadian Life Assurance Company and Advent Realty Limited Partnership
II ("Advent"), relating to the assumption of the obligations described
in Exhibits 10.13, 10.14, 10.15 and 10.16 above (filed as Exhibit
10.13(b) to Registration No. 33-26176 and incorporated herein by
reference).
10.18 Mortgage and Security Agreement and Fixture Financing Statement, dated
June 28, 1991, executed by Advent for the benefit of the Company
(filed as Exhibit 10.13(c) to Registration No. 33-26176 and
incorporated herein by reference).
10.19 Stock Purchase Agreement, dated June 2, 1989, between the Company and
R.B. Joint Venture relating to the sale by the Company of all of the
issued and outstanding capital stock of Super Cycle, Inc. (filed as
Exhibit 10.14 to Registration No. 33-26176 and incorporated herein by
reference).
10.20 Loan Agreement, dated as of May 1, 1989, between the City of Welcome,
Minnesota and Eagle Engineering and Manufacturing Company, Inc., a
subsidiary of the Company ("Eagle Engineering") relating to $1,470,000
Industrial Development Revenue Bonds, Series 1989 (Eagle Engineering
and Manufacturing Company, Inc. Project, (filed as Exhibit 10.15 to
Registration No. 33-26176 and incorporated herein by reference).
10.21 Mortgage and Security Agreement, dated as of May 1, 1989, securing the
obligations of Eagle Engineering under the Loan Agreement described in
Exhibit 10.20 above, pursuant to which Eagle Engineering granted a
mortgage to American National Bank and Trust Company, St. Paul,
Minnesota, as trustee under that certain Indenture, dated as of May 1,
1989, relating to its facility in Welcome, Minnesota (filed as Exhibit
10.16 to Registration No. 33-26176 and incorporated herein by
reference).
10.22 Guaranty Agreement, dated as of May 1, 1989, executed by the Company
as guarantor, pursuant to which the Company guaranties the obligations
of Eagle Engineering under the Loan Agreement described in Exhibit
10.20 above (filed as Exhibit 10.17 to Registration No. 33-26176 and
incorporated herein by reference).
10.23 North Star Universal, Inc. 1988 Nonqualified Stock Option Plan, as
amended April 26, 1989 and May 15, 1989, including form of Stock
Option Agreement related thereto (filed as Exhibit 10.18 to
Registration No. 33-26176 and incorporated herein by reference).
10.24 Purchase and Sale Agreement, dated November 1, 1990, between the
Company and G-U Acquisition Corporation, pursuant to which the Company
sold the capital stock of Graphics Unlimited of Minneapolis,
Incorporated, the Type House + Duragraph, Inc., Typographic Arts,
Inc., and its wholly-owned subsidiary Creative Visuals, Inc. (filed as
Exhibit 10.23 to Registration No. 33-26176 and incorporated herein by
reference).
II-4
<PAGE>
10.25 Agreement and Plan of Merger, dated October 31, 1990, among Ritrama
Acquisition Corporation, Ritrama S.P.A., Universal/Dura-Mark
Companies, Inc. and the Company, pursuant to which the Company sold
Universal/Dura-Mark Companies, Inc., Universal Coating Company, Dura-
Mark Films, Inc., Universal Screen Process Supply Company and Dowri,
Inc. (filed as Exhibit 10.24 to Registration No. 33-26176 and
incorporated herein by reference).
10.26 Loan Agreement by and among Americable, Inc. ("Americable"), certain
of Americable's subsidiaries and First Bank, dated May 30, 1991,
including promissory notes executed in connection therewith (filed as
Exhibit 10.25 to Registration No. 33-26176 and incorporated herein by
reference).
10.27 Form of Security Agreement, dated May 30, 1991, which was executed by
Americable and certain of its subsidiaries as debtors to secure the
loans described in Exhibit 10.26 above (filed as Exhibit 10.25(a) to
Registration No. 33-26176 and incorporated herein by reference).
10.28 Subordination Agreement executed by the Company and Americable for the
benefit of First Bank in connection with the loans described in
Exhibit 10.26 above (filed as Exhibit 10.25(b) to Registration No. 33-
26176 and incorporated herein by reference).
10.29 First Amendment to Loan Agreement and Waiver, dated September 16,
1991, amending the Loan Agreement in Exhibit 10.26 above (filed as
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ending December 31, 1991 and incorporated herein by reference).
*10.29(a) Second Amendment to Loan Agreement, dated May 31, 1992, amending the
Loan Agreement in Exhibit 10.26 above.
*10.29(b) Third Amendment to Loan Agreement, dated June 30, 1992, amending the
Loan Agreement in Exhibit 10.26 above.
*10.29(c) Fourth Amendment to Loan Agreement, dated March 12, 1993, amending the
Loan Agreement in Exhibit 10.26 above, including Letter Agreement
pursuant to which First Bank waived Americable s compliance with
certain financial covenants contained in such Loan Agreement.
10.30 Employment Agreement, dated April 1, 1993, between the Company,
Transition Engineering, Inc. and Peter E. Flynn (filed as Exhibit 10.
22 to the Company's Annual Report on Form 10-K for the year ending
December 31, 1993 and incorporated herein by reference).
10.31 Purchase and Sale Agreement, dated February 28, 1991, between the
Company and Whirley Acquisition Corporation, relating to the sale of
Whirltronics, Inc. (filed as Exhibit 10.4 to the Company's Annual
Report on Form 10-K for the year ending December 31, 1991 and
incorporated herein by reference).
10.32 Lease, dated July 12, 1990, between C.E. Services Inc. and Kingsland
Properties Ltd., relating to the leased facility in Batavia, Illinois
(filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for
the year ending December 31, 1991 and incorporated herein by
reference).
II-5
<PAGE>
10.33 Commercial Lease Agreement, dated January 31, 1990, between C.E.
Services, Inc. and Post and Paddock Associates, relating to the leased
facility in Grand Prairie, Texas (filed as Exhibit 10.6 to the
Company's Annual Report on Form 10-K for the year ending December 31,
1991 and incorporated herein by reference).
10.34 Registration Rights Agreement, dated May 16, 1991, between the Company
and FORTIS Corporation (filed as Exhibit 10.17 to Registration No. 33-
40629 and incorporated herein by reference).
10.35 Form of North Star Indemnification Agreement, dated May , 1991,
between the Company and FORTIS Corporation (filed as Exhibit 10.20 to
Registration No. 33-40629 and incorporated herein by reference).
10.36 Standstill Agreement, dated May 15, 1991, between the Company and
FORTIS Corporation (filed as Exhibit 10.21 to Registration No. 33-
40629 and incorporated herein by reference).
10.37 Promissory Note, dated June 1, 1991, executed in favor of the Company
by James H. Michael (filed as Exhibit 10.8 to the Company's Annual
Report on Form 10-K for the year ending December 31, 1991 and
incorporated herein by reference).
*10.38 Credit Agreement by and between C.E. Services, Inc. and Texas Commerce
Bank, National Association, dated September 30, 1992, including
promissory note and security agreements executed in connection
therewith.
*10.39 Purchase and Sale Agreement by and among Leslie C. Malmquist,
Universal Press and Label, Inc. and the Company, dated December 22,
1992, relating to the sale of Universal Press and Label, Inc.
10.40 Amended and Restated Loan and Security Agreement dated June 1, 1993
among Americable, Transition Engineering, Inc., Cable Distribution
Systems, Inc. and First Bank (filed as Exhibit 10.31 to the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1993,
and incorporated herein by reference.)
10.41 First Amendment to Credit Agreement, dated as of October 1, 1993, by
and between C.E. Services, Inc. and Texas Commerce Bank, amending the
Credit Agreement in Exhibit 10.38 above.
10.42 Second Amendment to Credit Agreement, dated as of November 15, 1993,
by and between C.E. Services, Inc. and Texas Commerce Bank.
10.43 Credit Agreement for Discretionary Loans, dated as of July 1, 1993
between C.E. Services, Inc. and Texas Commerce Bank amending the
Credit Agreement in Exhibit 10.38 above.
10.44 First Amendment to Credit Agreement for Discretionary Loans, dated as
of October 1, 1993, by and between C.E. Services, Inc. and Texas
Commerce Bank amending the Credit Agreement for Discretionary Loans
in Exhibit 10.43 above.
II-6
<PAGE>
12.1 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1991 (filed as Exhibit
12.1 to the Company's Annual Report on Form 10-K for the year ending
December 31, 1991 and incorporated herein by reference).
12.2 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the years ended December 31, 1988, 1989 and 1990
(filed as Exhibit 12.1 to the Company's Annual Report on Form 10-K for
the year ending December 31, 1990 and incorporated herein by
reference).
12.3 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1992 (filed as Exhibit
12.3 to the Company's Annual Report on Form 10-K for the year ending
December 31, 1992 and incorporated herein by reference).
12.4 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1993 (filed as Exhibit
12.4 to the Company's Annual Report on Form 10-K for the year ending
December 31, 1993 and incorporated herein by reference).
*13.1 1991 Annual Report to Shareholders of North Star Universal, Inc.
*13.2 1992 Annual Report to Shareholders of North Star Universal, Inc.
13.3 1993 Annual Report to Shareholders of North Star Universal, Inc.
23.1 Consent of Independent Certified Public Accountants - Grant Thornton.
*24.1 A power of attorney, pursuant to which amendments to this Registration
Statement may be filed, is included on the signature page contained in
Part II of this Registration Statement.
26.1 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939, as amended, of National City Bank of
Minneapolis (filed as Exhibit 26.1 to Registration No. 33-26176 and
incorporated herein by reference).
- ----------
* Previously filed.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding
is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-7
<PAGE>
The undersigned Registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus
is sent or given, the latest annual report to security holders that is
incorporated by reference in the prospectus and furnished pursuant to
and meeting the requirements of Rule 14a-3 or Rule 14c-3 under the
Securities Exchange Act of 1934; and, where interim financial
information required to be presented by Article 3 of Regulation S-X is
not set forth in the prospectus, to deliver, or cause to be delivered
to each person to whom the prospectus is sent or given, the latest
quarterly report that is specifically incorporated by reference in the
prospectus to provide such interim financial information.
II-8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-2 and has duly caused this post-
effective amendment to the Registration Statement to be signed on its behalf by
the undersigned, thereunto duly authorized, in the City of Minneapolis, State of
Minnesota, this 16th day of March, 1994.
NORTH STAR UNIVERSAL, INC.
By /s/Jeffrey J. Michael
-----------------------------------
Jeffrey J. Michael, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1933,
this post-effective amendment to the Registration Statement has been signed by
the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/Miles E. Efron Chairman of the Board March 16, 1994
- ----------------------
Miles E. Efron
/s/James H. Michael Director March 16, 1994
- ----------------------
James H. Michael
/s/Jeffrey J. Michael President, Chief Executive March 16, 1994
- ---------------------- Officer and Director
Jeffrey J. Michael (principal executive officer)
/s/Peter E. Flynn Executive Vice President, March 16, 1994
- ---------------------- Chief Financial Officer
Peter E. Flynn (principal financial and
accounting officer), Secretary
and Director
/s/Fred E. Stout Director March 16, 1994
- ----------------------
Fred E. Stout
Director
- ----------------------
David Z. Johnson
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
- ------- ------
10.41 First Amendment to Credit Agreement, dated as of October 1,
1993, by and between C.E. Services, Inc. and Texas Commerce
Bank.
10.42 Second Amendment to Credit Agreement, dated as of November
15, 1993, by and between C.E. Services, Inc. and Texas
Commerce Bank.
10.43 Credit Agreement for Discretionary Loans, dated as of July
1, 1993 between C.E. Services, Inc. and Texas Commerce Bank.
10.44 First Amendment to Credit Agreement for Discretionary Loans,
dated as of October 1, 1993, by and between C.E. Services,
Inc. and Texas Commerce Bank.
13.3 1993 Annual Report to Shareholders of North Star Universal,
Inc.
23.1 Consent of Independent Certified Public Accountants - Grant
Thornton.
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated
effective as of October 1, 1993 (the "Effective Date"), is by and between C. E.
SERVICES, INC. ("Borrower"), and TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, a
national banking association whose principal office is located in Dallas, Texas
(the "Bank").
PRELIMINARY STATEMENT
The Bank and the Borrower have entered into a Credit Agreement dated
as of September 30, 1992 (the "Credit Agreement"). The "Agreement," as used in
the Credit Agreement, shall also refer to the Credit Agreement as amended by
this Amendment. All capitalized terms defined in the Credit Agreement and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement. The Bank and the Borrower have agreed to amend the Credit Agreement
to the extent set forth herein, and in order to, among other things, renew,
modify and extend the Commitment.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrowers hereby agree as
follows:
SECTION 1. Revolving Credit Note. Section 1.1 of the Credit
Agreement is amended by substituting the following for the Section 1.1 of the
Credit Agreement:
"Subject to the terms and conditions hereof, the Bank agrees to make
loans ("Loan" or "Loans") to Borrower from time to time before the
Termination Date, not to exceed at any one time outstanding the lesser
of the Borrowing Base or $1,500,000 (the "Commitment"), Borrower
having the right to borrow, repay and reborrow. The Bank and the
Borrower agree that Chapter 15 of the Texas Credit Code shall not
apply to this Agreement, the Note or any Loan. The Loans shall be
evidenced by and shall bear interest and be payable as provided in the
promissory note of Borrower dated the Effective Date (together with
any and all renewals, extensions, modifications, replacements, and
rearrangements thereof and substitutions therefor, the "Note") which
is given in renewal, modification and extension of that certain
promissory note dated September 30, 1992, in the original principal
amount of $1,500,000 (including all prior notes of which said note
represents a renewal, extension, modification, increase, substitution,
rearrangement or replacement thereof, the "Renewed Note"). The
parties hereto agree that there is as of the Effective Date an
outstanding principal balance of $0.00 under the Note leaving a
balance as of the
<PAGE>
Effective Date of $1,500,000 under the Commitment available for Loans
subject to the terms and conditions of this Agreement. The "Note" as used
in the Credit Agreement shall also refer to the "Note" as used in this
Amendment. The purpose of the Loans is to finance short term working
capital requirements of Borrower."
SECTION 2. Section 8. Definitions. Subsection (a) of the definition
of Termination Date in the Credit Agreement is hereby amended by replacing "(a)
October 1, 1993; or" with "(a) November 15, 1993; or."
SECTION 3. Borrower confirms and ratifies each of the liens, security
interests and other interests granted in each and all security agreements
executed in connection with, related to, or securing the Renewed Note or the
note executed by Borrower and delivered to Bank dated July 1, 1993, in the
principal amount of $2,000,000.00 (including any prior notes which said note
renewed, modified or extended, or any renewals, modifications or extensions
thereof, "Note 1001") as extending to and securing the Loans and the Note and
Note 1001, including but not limited to each of those interests and liens
described in the following listed Security Agreements. Each Borrower further
agrees and acknowledges that the terms "secured indebtedness" and "indebtedness
secured hereby" as used in any security agreement including any supplemental
security agreements executed in connection with or related to, or securing the
Renewed Note or Note 1001, or any other indebtedness to Bank, including but not
limited to the following security agreements executed by Borrower and delivered
to Bank: Security Agreement - Accounts and General Intangibles dated October 1,
1992; Security Agreement - Inventory dated October 1, 1992; including any
Supplemental Security Agreements supplementing any of the foregoing, and any
other security agreements previously executed by Borrower and delivered to Bank
and not released by Bank and all security agreements executed as of the
Effective Date (each and all "Security Agreements") include, but are not limited
to, each and all indebtedness of all character and kind related to or evidenced
by the Renewed Note, the Note, Note 1001 and related to the Loan Documents.
SECTION 4. The Borrower hereby represents and warrants to the Bank
that after giving effect to the execution and delivery of this Amendment: (a)
the representations and warranties set forth in the Credit Agreement are true
and correct on the date hereof as though made on and as of such date; and (b) no
Event of Default, or event which with passage of time, the giving of notice or
both would become an Event of Default, has occurred and is continuing as of the
date hereof.
SECTION 5. This Amendment shall become effective as of the Effective
Date upon its execution and delivery by each of the parties named in the
signature line below, and the "Agreement" as used in the Credit Agreement shall
also refer to the Credit Agreement as amended by this Amendment.
- 2 -
<PAGE>
SECTION 6. The Borrower further acknowledges that each of the other
Loan Documents is in all other respects ratified and confirmed, and all of the
rights, powers and privileges created thereby or thereunder are ratified,
extended, carried forward and remain in full force and effect except as the
Credit Agreement is amended by this Amendment.
SECTION 7. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 8. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement.
SECTION 9. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF
THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- 3 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed effective as of the Effective Date.
BORROWER: C. E. SERVICES, INC.
By: /s/James P. Ashton
----------------------------------------------
Name: James P. Ashton
--------------------------------------------
Title: CFO
-------------------------------------------
Address:
-----------------------------------------
BANK: TEXAS COMMERCE BANK,
NATIONAL ASSOCIATION
By: /s/David A. Jackson
----------------------------------------------
Name: David A. Jackson
--------------------------------------------
Title: EVP
-------------------------------------------
- 4 -
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (this "Amendment") dated
effective as of November 15, 1993 (the "Effective Date"), is by and between C.E.
SERVICES, INC. ("Borrower"), and TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, a
national banking association whose principal office is located in Dallas, Texas
(the "Bank")
PRELIMINARY STATEMENT
The Bank and the Borrower have entered into a Credit Agreement dated
as of September 30, 1992, as amended by First Amendment to Credit Agreement
dated as of October 1, 1993 (the "Credit Agreement"). The "Agreement", as used
in the Credit Agreement, shall also refer to the Credit Agreement as amended by
this Amendment. All capitalized terms defined in the Credit Agreement and not
otherwise defined herein shall have the same meanings herein as in the Credit
Agreement. The Bank and the Borrower have agreed to amend the Credit Agreement
to the extent set forth herein, and in order to, among other things, renew,
modify and extend the Commitment.
NOW THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrower hereby agree as
follows:
SECTION 1. Revolving Credit Note. Section 1.1 of the Credit
Agreement is amended by substituting the following for the Section 1.1 of the
Credit Agreement:
Subject to the terms and conditions hereof, the Bank agrees to make
loans ("Loan" or "Loans") to Borrower from time to time before the
Termination Date, not to exceed at any one time outstanding the lesser
of the Borrowing Base or $1,500,000.00 (the "Commitment"), Borrower
having the right to borrow, repay and reborrow. The Bank and the
Borrower agree that Chapter 15 of the Texas Credit Code shall not
apply to this Agreement, the Note or any Loan. The Loans shall be
evidenced by and shall bear interest and be payable as provided in the
promissory note of Borrower dated the Effective Date (together with
any and all renewals, extensions, modifications, replacements, and
rearrangements thereof and substitutions therefor, the "Note") which
is given in renewal, modification and extension of that certain
promissory note dated October 1, 1993, in the original principal
amount of $1,500,000.00 (including all prior notes of which said note
represents a renewal, extension, modification, increase, substitution,
rearrangement or replacement thereof, the "Renewed Note"). The
parties hereto agree that there is as of the Effective Date an
outstanding
<PAGE>
principal balance of $0.00 under the Note leaving a balance as of the
Effective Date of $1,500,000.00 under the Commitment available for Loans
subject to the terms and conditions of this Agreement. The "Note" as used
in the Credit Agreement shall also refer to the "Note" as used in this
Amendment. The purpose of the Loans is to finance short term working
capital requirements of Borrower."
SECTION 2. Section 1.2 of the Credit Agreement is amended by
substituting the following for the Section 1.2 of the Credit Agreement:
"BORROWING BASE REPORT 1.2. Within 25 days after the end of every
month the Borrower shall furnish the Bank a Borrowing Base Report and
Compliance Certificate substantially in the form of EXHIBIT A and
EXHIBIT B (respectively, "Borrowing Base Report" and "Compliance
Certificate"). Unless specifically waived in writing by the Bank,
each Borrowing Base Report shall be accompanied by accounts to
receivables agings and listing, accounts payable agings, listings of
invoices relating to customer prepayments or deposits which have not
been applied as credits and listings of accounts receivable which
represent 12 month maintenance contracts, and, if requested by Bank,
inventory listings."
SECTION 3. Section 3. Definitions. Subsection (a) of the definition
of Termination Date in the Credit Agreement is hereby amended by replacing "(a)
November 15, 1993; or" with "(a) May 2, 1994; or."
SECTION 4. Exhibits A and B to the Credit Agreement are amended by
replacing the prior Exhibits A and B with the Exhibits A and B, respectively,
attached hereto an incorporated herein and in the Credit Agreement for all
purposes.
SECTION 5. Borrower confirms and ratifies each of the liens, security
interests and other interests granted in each and all security agreements
executed in connection with, related to, or securing the Renewed Note or the
note executed by Borrower and delivered to Bank dated November 15, 1993, in the
principal amount of $2,000,000.00 (including any prior notes which said note
renewed, modified or extended, or any renewals, modifications or extensions
thereof, "Note 1001") as extending to and securing the Loans and the Note and
Note 1001, including but not limited to each of those interests and liens
described in the following listed Security Agreements. Each Borrower further
agrees and acknowledges that the terms "secured indebtedness" and "indebtedness
acquired hereby" as used in any security agreement including any supplemental
security agreements executed in connection with or related to, or securing the
Renewed Note or Note 1002, or any other indebtedness of Borrower to Bank,
including but not limited to the following security agreements executed by
Borrower and delivered to Bank: Security Agreement Accounts and General
Intangibles dated October 1, 1992; Security Agreement Inventory dated October
1, 1992; including any Supplemental Security Agreements supplementing any of the
foregoing, and any other security agreements
<PAGE>
previously executed by Borrower and delivered to Bank and not released by Bank
and all security agreements executed as of the Effective Date (each and all
"Security Agreements") include, but are not limited to, each and all
indebtedness of all character and kind related to or evidenced by the Renewed
Note, the Note, Note 1002 and related to the Loan Documents.
SECTION 6. The Borrower hereby represents and warrants to the Bank
that after giving effect to the execution and delivery of this Amendment: (a)
the representations and warranties set forth in the Credit Agreement are true
and correct on the date hereof as though made on and as of such date; and (b) no
Event of Default, or event which with passage of time, the giving of notice or
both would become an Event of Default, has occurred and is continuing as of the
date hereof.
SECTION 7. This Amendment shall become effective as of the Effective
Date upon its execution and delivery by each of the parties named in the
signature lines below, and the "Agreement" as used in the Credit Agreement shall
also refer to the Credit Agreement as amended by this Amendment.
SECTION 8. The Borrower further acknowledges that each of the other
Loan Documents is in all other respects ratified and confirmed, and all of the
rights, powers and privileges created thereby or thereunder are ratified,
extended, carried forward and remain in full force and effect except as the
Credit Agreement is amended by this Amendment.
SECTION 9. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 10. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement.
SECTION 11. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF
THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENT
OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed effective as of the Effective Date.
BORROWER: C.E. SERVICES, INC.
By: /s/James P. Ashton
-----------------------------
Name: James P. Ashton
---------------------------
Title: CFO
--------------------------
Address: 2895 113th St. Grand Prairie, TX
-----------------------------------
BANK: TEXAS COMMERCE BANK,
NATIONAL ASSOCIATION
By: /s/Matt Reynolds
----------------------------
Name: Matt Reynolds
--------------------------
Title: Vice President
-------------------------
<PAGE>
CREDIT AGREEMENT
FOR DISCRETIONARY LOANS
THIS CREDIT AGREEMENT FOR DISCRETIONARY LOANS (as amended, modified and
supplemented from time to time, the "Agreement") dated as of July 1, 1993 (the
"Effective Date"), is by and between C.E. SERVICES, INC. ("Borrower") and
TEXAS COMMERCE BANK, NATIONAL ASSOCIATION, a national banking association
whose principal office is located in Dallas, Texas (the "Bank") and is
effective as of the Effective Date.
1. THE LOANS.
REVOLVING CREDIT NOTE 1.1 Subject to the terms and conditions hereof, the
Bank agrees to consider making loans ("Loans" or "Loan") to Borrower from time
to time before the Termination Date, not to exceed at any one time outstanding
$2,000,000.00 (the "Discretionary Line"), Borrower having the right to borrow,
repay and reborrow. Each Loan will be in a maximum amount of 70% of the
amount of the contract for the purchase of the equipment by the Borrower.
Each Loan will be outstanding for not more than 60 days. The Loans shall be
for the purpose of the support of short term cash needs for the purchase of
computer hardware. The Bank and the Borrower agree that Chapter 15 of the
Texas Credit Code shall not apply to this Agreement, the Note or any Loan.
The Loans shall be evidenced by and shall bear interest and be payable as
provided in the discretionary promissory note of Borrower dated the Effective
Date (together with any and all renewals, extensions, modifications,
replacements, and rearrangements thereof and substitutions therefor, the
"Note"). THE BANK IS NOT OBLIGATED IN ANY WAY TO MAKE ANY LOANS HEREUNDER AND
NOTHING HEREIN OR IN ANY OTHER AGREEMENTS, DOCUMENTS, INSTRUMENTS,
CERTIFICATES OR OTHER WRITINGS EXECUTED OR DELIVERED IN CONNECTION WITH OR
PURSUANT TO THE TERMS OF ANY OF THE FOREGOING, OR THE DISCRETIONARY LINE IS
INTENDED OR TO BE CONSTRUED AS A COMMITMENT ON THE PART OF THE BANK OR ANY
SUBSEQUENT OWNER OR HOLDER OF THE NOTE TO MAKE ANY LOAN HEREUNDER OR UNDER THE
DISCRETIONARY LINE OR UNDER THE NOTE. ALL LOANS HEREUNDER OR UNDER THE
DISCRETIONARY LINE OR UNDER THE NOTE SHALL BE AT THE SOLE AND ABSOLUTE
DISCRETION OF THE BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THE NOTE AND THE
BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THE NOTE MAY, FOR ANY REASON OR NO
REASON AT ALL, REFUSE TO MAKE ANY LOAN TO THE MAKER HEREUNDER OR UNDER THE
DISCRETIONARY LINE OR UNDER THE NOTE.
LOAN DOCUMENTS 1.2 The Loans and all other obligations and indebtedness of
the Borrower to the Bank are entitled to the benefit of the Loan Documents.
<PAGE>
PAST DUE AMOUNTS 1.3 Each amount due to the Bank in connection with the
Loan Documents shall bear interest from its due date until paid at the Past
Due Rate (as defined in the Note).
2. CONDITIONS PRECEDENT.
ALL LOANS 2.1 The Bank shall consider making Loans upon the satisfaction of
the following conditions precedent: (a) the Bank shall have received the
following, all of which shall be duly executed and in Proper Form: (1) if
requested by Bank, a Request for Loan, substantially in the form of EXHIBIT
B, not later than noon of the Business Day of the proposed Loan; (2) the
contract for the purchase of the equipment being purchased by Borrower; (3)
the contract for the sale of the equipment being purchased by Borrower; and
(4) such other documents as the Bank may reasonably require; (b) no Event of
Default shall have occurred and be continuing and no grace period shall be
running; and (c) the making of the Loan shall not be prohibited by, or
subject the Bank to any penalty or onerous condition under, any Legal
Requirement. "BUSINESS DAY" means a day when the main office of the Bank is
open for the conduct of commercial lending business.
FIRST LOAN 2.2 In addition to the matters described in the preceding
section, the Bank shall not consider making Loans until the receipt by the
Bank of all the Loan Documents specified on ANNEX I, all of which shall be
in Proper Form.
3. REPRESENTATIONS AND WARRANTIES.
To induce the Bank to enter into this Agreement and to consider making the
Loans, the Borrower represents and warrants as of the Effective Date and as of
the date of each Request for a Loan:
ORGANIZATION AND STATUS 3.1 Borrower is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization;
and has all power and authority to conduct its business as presently
conducted, and is duly qualified to do business and in good standing in each
jurisdiction in which the nature of the business conducted by it makes such
qualification desirable. Borrower has no Subsidiaries.
FINANCIAL STATEMENTS 3.2 All financial statements delivered to the Bank are
complete and correct and fairly present, in accordance with generally accepted
accounting principles, consistently applied ("GAAP"), the financial
condition and the results of operations of Borrower as at the dates and for
the periods indicated. No material adverse change has occurred in the assets,
liabilities, financial condition, business or affairs of Borrower since the
dates of such financial statements. Borrower is not subject to any instrument
or agreement materially adversely affecting its financial condition, business
or affairs.
<PAGE>
ENFORCEABILITY 3.3 The Loan Documents are legal, valid and binding
obligations of the Parties enforceable in accordance with their respective
terms, except as may be limited by bankruptcy, insolvency and other similar
laws affecting creditors' rights generally. The execution, delivery and
performance of the Loan Documents have all been duly authorized by all
necessary action; are within the power and authority of the Parties; do not
and will not contravene or violate any Legal Requirement or the Organizational
Documents of the Parties; and do not and will not result in the breach of, or
constitute a default under, any agreement or instrument by which the Parties
or any of their respective Property may be bound or affected.
COMPLIANCE 3.4 Borrower has filed and paid all taxes shown thereon to be
due, except those for which extensions have been obtained and those which are
being contested in good faith. Borrower is in compliance with all applicable
Legal Requirements and manages and operates (and will continue to manage and
operate) its business in accordance with good industry practices. Borrower is
not in default in the payment of any other indebtedness or under any agreement
to which it is a party. All consensus, permissions and registrations of or
with any Governmental Authority or other Person required in connection with
the execution, delivery and performance of the Loan Documents have been
obtained.
LITIGATION 3.5 Except as heretofore disclosed to the Bank in writing, there
is no litigation or administrative proceeding pending or, to the knowledge of
the Borrower, threatened against, nor any outstanding judgment, order or
decree affecting, Borrower before or by any Governmental Authority. Borrower
is not in default with respect to any judgment, order or decree of any
Governmental Authority.
TITLE AND RIGHTS 3.6 Borrower has good and marketable title to its
Property, free and clear of any Lien except for Liens permitted by this
Agreement and the other Loan Documents. Except as otherwise expressly stated
in the Loan Documents or permitted by this Agreement, the Liens of the Loan
Documents will constitute valid and perfected first and prior Liens on the
Property described therein, subject to no other Liens whatsoever. Borrower
possesses all permits, licenses, patents, trademarks and copyrights required
to conduct its business. All easements, rights-of-way and other rights
necessary to the maintenance and operation of the Property of the Borrower
have been obtained and are in full force and effect.
REGULATION U 3.7 None of the proceeds of any Loan or Note has been or will
be used for the purpose of purchasing or carrying, directly or indirectly, any
margin stock or for any other purpose which would make this credit a "purpose
credit" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System.
ENVIRONMENT 3.8 Borrower has not generated, handled, used, stored or
disposed of any hazardous or toxic waste or substance, on or off its premises
(whether or not
<PAGE>
owned by it), other than in accordance with applicable Legal Requirements.
Borrower has no material contingent liability with respect to noncompliance
with environmental or hazardous waste laws or has received any notice that it
or any of its property or operations is not in compliance with, or that any
Governmental Authority is investigating its compliance with, any environmental
or hazardous waste laws.
STATEMENTS BY OTHERS 3.9 All statements made by or on behalf of Borrower or
any other of the Parties in connection with any Loan Document shall constitute
the representations and warranties of the Borrower hereunder.
PARENT 3.10 Borrower is a wholly owned Subsidiary of North Star Universal,
Inc. ("Parent").
4. AFFIRMATIVE COVENANTS.
The Borrower covenants and agrees with the Bank that prior to the termination
of this Agreement Borrower will do, and if necessary cause to be done, and
cause its Subsidiaries to do, each and all of the following:
CORPORATE FUNDAMENTALS 4.1 At all times: (a) pay when due all taxes and
governmental charges of every kind upon it or against its income, profits or
Property, unless and only to the extent that the same shall be contested in
good faith and adequate reserves have been established therefor; (b) renew and
keep in full force and effect all of its licenses, permits and franchises; (c)
do all things necessary to preserve its corporate existence and its
qualifications and rights in all jurisdictions where such qualification is
necessary or desirable; (d) comply with all applicable Legal Requirements in
respect of the conduct of its business and the ownership of its Property; and
(e) cause its Property to be protected, maintained and kept in good repair and
make all replacements and additions to its Property as may be reasonably
necessary to conduct its business properly and efficiently.
INSURANCE 4.2 Maintain insurance with such reputable insurers, on such of
its Property and personnel, in such amounts and against such risks as is
customary with similar Persons or as may be reasonably required by the Bank,
and furnish the Bank satisfactory evidence thereof promptly upon request.
These insurance provisions are cumulative of the insurance provisions of the
other Loan Documents. The Bank shall be named as a beneficiary of such
insurance as its interest may appear and the Borrower shall provide the Bank
with copies of the policies of insurance and a certificate of the insurer that
the insurance required by this section may not be canceled, reduced or
affected in any manner without 30 days' prior written notice to the Bank.
FINANCIAL INFORMATION 4.3 Furnish to the Bank one copy of each of the
following: (i)(a) as soon as available and in any event within 90 days after
the end of each fiscal year of Borrower, Borrower's annual financial
statements, prepared in
<PAGE>
conformity with GAAP; (b) as soon as available and in any event within 25 days
after the end of each month, the monthly income statement and balance sheet of
Borrower for such period, and for the year to date, prepared in conformity
with GAAP accompanied by computations and workpapers to establish compliance
or noncompliance with the financial covenants set forth in SECTION 5.3
together with a Compliance Certificate attached hereto as EXHIBIT A; (c) as
soon as available and in any event within 45 days after the end of each
quarter, the financial statements of Borrower for such period, and for the
year to date, prepared in conformity with GAAP; (d) copies of special audits,
studies, reports and analysis prepared for the management of Borrower by
outside parties; and (e) promptly after such request is submitted to the
appropriate Governmental Authority, any request for waiver of funding
standards or extension of amortization periods with respect to any employee
benefit plan; (ii) as soon as available and in any event within 90 days of the
end of each fiscal year of Parent, Parent's annual financial statements,
prepared in conformity with GAAP, accompanied by a report and opinion of
independent certified public accountants satisfactory to Bank; and (iii) for
Borrower and Parent, such other information relating to the financial
condition and affairs of the Borrower and Parent as from time to time may be
requested by the Bank in its discretion.
MATTERS REQUIRING NOTICE 4.4 Notify the Bank immediately upon acquiring
knowledge of (a) the institution or threatened institution of any lawsuit or
administrative proceeding which, if adversely determined, might adversely
affect Borrower; (b) the occurrence of any material adverse change in the
assets, liabilities, financial condition, business or affairs of Borrower or
Parent; (c) the occurrence of any Event of Default; or (d) any reportable
event or any prohibited transaction in connection with any employee benefit
plan.
INSPECTION 4.5 Permit the Bank and its affiliates to inspect and photograph
its Property, to examine its files, books and records and make and take away
copies thereof, and to discuss its affairs with its officers and accountants,
all at such times and intervals and to such extent as the Bank may reasonably
desire, including but not limited to, semi-annual audits of Borrower by Bank,
the cost of which shall not exceed $2,000.00 per audit and which shall be paid
on demand by Borrower.
ASSURANCES 4.6 Promptly execute and deliver any and all further agreements,
documents, instruments, and other writings which may be requested by the Bank
to cure any defect in the execution and delivery of any Loan Document or more
fully to describe particular aspects of the agreements set forth in the Loan
Documents or intended to be set forth.
CERTAIN CHANGES 4.7 Notify the Bank at least 30 days prior to the date that
any of the Parties changes its name or the location of its chief executive
office or principal place of business or the place where it keeps its books
and records or the location of any of the Collateral.
<PAGE>
5. NEGATIVE COVENANTS
The Borrower covenants and agrees with the Bank that prior to the termination
of this Agreement no Borrower and no Subsidiary of Borrower will:
INDEBTEDNESS 5.1 Create, incur, suffer or permit to exist, or assume or
guarantee, directly or indirectly, or become or remain liable with respect to
any Indebtedness, contingent or otherwise, EXCEPT:
(a) Indebtedness to the Bank, or secured by Liens permitted by this
Agreement, or otherwise approved in writing by the Bank, and all renewals and
extensions (but not increases) thereof; and
(b) current accounts payable and unsecured current liabilities, not the
result of borrowing, to vendors, suppliers and persons providing services, for
expenditures for goods and services normally required by it in the ordinary
course of business and on ordinary trade terms.
LIENS 5.2 Create or suffer to exist any Lien upon any of its Property now
owned or hereafter acquired, or acquire any Property upon any conditional sale
or other title retention device or arrangement on any purchase money security
agreement; or in any manner directly or indirectly sell, assign, pledge or
otherwise transfer any of its accounts or other Property, EXCEPT:
(a) Liens for taxes not delinquent or being contested in good faith, by
appropriate proceedings;
(b) Liens in effect on the date hereof and disclosed to the Bank in writing,
PROVIDED that neither the indebtedness secured thereby nor the Property
covered thereby shall increase; and
(c) Liens in favor of the Bank.
FINANCIAL COVENANTS 5.3 Fail to comply with the requirements set forth
below. Unless otherwise provided herein, all such amounts and ratios shall be
calculated: (a) on the basis of GAAP; and (b) on a consolidated basis, and
shall be applicable only to the parent corporation which is a Borrower if
there is a Borrower which is a Subsidiary of another Borrower. Compliance
with the requirements set forth below shall be determined as of the dates of
the financial statements to be provided to the Bank, and Borrower shall
deliver schedules reflecting the calculation of such amounts and ratios
concurrently with each set of financial statements.
<PAGE>
1. TANGIBLE NET WORTH. Maintain a Tangible Net Worth of at least the
amount shown below during the corresponding period indicated below:
PERIOD MINIMUM TANGIBLE NET WORTH
At each quarter end $2,200,000.00 plus 100% of accumulated net
income/loss beginning January 1, 1992 (which sum
shall never total less than $2,200,000.00.)
2. CURRENT RATIO. Maintain a Current Ratio of at least the ratio shown
below during the corresponding period indicated below:
PERIOD MINIMUM CURRENT RATIO
At all times 1.25 : 1.0
3. DEBT TO TANGIBLE WORTH RATIO. Maintain a total Indebtedness to
Tangible Net Worth ratio no greater than the ratio shown below during
the corresponding period indicated below:
PERIOD MAXIMUM DEBT TO TANGIBLE WORTH RATIO
At all times 2.0 : 1.0
The list of financial covenants above does not exhaust the financial concepts
which may be important or useful in any analysis of the financial condition of
the Borrower.
CORPORATE CHANGES 5.4 In any single transaction or series of transactions,
directly or indirectly: (i) liquidate or dissolve; (ii) be a party to any
merger or consolidation; (iii) sell or dispose of any interest in any of its
Subsidiaries, or permit any or its Subsidiaries to issue any additional equity
other than to a Borrower; or (iv) sell, convey or lease all or any substantial
part of its assets, EXCEPT for sale of inventory in the ordinary course of
business.
RESTRICTED PAYMENTS 5.5 At any time: (a) redeem, retire or otherwise
acquire, directly or indirectly, any share of its capital stock or other
equity interest; (b) declare or pay any dividend (EXCEPT stock dividends and
dividends paid to a Borrower); (c) make any other distribution of any Property
or cash to owners of an equity interest in their capacity as such; or (d) make
any loan, advance, or investment to or in any officer, agent, employee,
shareholder, affiliate or any other Person, provided that Borrower may retire
balances due Parent if (i) there is a zero balance on the Note, (ii) no Event
of Default exists hereunder, and (iii) such payment would not cause an Event
of Default hereunder. Notwithstanding the preceding sentence, Borrower may
reimburse Parent for insurance and tax expense incurred by Parent on behalf of
Borrower.
<PAGE>
NATURE OF BUSINESS; MANAGEMENT 5.6 Change the nature of its business or
enter into any business which is substantially different from the business in
which it is presently engaged, or permit any material change in its
management, or enter into any investments outside of current lines of
business.
AFFILIATE TRANSACTIONS 5.7 Enter into any transaction or agreement with any
officer, director of or holder of any outstanding capital stock of Borrower
(or any member of the family of any such Person, or any Person controlling,
controlled by or under common control with Borrower) unless the same is upon
terms substantially similar to those obtainable from wholly unrelated sources.
SUBSIDIARIES 5.8 Form, create or acquire any Subsidiary.
USE OF PROCEEDS 5.9 Use proceeds of any Loan for any purpose other than
working capital of Borrower.
6. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 6.1 If any of the following events ("EVENTS OF DEFAULT")
shall occur, then the Bank may do any or all of the following: (1) declare
any of the Note to be, and thereupon the Note shall forthwith become,
immediately due and payable, together with all accrued and unpaid interest
thereon and all other obligations and indebtedness of the Borrower under the
Loan Documents, without notice of acceleration or of intention to accelerate,
presentment and demand or protest, all of which are hereby expressly waived;
(2) without notice to Borrower, terminate the Commitment and accelerate the
Termination Date; (3) set off, in any order, against the indebtedness of the
Borrower under the Loan Documents any debt owing by the Bank to Borrower,
including, but not limited to, any deposit account, which right is hereby
granted by Borrower to the Bank; and (4) exercise any and all other rights
pursuant to the Loan Documents, at law, in equity or otherwise:
(a) Borrower shall fail to pay any principal of or interest on the Note or
any Loan as and when due, or any other obligation under any Loan Document as
and when due; or
(b) Borrower or any Subsidiary of Borrower shall fail to pay at maturity, or
within any applicable period of grace, any principal of or interest on any
other borrower money obligation or shall fail to observe or perform any term,
covenant or agreement contained in any agreement or obligation by which it is
bound including but not limited to that Credit Agreement dated as of September
30, 1992 executed by and between Borrower herein and Bank herein; or
(c) Any representation or warranty made in connection with any of the Loan
Documents shall prove to have been incorrect, false or misleading; or
<PAGE>
(d) Default shall occur in the punctual and complete performance of any
covenant of any of the Parties contained in any Loan Document; or
(e) The occurrence of an Event of Default under any of the Loan Documents; or
(f) Final judgment for the payment of money shall be rendered against
Borrower or any Subsidiary of Borrower and the same shall remain undischarged
for a period of 30 days during which execution shall not be effectively
stayed; or
(g) The sale, encumbrance or abandonment (except as otherwise expressly
permitted by this Agreement) of any of the Collateral or the making of any
levy, seizure or attachment thereof or thereon; or the loss, theft,
substantial damage, or destruction of any material portion of such Property;
or
(h) Any order shall be entered in any proceeding against Borrower or any
Subsidiary of Borrower decreeing the dissolution, liquidation or split-up
thereof, and such order shall remain in effect for 30 days; or
(i) Borrower or any Subsidiary of Borrower shall make a general assignment
for the benefit of creditors or shall petition or apply to any tribunal for
the appointment of a trustee, custodian, receiver or liquidator of all or any
substantial part of its business, estate or assets or shall commence any
proceeding under any bankruptcy, insolvency, dissolution or liquidation law of
any jurisdiction, whether now or hereafter in effect; or any such petition or
application shall be filed or any such proceeding shall be commenced against
Borrower or any Subsidiary of Borrower and Borrower or such Subsidiary by any
act or omission shall indicate approval thereof, consent thereto or
acquiescence therein, or an order shall be entered appointing a trustee,
custodian, receiver or liquidator of all or any substantial part of the assets
of Borrower or any Subsidiary of Borrower or granting relief to Borrower or
any Subsidiary of Borrower or approving the petition in any such proceeding,
and such order shall remain in effect for more than 30 days; or Borrower or
any Subsidiary of Borrower shall fail generally to pay its debts as they
become due or suffer any writ of attachment or execution or any similar
process to be issued or levied against it or any substantial part of its
Property which is not released, stayed, bonded or vacated within 30 days after
its issue or levy; or
(j) Borrower or any Subsidiary of Borrower shall have concealed, removed, or
permitted to be concealed or removed, any part of its Property, with intent to
hinder, delay or defraud its creditors or any of them, or made or suffered a
transfer of any of its Property which may be fraudulent under any bankruptcy,
fraudulent conveyance or similar law; or shall have made any transfer of its
Property to or for the benefit of a creditor at a time when other creditors
similarly situated have not been paid; or
(k) A material adverse change shall occur in the assets, liabilities,
financial condition, business or affairs of Borrower or any Subsidiary of
Borrower; or
<PAGE>
(l) Any change shall occur in the ownership of Borrower; provided that for a
period of five (5) days following any Event of Default pursuant to 6.1(a)
hereof, Bank agrees not to exercise the remedies set forth in Section 6.1(1)
and (2) hereof.
REMEDIES CUMULATIVE 6.2 No remedy, right or power of the Bank is intended to
be exclusive of any other remedy, right or power now or hereafter existing by
contract, at law, in equity, or otherwise, and all such remedies, rights and
powers shall be cumulative. Nothing herein shall imply any obligation of
Borrower to maintain any deposit with the Bank.
7. MISCELLANEOUS
NO WAIVER 7.1 No waiver of any Default shall be deemed to be a waiver of
any other Default. No failure to exercise or delay in exercising any right or
power under any of the Loan Documents shall operate as waiver thereof, nor
shall any single or partial exercise of any such right or power preclude any
further or other exercise thereof or the exercise of any other right or power.
No amendment, modification or waiver of any of the Loan Documents shall be
effective unless the same is in writing and signed by the Person against whom
such amendment, modification or waiver is sought to be enforced. No notice to
or demand on any Person shall entitle any Person to any other or further
notice or demand in similar or other circumstances.
NOTICES 7.2 All notices under the Loan Documents shall be in writing and
either delivered against receipt therefor, or mailed by registered or
certified mail, return receipt requested, in each case addressed to the
address shown on the signature page hereof or to such other address as a party
may designate. Except for the notices required by SECTION 2.1, which shall
be given only upon actual receipt by the Bank, notices shall be deemed to have
been given (whether actually received or not) when delivered (or, if mailed,
on the second following Business Day).
GOVERNING LAW/ARBITRATION 7.3 UNLESS OTHERWISE SPECIFIED THEREIN, EACH LOAN
DOCUMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF TEXAS AND AS APPLICABLE, THE UNITED STATES OF AMERICA. To the
maximum extent not prohibited by law, any controversy or claim arising out of
or relating to the Loan or any Loan Document or any transaction provided for
therein, including but not limited to any claim based on or arising from an
alleged tort or an alleged breach of any agreement contained in any of the
Loan Documents, shall, at the request of any party to the Loan or Loan
Documents (either before or after the commencement of judicial proceedings),
be settled by mandatory and binding arbitration pursuant to Title 9 of the
United States Code and in accordance with the Commercial Arbitration Rules of
the American Arbitration Association (the "AAA"). If Title 9 of the United
States Code is inapplicable to any such claim or controversy for any reason,
such arbitration shall be conducted pursuant to the Texas General Arbitration
Act and in accordance with the Commercial Arbitration Rules of the AAA. In
any such arbitration proceeding: (i) all statutes of limitations
<PAGE>
which would otherwise be applicable shall apply; and (ii) the proceeding shall
be conducted in the city in which the principal office of the Bank is located
in Texas, by a single arbitrator, if the amount in controversy is $1 million or
less or by a panel of three arbitrators if the amount in controversy is over
$1 million. All arbitrators shall be selected by the process of appointment
from a panel, pursuant to Section 13 of the AAA Commercial Arbitration Rules.
Any award rendered in any such arbitration proceeding shall be final and
binding, and judgment upon any such award may be entered in any court having
jurisdiction.
(b) If any party to the Loans or Loan Documents files a proceeding in any
court to resolve any such controversy or claim, such action shall not
constitute a waiver of the right of such party or a bar to the right of any
other party to seek arbitration under the provisions of this Section of that
or any other claim or controversy, and the court shall, upon motion of any
party to the proceeding, direct that such controversy or claim be arbitrated
in accordance with this Section.
(c) No provision of, or the exercise of any rights under, this Section shall
limit or impair the right of any party to the Loan Documents before, during or
after any arbitration proceeding to: (i) exercise self-help remedies such as
setoff or repossession; (ii) foreclose (judicially or otherwise) any lien on
or security interest in any real or personal property Collateral; or (iii)
obtain emergency relief from a court of competent jurisdiction to prevent the
dissipation, damage, destruction, transfer, hypothecation, pledging or
concealment of assets or of Collateral securing any indebtedness, obligation
or guaranty referenced in the Loan Documents. Such emergency relief may be in
the nature of, but is not limited to: pre-judgment attachments, garnishments,
sequestrations, appointments of receivers, or other emergency injunctive
relief to preserve the status quo.
(d) To the extent arbitration is prohibited by law or in the event of judicial
proceedings for whatever reason, Borrower hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue of any suit, action or proceeding arising out of
or relating to the Loan or the Loan Documents brought in the district courts
of the county in Texas in which the principal office of the Bank is located,
or in the United States District Court for the District of Texas in which the
Bank's principal office is located, (collectively, the "COURTS"), or any
claim that any such suit, action or proceeding brought in any such court has
been brought in an inconvenient forum. Borrower hereby irrevocably agrees
that any judicial proceeding against the Bank arising out of or in connection
with the Loan Documents shall be brought in the Courts. Nothing contained
herein, however, shall be construed as a waiver of Borrower's or the Bank's
right to compel arbitration of disputes pursuant to subparagraphs (a) and (b),
above.
SURVIVAL; PARTIES BOUND 7.4 All representations, warranties, covenants and
agreements made by or on behalf of Borrower in connection with the Loan
Documents shall survive the execution and delivery of the Loan Documents;
shall not be affected by any investigation made by any Person, and shall bind
Borrower and the heirs, devisees, executors, administrators, personal
representatives, successors, trustees, receivers and assigns of Borrower and
inure to the benefit of the
<PAGE>
successors and assigns of the Bank; PROVIDED that the undertaking of the Bank
hereunder to make Loans to the Borrower shall not inure to the benefit of any
successor or assign of Borrower. Except as otherwise provided herein, the term
of this Agreement shall be until the final maturity of the Note and the full and
final payment of all amounts due under the Loan Documents.
DOCUMENTARY MATTERS 7.5 This Agreement may be executed in several identical
counterparts, and by the parties hereto on separate counterparts, and each
counterpart, when so executed and delivered, shall constitute an original
instrument, and all such separate counterparts shall constitute but one and
the same instrument. The headings and captions appearing in the Loan
Documents have been included solely for convenience and shall not be
considered in construing the Loan Documents. The Loan Documents embody the
entire agreement between the Borrower and the Bank and supersede all prior
proposals, agreements and understandings. If any provision of any Loan
Document shall be invalid, illegal or unenforceable in any respect under any
applicable law, the validity, legality and enforceability of the remaining
provisions shall not be affected or impaired thereby.
EXPENSES 7.6 Any provision to the contrary notwithstanding, and whether or
not the transactions contemplated by this Agreement shall be consummated, the
Borrower agrees to pay on demand all out-of-pocket expenses (including,
without limitation, the fees and expenses of counsel for the Bank) in
connection with the negotiation, preparation, execution, filing, recording,
modification, supplementing and waiver of the Loan Documents and the making,
servicing and collection of the Loans. Such fees for the negotiation,
preparation and execution only of the Loan Documents shall not exceed $400.00.
The obligations of the Borrower under this and the following section shall
survive the termination of this Agreement.
INDEMNIFICATION 7.7 The Borrower agrees to indemnify, defend and hold the
Bank harmless from and against any and all loss, liability, obligation,
damage, penalty, judgment, claim, deficiency and expense (including interest,
penalties, attorneys' fees and amounts paid in settlement) to which the Bank
may become subject arising out of or based upon the Loan Documents or any
Loan, including that resulting from the Bank's own negligence, EXCEPT and to
the extent caused by the gross negligence or willful misconduct of the Bank.
NATURE OF OBLIGATIONS 7.8 If more than one Borrower executes this Agreement,
all of the representations, warranties, covenants and agreements of the
Borrower shall be joint and several obligations of the Borrower.
CONSOLIDATION 7.9 If Borrower has a Subsidiary, all financial statements
for Borrower shall be prepared on both consolidated and consolidating bases
and all financial amounts and ratios with respect to such Borrower shall be
computed on a consolidated basis.
<PAGE>
USURY NOT INTENDED 7.10 It is the intent of Borrower and of Bank in the
execution and performance of this Agreement and any other Loan Document to
contract in strict compliance with the usury laws of the State of Texas and as
applicable, the United States of America. Borrower and Bank agree that none
of the terms and provisions contained in this Agreement or any other Loan
Document shall ever be construed to create a contract to pay for the use,
forbearance or detention of money with interest at a rate in excess of the
maximum nonusurious rate of interest permitted to be charged by applicable
Federal or Texas law (whichever shall permit the higher lawful rate) from time
to time in effect ("Highest Lawful Rate"). At all times, if any, that Chapter
One of Texas Credit Code shall establish the Highest Lawful Rate, the Highest
Lawful Rate shall be the "indicated rate ceiling" as defined in that Chapter.
The provisions of this paragraph shall control over all other provisions of
this Agreement and all other Loan Documents which may be in apparent conflict
herewith. In the event Bank shall collect moneys which are deemed to
constitute interest in excess of the legal rate, such moneys shall be
immediately returned to the payor thereof (or, at the option of Bank, credited
against the unpaid principal of the Note or Notes) upon such determination.
8. DEFINITIONS
Unless the context otherwise requires, capitalized terms used in Loan
Documents have these meanings:
AUTHORITY DOCUMENTS shall mean certificates of authority to transact
business, Certificates of Good Standing, borrowing resolutions (with
secretary's certificate), Secretary's Certificates of Incumbency, and other
documents which empower and enable Borrower or its representatives to enter
into agreements evidenced by Loan Documents or evidence such authority.
CASH FLOW shall mean net income (after interest and tax expense) plus
amortization of intangibles and depreciation.
COLLATERAL shall mean all Property, tangible or intangible, real, personal
or mixed, now or hereafter subject to the Security Documents, or intended so
to be.
CORPORATION shall mean corporations, partnerships, joint ventures, joint
stock associations, business trusts and other business entities.
CURRENT ASSETS shall mean all cash, customers' accounts and other
receivables due within one year from statement date, inventory, deposits,
marketable securities, and prepaid expenses to be consumed within one year
from statement date.
CURRENT LIABILITIES shall mean all amounts due or to become due for payment
within twelve (12) months of statement date.
<PAGE>
CURRENT RATIO shall mean the ratio of Current Assets to Current Liabilities.
GOVERNMENT ACCOUNTS shall mean receivables owed by the U.S. government or by
the government of any state, county, municipality, or other political
subdivision as to which Bank's security interest or ability to obtain direct
payment of the proceeds is governed by any federal or state statutory
requirements other than those of the Uniform Commercial Code, including,
without limitation, the Federal Assignment of Claims Act of 1940, as amended.
GOVERNMENTAL AUTHORITY shall mean any foreign governmental authority, the
United States of America, any State of the United States and any political
subdivision of any of the foregoing, and any agency, department, commission,
board, bureau, court or other tribunal having jurisdiction over the Bank or
Borrower, any Subsidiary of Borrower or any guarantor of any indebtedness
hereunder or their respective Property.
INDEBTEDNESS shall mean and include (a) all items which in accordance with
GAAP would be included on the liability side of a balance sheet on the date as
of which Indebtedness is to be determined (excluding capital stock, surplus,
surplus reserves and deferred credits); (b) all guaranties, endorsements and
other contingent obligations in respect of, or any obligations to purchase or
otherwise acquire, Indebtedness of others; (c) all Indebtedness secured by any
Lien existing on any interest of the Person with respect to which indebtedness
is being determined in Property owned subject to such Lien whether or not the
Indebtedness secured thereby shall have been assumed; and (d) all amounts due
or owing to Parent.
LEGAL REQUIREMENT shall mean any law, ordinance, decree, requirement, order,
judgment, rule, regulation (or interpretation of any of the foregoing) of, and
the terms of any license or permit issued by, any Governmental Authority.
LIEN shall mean any mortgage, pledge, charge, encumbrance, security
interest, collateral assignment or other lien or restriction of any kind,
whether based on common law, constitutional provision, statute or contract.
LOAN DOCUMENTS shall mean this Agreement, the Note, Security Agreements, the
agreements, documents, instruments and other writings contemplated by this
Agreement or listed on Annex I, all other assignments, deeds, guaranties,
pledges, instruments, certificates and agreements now or hereafter executed or
delivered to the Bank pursuant to any of the foregoing, and all amendments,
modifications, renewals, extensions, increases and rearrangements of, and
substitutions for, any of the foregoing.
ORGANIZATIONAL DOCUMENTS shall mean, with respect to a corporation, the
certificate of incorporation, articles of incorporation and bylaws of such
corporation; with respect to a partnership, joint venture, or trust, the
agreement or instrument establishing such entity; in each case including any
and all modifications thereof as
<PAGE>
of the date of the Loan Document referring to such Organizational Document and
any and all future modifications thereof which are consented to by the Bank.
PARTIES shall mean all Persons other than the Bank executing any Loan Document.
PERSON shall mean in any individual, Corporation, trust, unincorporated
organization, Governmental Authority or any other form of entity.
PROPER FORM shall mean in form and substance satisfactory to the Bank.
PROPERTY shall mean any interest in any kind of property or asset, whether
real, personal or mixed, tangible or intangible.
SUBORDINATED DEBT shall mean any Indebtedness subordinated to Indebtedness
due Bank on terms satisfactory to Bank.
SUBSIDIARY shall mean, as to a particular parent Corporation, any
Corporation of which 50% or more of the indicia of equity rights is at the
time directly or indirectly owned by such parent Corporation or by one or more
Persons controlled by, controlling or under common control with such parent
Corporation.
TANGIBLE NET WORTH shall mean as at any date: (1) the aggregate amount at
which all assets of Borrower would be shown on a balance sheet at such date,
deducting capitalized research and development costs, capitalized interest,
debt discount and expense, goodwill, patents, trademarks, copyrights,
franchises, licenses and such other assets as are properly classified as
"intangible assets", less (2) the aggregate amount of all Indebtedness,
liabilities (including tax and other proper accruals) and reserves of Borrower
excluding Subordinated Debt.
TERMINATION DATE shall mean the earlier of: (a) October 1, 1993; or (b) the
date specified by the Bank pursuant to SECTION 6.1 hereof.
WORKING CAPITAL shall mean the excess of Current Assets over Current
Liabilities.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
set forth above.
THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL
AGREEMENT BETWEEN BANK AND THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF BANK AND THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN BANK AND THE
PARTIES.
BORROWER: C.E. SERVICES, INC .
By: /s/James P. Ashton
--------------------------------------------------------------------------
Name: James P. Ashton
-------------------------------------------------------------------------
Title: CFO
-------------------------------------------------------------------------
Address: 2895 113th St. Grand Prairie, TX 75050
-----------------------------------------------------------------------
BANK: TEXAS COMMERCE BANK, NATIONAL ASSOCIATION
By: /s/J. Richard Barajas
---------------------------------------------------------------------------
Name: J. Richard Barajas
-------------------------------------------------------------------------
Title: Sr. Vice President
-------------------------------------------------------------------------
Address:
-----------------------------------------------------------------------
EXHIBITS: A Compliance Certificate ANNEX: I Loan Documents
B Request for Revolving Loan
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT
FOR DISCRETIONARY LOANS
THIS FIRST AMENDMENT TO CREDIT AGREEMENT FOR DISCRETIONARY LOAN (this
"Amendment") dated effective as of October 1, 1993 (the "Effective Date"), is by
and between C. E. SERVICES, INC. ("Borrower"), and TEXAS COMMERCE BANK, NATIONAL
ASSOCIATION, a national banking association whose principal office is located in
Dallas, Texas (the "Bank").
PRELIMINARY STATEMENT
The Bank and the Borrower have entered into a Credit Agreement For
Discretionary Loan dated as of July 1, 1993 (the "Credit Agreement"). The
"Agreement," as used in the Credit Agreement, shall also refer to the Credit
Agreement as amended by this Amendment. All capitalized terms defined in the
Credit Agreement and not otherwise defined herein shall have the same meanings
herein as in the Credit Agreement. The Bank and the Borrower have agreed to
amend the Credit Agreement to the extent set forth herein, and in order to,
among other things, renew, modify and extend the Discretionary Line.
NOW THEREFORE, in consideration of the premises of other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged by the parties hereto, the Bank and the Borrowers hereby agree as
follows:
SECTION 1. Revolving Credit Note. Section 1.1 of the Credit
Agreement is amended by substituting the following for the Section 1.1 of the
Credit Agreement:
"REVOLVING CREDIT NOTE 1.1 Subject to the terms and conditions
hereof, the Bank agrees to consider making loans ("Loans" or "Loan")
to Borrower from time to time before the Termination Date, not to
exceed at any one time outstanding $2,000,000 (the "Discretionary
Line"), Borrower having the right to borrow, repay and reborrow. Each
Loan will be in a maximum amount of 70% of the amount of the contract
for the purchase of the equipment by Borrower. Each Loan will be
outstanding for not more than 60 days. The Loans shall be for the
purpose of the support of short term cash needs for the purchase of
computer hardware. The Bank and the Borrower agree that Chapter 15 of
the Texas Credit Code shall not apply to this Agreement, the Note or
any Loan. The Loans shall be evidenced by and shall bear interest and
be payable as provided in the discretionary promissory note of
Borrower dated the Effective Date (together with any and all renewals,
extensions, modifications, replacements, and rearrangements thereof
and substitutions therefor, the "Note"), which is given in renewal,
modification and extension of that certain promissory note dated
<PAGE>
July 1, 1993, in the original principal amount of $2,000,000
(including all prior notes of which said note represents a renewal,
extension, modification, increase, substitution, rearrangement or
replacement thereof, the "Renewed Note"). The parties hereto agree
that there is as of the Effective Date an outstanding principal
balance of $0.00 under the Note leaving a balance as of the Effective
Date of $2,000,000 under the Commitment available for Loans subject to
the terms and conditions of this Agreement. The "Note" as used in the
Credit Agreement shall also refer to the "Note" as used in this
Amendment. THE BANK IS NOT OBLIGATED IN ANY WAY TO MAKE ANY LOANS
HEREUNDER AND NOTHING HEREIN OR IN ANY OTHER AGREEMENTS, DOCUMENTS,
INSTRUMENTS, CERTIFICATES OR OTHER WRITINGS EXECUTED OR DELIVERED IN
CONNECTION WITH OR PURSUANT TO THE TERMS OF ANY OF THE FOREGOING, OR
THE DISCRETIONARY LINE IS INTENDED OR TO BE CONSTRUED AS A COMMITMENT
ON THE PART OF THE BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THE NOTE
TO MAKE ANY LOAN HEREUNDER OR UNDER THE DISCRETIONARY LINE OR UNDER
THE NOTE. ALL LOANS HEREUNDER OR UNDER THE DISCRETIONARY LINE OR
UNDER THE NOTE SHALL BE AT THE SOLE AND ABSOLUTE DISCRETION OF THE
BANK OR ANY SUBSEQUENT OWNER OR HOLDER OF THE NOTE AND THE BANK OR ANY
SUBSEQUENT OWNER OR HOLDER OF THE NOTE MAY, FOR ANY REASON OR NO
REASON AT ALL, REFUSE TO MAKE ANY LOAN TO THE MAKER HEREUNDER OR UNDER
THE DISCRETIONARY LINE OR UNDER THE NOTE."
SECTION 2. The word "Commitment" in Section 6.1(2) of the Credit
Agreement is deleted and the term "Discretionary Line" is substituted in lieu
thereof.
SECTION 3. Section 8. Definitions. Subsection (a) of the definition
of Termination Date in the Credit Agreement is hereby amended by replacing "(a)
October 1, 1993; or" with "(a) November 15, 1993; or."
SECTION 4. Borrower confirms and ratifies each of the liens, security
interests and other interests granted in each and all security agreements
executed in connection with, related to, or securing the renewed Note or the
note executed by Borrower and delivered to Bank dated September 30, 1992 in the
principal amount of $1,500,000.00 (including any prior notes which said note
renewed, modified or extended, or any renewals, modifications or extensions
thereof, "Note 0001") as extending to and securing the Loans and the Note and
Note 0001, including but not limited to each of those interests and liens
described in the following listed Security Agreements. Each Borrower further
agrees and acknowledges that the terms "secured indebtedness" and "indebtedness
secured hereby" as used in any security
- 2 -
<PAGE>
agreement including any supplemental security agreements executed in connection
with or related to, or securing the Renewed Note or Note 0001, or any other
indebtedness of Borrower to Bank, including but not limited to the following
security agreements executed by Borrower and delivered to Bank: Security
Agreement - Accounts and General Intangibles dated October 1, 1992; Security
Agreement - Inventory dated October 1, 1992; including any Supplemental Security
Agreements supplementing any of the foregoing, and any other security agreements
previously executed by Borrower and delivered to Bank and not released by Bank
and all security agreements executed as of the Effective Date (each and all
"Security Agreements") include, but are not limited to, each and all
indebtedness of all character and kind related to or evidenced by the Renewed
Note, the Note, Note 0001 and related to the Loan Documents.
SECTION 5. The Borrower hereby represents and warrants to the Bank
that after giving effect to the execution and delivery of this Amendment:
(a) the representations and warranties set forth in the Credit Agreement are
true and correct on the date hereof as though made on and as of such date; and
(b) no Event of Default, or event which with passage of time, the giving of
notice or both would become an Event of Default, has occurred and is continuing
as of the date hereof.
SECTION 6. This Amendment shall become effective as of the Effective
Date upon its execution and delivery by each of the parties named in the
signature lines below, and the "Agreement" as used in the Credit Agreement shall
also refer to the Credit Agreement as amended by this Amendment.
SECTION 7. The Borrower further acknowledges that each of the other
Loan Documents is in all other respects ratified and confirmed, and all of the
rights, powers and privileges created thereby or thereunder are ratified,
extended, carried forward and remain in full force and effect except as the
Credit Agreement is amended by this Amendment.
SECTION 8. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed an original and all of which taken
together shall constitute but one and the same agreement.
SECTION 9. This Amendment shall be included within the definition of
"Loan Documents" as used in the Agreement.
SECTION 10. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND AS APPLICABLE, THE LAWS OF
THE UNITED STATES OF AMERICA.
THIS WRITTEN AMENDMENT AND THE OTHER LOAN DOCUMENTS CONSTITUTE A "LOAN
AGREEMENT" AS DEFINED IN SECTION 26.02(a) OF THE TEXAS BUSINESS & COMMERCE CODE,
AND REPRESENTS THE
- 3 -
<PAGE>
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
- 4 -
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be
executed effective as of the Effective Date.
BORROWER: C. E. SERVICES, INC.
By: /s/James P. Ashton
----------------------------------------------
Name: James P. Ashton
--------------------------------------------
Title: CFO
-------------------------------------------
Address: 2895 113th St. Grand Prairie
-----------------------------------------
BANK: TEXAS COMMERCE BANK,
NATIONAL ASSOCIATION
By: /s/J. Richard Barajas
----------------------------------------------
Name: J. Richard Barajas
--------------------------------------------
Title: Sr. Vice President
-------------------------------------------
- 5 -
<PAGE>
<PAGE>
NORTH STAR UNIVERSAL, INC.
1993 ANNUAL REPORT
<PAGE>
COMPANY PROFILE
As a parent company, North Star Universal, Inc. provides management and
financial resources for the development and growth of its operating businesses.
North Star's direct and indirect wholly owned subsidiaries include Americable,
Transition Engineering and C.E. Services. Americable is a provider of voice and
data communications networking products, systems and services. Transition
Engineering designs and manufactures connectivity devices used in local area
network applications. C.E. Services remarkets, reconfigures, refurbishes and
warehouses mainframe computers and peripherals and provides related technical
and maintenance services. As of December 31, 1993, North Star also owned a
38 percent interest in Michael Foods, Inc. (NASDAQ:MIKL), and a 40 percent
interest in CorVel Corporation (NASDAQ:CRVL).
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1993 1992 1991
- -------------------------------------------------------------------------------
OPERATIONS:
<S> <C> <C> <C>
Revenues $107,485 $86,363 $71,575
Operating income (loss) 651 (585) (1,356)
Income (loss) from continuing operations (11,872) (1,637) 10,899
Discontinued operations -- -- (598)
Net income (loss) (11,872) (1,637) 10,301
---------------------------------
---------------------------------
Income (loss) per share:
Continuing operations $ (1.26) $ (.17) $ 1.07
Discontinued operations -- -- (.06)
---------------------------------
Net income (loss) $ (1.26) $ (.17) $ 1.01
---------------------------------
---------------------------------
FINANCIAL POSITION:
Long-term debt $43,194 $41,849 $41,451
Shareholders' equity 34,675 61,083 63,246
---------------------------------
---------------------------------
</TABLE>
North Star believes that a significant portion of its shareholder value will
ultimately be derived from the value of its subsidiaries and holdings in Michael
Foods and CorVel. The following summarizes the net book value of the Company as
of the end of the past three years along with the market value of its
investments in Michael Foods and CorVel. The market value of the Company's
Michael Foods and CorVel investments is based on the closing market price and
share holdings as of the respective dates.
<TABLE>
<CAPTION>
As of December 31,
(In thousands) 1993 1992 1991
- -------------------------------------------------------------------------------
BOOK VALUE
Assets -
<S> <C> <C> <C>
Michael Foods $ 59,025 $ 66,654 $ 66,629
CorVel 10,083 8,159 7,133
Computer group 18,352 17,117 18,179
Cash and other, net 7,059 9,657 11,225
---------------------------------
94,519 101,587 103,166
Liabilities -
Subordinated debentures (39,579) (38,899) (37,567)
Deferred income taxes(1) (20,265) (1,605) (2,353)
---------------------------------
Net book value $ 34,675 $ 61,083 $ 63,246
---------------------------------
---------------------------------
MARKET VALUE(2)
Michael Foods $ 58,840 $ 74,469 $109,405
CorVel 41,344 21,656 37,013
---------------------------------
---------------------------------
<FN>
(1) At December 31, 1993, the Company recorded an $18.7 million deferred
income tax liability relating to temporary differences between the financial and
tax reporting of its investment in Michael Foods. (See Note 9 to Consolidated
Financial Statements.)
(2) The market value of the Company's holdings in Michael Foods and CorVel does
not take into account any income taxes on the gain that may be recognized upon a
taxable disposition of such shares.
</TABLE>
<PAGE>
TO OUR SHAREHOLDERS
North Star's businesses were characterized by a year of transition.
Good overall operating results were overshadowed by Michael Foods decision to
discontinue its reduced cholesterol liquid whole egg joint venture. Apart from
this one time event, there were many positive developments within our companies
that bode well for the future.
Since 1990, and particularly following the CorVel Corporation public
offering in 1991, we have focused on strengthening our financial position and
building our three computer businesses -- Americable, C.E. Services and
Transition Engineering. Each of these businesses increased their revenue base
during a difficult and competitive period for the computer industry. Again in
1993, each of these companies has demonstrated an adaptability to market changes
and has found new opportunities amidst the challenges.
During 1993, C.E. Services contributed the greatest revenue and profit
gains within our computer group. These results are due largely to the strong
growth in its remarketing business for computer systems, features and parts.
Traditionally engaged in providing technical services to large computer leasing
customers, C.E. Services is using its technical expertise to carve out a
leadership role in the large secondary market for IBM mainframe equipment. This
knowledge provides it with a competitive advantage in adapting to the rapidly
changing mainframe market. As this market evolves, C.E. Services is well
positioned to fulfill the needs of customers who are downsizing their systems or
converting to alternative hardware solutions.
Americable posted improved operating results in its domestic market,
but was challenged by an extremely competitive market in Canada. In response,
the company scaled back and consolidated its Canadian operations into its
Minneapolis region. This consolidation resulted in restructuring charges in the
fourth quarter of approximately $1.9 million. Despite this setback, Americable
built upon its reputation for superior service across a broad product line with
its "One Company, One Call" approach. With an experienced technical staff, the
company made progress in extending its core distribution business into more
value-added products and services within its U.S. operations. These include
custom cable assemblies for the OEM market and value added projects involving
the design and implementation of local (LAN) and wide (WAN) area networks. The
company continues to work closely with its customers in providing new products
and services based upon their changing requirements.
Our third computer company, Transition Engineering, enjoyed another
year of sustained growth in sales and earnings. A good measure of this growth
came from international sales. As the year progressed, Transition made
significant investments in sales and engineering personnel. These investments
have started to yield a stream of new product introductions targeting the
hardware market for local area networks. This market is growing and changing
technologically at a phenomenal rate. Transition's strategy is to introduce new
products in a timely manner, taking advantage of opportunities to improve upon
the quality and performance of competing products. This strategy is working as
Transition adds more products to broaden its product line.
Michael Foods, which represents North Star's largest equity holding,
experienced a year of mixed results in 1993. On the positive side, the company
advanced its strategic thrust to convert from a commodity processor to a value-
added producer serving foodservice, retail and industrial ingredient markets.
Michael Foods posted strong volume and earnings gains in a number of product
lines, including Easy Eggs(TM) and refrigerated potato products. These gains,
however, were offset in the fourth quarter by charges of $34 million to write-
off its investment in its reduced cholesterol liquid whole egg joint venture and
other restructuring charges. Despite this disappointment, Michael Foods remains
focused on the innovation and development of value-added food products. Its
financial position after the restructuring is sound, with good cash flow.
Operationally, we believe its modern processing facilities and direct sales
organization provide a solid basis for achieving improved results.
<PAGE>
North Star's other investment interest is CorVel Corporation. During
1993, CorVel made considerable progress integrating its many cost containment
and patient management services for the workers compensation marketplace. These
efforts culminated with the launch of Advocacy(TM), a program that ties together
CorVel's component services into a managed care continuum. An important element
in CorVel's strategy is the expansion of its preferred provider organization.
Now operating in 20 states, this organization contributed significantly to
CorVel's earnings momentum in the past year. As in 1993, the coming years are
expected to bring fundamental changes to the health care industry. With
national marketing programs and dynamic information systems, CorVel is prepared
to aggressively participate in this changing market.
North Star remains committed to its number one priority -- improving
long term shareholder value. We are fortunate to have many enterprising people
throughout our companies who look for opportunities and are excited about
meeting new challenges. We are confident that we can succeed in guiding our
businesses through a competitive era and achieve our goals. As much as ever, we
are grateful for your continued support.
Sincerely,
/s/ Jeffrey J. Michael
Jeffrey J. Michael
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCH 14, 1994
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATION AND FINANCIAL CONDITION
GENERAL
North Star Universal, Inc. ("North Star" or "the Company") is a holding company.
The Company's three key holdings consist of Michael Foods, Inc. ("Michael
Foods"), CorVel Corporation ("CorVel") and its computer businesses. Michael
Foods is a food processing and distribution company founded by North Star in
1987. Following a series of public offerings by Michael Foods and stock sales
by North Star, the Company owned a 38 percent interest in Michael Foods at
December 31, 1993. CorVel is a provider of managed care services founded by
North Star in 1988. Following an initial public offering in 1991, and other
equity transactions of CorVel, the Company's ownership interest in CorVel is
approximately 40 percent at December 31, 1993. The Company's investments in
Michael Foods and CorVel are accounted for as unconsolidated subsidiaries using
the equity method of accounting.
The Company's continuing operations consist of Americable, Inc., Transition
Engineering, Inc., and C.E. Services, Inc., (including its United Kingdom
subsidiary, C.E. Services (Europe) Limited). Americable is a provider of voice
and data communications networking products, systems and services. Transition
Engineering designs and manufactures connectivity devices used in local area
network ("LAN") applications. C.E. Services remarkets, reconfigures,
refurbishes and warehouses mainframe computers and peripherals and provides
related technical and maintenance services.
The following is unaudited summarized operating results for each of the
Company's continuing operations for the three years ended December 31, 1993 (in
thousands).
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
C.E. Services $ 60,729 $ 44,338 $ 34,568
Americable 38,266 35,885 34,005
Transition Engineering 10,025 7,062 3,841
Eliminations (1,535) (922) (839)
---------------------------------
$107,485 $ 86,363 $ 71,575
---------------------------------
---------------------------------
Gross Profit
C.E. Services $ 11,669 $ 9,216 $ 7,697
Americable 10,254 9,648 9,947
Transition Engineering 3,903 2,701 1,599
---------------------------------
$ 25,826 $ 21,565 $ 19,243
---------------------------------
---------------------------------
Operating Income (Loss)
C.E. Services $ 2,794 $ 1,024 $ 118
Americable 179 (466) 331
Transition Engineering 918 533 380
Restructuring charges (1,953) -- --
Corporate expenses (1,287) (1,676) (2,185)
---------------------------------
$ 651 $ (585) $(1,356)
---------------------------------
---------------------------------
</TABLE>
<PAGE>
RESULTS OF OPERATION --
1993 VERSUS 1992
Consolidated revenues increased $21.1 million or 24.5% to $107.5
million from $86.4 million in 1992. The $16.4 million or 37% net increase in
revenues at C.E. Services includes approximately $19.2 million of higher sales
resulting from its expanded selling efforts and higher demand of used mainframe
systems and features, particularly IBM 4381 and 3090 product lines. Sales from
the remarketing of used mainframes and peripherals consisted of 84% and 72% of
C.E. Services' revenues in 1993 and 1992, respectively. This increase was offset
by decreased sales of approximately $2.8 million in technical service and
warehousing revenues due primarily to reduced pricing resulting from maturing
product life cycle of certain IBM mainframes. Sales from C.E. Services' European
operations increased approximately $5.1 million or 64% to $13.2 million for the
year. C.E. Services' ability to maintain its historical levels of sales growth
is dependent upon its ability to adapt to changing technologies and the
availability of products within the secondary mainframe market.
Revenues at Americable's U.S. operations increased $3.7 million or
12.4% to $33.6 million due primarily to higher demand of networking products and
services. This was offset by decreased sales of approximately $1.3 million in
its Canadian operations. Sales from Canadian operations consisted of 12% and
17% of Americable's revenues in 1993 and 1992, respectively. During the past
three years, Americable's Canadian operations have experienced significant
competition which has adversely impacted its sales. In December 1993,
Americable implemented a restructuring plan involving the consolidation of its
Canadian sales and customer support activities into its U.S. operations.
Americable believes that its revenues will be adversely impacted through the
loss of a substantial portion of these revenues.
Revenues at Transition Engineering increased approximately $3 million,
or 42%. This includes approximately $1.3 million of sales resulting from new
product introductions and approximately $500,000 of sales from new customers.
Sales to international customers were approximately $3.1 million in 1993, an
increase of $1.3 million or 71% from the previous year. Transition
Engineering's ability to maintain its present level of sales and its continued
sales growth is highly dependent upon its ability to offer new products that
meet customer's demands in a rapidly changing market, particularly in light of
the relatively short life cycle of its products.
Consolidated gross profit, as a percent of revenues, decreased to 24%
in 1993 as compared to 25% in 1992. The 1992 amount reflects charges of
$490,000 related to inventory writedowns at Americable and Transition
Engineering. Margins at Americable, exclusive of these charges, decreased to
26.8% in 1993, from 28% in 1992, due primarily to increased competition
particularly within its Canadian operations. In addition, margins at C.E.
Services decreased slightly due primarily to reduced pricing of technical
services resulting from increased competition and maturing product life cycle of
certain IBM mainframes. North Star expects the declining trends in consolidated
gross margins to continue in 1994 due to increased competition within each of
its computer businesses.
The Company's selling, general and administrative expenses increased
$1.1 million, or 5%, to $23.2 million from $22.1 million in 1993. This includes
increased expenses of approximately $800,000 at Transition Engineering due
primarily to the addition of sales and engineering personnel and increased
research and development expenses related to new product introductions and
additional administrative and support personnel needed to support overall
growth. In addition, general and administrative expenses at C.E. Services
increased approximately $600,000 due primarily to higher selling expenses
associated with the expanded
<PAGE>
remarketing efforts of used mainframe systems and higher facility costs related
to its expanded United Kingdom operation. These increases were offset by a
decrease in corporate costs of approximately $400,000.
Selling, general and administrative expenses at Americable's U.S.
operations increased approximately $600,000 due primarily to the addition of
sales and technical personnel. This was offset by decreased expenses of
approximately $650,000 at its Canadian operations which was primarily a result
of the downsizing of administrative and support staff and to a lesser extent,
savings incurred from the closure of its Canadian facilities during the year.
The consolidation of Americable's Canadian operations resulted in a
restructuring charge of approximately $1.9 million. This charge includes
approximately $600,000 for the write-off of goodwill and other noncurrent
assets, $700,000 for the reassessment of carrying values of inventory and
receivables and $600,000 for lease and severance obligations and other related
expenses.
During 1992, C.E. Services recorded foreign currency gains of
approximately $100,000. Foreign currency transactions were not significant in
1993. The Company does not believe that the reasonable likely future effects of
changes in currency exchange rates will have a significant impact on its results
of operations or financial position.
Net interest expense was relatively unchanged between years.
The Company's effective consolidated income tax rate was (19.6)% in
1993 and (23.4)% in 1992. See Note 9 to the Consolidated Financial Statements.
Equity in earnings (loss) of unconsolidated subsidiaries was a loss of
$8,967,000 in 1993 versus income of $2,055,000 in 1992. Included in the 1993
amount is a loss of $6.2 million for the Company's share of Michael Foods' net
loss for the year and a $3.7 million net deferred tax provision. For 1993,
Michael Foods recorded a net loss of $16.3 million which included charges for
the disposal of its reduced cholesterol liquid whole egg product line and other
restructuring charges. This loss was offset by an increase in the Company's
equity in earnings of CorVel of approximately $350,000 due to increased profits
at that company.
In the fourth quarter of 1993, the Company recorded a deferred tax
liability of approximately $18.7 million related to the accounting for temporary
differences between financial and tax reporting of its investment in Michael
Foods. Previously, the Company did not record this potential deferred tax
liability as it expected any future dispositions of its Michael Foods holdings
would be completed in a tax-free manner. While a tax-free disposition of its
Michael Foods holdings continues to be the Company's preferred course of action,
North Star has recorded the deferred tax liability since it may have taxable
dispositions in future periods.
North Star currently has no plans to sell its Michael Foods holdings.
However, depending on market conditions, North Star's strategic objective and
other factors, the Company may from time-to-time sell all or a portion of its
Michael Foods holdings. Further, the recording of this liability in no way
precludes North Star from completing a tax-free transaction and has no cash flow
impact on the Company. The portion of this liability related to the Company's
share of Michael Foods public offering proceeds and other equity transactions of
$15 million, was charged to additional paid-in capital and the portion related
to Michael Foods unremitted earnings of $3.7 million, was charged to equity in
earnings (loss) of unconsolidated subsidiaries.
1992 VERSUS 1991
Consolidated revenues increased $14.8 million, or 20.7%, to $86.4
million from $71.6 million in 1991. Revenues at C.E. Services increased $9.7
million, or 28.3%, to $44.3 million from $34.6 million in the previous year.
This was primarily a result of C.E. Services' expanded selling efforts in the
remarketing of mainframe computer systems, features and parts, particularly IBM
4381 and 3090 product lines. Substantially
<PAGE>
all of this increase was due to higher sales from its domestic operations. Sales
from European operations consisted of 18% and 25% of C.E. Services' revenues in
1992 and 1991, respectively.
Americable's revenues increased $1.9 million, or 5.5%, to $35.9
million from $34 million in 1991. This includes increased sales of
approximately $2.9 million attributed to higher demand for networking products
at its U.S. operations. This increase was offset by lower domestic sales of
bulk cable and cable assembly products of approximately $500,000 and a $500,000
decrease in sales at its Canadian operations, due primarily to the overall weak
economic conditions in Canada. Sales from Canadian operations consisted of 17%
and 19% of Americable's sales in 1992 and 1991, respectively. Revenues at
Transition Engineering increased $3.2 million, or 84%, to approximately
$7.1 million in 1992. This increase includes approximately $700,000 of sales
resulting from new product introductions and approximately $1 million of sales
from new customers.
Consolidated gross profit, as a percent of revenue, decreased to 25%
in 1992 as compared to 26.9% in 1991. This decrease reflects charges of
$490,000 related to inventory write-downs at Americable and Transition
Engineering. Margins at Americable, exclusive of these write-downs, decreased
slightly due to increased competition. In addition, margins at C.E. Services
decreased because of a higher mix of lower margin computer feature and part
sales, reduced pricing of technical services and the maturing product cycle of
certain IBM mainframes.
The Company's selling, general and administrative expenses increased
$1.5 million, or 7.5%, to $22.1 million from $20.6 million in 1991. This
includes increases of approximately $950,000 at Transition Engineering due to
the addition of sales and engineering personnel and expenses related to new
product introductions. Selling expenses at Americable's distribution business
increased $500,000 due primarily to new sales personnel and costs associated
with its new catalog and direct mail programs. In addition, general and
administrative expenses at C.E. Services increased approximately $600,000 due to
higher facility costs related to its Chicago facility and the addition of
support personnel. These increases were offset by a decrease in corporate costs
of $500,000 due to the downsizing of the North Star corporate office effected in
1991.
Net interest expense decreased $205,000 to $4,237,000 from $4,442,000
in 1991, primarily from lower debenture interest rates between years.
Investment income of $8,564,000 in 1991 was a result of the sale of
1,172,550 shares of Michael Foods stock in January 1991.
Equity in earnings of unconsolidated subsidiaries decreased $6,888,000
to $2,055,000 from $8,943,000 in the previous year. The Company's equity in
earnings of Michael Foods decreased approximately $6.5 million in 1992, due
primarily to lower profits at that company in addition to North Star's reduced
ownership position between years. Michael Foods' net earnings for 1992 were
$3,850,000, a decrease of $15,817,000, or 80%, from the previous year. In
addition, the Company's equity in earnings of CorVel decreased approximately
$400,000 due primarily to the Company's reduced ownership position between
years.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was $2.8 million in 1993 and $3.9 million
in 1992. The Company expects such operating cash flow deficits to continue.
The Company does not have the use of cash flow generated by Michael Foods other
than proceeds from quarterly dividends. In each of 1993 and 1992, the Company
received dividends of $1,471,000. There can be no assurance that Michael Foods
will continue to declare such dividends.
<PAGE>
Likewise, since CorVel's initial public offering in July 1991, the
Company has not had the use of cash generated by CorVel and its subsidiaries.
Since its initial public offering, CorVel has not declared any dividends, and
has indicated that it does not anticipate doing so for the foreseeable future.
The Company maintains a program whereby it sells subordinated
debentures of various maturities to primarily individual investors. The
debentures are offered on a continuous basis at interest rates that change from
time to time depending on market conditions. Historically, a substantial
portion of maturing debentures have been reinvested in new debentures as
indicated in the table below. At December 31, 1993 and 1992, the Company had
$39.6 million and $38.9 million principal amount of subordinated debentures
outstanding. The weighted average interest of 10.4% and 10.8% at December 31,
1993 and 1992, respectively, accrues annually and is payable monthly, quarterly,
or at maturity. The Company's experience with its debenture program for the
three years ended December 31, 1993, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
Net
New Debentures
Debentures Debentures Debentures Sold
Redeemed Reinvested Sold (Redeemed)*
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1993 $ 5,758 46% $ 6,689 54% $ 6,438 $ 680
1992 5,917 48 6,422 52 7,249 1,332
1991 6,397 48 6,796 52 6,084 (313)
<FN>
*Represents the difference between new debentures sold and debentures redeemed.
</TABLE>
The Company is highly dependent on the continued sales of debentures
under its debenture program. In the event that redemptions substantially exceed
reinvested and newly sold debentures or the program is interrupted for an
extended period, the Company would be required to fund maturities through its
existing cash on hand, bank borrowings and asset sales. The Company believes
that the balance of outstanding debentures will remain relatively unchanged
during 1994. However, there can be no assurance that future reinvested and
newly sold debentures will equal or exceed redemptions. Approximately $12.1
million of debentures are scheduled to mature during 1994.
Long-term debt repayments for the year ended December 31, 1993,
include approximately $5.8 million of scheduled maturities of subordinated
debentures and $700,000 of other debt repayments of Americable and C.E.
Services. Proceeds from long-term debt for the year ended December 31, 1993,
include $4.4 million of new debentures sold along with $2 million of compounded
interest on debentures.
In May 1991, Americable established a $2 million revolving line of
credit and a $3 million term loan with North Star's principal bank. This
facility was used to finance its working capital requirements and reduce North
Star's investment. In June 1993, Americable amended its revolving line of
credit and term loan facility to provide borrowings up to $5.5 million due in
May 1996. Borrowings under the revolving credit facility are based on eligible
accounts receivable and inventory with interest at prime plus 1.5% (7.5% at
December 31, 1993). At December 31, 1993, $1,893,000 was outstanding under the
term loan which bears interest at 10.665%. The term loan is payable in monthly
principal installments of $36,000 with a final installment of $893,000 due in
May 1996. In addition, at December 31, 1993, there was $1.4 million outstanding
under the revolving line of credit.
C.E. Services maintains revolving credit facilities which provide for
borrowings up to $3.5 million with interest at 1/2% and 1% over its bank's
reference rate (6.5% and 7% at December 31, 1993). During 1993, C.E. Services
used bank borrowings of approximately $4.7 million to finance its working
capital requirements, principally the purchase of inventory related to its
remarketing of mainframe systems. At December 31, 1993, there were no
borrowings outstanding under these facilities.
<PAGE>
North Star maintains a $6.5 million revolving credit facility with
its principal bank that bears interest at the bank's reference rate (6% at
December 31, 1993). At December 31, 1993 and February 28, 1994, the Company had
no borrowings outstanding under this facility. In addition, at December 31,
1993, North Star had approximately $6 million of cash and cash equivalents,
excluding cash of its operating subsidiaries.
During 1994, the Company does not anticipate any significant
acquisitions and its operating plans call for approximately $1 million in
capital expenditures. The Company believes that its available cash and cash
equivalents along with its debenture program and amounts available under its
revolving credit facility and the credit facilities of its operating companies,
will be adequate to meet expected cash requirements.
<PAGE>
Consolidated Statements of Operations
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands, except per share amounts) 1993 1992 1991
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES $ 107,485 $ 86,363 $ 71,575
OPERATING AND PRODUCT COSTS 81,659 64,798 52,332
-------------------------------
Gross profit 25,826 21,565 19,243
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 23,222 22,150 20,599
RESTRUCTURING CHARGES 1,953 -- --
-------------------------------
Operating income (loss) 651 (585) (1,356)
OTHER INCOME (EXPENSE)
Interest expense (4,472) (4,738) (4,946)
Interest income 206 501 504
-------------------------------
(4,266) (4,237) (4,442)
Investment income -- -- 8,564
-------------------------------
Income (loss) from continuing operations
before income taxes and equity in
earnings (loss) of unconsolidated subsidiaries (3,615) (4,822) 2,766
INCOME TAX PROVISION (BENEFIT) (710) (1,130) 810
-------------------------------
Income (loss) from continuing operations
before equity in earnings (loss) of
unconsolidated subsidiaries (2,905) (3,692) 1,956
EQUITY IN EARNINGS (LOSS) OF
UNCONSOLIDATED SUBSIDIARIES (8,967) 2,055 8,943
-------------------------------
Income (loss) from continuing operations (11,872) (1,637) 10,899
DISCONTINUED OPERATIONS
Loss from operations -- -- (598)
-------------------------------
NET INCOME (LOSS) $ (11,872) $ (1,637) $ 10,301
-------------------------------
-------------------------------
INCOME (LOSS) PER SHARE
Continuing operations $ (1.26) $ (.17) $ 1.07
Discontinued operations -- -- (.06)
-------------------------------
NET INCOME (LOSS) $ (1.26) $ (.17) $ 1.01
-------------------------------
-------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Consolidated Balance Sheets
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(Dollars In thousands) 1993 1992
- ----------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
<S> <C> <C>
Cash and cash equivalents $ 6,981 $ 9,380
Accounts receivable, net of allowances 7,617 8,267
Inventories 10,800 8,448
Prepaid expenses and other 452 482
Net assets of businesses held for sale 857 907
---------------------------
Total current assets 26,707 27,484
PROPERTY AND EQUIPMENT, NET 3,429 2,807
OTHER ASSETS
Goodwill 7,275 8,222
Investment in unconsolidated subsidiaries 69,108 74,813
Other 2,088 2,547
---------------------------
$108,607 $115,873
---------------------------
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to bank $ -- $ 1,300
Current maturities of long-term debt 12,799 12,871
Accounts payable 5,315 5,868
Accrued expenses
Payroll related 1,186 754
Other 3,692 3,158
Income taxes payable 280 256
---------------------------
Total current liabilities 23,272 24,207
LONG-TERM DEBT, LESS CURRENT MATURITIES 30,395 28,978
DEFERRED INCOME TAXES 20,265 1,605
COMMITMENTS -- --
SHAREHOLDERS' EQUITY
Common stock, authorized 100,000,000 shares of
$.25 par value; issued and outstanding
9,438,000 shares in 1993 and 1992 2,360 2,360
Additional paid-in capital 30,937 45,593
Foreign currency translation adjustment (245) (365)
Retained earnings 1,623 13,495
---------------------------
Total shareholders' equity 34,675 61,083
---------------------------
$108,607 $115,873
---------------------------
---------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
<PAGE>
Consolidated Statements of Shareholders' Equity
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Preferred Stock Common Stock Foreign
------------------ ------------------- Additional Currency
Years ended December 31, 1993, 1992 and 1991 Shares Shares Paid-In Translation Retained
(Dollars in thousands) Issued Amount Issued Amount Capital Adjustment Earnings
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1990 28,829 $ 2,883 9,219,100 $ 2,305 $ 28,636 $ 206 $ 5,193
Exercise of stock options to
acquire common stock -- -- 218,900 55 1,460 -- --
Initial public offering of CorVel -- -- -- -- 3,948 -- --
Effect of equity transactions
of Michael Foods -- -- -- -- 11,484 -- --
Translation adjustment -- -- -- -- -- 20 --
Redemption of preferred stock (28,829) (2,883) -- -- -- -- --
Cash dividends paid on preferred
stock--$14.00 per share -- -- -- -- -- -- (362)
Net income -- -- -- -- -- -- 10,301
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1991 -- -- 9,438,000 2,360 45,528 226 15,132
Effect of equity transactions of
unconsolidated subsidiaries -- -- -- -- 65 -- --
Translation adjustment -- -- -- -- -- (591) --
Net loss -- -- -- -- -- -- (1,637)
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1992 -- -- 9,438,000 2,360 45,593 (365) 13,495
Effect of equity transactions of
unconsolidated subsidiaries -- -- -- -- 344 -- --
Deferred income tax adjustment -- -- -- -- (15,000) -- --
Translation adjustment -- -- -- -- -- (198) --
Effect of restructuring charges -- -- -- -- -- 318 --
Net loss -- -- -- -- -- -- (11,872)
------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993 -- $ -- 9,438,000 $ 2,360 $ 30,937 $ (245) $ 1,623
------------------------------------------------------------------------------------
------------------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
Consolidated Statements of Cash Flows
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1993 1992 1991
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $(11,872) $(1,637) $10,301
Adjustments to reconcile net income (loss) to net
cash used in operating activities:
Equity in (earnings) loss of unconsolidated subsidiaries 8,967 (2,055) (8,943)
Investment income -- -- (8,564)
Non-cash restructuring charges 1,596 -- --
Discontinued operations -- -- 273
Depreciation and amortization 1,646 1,811 1,559
Deferred income taxes (730) (1,150) (500)
Foreign currency translation adjustment (198) (591) 20
Changes in operating assets and liabilities,
net of effects of restructuring charges
Accounts receivable 482 295 1,049
Inventories (2,863) (1,245) 72
Accounts payable, accruals and other 148 711 (1,131)
--------------------------------------
NET CASH used in operating activities (2,824) (3,861) (5,864)
--------------------------------------
CASH FLOWS FOR INVESTING ACTIVITIES
Capital expenditures (1,920) (617) (1,496)
Proceeds from divestitures -- -- 1,655
Proceeds from sale of Michael Foods stock -- -- 16,318
Change in control of subsidiaries to
equity method of accounting -- -- (4,307)
Other 829 186 350
--------------------------------------
NET CASH provided by (used in) financing activities (1,091) (431) 12,520
--------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt 29,704 7,249 10,984
Payments on long-term debt (29,659) (6,851) (9,923)
Proceeds from notes payable 4,750 5,745 1,820
Payments on notes payable (4,750) (4,445) (12,820)
Proceeds from CorVel initial public offering -- -- 9,900
Proceeds from exercise of stock options -- -- 1,515
Redemption of preferred stock -- -- (2,883)
Preferred stock investment in CorVel -- -- (1,364)
Cash dividends paid on preferred stock -- -- (362)
Cash dividends received from Michael Foods 1,471 1,471 1,471
Other -- -- (76)
--------------------------------------
NET CASH provided by (used in) financing activities 1,516 3,169 (1,738)
--------------------------------------
NET INCREASE (DECREASE) in cash and cash equivalents (2,399) (1,123) 4,918
--------------------------------------
CASH AND CASH EQUIVALENTS at beginning of year 9,380 10,503 5,585
--------------------------------------
CASH AND CASH EQUIVALENTS at end of year $ 6,981 $ 9,380 $10,503
--------------------------------------
--------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS
North Star Universal, Inc. ("North Star" or "the Company") is a holding company.
The Company's continuing operations consist of Americable, Inc., Transition
Engineering, Inc. and C.E. Services, Inc. (including its United Kingdom
subsidiary, C.E. Services (Europe) Limited). Americable is a provider of voice
and data communications networking products, systems and services. Transition
Engineering designs and manufactures connectivity devices used in local area
network ("LAN") applications. C.E. Services remarkets, reconfigures,
refurbishes and warehouses mainframe computers and peripherals and provides
related technical and maintenance services.
The Company maintains a minority ownership position in Michael Foods, Inc.
("Michael Foods"). In March 1987, the Company founded Michael Foods to
consolidate and focus development of the Company's food businesses. Michael
Foods is engaged principally in the food processing and distribution business.
At the time Michael Foods was organized, the Company was issued 9,000,000 shares
(after giving retroactive effect to a 3-for-2 stock split in May 1991) of
Michael Foods common stock. In September 1990 and January 1991, the Company
sold 472,500 and 1,172,550 shares of its Michael Foods stock, respectively. As
a result of these transactions and other equity transactions of Michael Foods,
the Company's ownership interest in Michael Foods was approximately 38% at
December 31, 1993. The Company's investment in Michael Foods is accounted for
as an unconsolidated subsidiary using the equity method of accounting.
The Company also owns a 40% minority ownership in CorVel Corporation ("CorVel",
formerly FORTIS Corporation) as of December 31, 1993. In January 1988, the
Company founded CorVel to integrate and develop the operations of a number of
health care service companies previously acquired by North Star. In June 1991,
CorVel completed an initial public offering of 1,600,000 shares of its common
stock. Net proceeds from the offering were approximately $14.4 million of which
$9.9 million was received by North Star. The Company's investment in CorVel is
accounted for as an unconsolidated subsidiary using the equity method of
accounting.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION The Company consolidates the accounts of its
majority-owned subsidiaries. All significant intercompany transactions have been
eliminated. Certain of the 1992 and 1991 amounts have been reclassified to
conform with the financial statement presentation used in 1993.
CASH AND CASH EQUIVALENTS The Company considers its highly liquid temporary
investments with original maturities of three months or less to be cash
equivalents.
INVENTORIES Inventories are stated at the lower of average cost (determined on
a first-in, first-out basis) or market. At December 31, inventories consist of
the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
- -------------------------------------------------------------------------
<S> <C> <C>
Work in process and finished goods $ 8,741 $ 6,513
Purchased parts 2,059 1,935
-----------------------
$ 10,800 $ 8,448
-----------------------
-----------------------
</TABLE>
<PAGE>
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
PROPERTY AND EQUIPMENT Property and equipment are stated at cost. Depreciation
and amortization for financial reporting purposes are provided on the straight-
line method over the estimated useful lives of the respective assets. Major
repairs and improvements are capitalized and depreciated. Maintenance and
repairs are charged to expense as incurred.
At December 31, property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C>
Buildings and improvements $ 1,025 $ 703
Machinery and equipment 6,330 5,242
-------------------------
7,355 5,945
Less-accumulated depreciation and amortization 3,926 3,138
-------------------------
$ 3,429 $ 2,807
-------------------------
-------------------------
</TABLE>
GOODWILL The excess of cost over net assets of purchased businesses is being
amortized on a straight-line basis over periods not exceeding 40 years.
Accumulated amortization was $2,506,000 at December 31, 1993 and $2,033,000 at
December 31, 1992. The Company maintains separate financial records for each of
its acquired entities and evaluates its goodwill annually to determine potential
impairment by comparing the carrying value to the undiscounted future cash flows
of the related assets. The Company modifies the life or adjusts the value of a
subsidiary's goodwill if an impairment is identified. See Note 3 for an
impairment identified during 1993.
INCOME TAXES The consolidated financial statements reflect the implementation
of Statement of Financial Accounting Standards No. 109--Accounting for Income
Taxes ("SFAS 109"), as of January 1, 1993. See Note 9.
EARNINGS PER SHARE Earnings per share are based upon the weighted average
number of shares outstanding during each period (9,438,000 in 1993, 9,438,000 in
1992, and 9,888,000 in 1991) after giving effect to the assumed exercise of
outstanding stock options, except where the effects are antidilutive. Earnings
in 1991 have been adjusted for preferred dividends of $362,000 to arrive at
earnings attributable to common shareholders.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company increased its
investment in unconsolidated subsidiaries by $396,000, $467,000 and $18,285,000
and additional paid-in capital by $344,000, $65,000 and $15,432,000 during 1993,
1992 and 1991, respectively, as a result of equity transactions of Michael Foods
and CorVel. During 1991, the Company decreased its net property by $2,386,000
and long-term debt by $2,520,000 through the sale of land and a building with
the buyer assuming the related debt obligation of the property.
Additional disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $ 4,506 $ 4,806 $ 4,937
Income taxes -- (574) (248)
</TABLE>
NOTE 3 - RESTRUCTURING CHARGES
In December 1993, Americable implemented a restructuring plan involving the
closure of its Canadian facilities, operated by Adanac Cable, Ltd., and
consolidation of its Canadian sales and customer support activities within its
U.S. operations. In connection with this consolidation, Americable recorded a
restructuring charge of approximately $1.9 million. This charge includes
approximately $600,000 for the write-off of goodwill and other non-current
assets, $700,000 for the reassessment of the carrying value of inventory and
receivables, and $600,000 for lease and severance obligations and other related
expenses. See Note 15.
NOTE 4 - INVESTMENT IN UNCONSOLIDATED SUBSIDIARIES
The Company's unconsolidated subsidiaries consist of its investments in Michael
Foods and CorVel. The following is summarized balance sheet information of the
Company's unconsolidated subsidiaries as of December 31, 1993. The summarized
income statement information for Michael Foods is for the year ended
December 31, 1993. CorVel has a fiscal year end of March 31. The
<PAGE>
summarized income statement information for CorVel is for the twelve month
period ended December 31, 1993 (in thousands):
<TABLE>
<CAPTION>
Michael Foods CorVel
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 83,727 $ 21,096
Noncurrent assets 245,360 9,655
Current liabilities 61,460 5,365
Noncurrent liabilities 112,624 --
Revenues 474,783 76,432
Gross profit 59,818 12,096
Net income (loss) (16,320) 3,882
</TABLE>
At December 31, 1993, CorVel had stock options outstanding to purchase
approximately 968,000 shares of its common stock at various exercise prices.
Assuming the exercise of all these options, the Company's ownership would be
reduced to approximately 32%. If the exercise of these options had occurred at
December 31, 1993, it would have decreased the Company's investment in
unconsolidated subsidiaries, deferred income taxes and additional paid-in
capital by approximately $1,985,000, $794,000 and $1,191,000, respectively.
At December 31, 1993, consolidated retained earnings includes
approximately $7.5 million of unremitted earnings related to the Company's
investment in unconsolidated subsidiaries.
NOTE 5 - DISCONTINUED OPERATIONS
In December 1992, the Company completed the sale of Universal Press & Label. In
March 1991, the Company completed the sale of Whirltronics and announced its
intention to sell its remaining non-computer related manufacturing company,
Eagle Engineering and Manufacturing, Inc. ("Eagle Engineering"). Revenues and
operating income of discontinued operations, including Eagle Engineering, were
$4.4 million and $92,000 in 1993, $6.2 million and $129,000 in 1992 and $6.5
million and $13,000 in 1991, respectively.
NOTE 6 - NOTES PAYABLE
The Company has a revolving credit agreement with its principal bank which
provides for borrowings up to $6.5 million due in January 1995. Borrowings
under the revolving line of credit bear interest at the bank's reference rate
(6.0% at December 31, 1993), and are collateralized by the Company's shares of
Michael Foods common stock. The credit agreement also includes certain
restrictive covenants including limitations on senior indebtedness and business
acquisitions and prohibits cash dividends to common shareholders. The Company
had no borrowings under its it line of credit during the year ended December 31,
1993.
C.E. Services maintains revolving credit facilities with its principal bank
which provide for borrowings up to $3.5 million due May 1994, based on available
eligible accounts receivable and inventory. Borrowings under these revolving
credit facilities bear interest at 1/2% and 1% over the bank's reference rate
(6.5% and 7% at December 31, 1993) and are used to finance the working capital
requirements of C.E. Services. At December 31, 1993, there were no borrowings
outstanding under these facilities.
NOTE 7 - LONG-TERM DEBT
At December 31, long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------
<S> <C> <C>
Subordinated debentures $ 39,579 $ 38,899
Revolving line of credit 1,408 --
Term note payable 1,893 2,321
Notes payable for business acquisitions 173 368
Other 141 261
------------------------
43,194 41,849
Less current maturities 12,799 12,871
------------------------
$ 30,395 $ 28,978
------------------------
------------------------
</TABLE>
Aggregate minimum annual principal payments of long-term debt at December 31,
1993, are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending December 31,
- --------------------------------------------------
<S> <C>
1994 $ 12,799
1995 11,278
1996 6,618
1997 3,672
1998 4,465
1999 and thereafter 4,362
---------
$43,194
---------
---------
</TABLE>
<PAGE>
Subordinated debentures are unsecured and due in varying monthly installments
through 2002. Weighted average interest of 10.4% and 10.8% at December 31, 1993
and 1992, respectively, is payable monthly, quarterly or at maturity.
In May 1991, Americable established a $2 million revolving line of credit
and a $3 million term loan with North Star's principal bank. This facility was
used to finance its working capital requirements and reduce North Star's
investment. In June 1993, Americable amended its revolving line of credit and
term loan facility to provide borrowings up to $5.5 million due in May 1996.
Borrowings under the revolving credit facility are based on eligible accounts
receivable and inventory with interest at prime plus 1.5% (7.5% at December 31,
1993). The term loan bears interest at 10.665% and is payable in monthly
principal installments of $36,000 with a final installment of $893,000 due in
May 1996. The credit agreement includes certain restrictive covenants including
minimum net worth requirements, limitations on additional indebtedness and
minimum interest coverage.
Notes payable for business acquisitions are due in varying monthly and
annual installments through January 1994 with interest ranging from 8% to 10%.
NOTE 8 - PREFERRED STOCK
In August 1991, the Company completed the redemption for cash of all of its
outstanding preferred stock at a redemption price of $100 per share plus accrued
but unpaid dividends through the date of redemption.
NOTE 9 - INCOME TAXES
The Company and its consolidated subsidiaries file a consolidated federal income
tax return and separate state income tax returns, where legally required.
Effective June 28, 1991, CorVel has filed its own consolidated federal and state
income tax returns. The provision (benefit) for consolidated income taxes
pertaining to continuing operations, consists of the following (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ 880
State 20 20 430
--------------------------------
20 20 1,310
Deferred
Federal (625) (912) (550)
State (105) (238) 50
--------------------------------
(730) (1,150) (500)
--------------------------------
$(710) $(1,130) $ 810
--------------------------------
--------------------------------
</TABLE>
The following is a reconciliation of income taxes at the federal statutory rate
to the effective rate:
<TABLE>
<CAPTION>
Years ended December 31, 1993 1992 1991
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% 34.0%
State income taxes,
net of federal tax benefit (1.6) (3.0) 11.5
Gain on sale of Michael Foods stock -- -- 96.1
Effect of net operating loss carryforwards -- -- (106.8)
Losses producing no current benefit 17.1 10.9 --
Reinstatement of deferred taxes -- -- 5.6
Prior year overaccruals (3.5) -- (23.2)
Goodwill amortization 2.0 1.5 3.4
Dividends from unconsolidated subsidiaries -- 2.1 3.6
Other .4 (.9) 5.1
-----------------------------------
(19.6)% (23.4)% 29.3%
-----------------------------------
-----------------------------------
</TABLE>
Effective January 1, 1993, the Company was required under SFAS 109 to
record deferred income taxes related to the current years' unremitted earnings
or loss from Michael Foods. Deferred income taxes are not required to be
recorded for unremitted earnings and equity transactions which arose prior to
1993 and are expected to be realized in a tax-free manner. In the fourth
quarter of 1993, the Company determined that all future dispositions of Michael
Foods holdings may not be completed in a tax-free manner. Accordingly, the
Company recorded a deferred tax liability of approximately $18.7 million related
to the accounting for temporary differences between financial and tax reporting
of its investment in Michael Foods. The portion of this liability related to the
Company's share of Michael Foods public offering proceeds and other equity
transactions of $15 million, was charged to additional paid-in capital and the
portion related to Michael Foods unremitted earnings of $3.7 million, was
charged to equity in earnings (loss) of unconsolidated subsidiaries. The $3.7
million net deferred tax provision includes a $2.8 million deferred tax benefit
related to the current year loss and $6.5 million of deferred tax expense
related to prior year earnings.
<PAGE>
In addition, at December 31, 1993, the deferred tax liability includes the
initial tax effect of $2.7 million for the difference in the financial reporting
and tax basis of the Company's investment in CorVel following its initial public
offering along with income taxes recorded on the equity in earnings of CorVel of
$690,000 in 1993, $402,000 in 1992 and $153,000 in 1991, respectively.
The tax effects of the cumulative temporary differences resulting in the
net deferred tax liability at December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992
- ------------------------------------------------------------------
<S> <C> <C>
Investment in Michael Foods $(18,700) $ --
Investment in CorVel (3,945) (3,255)
Depreciation (99) (379)
Accrued expenses not
deductible until paid 1,826 1,440
Other (346) (751)
Net operating loss carryforwards 1,664 1,320
State taxes 125 20
-----------------------
(19,475) (1,605)
Valuation allowance (790) --
-----------------------
$(20,265) $(1,605)
-----------------------
-----------------------
</TABLE>
At December 31, 1993, the valuation allowance represents a reserve for
foreign net operating loss carryforwards which are not expected to be realized
in the future. In addition, at December 31, 1993, the Company had federal net
operating loss carryforwards for income tax purposes of approximately $2.5
million. This amount has been recognized for financial reporting purposes.
NOTE 10 - STOCK OPTION PLANS
In 1986, the Company established an incentive stock option plan and a non-
qualified stock option plan for various executive officers (none of whom are
presently officers of the Company). The Company also maintains a non-qualified
stock option plan for other officers, directors and key employees.
Activity under the stock option plans for the years ended December 31, is
as follows:
<TABLE>
<CAPTION>
1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 656,600 615,400 769,000
Granted:
$4.63/share -- 48,700 --
$10.12 to $10.25/share -- -- 67,500
Exercised:
$.94/share -- -- (205,000)
$8.75/share -- -- (13,900)
Cancelled:
$8.75/share -- -- (2,200)
$10.25/share -- (7,500) --
-----------------------------------
Outstanding, end of year 656,600 656,600 615,400
-----------------------------------
-----------------------------------
Exercisable, end of year:
Number of shares 634,140 631,900 497,400
Exercise price per share $.94 $.94 $.94
to $10.12 to $10.12 to $8.75
</TABLE>
<PAGE>
NOTE 11 - COMMITMENTS
The Company leases certain equipment and facilities under operating leases.
Minimum rental payments under such leases which expire at various dates through
2008 are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending December 31,
- ---------------------------------------------------
<S> <C>
1994 $ 2,465
1995 2,253
1996 1,896
1997 1,827
1998 1,828
1999 and thereafter 7,925
---------
$ 18,194
---------
---------
</TABLE>
Certain of the leases provide for payment of taxes and other expenses by
the Company. Total rent expense on all leases including month-to-month leases
was $2,517,000 in 1993, $2,542,000 in 1992, and $2,229,000 in 1991.
NOTE 12 - EMPLOYEE RETIREMENT PLAN
The Company maintains an incentive savings plan for its employees and employees
of its wholly owned subsidiaries. Full-time employees that meet certain
requirements are eligible to participate in the plan. Contributions are made
annually primarily at the discretion of the Company's Board of Directors.
Contributions of $267,000, $239,000, and $190,000, were charged to operations
in the years ended December 31, 1993, 1992 and 1991, respectively.
NOTE 13 - RELATED PARTY TRANSACTION
The Company has an unsecured note receivable from its majority shareholder and
former chairman of the board of $457,872 at December 31, 1993. The note bears
interest at the Company's principal bank's reference rate plus 1% (7% at
December 31, 1993). A principal payment of $50,000 was made in December 1993.
NOTE 14 - FOURTH QUARTER RESULTS
In the fourth quarter of 1993, the Company recorded losses of approximately $7.7
million along with a net deferred tax provision of approximately $3.1 million
related to its investment in Michael Foods and $1.9 million of restructuring
charges in connection with the consolidation of Americable's Canadian
operations. In the fourth quarter of 1992, the Company recorded non-recurring
charges of $490,000 related to inventory write-offs and an income tax benefit
adjustment of $570,000 to adjust to the Company's annual effective tax rate. The
net effect of these adjustments in the fourth quarter was to increase the net
loss in 1993 by $12.8 million, or $1.36 per share, and increase net income in
1992 by $80,000, or $.01 per share.
NOTE 15 - BUSINESS SEGMENT INFORMATION
The Company's foreign operations consist of C.E. Services' United Kingdom
subsidiary, C.E. Services (Europe) Limited and Americable's Canadian subsidiary,
Adanac Cable, Ltd. As discussed in Note 3, Americable has consolidated its
Canadian sales and customer support activities within its U.S. operations.
Summary financial information by geographic area is as follows:
<TABLE>
<CAPTION>
Years ended December 31, (in thousands) 1993 1992 1991
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $ 89,662 $ 72,334 $ 56,361
Canada 4,616 5,957 6,428
United Kingdom 13,207 8,072 8,786
Operating income (loss)
United States 677 (80) (947)
Canada (195) (219) 174
United Kingdom 169 (286) (583)
Identifiable assets
United States 106,612 111,937 112,093
Canada 137 2,409 2,698
United Kingdom 1,858 1,527 1,564
</TABLE>
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Shareholders of North Star Universal, Inc.
We have audited the accompanying consolidated balance sheets of North Star
Universal, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of North Star
Universal, Inc. and Subsidiaries as of December 31, 1993 and 1992, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1993, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company changed its method of accounting for income taxes.
Minneapolis, Minnesota /s/ Grant Thornton
February 24, 1994
<TABLE>
<CAPTION>
SELECTED CONSOLIDATED FINANCIAL DATA
Year ended December 31,
(In thousands, except per share amounts and ratios) 1993 1992 1991 1990 1989
- -----------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF OPERATIONS DATA(1),(2)
<S> <C> <C> <C> <C> <C>
Revenues $ 107,485 $ 86,363 $ 71,575 $ 553,022 $ 315,074
Operating income (loss) 651 (585) (1,356) 41,038 9,912
Interest expense, net (4,266) (4,237) (4,442) (16,022) (6,223)
Income (loss) from continuing operations before
income taxes, minority interest, and equity in
earnings (loss) of unconsolidated subsidiaries (3,615) (4,822) 2,766 27,109 3,689
Income (loss) from continuing operations (11,872) (1,637) 10,899 5,643 94
Income (loss) from discontinued operations -- -- (598) (1,832) (2,448)
-----------------------------------------------------------------
Net income (loss) $ (11,872) $ (1,637) $ 10,301 $ 3,811 $ (2,354)
-----------------------------------------------------------------
-----------------------------------------------------------------
Income (loss) per common and
common equivalent share:
Income (loss) from continuing operations $ (1.26) $ (.17) $ 1.07 $ .54 $ (.03)
Discontinued operations -- -- (.06) (.19) (.25)
-----------------------------------------------------------------
Net income (loss) $ (1.26) $ (.17) $ 1.01 $ .35 $ (.28)
-----------------------------------------------------------------
-----------------------------------------------------------------
Ratio of earnings to fixed charges .28x .02x 1.53x 2.46x 1.50x
BALANCE SHEET DATA,
Total assets $ 108,607 $ 115,873 $ 116,355 $ 354,473 $ 247,364
Long-term debt, including current maturities 43,194 41,849 41,451 149,353 125,399
Shareholders' equity 34,675 61,083 63,246 39,223 35,555
-----------------------------------------------------------------
-----------------------------------------------------------------
<FN>
(1) Amounts in 1991, 1990 and 1989 have been reclassified to give effect to
discontinued operations in those years.
(2) 1990 and 1989 include the consolidated results and balances of Michael
Foods and CorVel. Beginning in 1991, these investments were accounted for under
the equity method of accounting as discussed in Note 1 to the Consolidated
Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SELECTED QUARTERLY FINANCIAL DATA
(Unaudited, in thousands,
except per share amounts) First Second Third Fourth(1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1993
Revenues $ 26,354 $ 29,774 $ 24,047 $ 27,310
Operating income (loss) (156) 774 662 (629)
Interest expense, net (1,032) (1,084) (1,096) (1,054)
Net income (loss) $ (497) $ 573 $ 288 $ (12,236)
---------------------------------------------------
---------------------------------------------------
Income (loss) per share $ (.05) $ .06 $ .03 $ (1.30)
---------------------------------------------------
---------------------------------------------------
1992
Revenues $ 19,001 $ 20,319 $ 22,516 $ 24,527
Operating income (loss) (173) (222) 111 (301)
Interest expense, net (1,110) (1,083) (1,088) (956)
Net income (loss) $ (719) $ (990) $ (135) $ 207
---------------------------------------------------
---------------------------------------------------
Income (loss) per share $ (.07) $ (.10) $ (.01) $ .02
---------------------------------------------------
---------------------------------------------------
<FN>
(1)See Notes 3 and 14 to the Consolidated Financial Statements.
</TABLE>
STOCK INFORMATION
North Star Universal, Inc.'s common stock is traded on the Pacific Stock
Exchange under the symbol NSU and on the National Market System of NASDAQ under
the symbol NSRU since June 19, 1987. The following stock prices were obtained
from NASDAQ reports:
<TABLE>
<CAPTION>
(By Quarter)
1993 Low High
- ---------------------------------------------------------------------------
<S> <C> <C>
First 4 1/2 7 1/8
Second 3 7/8 5 1/2
Third 4 3/4 6 1/2
Fourth 4 1/2 6 7/8
1992 Low High
- ---------------------------------------------------------------------------
First 9 7/8 13 3/4
Second 5 1/8 11 1/8
Third 4 1/4 6 3/8
Fourth 4 3/8 7 5/8
</TABLE>
The number of common shareholders of record as of December 31, 1993, was 263. In
addition, the Company estimates that an additional 1,000 shareholders own stock
held for their accounts at brokerage firms and financial institutions. There
were no cash dividends paid in 1993 or 1992 on North Star's common stock.
Management does not anticipate that cash dividends will be paid in the
foreseeable future.
<PAGE>
CORPORATE INFORMATION
CORPORATE ADDRESS
North Star Universal, Inc./610 Park National Bank Building/5353 Wayzata
Boulevard/Minneapolis, Minnesota 55416/(612) 546-7500
BOARD OF DIRECTORS
MILES E. EFRON/Chairman of the Board of the Company
PETER E. FLYNN/Executive Vice President, Chief Financial Officer and Secretary
of the Company
JAMES H. MICHAEL/Retired Chairman of the Board of the Company
JEFFREY J. MICHAEL/President and Chief Executive Officer of the Company
DAVID Z. JOHNSON/Retired Chairman of the Board of Johnson Printing Company
FRED E. STOUT/Retired Chief Executive Officer Superior Water Light & Power
Company
CORPORATE OFFICERS
JEFFREY J. MICHAEL/President and Chief Executive Officer
PETER E. FLYNN/Executive Vice President, Chief Financial Officer and Secretary
SHAREHOLDER INFORMATION
TRANSFER AGENT AND REGISTRAR/Norwest Bank Minneapolis, N.A./161 North Concord
Exchange/P.O. Box 738/South St. Paul, Minnesota 55075
INVESTOR INQUIRIES/Attention:Investor Relations/North Star Universal, Inc./610
Park National Bank Building/5353 Wayzata Boulevard/Minneapolis, Minnesota
55416/(612) 546-7500
FORM 10-K/North Star's Form 10-K report is filed with the Securities and
Exchange Commission and is available to shareholders without charge by writing
to the Company.
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 24, 1994 accompanying the
consolidated financial statements and schedules of North Star Universal, Inc.
and Subsidiaries incorporated by reference in the Registration Statement on Form
S-2. We consent to the use of the aforementioned reports in the Registration
Statement and to the use of our name as it appears under the caption "Experts".
We have issued our reports dated February 16, 1994 accompanying the
consolidated financial statements and schedules of Michael Foods, Inc. and
Subsidiaries included in the Annual Report on Form 10-K of North Star Universal,
Inc. for the year ended December 31, 1993 incorporated by reference in the
Registration Statement on Form S-2. We consent to the use of the aforementioned
reports in the Registration Statement.
/s/ GRANT THORNTON
Minneapolis, Minnesota
February 24, 1994
