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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994
or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-15638
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 No.)
610 Park National Bank Building
5353 Wayzata Boulevard
Minneapolis, Minnesota 55416
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 546-7500
_____________________________
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
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COMMON STOCK, $.25 PAR VALUE PACIFIC STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding twelve months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ( X ) No ( )
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The aggregate market value of the common stock held by non-affiliates of
the registrant at March 15, 1995 was $19,837,243 based on the last sale price
for the common stock as reported by the National Association of Securities
Dealers Automated Quotation System on that date.
At March 15, 1995, 9,438,00 shares of the registrant's common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Pursuant to General Instruction G(2),
the responses to Items 5, 6, 7 and 8 of Part II of this report are incorporated
herein by reference from the Company's Annual Report to Shareholders for the
year ended December 31, 1994.
Pursuant to General Instruction G(3), the responses to Items 10, 11, 12 and
13 of Part III of this report are incorporated herein by reference from the
Company's definitive proxy statement for its 1995 Annual Meeting of Shareholders
to be filed with the Securities and Exchange Commission on or before April 30,
1995.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ( X )
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PART I
ITEM 1. BUSINESS.
INTRODUCTION
North Star Universal, Inc. ("North Star" or the "Company"), was founded in
1928. The Company's direct and indirect operating companies consist of
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 connectivity and networking products and services. Transition Engineering is
a manufacturer of connectivity devices and equipment used in local area network
("LAN") applications. C.E. Services is a third-party provider of systems, parts
and services for mainframe computers and peripherals.
Additionally, at December 31, 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 December 31, 1994, the
Company's ownership in CorVel was approximately 37%.
The Company directly employs six management and administrative employees.
UNCONSOLIDATED SUBSIDIARIES
MICHAEL FOODS. Since its initial public offering in June 1987, Michael
Foods has been operated as an independent company. As a less-than-majority-
owned subsidiary of North Star, Michael Foods' operations are not consolidated
and North Star's investment in Michael Foods is accounted for under the equity
method of accounting. The following summary of Michael Foods' business has been
prepared from information reported by Michael Foods. Additional information
regarding Michael Foods is available from the reports and other documents
prepared and filed by Michael Foods with the Securities and Exchange Commission.
Michael Foods is a diversified producer and distributor of food products
operating in four basic areas--eggs and egg products, distribution of
refrigerated grocery products, refrigerated and frozen potato products and dairy
products. 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 distributes 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
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division processes and distributes refrigerated and frozen potato products for
foodservice and retail markets throughout the United States. The dairy products
division processes and distributes soft serve mix, ice cream mix, frozen yogurt
mix and extended shelf-life, ultrapasteurized milk and specialty dairy products
to fast food businesses and other foodservice outlets, independent retailers,
ice cream manufacturers and others.
Three North Star directors, James H. Michael, Jeffrey J. Michael and Miles
E. Efron, are members of the Board of Directors of Michael Foods, which
presently consists of nine members.
CORVEL. Since its initial public offering in June 1991, CorVel has been
operated as an independent company. As a less-than-majority-owned subsidiary of
North Star, CorVel's operations are not consolidated and North Star's investment
in CorVel is accounted for under the equity method of accounting. The following
summary of CorVel's business has been prepared from information reported by
CorVel. Additional information regarding CorVel is available from the reports
and other documents prepared and filed by CorVel with the Securities and
Exchange Commission.
CorVel is an independent nationwide provider of medical cost containment
and managed care services designed to address escalating medical costs.
CorVel's services include preferred provider organizations, 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 employers to
assist them in managing the medical costs and monitoring the quality of care
associated with medical claims.
OPERATING SUBSIDIARIES
GENERAL.
AMERICABLE. Americable provides products and services in the field of
voice and data communication networking. Americable seeks to be a single-source
provider for all of its customers' networking needs. As a value-added reseller
("VAR") 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 these products are manufactured to standard specifications for sale by
Americable as part of its product inventory, most are custom designed and
manufactured by Americable 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.
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Americable's distribution business maintains a wide variety of high-quality
products in its inventory (over 5,000), many of which are hard-to-find or
specialty products. Americable's product inventory ranges from connectivity
products such as bulk cable, connectors, patch panels, racks and other cable
accessories to more complex active networking devices such as concentrators,
hubs, bridges and routers. As a broad line distributor, Americable generally
inventories products from multiple manufacturers. These manufacturers include
Bay Networks, Chipcom, Transition Engineering, Belden, Berktek and Amp
Incorporated. In addition, in an effort to reduce its inventory levels,
Americable purchases a number of networking products through large distributors
such as Tech Data and Ingram Micro.
Americable also maintains an integrated, real-time, on-line computerized
system for order entry and fulfillment and inventory control. This on-line
computer system allows Americable's sales personnel to advise customers over the
phone of product specifications, availability and order status. All orders are
normally shipped within 24 hours of receipt and, when necessary, can be shipped
on a "same-day" basis.
In its distribution business, Americable seeks to add value for its
customers by providing superior customer service. All of Americable's sales
representatives and other sales and marketing personnel are trained to assist
customers in product selection, implementation and system upgrading and
expansion. Americable's sales representatives are supported by technical staff
who have a broad range of expertise in various networking technologies, such as
advanced copper wiring and fiber optics, as well as system implementation,
expansion and service. Americable strives to provide its customers with
practical, workable solutions that are cost efficient.
Americable's distribution business services customers of all sizes in the
voice and data communications aftermarket. Customer orders range in size from
under $50 to several hundred thousand dollars. Average distribution order size
during 1994 was approximately $470. Americable's distribution business
(including sales of cable assemblies) constituted approximately 82% of its net
sales in 1994.
As a natural extension of its distribution business, and consistent with
Americable's marketing strategy to be a single-source provider for its
customers, Americable has a manufacturing capability to satisfy the individual
needs of those customers that may require custom or specialty cable assemblies.
Americable, working to its customers' specifications, can manufacture custom
designed products such as copper, fiber-optic, IBM Bus and Tag and AS/400 cable
assemblies and sub-assemblies. During 1994, sales of custom and specialty cable
assemblies and sub-assemblies consisted of approximately 20% of net sales.
All of Americable's manufactured products are subject to strict quality
control standards to insure that they are of the same high quality as other,
vendor manufactured, distributed products. During 1995, Americable expects to
complete the process of implementing the quality standards of ISO 9002 which it
began in
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1993. ISO 9002 is an international protocol for documenting processes and
procedures used in establishing a consistent manufacturing quality system.
The majority of Americable's sales from its manufacturing business are made
to customers in the networking aftermarket, rather than to original equipment
manufacturers ("OEM's"). However, Americable has focused on meeting the needs
of OEM's as well. Through this effort, Americable hopes to expand the market
for its custom and specialty cable assemblies utilizing its in-house
manufacturing expertise.
Another outgrowth of Americable's strategy to be a single source provider
for its customers' networking needs, is its value-added service solutions.
Americable designs and supervises the implementation of the physical layer of
various size LAN systems for end-users. LAN's connect a variety of devices over
different types of cabling to enable desktop computer systems to communicate
with each other and to share access to data. As part of its "value-added"
concept, Americable will (i) assist the customer in the design of the network
system and the selection of components and products for the system, (ii)
supervise the implementation of the system, (iii) test the system and (iv)
provide maintenance, training and other ongoing support services. Americable
also assists its end-user customers in connection with upgrades and expansions
to their LAN systems. Americable does not, however, provide applications
software for network systems.
Value-added projects and services generally range in size from $5,000 to
$500,000. These projects can involve multiple LAN's across a wide area network,
consisting of multi-vendor hardware products and several thousand nodes.
Americable is committed to providing networking systems to customers of all
sizes in the geographic areas served by its regional offices. During 1994,
sales derived from value-added projects and services consisted of approximately
18% of net sales. Value-added projects and services sales include sales of
products such as bulk cable, cable assemblies and networking devices and
services such as training and installation.
TRANSITION ENGINEERING. 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, hubs, concentrators, adapters and related communications
modules.
The nature of computing and information processing has undergone a
revolution during the last 20 years, moving away from large, mainframe computers
to more advanced personal desktop computers. End-users now seek greater
productivity and lower costs by sharing databases, applications and peripheral
equipment such as personal computers and printers through the use of LAN's. As
LAN's have proliferated, demand for multi-vendor interoperability has led to
industry standard network protocols and access methods such as Ethernet, Token-
Ring and Fiber Distributed Data Interface ("FDDI").
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Transition Engineering has developed the majority of its Ethernet LAN
products using industry standards. Ethernet's cabling media has evolved from
coaxial cable to its associated 10BaseT implementation, which supports twisted
pair cabling such as telephone wire and 10BaseFL fiber optic cabling.
Transition Engineering's product line currently includes transceivers that
attach personal computers to a network, thereby enabling the user to communicate
with other users in the LAN; hubs and multi-port repeaters that regenerate the
signal, thereby allowing expansion capabilities and providing connectivity and
management of the different cabling schemes used throughout a LAN; network
adapter cards that provide direct connection from the personal computer to a
LAN; and other passive devices that provide a structured wiring system for mini-
and mainframe computer environments.
Transition Engineering's manufacturing operations consist primarily of the
final assembly and quality control testing of materials, components and
subassemblies. Transition Engineering uses third parties to perform printed
circuit board assembly.
The market for Transition Engineering's products is characterized by rapid
technological change, constantly evolving industry standards and rigorous
competition with respect to timely product innovation. Because the introduction
of products embodying new technology and the emergence of new industry standards
can render existing products obsolete and unmarketable, Transition Engineering
believes that its future success will depend upon its ability to develop,
manufacture and market new products and enhancements to existing products on a
cost-effective and timely basis. New product introductions and enhancements
accounted for approximately $3.3 million or 28% of net sales at Transition
Engineering in 1994.
Transition Engineering's business may be materially adversely affected if
(i) it is unable, for technological or other reasons, to develop products in a
timely manner in response to changes in the industry, (ii) it fails to timely
manufacture and maintain required quantities of its products in response to
customer needs, or (iii) the products or product enhancements that it develops
do not achieve market acceptance. Transition Engineering has, in the past,
experienced delays in introducing certain of its new products and enhancements.
Transition Engineering distributes its products through an expanding
network of reseller channels, which includes a number of regionally based
domestic and international volume distributors and, to a lesser extent, VAR's.
During 1994, new distributors and VAR's accounted for approximately $650,000 or
5% of Transition Engineering's net sales. Distributors and VAR's purchase the
company's products at standard discounts based on certain volume-based incentive
programs. Transition Engineering's distributors and VAR's carry other products
that are complementary to, and compete with those of Transition Engineering.
Transition Engineering's international sales have accounted for a substantial
portion of its
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growth. International sales come primarily from the United Kingdom and Germany.
During 1994, sales outside of the United States accounted for approximately 35%
of net sales. Transition Engineering's continued growth will be dependant, in
part, upon its ability to expand its domestic and international distributor
base.
Transition Engineering performs all of its research and development
activities at its headquarters in Eden Prairie, Minnesota. During 1994,
research and development expenses totaled less than 10% of net sales.
Transition Engineering intends to make a similar investment in research and
development during 1995.
C.E. SERVICES. C.E. Services is a third-party provider of systems, parts
and services for mainframe computers and peripherals. 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 customers.
All of the company's services are related to the supply or service of IBM
and IBM-compatible computers following their initial delivery and installation
by the manufacturer. In nearly all cases after shipment to its first user, a
mainframe computer will either be reconfigured, temporarily warehoused, re-sold,
refurbished, or re-installed. Even in the face of newer, more capable models
and technologies, there continues to be a large secondary market for older
computer systems. This market is made possible by the design imperative that
requires a computer manufacturer to keep its newer models compatible with its
older models so that the users' information system software, which represents a
major customer investment, will continue to be compatible with the newer
systems. Thus, older machines continue to have utility, so long as they are
priced appropriately and assembled in the correct configuration. C.E. Services
has built its business on serving a range of needs within this secondary market.
As part of its business strategy, C.E. Services seeks to satisfy the needs
of leasing companies and computer dealers that require custom-configured
computer systems for their end-user customers. C.E. Services provides these
customers with complete, properly configured computer systems or adds additional
features needed to upgrade computer equipment already in the customer's
inventory. In order to fill customer orders promptly, C.E. Services maintains
an inventory of computer systems, features and parts. C.E. Services' technical
knowledge of the IBM product line and the computer aftermarket and its ability
to custom configure systems are its critical competitive attributes in the
secondary market.
In connection with C.E. Services' remarketing business, the company
continuously purchases computer systems, features and parts for resale, either
alone or as part of larger systems. Also, the company may reconfigure and
refurbish such systems and features during the time they are held in its
inventory. While the company seeks to maintain minimum inventory levels, C.E.
Services does, as a matter of practice, take advantage of opportunities to
purchase for resale in the spot
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market (generally within 90 days) computer systems, features and parts.
Accordingly, inventory levels may fluctuate. During the time these systems,
features and parts are held in C.E. Services' inventory, the company is at risk
with respect to market changes in the resale value of such systems, features and
parts. The resale value of computer systems, features and parts in the
secondary market can change significantly in a very short period. No assurance
can be made that C.E. Services will not incur losses on the resale of computer
systems, features and parts it may purchase from time to time in the secondary
market because of such market changes.
During 1994, C.E. Services' revenues declined by $15.6 million, or 26%,
from 1993. This decline was attributable primarily to a dramatic reduction in
the domestic and international demand for used mainframes and peripherals along
with a significant decline in the market value of certain used equipment. Net
sales from the remarketing of computer systems, features and parts accounted
for approximately 83% of the company's total net sales during 1994. C.E.
Services does not expect demand for its products and services to measurably
improve in 1995.
The company is also able to reconfigure mainframe systems quickly and
reliably. After C.E. Services completes reconfiguration services on a computer
system, IBM must certify that the reconfigured system adequately performs to IBM
standards. C.E. Services' technicians are also able to install or deinstall
equipment at the user's computer facility. Such technical services accounted
for approximately 7% of the company's net sales in 1994.
C.E. Services conducts its international sales from a facility in
Basingstoke, England (41,000 square feet). C.E. Services has twenty-two (22)
employees based in the U.K.
As part of its services to the owners of computer equipment, C.E. Services
also warehouses and refurbishes computer equipment. When equipment is delivered
to one of the company's facilities, a technical audit is performed on each
machine to determine its condition and to inventory its features. C.E. Services
will then warehouse the equipment for its customers pending re-sale or re-
leasing. The company refurbishes computers by repairing physical, exterior
damage, cleaning and painting. C.E. Services is one of the few third party
vendors that refurbishes both Amdahl, Inc. and IBM equipment. Sales from
refurbishment and warehousing constituted 3% of C.E. Services' net sales during
1994.
Additionally, the company performs maintenance services for mainframe-based
data centers. C.E. Services' maintenance operations primarily serve
Dallas/Ft. Worth, Houston and San Antonio in Texas. C.E. Services provides
maintenance for computer centers under contracts with customers, as well as on a
per-call basis. Pursuant to its maintenance agreements, C.E. Services generally
agrees to provide all parts and service for a customer's equipment. These
maintenance services are available 24 hours a day, seven days a week. Sales
from
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C.E. Services' maintenance business constituted approximately 7% percent of the
company's net sales during 1994.
In 1994, C.E. Services established a new computer services business to
provide mainframe computer access and processing services to its customers. The
business consists of Bridging Solutions Corporation ("Bridging"), an entity
formed in 1994, and Commercial Computer Services, Inc. ("CCS"), a Texas
corporation acquired by C.E. Services in 1994. In connection with the
organization of this new business group, C.E. Services formed Dalworth Holdings,
Inc., a holding company, which is now the parent company of C.E. Services,
Bridging and CCS. Bridging and CCS are located in Fort Worth, Texas, and, at
March 17, 1995, employed a combined total of seventeen (17) people.
FOREIGN OPERATIONS. The Company's foreign operators consist of C.E.
Services' United Kingdom subsidiary, C.E. Services (Europe) Limited. Prior to
December 1993, the Company's foreign operations also included Americable's
Canadian subsidiary, Adanac Cable, Ltd. In December 1993, Americable
implemented a restructuring plan involving closure of its Canadian facilities,
operated by Adanac Cable, and consolidation of its Canadian sales and customer
support activities within its U.S. operations. The Company's foreign operations
consisted of revenues of $8 million and $17.8 million, operating losses of $1.1
million and $26,000, and total assets of $2 million for each of the years ended
December 31, 1994 and 1993, respectively.
MARKETING AND CUSTOMERS
AMERICABLE. Americable provides its products and services to a wide range
of customers, including installers, resellers, other distributors, system
integrators, OEM's and end-users. Customer relationships are developed both
face-to-face and via the telephone. Americable's marketing strategy is two-
tiered. A national effort is centered on telemarketing though Americable's
national distribution sales unit in Minneapolis. In addition, Americable has
four regional centers that provide traditional distribution and assembly
products along with an array of value-added network technology products and
services. The regional centers include Atlanta, Chicago, Dallas and
Minneapolis. Americable has eleven (11) outside sales representatives in
addition to forty-two(42) telemarketing and sales support representatives. The
sales force is supplemented by nineteen (19) regional technical service
engineers and technicians and two (2) corporate product managers.
Americable sales representatives undergo continuous training and attend
company-sponsored classes in order to enhance their technical expertise and
marketing techniques. Also, many of the company's sales and technical personnel
attend vendor-sponsored training and education programs mandated by such vendors
in order for the company to qualify as a licensed VAR of their products.
The company also uses direct mailings, brochures and catalogs in marketing
its products. Americable's catalog, which generally is published every 18
months, is
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designed to provide end-users with not only product specifications, but
additional technical information to assist them in connection with their system
design.
TRANSITION ENGINEERING. Transition Engineering distributes its products
through an expanding network of reseller channels, which include a number of
regionally based domestic and international volume distributors and, to a lesser
extent, VAR's. In 1994, Transition Engineering's largest domestic customer
accounted for approximately 16% of domestic net sales (10% overall). The
company's largest international customer accounted for approximately 14% of
international net sales (5% overall). Moreover, the ten distributors that sold
the largest amount of the company's products accounted for approximately 39% of
Transition Engineering's net sales for 1994. A reduction in sales efforts by or
the termination of a business relationship with one or more of Transition
Engineering's key distributors could have a material adverse effect on
Transition Engineering's results of operations.
Transition Engineering has several marketing programs to support the sale
and distribution of its products. Its marketing programs are designed to
generate sales leads for its distribution channels, as well as to enhance brand
name recognition. Transition Engineering's marketing activities include
frequent participation in industry trade shows, advertising in major trade
publications, the distribution of sales literature and product specifications
and ongoing communications with its distributors.
C.E. SERVICES. C.E. Services markets its services directly to owners,
lessors and users of mainframe computers. Maintenance services are primarily
directed toward end-users of computers in its largest geographic markets.
Technical and refurbishment services are primarily marketed to lessors of
computer equipment, emphasizing the company's technical expertise and
responsiveness.
Individual sales are generated almost entirely through customer initiated
telephone calls asking for quotes on various services, computer systems,
features or parts. Outgoing calls are also initiated by the C.E. Services'
sales force, which currently consists of nine (9) persons, for purposes of
soliciting new customers or renewing contacts with old customers, following up
on work orders, coordinating work in process and insuring that customers' needs
and expectations are being met. The company's senior management, sales force
and customer service managers also periodically make on-site visits to major
customers in an effort to keep in touch with market trends and to better
understand customer needs. In addition, the company frequently conducts
technical seminars for the marketing staffs of selected customers. These
seminars train customers on the technical characteristics of products and help
reinforce the customer's perception of C.E. Services as a vital business
partner.
The company's direct sales force is supplemented by a customer service
department of twelve (12) representatives in its three major locations. This
staff directly handles orders from customers for warehouse and refurbishment
services,
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follows up on work orders initiated by the sales force and maintains records of
customer inventory, customer machine audits, work order correspondence and
shipping documents.
C.E. Services' ten largest customers in 1994 represented approximately 48%
of total company sales. Nine of these customers are computer equipment leasing
and credit companies. The loss of one or more of C.E. Services' major customers
could materially adversely affect the company's results of operations.
COMPETITION
AMERICABLE. Americable faces substantial competition from a large number
of distributors, suppliers and manufacturers, some of which are larger, have
greater financial resources, broader name recognition and, in many cases, lower
manufacturing costs than Americable. Americable's manufactured products are not
protected from competition by virtue of any proprietary rights such as trade
secrets or patents. Americable competes by providing its customers with a broad
line of reliable, top-quality products that are priced at competitive levels and
by providing superior customer service, including strong technical support and
rapid product delivery.
TRANSITION ENGINEERING. Transition Engineering operates in an industry
that is highly competitive, and the company believes that such competition will
continue to intensify. The industry is characterized by rapid technological
change, short product life-cycles, frequent product introductions and evolving
industry standards. Transition Engineering competes with a number of
independent companies focused on the LAN market, including, among others,
Cabletron System, Inc., Allied Telesis, Inc., Milan Technology, AMP Incorporated
and Nevada Western, a subsidiary of Thomas Betts. Many of Transition
Engineering's competitors are more established, have greater name recognition,
and have greater financial, technological and marketing resources. In addition
to its current principal competitors, Transition Engineering may face
competition from new entrants into the LAN market.
Transition Engineering's ability to compete successfully depends upon its
ability to adapt to market changes on a timely basis. Increased competition
could adversely affect Transition Engineering's revenue and profitability
through price reduction and market share erosion. Transition Engineering
believes that the principal competitive factors in the LAN industry include
product features, price, product compatibility, performance and reliability,
conformance to industry standards and network management features.
C.E. SERVICES. C.E. Services competes with a number of other companies
that offer some or all of the same services and products in the various lines of
business in which C.E. Services operates, including IBM, which offers
maintenance services on its computer equipment. IBM also competes with C.E.
Services in the installation and deinstallation of computer equipment and in
providing other
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technical services. Other companies, some of which are larger, have greater
financial strength and broader name recognition, also provide maintenance and
technical operations services for IBM computers and compete with C.E. Services
in its target geographic markets.
There will continue to be intense price competition in all lines of C.E.
Services' business; however, C.E. Services believes that the company will
continue to compete due to its reputation for reliability, the quality and
expertise of its staff, its responsiveness to customers' demands, its ability to
provide its customers with custom-configured systems and its knowledge of the
secondary market.
EMPLOYEES
At December 31, 1994, Americable, Transition Engineering and C.E. Services
(including Bridging and CCS) employed 160, 57 and 162 individuals, respectively.
None of the employees are represented by a collective bargaining unit, and
management at each company considers its relations with its employees to be
good.
NET ASSETS HELD FOR SALE
North Star announced its intention to sell its wholly-owned subsidiary
Eagle Engineering & Manufacturing, Inc. ("Eagle") in March 1991. Eagle designs,
manufactures and installs a variety of environmental control systems for the
cabins of off-road heavy equipment, including air-conditioning, heating and
pressurization systems. Eagle is still wholly owned by the Company, although
the Company is hopeful that it will ultimately be able to sell this subsidiary
on terms acceptable to management.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company are as follows:
Name Age Position
---- --- --------
Jeffrey J. Michael 38 President and Chief Executive Officer
Peter E. Flynn 35 Executive Vice President, Chief
Financial Officer and Secretary
Mr. Jeffrey J. Michael has been President and Chief Executive Officer of
the Company since December 1990. Mr. Michael served as Vice President-Finance
of the Company from 1987 to December 1990. He also served as Vice President-
Treasurer from 1986 to 1987. Prior to 1986, Mr. Michael was employed by the
Company in various capacities. Jeffrey J. Michael is the son of James H.
Michael, a director of the Company and its former Chairman of the Board.
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Mr. Peter E. Flynn has been Executive Vice President, Chief Financial
Officer and Secretary of the Company since December 1990. In December 1992, Mr.
Flynn was also elected President and Chief Operating Officer of Transition
Engineering. Mr. Flynn served as Treasurer of the Company from April 1989 to
December 1990. Prior to joining the Company, Mr. Flynn was an audit manager at
Arthur Andersen & Co.
Officers of the Company are elected annually by the Board of Directors.
The current officers of the Company are expected to be re-elected to serve in
the same positions for the coming year.
ITEM 2. PROPERTIES.
AMERICABLE. Americable's headquarters are located in a 20,000 square foot
leased facility in Itasca, Illinois, a suburb of Chicago. This facility
includes office, warehouse and production space. Americable also leases its
branch office facilities in Minneapolis, Minnesota (39,000 square feet), Dallas,
Texas (15,000 square feet), and Atlanta, Georgia (9,900 square feet).
TRANSITION ENGINEERING. Transition Engineering's headquarters, including
its executive and corporate administration offices, manufacturing, sales and
technical support, are located in Eden Prairie, Minnesota, which consists of
approximately 26,500 square feet.
C.E. SERVICES. C.E. Services' headquarters are located in Grand Prairie,
Texas, a suburb of Dallas, and include office, warehouse and production space
(101,000 square feet). C.E. Services' branch locations are located in or near
Chicago, Illinois (170,000 square feet), Houston, Texas (3,000 square feet),
London, U.K. (41,000 square feet) and Fort Worth, Texas (12,000 square feet).
C.E. Services' facilities include two of the largest staging areas in the United
States for large water-cooled mainframes. All of the C.E. Services' facilities
are leased and provide storage, production and office space.
North Star believes that the leased facilities of its operating companies
are adequate for their intended use.
ITEM 3. LEGAL PROCEEDINGS.
The Company is engaged in routine litigation incidental to its business,
which management believes will not have a material adverse effect upon its
business or consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
- 12 -
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Pursuant to General Instruction G(2), information is incorporated herein by
reference to "Stock Information" in the Company's annual report to shareholders
for the year ended December 31, 1994.
ITEM 6. SELECTED FINANCIAL DATA.
Pursuant to General Instruction G(2), information is incorporated herein by
reference to "Selected Consolidated Financial Data" in the Company's annual
report to shareholders for the year ended December 31, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Pursuant to General Instruction G(2), information is incorporated herein by
reference to "Management's Discussion and Analysis of Results of Operations and
Financial Condition" in the Company's annual report to shareholders for the year
ended December 31, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Pursuant to General Instruction G(2), information is incorporated herein by
reference to "Report of Independent Certified Public Accountants" and
"Consolidated Financial Statements of North Star Universal, Inc. and
Subsidiaries" and "Selected Quarterly Financial Data" in the Company's annual
report to shareholders for the year ended December 31, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1995, which information is incorporated herein by
reference.
- 13 -
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1995, which information is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1995, which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(3), reference is made to the information
contained in the Company's definitive Proxy Statement for its 1995 Annual
Meeting of Shareholders to be filed with the Securities and Exchange Commission
on or before April 30, 1995, which information is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) l. FINANCIAL STATEMENTS
The consolidated financial statements of North Star Universal, Inc. and
Subsidiaries as of December 31, 1994 and 1993 and for the three years ended
December 31, 1994 are incorporated herein by reference to "Consolidated
Financial Statements of North Star Universal, Inc. and Subsidiaries" and "Report
of Independent Certified Public Accountants" included in the Company's annual
report to shareholders for the year ended December 31, 1994.
2. FINANCIAL STATEMENTS AND SCHEDULES
(i) North Star Universal, Inc. and Subsidiaries
Report of Independent Certified Public Accountants on Schedule
Schedule II -- Valuation and Qualifying Accounts
All other schedules have been omitted because they are not
applicable or not required, or because the required information is
included in the consolidated financial statements or notes thereto.
- 14 -
<PAGE>
(ii) Michael Foods, Inc. and Subsidiaries
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders' Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Report of Independent Certified Public Accountants
Report of Independent Certified Public Accountants on Schedule
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in
the consolidated financial statements or notes thereto.
3. EXHIBITS
3.1 Restated Articles of Incorporation of the Company (filed as Exhibit
3.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1991 and incorporated herein by reference).
*3.2 Amended and Restated Bylaws of the Company.
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 (filed as
Exhibit 4.2 to Registration No. 33-46418 and incorporated herein by
reference).
*4.3 Form of Second Supplemental Indenture, dated as of March 16, 1995,
amending the Indenture described in Exhibit 4.1 above.
4.4 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).
- 15 -
<PAGE>
4.5 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).
+10.1 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).
+10.2 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).
+10.3 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).
10.4 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).
10.5 Restated and Amended Credit Loan Agreement, dated May 17, 1990,
between the Company and First Bank National Association (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).
10.6 Amendment to Restated and Amended Revolving Credit Loan Agreement,
dated January 11, 1991, between the Company and First Bank National
Association, amending the Restated and Amended Revolving Credit
Loan Agreement described in Exhibit 10.6 above (filed as Exhibit
10.11(d) to Registration No. 33-26176 and incorporated herein by
reference).
10.7 Letter Agreement, dated February 28, 1991, amending the terms of
the Amendment to Restated and Amended Revolving Credit Loan
Agreement described in Exhibit 10.7 above (filed as Exhibit
10.11(e) to Registration No. 33-26176 and incorporated herein by
reference).
- 16 -
<PAGE>
10.8 Second Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated January 2, 1992, between the Company and First
Bank National Association, amending the Restated and Amended
Revolving Credit Loan Agreement described in Exhibit 10.6 above
(filed as Exhibit 10.2 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1991, and incorporated herein by
reference).
10.9 Third Amendment to Restated and Amended Revolving Credit Loan
Agreement, dated November 18, 1992, between the Company and First
Bank National Association, amending the terms of the Restated and
Amended Revolving Credit Loan Agreement described in 10.6 above
(filed as Exhibit 10.12(a) to Registration No. 33-46418 and
incorporated herein by reference).
*10.10 Fourth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 3, 1994, between the Company and First
Bank National Association, amending the terms of the Restated and
Amended Revolving Credit Loan Agreement described in 10.6 above.
*10.11 Waiver and Fifth Amendment to Restated and Amended Revolving Credit
Loan Amendment, dated March 16, 1994, between the Company and First
Bank National Association, amending the terms of the Restated and
Amended Revolving Credit Loan Agreement described in 10.6 above.
*10.12 Sixth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 31, 1995, between the Company and First
Bank National Association, amending the terms of the Restated and
Amended Revolving Credit Loan Agreement described in 10.6 above.
10.13 Loan Agreement, dated as of May 1, 1989, between the City of
Welcome, Minnesota and Eagle 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).
10.14 Mortgage and Security Agreement, dated as of May 1, 1989, securing
the obligations of Eagle under the Loan Agreement described in
Exhibit 10.11 above, pursuant to which Eagle 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).
10.15 Guaranty Agreement, dated as of May 1, 1989, executed by the
Company as guarantor, pursuant to which the Company guaranties the
- 17 -
<PAGE>
obligations of Eagle under the Loan Agreement described in Exhibit
10.11 above (filed as Exhibit 10.17 to Registration No. 33-26176
and incorporated herein by reference).
+10.16 North Star Universal, Inc. 1988 Non-qualified 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).
+10.17 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 ended December 31, 1993 and incorporated herein by reference).
10.18 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 ended December 31, 1991 and
incorporated herein by reference).
10.19 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 ended
December 31, 1991 and incorporated herein by reference).
10.20 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).
10.21 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).
+10.22 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 ended December 31, 1991 and
incorporated herein by reference).
10.23 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.
(filed as Exhibit 10.39 to Registration No. 33-46418 and
incorporated herein by reference).
- 18 -
<PAGE>
10.24 Amended and Restated Loan and Security Agreement dated June 1, 1993
among Americable, Inc., Transition Engineering, Inc., Cable
Distributions Systems, Inc. and First Bank National Association
(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.)
10.25 Subordination Agreement executed by the Company and Americable for
the benefit of First Bank in connection with the loans described in
Exhibit 10.15 above (filed as Exhibit 10.25(b) to Registration No.
33-26176 and incorporated herein by reference).
*10.26 First Amendment to Amended and Restated Loan and Security
Agreement, dated November 29, 1993, among Americable, Inc.,
Transition Engineering, Inc., Cable Distributions Systems, Inc. and
First Bank National Association, amending the terms of the Amended
and Restated Loan and Security Agreement described in 10.24 above.
*10.27 Waiver and Second Amendment to Amended and Restated Loan and
Security Agreement, dated as of March 3, 1995, among Americable,
Inc., Transition Engineering, Inc., Cable Distributions Systems,
Inc. and First Bank National Association, amending the terms of the
Amended and Restated Loan and Security Agreement described in 10.24
above.
*10.28 Supplement A to Amended and Restated Loan and Security Agreement,
dated June 1, 1993, among Americable, Inc., Transition Engineering,
Inc., Cable Distributions Systems, Inc. and First Bank National
Association, supplementing the terms of the Amended and Restated
Loan and Security Agreement described in 10.24 above.
*10.29 Amended, Restated and Consolidated Credit Agreement, dated as of
August 1, 1994, by and between C.E. Services, Inc. and Texas
Commerce Bank National Association.
*10.30 First Amendment to Amended, Restated and Consolidated Credit
Agreement, dated as of December 27, 1994, by and between C.E.
Services, Inc. and Texas Commerce Bank National Association,
amending the Amended and Restated Consolidated Credit Agreement
described in 10.28 above.
*10.31 Continuing Guaranty by North Star Universal, Inc., dated December
1994, to Texas Commerce Bank National Association, for indebtedness
of C.E. Services, Inc., relating to the Amended and Restated
Consolidated Credit Agreement described in 10.28 above.
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
- 19 -
<PAGE>
12.1 to the Company's Annual Report on Form 10-K for the year ended
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 ended 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 ended 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 ended December 31, 1993 and incorporated herein by reference).
*12.5 Computation of Ratio of Earnings to Fixed Charges for North Star
Universal, Inc. for the year ended December 31, 1994.
*13.1 1994 Annual Report to Shareholders of North Star Universal, Inc.
*21.1 Subsidiaries of the Registrant
*23.1 Consent of Independent Certified Public Accountants-Grant Thornton
LLP.
*27.1 Financial Data Schedule
____________________________
* Filed with this Annual Report on Form 10-K.
+ Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Annual Report on Form 10-K pursuant to Item
601(b)(10)(iii)(A) of Regulation S-K.
(b) Reports on Form 8-K. None.
(c) See the Exhibit Index and Exhibits attached as a separate section of this
report.
(d) See the Financial Statement Schedules of the Company, the Michael Foods,
Inc. and Subsidiaries Consolidated Financial Statements and the Michael
Foods, Inc. Financial Statement Schedules attached as a separate section of
this report.
- 20 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: March 15, 1995 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 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Miles E. Efron Chairman of the Board March 15, 1995
- -----------------------------
Miles E. Efron
/s/ James H. Michael Director March 15, 1995
- -----------------------------
James H. Michael
/s/ Jeffrey J. Michael President, Chief Executive March 15, 1995
- ----------------------------- Officer and Director
Jeffrey J. Michael (principal executive officer)
/s/ Peter E. Flynn Executive Vice President, March 15, 1995
- ----------------------------- Chief Financial Officer
Peter E. Flynn (principal financial and
accounting officer),
Secretary and Director
Director
- -----------------------------
Fred E. Stout
/s/ Richard J. Braun Director March 15, 1995
- -----------------------------
Richard J. Braun
- 21 -
<PAGE>
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
North Star Universal, Inc.
In connection with our audit of the consolidated financial statements
of North Star Universal, Inc. and Subsidiaries referred to in our report dated
February 21, 1995, which is included in the Annual Report to Shareholders and
incorporated by reference in Part II of this form, we have also audited Schedule
II for each of the three years in the period ended December 31, 1994. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 21, 1995
<PAGE>
North Star Universal, Inc. and Subsidiaries
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
For the Years Ended December 31,
(In thousands)
Charge
Balance at Provision for Purpose Balance
Beginning Charged to Reserve was At End
of Year Operations Established Other of Year
---------- ---------- ---------- ----- -------
Allowance of
Doubtful Accounts
- -----------------
1992 $ 384 $ 277 $ (346) $ -- $ 315
1993 315 270 (92) (34) 459
1994 459 49 (126) -- 382
<PAGE>
CONSOLIDATED BALANCE SHEETS
MICHAEL FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,641,000 $ 223,000
Accounts receivable, less allowances. . . . . . . . . . . . . . . . . . . . . . . 36,622,000 33,087,000
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,631,000 49,138,000
Prepaid expenses and other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,091,000 1,279,000
-------------------------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,985,000 83,727,000
PROPERTY, PLANT AND EQUIPMENT - AT COST
Land. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,149,000 4,201,000
Buildings and improvements. . . . . . . . . . . . . . . . . . . . . . . . . . . . 93,807,000 89,980,000
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,805,000 166,655,000
-------------------------------
280,761,000 260,836,000
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 99,702,000 80,398,000
-------------------------------
181,059,000 180,438,000
OTHER ASSETS
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,439,000 48,844,000
Net assets held for sale. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,761,000 11,939,000
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,401,000 4,139,000
-------------------------------
61,601,000 64,922,000
-------------------------------
$336,645,000 $329,087,000
-------------------------------
-------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt. . . . . . . . . . . . . . . . . . . . . . . $ 11,809,000 $ 9,814,000
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,360,000 20,536,000
Accrued compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,168,000 3,720,000
Accrued insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,326,000 6,701,000
Accrued product line disposal costs . . . . . . . . . . . . . . . . . . . . . . . -- 12,702,000
Other accrued expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,633,000 7,987,000
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,100,000 --
-------------------------------
Total current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . 60,396,000 61,460,000
LONG-TERM DEBT, less current maturities. . . . . . . . . . . . . . . . . . . . . . . 88,795,000 94,194,000
DEFERRED INCOME TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,425,000 18,430,000
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value, 3,000,000 shares authorized, none issued . . . . -- --
Common stock, $.01 par value, 25,000,000 shares authorized,
shares issued 19,915,489 in 1994 and 1993. . . . . . . . . . . . . . . . . . . 199,000 199,000
Additional paid-in capital. . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,640,000 117,640,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53,801,000 42,475,000
Treasury stock, shares held 613,912 in 1994 and 599,350 in 1993 at cost . . . . . (5,611,000) (5,311,000)
-------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . . . 166,029,000 155,003,000
-------------------------------
$336,645,000 $329,087,000
-------------------------------
-------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
10
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
MICHAEL FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . $505,965,000 $474,783,000 $442,734,000
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . 430,917,000 414,965,000 390,185,000
--------------------------------------------------------------
Gross profit . . . . . . . . . . . . . . . . . . . . 75,048,000 59,818,000 52,549,000
Selling, general and administrative expenses . . . . . . . 41,851,000 39,122,000 36,936,000
Disposal of product line . . . . . . . . . . . . . . . . . -- 22,769,000 --
Restructuring charges. . . . . . . . . . . . . . . . . . . -- 11,164,000 --
-------------------------------------------------------------
41,851,000 73,055,000 36,936,000
-------------------------------------------------------------
Operating profit (loss). . . . . . . . . . . . . . . 33,197,000 (13,237,000) 15,613,000
Interest (income) expense
Interest expense. . . . . . . . . . . . . . . . . . . . 8,842,000 9,210,000 10,247,000
Interest capitalized. . . . . . . . . . . . . . . . . . (304,000) (116,000) (261,000)
-------------------------------------------------------------
8,538,000 9,094,000 9,986,000
Interest income . . . . . . . . . . . . . . . . . . . . (40,000) (731,000) (398,000)
-------------------------------------------------------------
8,498,000 8,363,000 9,588,000
-------------------------------------------------------------
Earnings (loss) before income taxes. . . . . . . . . 24,699,000 (21,600,000) 6,025,000
Income tax expense (benefit) . . . . . . . . . . . . . . . 9,510,000 (5,280,000) 2,175,000
-------------------------------------------------------------
NET EARNINGS (LOSS). . . . . . . . . . . . . . . . . $ 15,189,000 $(16,320,000) $ 3,850,000
-------------------------------------------------------------
-------------------------------------------------------------
NET EARNINGS (LOSS) PER SHARE. . . . . . . . . . . . $ .79 $ (.84) $ .20
-------------------------------------------------------------
-------------------------------------------------------------
Weighted average shares outstanding. . . . . . . . . . . . 19,315,000 19,416,000 19,516,000
-------------------------------------------------------------
-------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
11
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
MICHAEL FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------------------- PAID-IN RETAINED TREASURY STOCKHOLDERS'
SHARES ISSUED AMOUNT CAPITAL EARNINGS STOCK EQUITY
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at
January 1, 1992 . . . . . . . 19,843,989 $198,000 $116,872,000 $62,734,000 $(3,483,000) $176,321,000
Exercise of non-qualified
stock options to acquire
common stock . . . . . . . 71,500 1,000 768,000 -- -- 769,000
Net earnings for the year . . -- -- -- 3,850,000 -- 3,850,000
Cash dividends
of $.20 per share. . . . . -- -- -- (3,903,000) -- (3,903,000)
-------------------------------------------------------------------------------------------
Balance at
December 31, 1992 . . . . . . 19,915,489 199,000 117,640,000 62,681,000 (3,483,000) 177,037,000
Purchase of shares
for treasury . . . . . . . -- -- -- -- (1,828,000) (1,828,000)
Net loss for the year . . . . -- -- -- (16,320,000) -- (16,320,000)
Cash dividends
of $.20 per share. . . . . -- -- -- (3,886,000) -- (3,886,000)
-------------------------------------------------------------------------------------------
Balance at
December 31, 1993 . . . . . . 19,915,489 199,000 117,640,000 42,475,000 (5,311,000) 155,003,000
Purchase of shares
for treasury . . . . . . . -- -- -- -- (300,000) (300,000)
Net earnings for the year . . -- -- -- 15,189,000 -- 15,189,000
Cash dividends
of $.20 per share. . . . . -- -- -- (3,863,000) -- (3,863,000)
-------------------------------------------------------------------------------------------
Balance at
December 31, 1994 . . . . . . 19,915,489 $199,000 $117,640,000 $53,801,000 $(5,611,000) $166,029,000
-------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
12
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
MICHAEL FOODS, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss) . . . . . . . . . . . . . . . . . . $ 15,189,000 $(16,320,000) $ 3,850,000
Adjustments to reconcile net earnings (loss) to
net cash provided from operating activities:
Depreciation . . . . . . . . . . . . . . . . . . . . 21,616,000 22,446,000 21,454,000
Amortization . . . . . . . . . . . . . . . . . . . . 1,633,000 1,741,000 1,596,000
Deferred income taxes. . . . . . . . . . . . . . . . 6,095,000 (7,660,000) (640,000)
Disposal of product line . . . . . . . . . . . . . . (10,820,000) 22,769,000 --
Restructuring charges. . . . . . . . . . . . . . . . (525,000) 11,164,000 --
Cash provided from (used in) changes in
working capital employed, net of effect
of disposal of product line and
restructuring charges:
Accounts receivable . . . . . . . . . . . . . . . (3,535,000) 392,000 (595,000)
Inventories . . . . . . . . . . . . . . . . . . . (5,493,000) 2,968,000 8,011,000
Prepaid expenses and other. . . . . . . . . . . . 188,000 (122,000) (320,000)
Accounts payable. . . . . . . . . . . . . . . . . 5,824,000 3,440,000 (3,625,000)
Accrued expenses. . . . . . . . . . . . . . . . . 1,706,000 2,708,000 1,443,000
-------------------------------------------------------------
Total adjustments. . . . . . . . . . . . . . . 16,689,000 59,846,000 27,324,000
-------------------------------------------------------------
Net cash provided by operating activities. . . . . . . . . 31,878,000 43,526,000 31,174,000
Cash flows from investing activities:
Capital expenditures. . . . . . . . . . . . . . . . . . (22,839,000) (8,669,000) (28,723,000)
Net assets held for sale. . . . . . . . . . . . . . . . 1,786,000 -- --
Joint venture and other assets. . . . . . . . . . . . . (1,840,000) (3,194,000) (12,961,000)
-------------------------------------------------------------
Net cash used in investing activities. . . . . . . . . . . (22,893,000) (11,863,000) (41,684,000)
Cash flows from financing activities:
Proceeds from issuance of common stock. . . . . . . . . -- -- 769,000
Payments on long-term debt. . . . . . . . . . . . . . . (100,604,000) (109,713,000) (90,622,000)
Proceeds from long-term debt. . . . . . . . . . . . . . 97,200,000 77,923,000 105,775,000
Purchase of shares for treasury . . . . . . . . . . . . (300,000) (1,828,000) --
Cash dividends. . . . . . . . . . . . . . . . . . . . . (3,863,000) (3,886,000) (3,903,000)
-------------------------------------------------------------
Net cash provided by (used in) financing activities. . . . (7,567,000) (37,504,000) 12,019,000
-------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents . . . 1,418,000 (5,841,000) 1,509,000
Cash and cash equivalents at beginning of year . . . . . . 223,000 6,064,000 4,555,000
-------------------------------------------------------------
Cash and cash equivalents at end of year . . . . . . . . . $ 1,641,000 $ 223,000 $ 6,064,000
-------------------------------------------------------------
-------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . $ 8,853,000 $ 9,445,000 $ 9,972,000
Income taxes . . . . . . . . . . . . . . . . . . . . 4,432,000 3,858,000 2,281,000
</TABLE>
The accompanying notes are an integral part of these statements.
13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MICHAEL FOODS, INC. AND SUBSIDIARIES
NOTE A
SUMMARY OF ACCOUNTING POLICIES
Michael Foods, Inc. (the "Company") is a holding company which, through its
operating subsidiaries, is engaged in the food processing and distribution
business primarily throughout the United States. Principal products are eggs,
egg products, refrigerated food products, fresh and frozen potato products, ice
milk mix, ice cream mix and milk.
At December 31, 1994, North Star Universal, Inc. ("NSU") held 7,354,950
shares of the issued and outstanding common stock of the Company or 38.1%.
Certain directors of the Company are also officers and directors of NSU.
1. PRINCIPLES OF CONSOLIDATION AND FISCAL YEAR
The consolidated financial statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned. All significant intercompany
accounts and transactions have been eliminated. Beginning in 1994, the Company
utilizes a fifty-two, fifty-three week fiscal year ending on the Saturday
nearest to December 31.
2. CASH AND CASH EQUIVALENTS
The Company considers its highly liquid temporary investments with maturities of
three months or less to be cash equivalents.
3. INVENTORIES
Inventories other than raw potatoes and potato products are stated at the lower
of cost (determined on a first-in, first-out basis) or market. Raw potatoes and
potato products are stated at the lower of average cost for the year in which
produced or at market.
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Work in process and
finished goods. . . . . . . . . . . $16,233,000 $14,386,000
Raw materials and supplies . . . . . . 15,327,000 17,028,000
Flocks . . . . . . . . . . . . . . . . 23,071,000 17,724,000
--------------------------------
$54,631,000 $49,138,000
--------------------------------
--------------------------------
</TABLE>
4. DEPRECIATION
Depreciation is provided in amounts sufficient to relate the cost of depreciable
assets to operations over their estimated service lives, principally on the
straight-line basis. Estimated service lives range from 10-40 years for
buildings and improvements and 3-10 years for machinery and equipment.
5. GOODWILL AND AMORTIZATION
Goodwill has resulted from various acquisitions made by the Company. All
acquisitions were accounted for as purchases and the excess of the total
acquisition cost over the fair value of the net assets acquired was recorded as
goodwill. Currently, goodwill is being amortized on the straight-line basis over
40 years. Accumulated amortization was $7,330,000 and $5,925,000 at December 31,
1994 and 1993, respectively. The Company maintains separate financial records
for each of its acquired entities and performs periodic strategic and long-range
planning for each entity. The Company 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 C for an impairment identified during 1993.
NOTE B
DISPOSAL OF PRODUCT LINE
The Company invested in a joint venture with an unrelated company for the
purpose of producing reduced cholesterol liquid whole eggs. Due to significant
continuing losses and lack of adequate market acceptance, the Company decided in
December 1993 to cause early termination of this joint venture. Consequently,
the Company accrued $11,500,000 in 1993 to acquire the interest of its joint
venture partner and $1,202,000 to cover other costs associated with the
termination and recorded a one-time charge of approximately $22,769,000 and a
related income tax benefit of $8,485,000. The Company recorded the acquired
partnership assets at their appraised value and included them in net assets held
for sale in the consolidated balance sheet.
14
<PAGE>
During 1994, the Company completed the acquisition of the joint venture
partner interest for $11,500,000 and liquidated the joint venture. Certain of
the net assets held for sale were sold during 1994. The remaining net assets
held for sale are expected to be sold in 1995.
In 1993, the revenues and expenses directly attributable to the
discontinued product line were net sales of $4,664,000, cost of sales of
$10,545,000, selling, general and administrative expenses of $2,505,000 and
interest income of $697,000. In 1992, the revenues and expenses directly
attributable to the discontinued product line were net sales of $2,397,000, cost
of sales of $3,926,000, selling, general and administrative expenses of
$3,722,000 and interest income of $349,000. The Company thus recorded pre-tax
losses directly attributable to the discontinued product line in 1993 and 1992
of approximately $7,689,000 and $4,902,000, respectively.
NOTE C
RESTRUCTURING CHARGES
During the fourth quarter of 1993, the Company recorded a restructuring charge
to provide for the significant reorganization of the operations of Sunnyside
Vegetable Packing, Inc. ("Sunnyside"). Sunnyside had incurred losses since its
acquisition in 1991. The restructuring charge included $5,129,000 for the
elimination of unamortized goodwill and $2,108,000 for site abandonment,
relocation and other costs. In the fourth quarter of 1994, the Company ceased
its efforts to restructure these operations and completed a sale of Sunnyside's
remaining assets.
During the fourth quarter of 1993, in conjunction with restructuring its
egg operations, the Company recorded restructuring charges of $3,927,000,
primarily related to certain egg production facilities held for sale to reflect
their current net realizable value. At December 31, 1994, one of these
production facilities remained held for sale.
NOTE D
LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Revolving line of
credit (a). . . . . . . . . . . . . $ 29,400,000 $ 23,100,000
9.5% senior promissory
notes (b) . . . . . . . . . . . . . 38,000,000 42,000,000
9.85% senior promissory
notes (c) . . . . . . . . . . . . . 17,200,000 20,000,000
10.4% senior promissory
notes (d) . . . . . . . . . . . . . 12,500,000 15,000,000
Other. . . . . . . . . . . . . . . . . 3,504,000 3,908,000
---------------------------------
100,604,000 104,008,000
Less current maturities. . . . . . . . 11,809,000 9,814,000
---------------------------------
$ 88,795,000 $ 94,194,000
---------------------------------
---------------------------------
</TABLE>
Under the discounted cash flow method, the fair value of total long-term
debt approximates $99,325,000 and $108,221,000 at December 31, 1994 and 1993,
respectively.
Aggregate minimum annual principal payments of long-term debt maturing in
years subsequent to December 31, 1994 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- --------------------------------------------------------------------------------
<S> <C>
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,809,000
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,846,000
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,236,000
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,672,000
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,625,000
2000 and subsequent. . . . . . . . . . . . . . . . . . . . . 4,416,000
------------
$100,604,000
------------
------------
</TABLE>
(a) The Company has an unsecured revolving line of credit with its principal
banks for $55,000,000 with interest at the principal banks' reference rate, or
alternative variable rates, at the Company's option. At December 31, 1994, the
Company had $1,400,000 outstanding at the reference rate of 8.5% and $28,000,000
outstanding at an average variable rate of 6.4%. This revolving line of credit,
which matures on March 31, 1997, contains certain restrictive covenants similar
to the covenants contained in the senior promissory notes. At December 31, 1994,
$25,600,000 of this line was unused.
15
<PAGE>
(b) The 9.5% senior promissory notes are due in varying semi-annual installments
of $3,000,000 to $5,000,000 from June, 1995 through December, 1999. Interest is
payable semi-annually. The notes are unsecured and contain certain restrictive
covenants. The most significant covenants are: minimum net worth requirements,
limitations on additional indebtedness and liens, minimum interest coverage and
limitations on a change in control of the Company.
(c ) The 9.85% senior promissory notes are due in annual installments of
$2,800,000 from October 1995 through October 1999, with the remaining principal
of $3,200,000 due in October, 2000. Interest is payable quarterly. The notes are
unsecured and contain certain restrictive covenants similar to the covenants
contained in the 9.5% senior promissory notes.
(d) The 10.4% senior promissory notes are due in annual installments of
$2,500,000 from December, 1995 through December, 1999, with interest payable
semi-annually. The notes are unsecured and contain certain restrictive covenants
similar to the 9.5% senior promissory notes.
NOTE E
INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal . . . . . . . $2,888,000 $ 1,968,000 $2,390,000
State . . . . . . . . 527,000 412,000 425,000
------------------------------------------------
3,415,000 2,380,000 2,815,000
Deferred
Federal . . . . . . . 5,510,000 (6,746,000) (544,000)
State . . . . . . . . 585,000 (914,000) (96,000)
------------------------------------------------
6,095,000 (7,660,000) (640,000)
------------------------------------------------
$9,510,000 $(5,280,000) $2,175,000
------------------------------------------------
------------------------------------------------
</TABLE>
Included in the 1993 provision for deferred income taxes is a $1,200,000
expense resulting from the increase in enacted Federal income tax rates.
Deferred income taxes arise from temporary differences between financial
and tax reporting. The tax effects of the cumulative temporary differences
resulting in the deferred tax liability are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Depreciation . . . . . . . . . . . . . $33,941,000 $31,609,000
Farm inventory
accounting. . . . . . . . . . . . . 5,726,000 2,349,000
AMT credit . . . . . . . . . . . . . . (3,975,000) (3,275,000)
Disposal of
product line. . . . . . . . . . . . (6,948,000) (8,485,000)
Other. . . . . . . . . . . . . . . . . (4,219,000) (3,768,000)
--------------------------------
$24,525,000 $18,430,000
--------------------------------
--------------------------------
</TABLE>
The following is a reconciliation of the Federal statutory income tax rate
to the consolidated effective tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . 35.0% (35.0)% 34.0%
State tax effect . . . . . . . . . . . . 2.9 (1.5) 3.6
Goodwill . . . . . . . . . . . . . . . . 2.0 10.8 7.4
Tax rate change. . . . . . . . . . . . . - 5.6 -
Other. . . . . . . . . . . . . . . . . . (1.4) (4.3) (9.0)
---------------------------------
38.5% (24.4)% 36.0%
---------------------------------
---------------------------------
</TABLE>
NOTE F
EMPLOYEE RETIREMENT PLANS
Full-time employees of the Company who meet service requirements are eligible to
participate in the Michael Foods, Inc. Retirement Savings Plan. The Company will
match up to 4% of each participant's eligible compensation. Contributions of
$1,256,000, $1,088,000 and $1,204,000 were charged to operations for the years
ended December 31, 1994, 1993 and 1992, respectively.
16
<PAGE>
NOTE G
STOCKHOLDERS' EQUITY
During 1994, the Company purchased 14,562 shares of its common stock for
$300,000 under the terms of a put agreement that was part of a business
acquisition completed in 1989. In 1993, the Company purchased 220,600 shares of
its common stock for $1,828,000 on the open market under a stock repurchase
plan. These shares are held as treasury stock.
The Company's Non-Qualified Stock Option Plan (the "Plan") was adopted by
the Board of Directors on March 20, 1987. The Plan provides for the grant
of options to officers and other key employees of the Company and its
subsidiaries. The ten-year options are generally not exercisable in the first
year and vest ratably over the first five years. The exercise price of the
options granted is typically the fair market value at the date of grant.
Option transactions under the Plan during each of the three years ended
December 31, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1992 . . . . . . . . . . . . . 1,518,461 $7.11-$18.63
Granted. . . . . . . . . . . . . . . . . . . 83,252 8.38- 18.88
Exercised. . . . . . . . . . . . . . . . . . (26,500) 7.11- 12.42
Cancelled. . . . . . . . . . . . . . . . . . (75,599) 8.58- 17.83
---------------------------
Outstanding at
December 31, 1992 . . . . . . . . . . . . 1,499,614 7.11- 18.88
Granted. . . . . . . . . . . . . . . . . . . 226,847 8.00- 10.13
Cancelled. . . . . . . . . . . . . . . . . . (50,231) 9.33- 18.88
---------------------------
Outstanding at
December 31, 1993 . . . . . . . . . . . . 1,676,230 7.11- 18.88
Granted. . . . . . . . . . . . . . . . . . . 59,000 8.13- 12.25
Cancelled. . . . . . . . . . . . . . . . . . (5,253) 10.13- 17.83
---------------------------
Outstanding at
December 31, 1994 . . . . . . . . . . . . 1,729,977 $ 7.11-$18.88
---------------------------
---------------------------
</TABLE>
Options to purchase 1,477,161 shares were exercisable at December 31, 1994.
The Company also has an Incentive Stock Option Plan (the "ISO Plan");
however, no shares have been granted under its provisions. The Company has
reserved 2,142,500 shares for the Plan and the ISO Plan.
The Company's Non-Qualified Stock Option Plan for Non-Employee Directors
(the "Director Plan") was approved by the Stockholders on April 27, 1993. The
Director Plan provides for 150,000 shares reserved for grant. All options are
exercisable one year from the date of grant and have a term of ten years.
Previous to adopting the Director Plan, the Company had a policy of granting
options to non-employee directors upon election or appointment.
Option transactions under the Director Plan during each of the three years
ended December 31, are summarized as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
- --------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at
January 1, 1992 . . . . . . . . . . . . . 90,000 $7.11-$14.67
Exercised. . . . . . . . . . . . . . . . . . (45,000) 7.11- 9.78
-------------------------
Outstanding at
December 31, 1992 . . . . . . . . . . . . 45,000 9.67- 14.67
Granted. . . . . . . . . . . . . . . . . . . 20,000 7.63- 10.13
Cancelled. . . . . . . . . . . . . . . . . . (16,250) 9.67- 11.25
-------------------------
Outstanding at
December 31, 1993 . . . . . . . . . . . . 48,750 7.63- 14.67
Granted. . . . . . . . . . . . . . . . . . . 5,000 13.00
Cancelled. . . . . . . . . . . . . . . . . . (11,250) 12.42
-------------------------
Outstanding at
December 31, 1994 . . . . . . . . . . . . 42,500 $7.63-$14.67
-------------------------
-------------------------
</TABLE>
NOTE H
MAJOR CUSTOMER
Sales to one customer accounted for 10% of consolidated net sales in 1994.
17
<PAGE>
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
MICHAEL FOODS, INC.
We have audited the accompanying consolidated balance sheets of Michael Foods,
Inc. and Subsidiaries as of December 31, 1994 and 1993 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1994. 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 Michael Foods,
Inc. and Subsidiaries as of December 31, 1994 and 1993 and the consolidated
results of their operations and their consolidated cash flows for each of the
three years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 15, 1995
<PAGE>
REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON SCHEDULE
Board of Directors
Michael Foods, Inc.
In connection with our audit of the consolidated financial statements
of Michael Foods, Inc. and Subsidiaries referred to in our report dated
February 15, 1995, which is included in Part IV of the Annual Report on Form 10-
K of North Star Universal, Inc. for the year ended December 31, 1994, we have
also audited Schedule II, of Michael Foods, Inc. and Subsidiaries for each of
the three years in the period ended December 31, 1994. In our opinion, this
schedule presents fairly, in all material respects, the information required to
be set forth therein.
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 15, 1995
<PAGE>
SCHEDULE II
MICHAEL FOODS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D. Col. E
- ---------------------------------------------------------------------------------------------------------------
Additions
------------------------------
(2)
(1) Charges to
Balance at Charged to Other Balance at
Beginning Costs and Accounts- Deductions- End of
Description of Period Expenses Describe Describe (a) Period
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
For the Year Ended
December 31, 1992:
Allowance for
Doubtful Accounts $398,000 $380,000 $0 $332,000 $446,000
For the Year Ended
December 31, 1993:
Allowance for
Doubtful Accounts $446,000 $756,000 $0 $319,000 $883,000
For the Year Ended:
December 31, 1994
Allowance for
Doubtful Accounts $883,000 $314,000 $0 $502,000 $695,000
<FN>
_________________________________________________
(a) Write-offs of accounts deemed uncollectible
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit Page
Number Number
- ------- ------
3.2 Amended and Restated Bylaws of the Company
4.3 Form of Second Supplemental Indenture
10.10 Fourth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 3, 1994, between the Company and First
Bank National Association
10.11 Waiver and Fifth Amendment to Restated and Amended Revolving
Credit Loan Amendment, dated March 16, 1994, between the Company
and First Bank National Association
10.12 Sixth Amendment to Restated and Amended Revolving Credit Loan
Amendment, dated January 31, 1995, between the Company and First
Bank National Association
10.26 First Amendment to Amended and Restated Loan and Security
Agreement, dated November 29, 1993, among Americable, Inc.,
Transition Engineering, Inc., Cable Distributions Systems, Inc.
and First Bank National Association
10.27 Waiver and Second Amendment to Amended and Restated Loan and
Security Agreement, dated as of March 3, 1995, among Americable,
Inc., Transition Engineering, Inc., Cable Distributions Systems,
Inc. and First Bank National Association
10.28 Supplement A to Amended and Restated Loan and Security Agreement,
dated June 1, 1993, among Americable, Inc., Transition
Engineering, Inc., Cable Distributions Systems, Inc. and First
Bank National Association
10.29 Amended, Restated and Consolidated Credit Agreement, dated as of
August 1, 1994, by and between C.E. Services, Inc. and Texas
Commerce Bank National Association
10.30 First Amendment to Amended, Restated and Consolidated Credit
Agreement, dated as of December 27, 1994, by and between C.E.
Services, Inc. and Texas Commerce Bank National Association
<PAGE>
10.31 Continuing Guaranty by North Star Universal, Inc., dated December
1994, to Texas Commerce Bank National Association, for
indebtedness of C.E. Services, Inc.
12.5 Computation of Ratio of Earnings to Fixed Charges
13.1 1994 Annual Report to Shareholders
21.1 Subsidiaries of the Registrant
23.1 Consent of Independent Certified Public
Accountants
27.1 Financial Data Schedule
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
NORTH STAR UNIVERSAL, INC.
ARTICLE I.
OFFICES, CORPORATE SEAL
Section 1.01. REGISTERED OFFICE. The registered office of the
corporation in Minnesota shall be that set forth in the articles of
incorporation or in the most recent amendment of the articles of incorporation
or resolution of the directors filed with the Secretary of State of the State of
Minnesota changing the registered office.
Section 1.02. OTHER OFFICES. The corporation may have such other
offices, within or without the State of Minnesota, as the directors shall, from
time to time, determine.
Section 1.03. CORPORATE SEAL. The corporation shall have no seal.
ARTICLE II.
MEETINGS OF SHAREHOLDERS
Section 2.01. PLACE AND TIME OF MEETINGS. Except as provided
otherwise by the Minnesota Business Corporation Act, meetings of the
shareholders may be held at any place, within or without the State of Minnesota,
as may from time to time be designated by the directors and, in the absence of
such designation, shall be held at the registered office of the corporation in
the state of Minnesota. The directors shall designate the time of day for each
meeting and, in the absence of such designation, every meeting of shareholders
shall be held at four o'clock p.m.
Section 2.02. REGULAR MEETINGS.
(a) A regular meeting of the shareholders may be held on such date as
the Board of Directors may by resolution establish.
(b) At a regular meeting, the shareholders, voting as provided in the
articles of incorporation and these bylaws, shall elect qualified successors for
directors who serve for an indefinite term or whose terms have expired or are
due to expire within six months after the date of the meeting and shall transact
such other business as may properly come before them.
Section 2.03. SPECIAL MEETINGS. Special meetings of the shareholders
may be held at any time and for any purpose and may be called by the chief
executive officer, the chief financial officer, two or more directors or by a
shareholder or shareholders holding 10% or more of the voting power of all
shares entitled to vote, except that a special meeting for the purpose of
considering any
<PAGE>
action to directly or indirectly facilitate or effect a business combination,
including any action to change or otherwise affect the composition of the Board
of Directors for that purpose, must be called by 25% or more of the voting power
of all shares entitled to vote. A shareholder or shareholders holding the
requisite percentage of the voting power of all shares entitled to vote may
demand a special meeting of the shareholders by written notice of demand given
to the chief executive officer or chief financial officer of the corporation and
containing the purposes of the meeting. Within 30 days after receipt of demand
by one of those officers, the Board of Directors shall cause a special meeting
of shareholders to be called and held on notice no later than 90 days after
receipt of the demand, at the expense of the corporation. Special meetings
shall be held on the date and at the time and place fixed by the chief executive
officer or the Board of Directors, except that a special meeting called by or at
the demand of a shareholder or shareholders shall be held in the county where
the principal executive office is located. The business transacted at a special
meeting shall be limited to the purposes as stated in the notice of the meeting.
Section 2.04. QUORUM, ADJOURNED MEETINGS. The holders of a majority
of the shares entitled to vote at a meeting shall constitute a quorum for the
transaction of business at any regular or special meeting. In case a quorum
shall not be present at a meeting, the meeting may be adjourned, and notice
shall be given (a) by announcement at the time of adjournment of the date, time
and place of the adjourned meeting, or (b) by notice of such adjourned meeting,
setting out the date, time and place of the adjourned meeting, mailed to each
shareholder entitled to vote at a meeting, at least 3 days before the date of
such adjourned meeting. If a quorum is present, a meeting may be adjourned from
time to time without notice other than announcement at the time of adjournment
of the date, time and place of the adjourned meeting. At adjourned meetings at
which a quorum is present, any business may be transacted which might have been
transacted at the meeting as originally noticed. If a quorum is present when a
duly called or held meeting is convened, the shareholders present may continue
to transact business until adjournment, notwithstanding the withdrawal of enough
shareholders originally present to leave less than a quorum.
Section 2.05. VOTING. At each meeting of the shareholders every
shareholder having the right to vote shall be entitled to vote either in person
or by proxy. Each shareholder, unless the articles of incorporation or statutes
provide otherwise, shall have one vote for each share having voting power
registered in such shareholder's name on the books of the corporation. Jointly
owned shares may be voted by any joint owner unless the corporation receives
written notice from any one of them denying the authority of that person to vote
those shares. Upon the demand of any shareholder, the vote upon any question
before the meeting shall be by ballot. All questions shall be decided by the
greater of (1) a majority of the voting power of the shares present and entitled
to vote on that item of business, or (2) a majority of the number of shares
entitled to vote that would constitute a quorum for the transaction of business
at the meeting except if otherwise required by statute, the articles of
incorporation, or these bylaws.
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Section 2.06. DETERMINATION DATE. The Board of Directors may fix a
date, not fewer than ten, nor more than 60 days, preceding the date of any
meeting of shareholders, as the date for the determination of the shareholders
entitled to notice of, and to vote at, such meeting, notwithstanding any
transfer of shares on the books of the corporation after any determination date
so fixed. If the Board of Directors fails to fix a date for determination of
the shareholders entitled to notice of, and to vote at, any meeting of
shareholders, the determination date shall be the 20th day preceding the date of
such meeting.
Section 2.07. NOTICE OF MEETINGS. There shall be mailed to each
shareholder, shown by the books of the corporation to be a holder of record of
voting shares, at such holder's address as shown by the books of the
corporation, a notice setting out the date, time and place of each regular
meeting and each special meeting, except (unless otherwise provided in Section
2.04 hereof) where the meeting is an adjourned meeting and the date, time and
place of the meeting were announced at the time of adjournment, which notice
shall be mailed at least five days prior thereto (unless otherwise provided in
Section 2.04 hereof). Every notice of any special meeting called pursuant to
Section 2.03 hereof shall state the purpose or purposes for which the meeting
has been called, and the business transacted at all special meetings shall be
confined to the purposes stated in the notice. The written notice of any
meeting at which a plan of merger or exchange is to be considered shall so state
such as a purpose of the meeting. A copy or short description of the plan of
merger or exchange shall be included in or enclosed with such notice.
Section 2.08. WAIVER OF NOTICE. Notice of any regular or special
meeting may be waived by any shareholder either before, at or after such
meeting, orally or in a writing signed by such shareholder or a representative
entitled to vote the shares of such shareholder. A shareholder, by attendance
at any meeting of shareholders, shall be deemed to have waived notice of such
meeting, except where the shareholder objects at the beginning of the meeting to
the transaction of business because the meeting is not lawfully called or
convened, or objects before a vote on an item of business because the item may
not lawfully be considered at such meeting and does not participate in the
consideration of the item at that meeting.
ARTICLE III.
DIRECTORS
Section 3.01. GENERAL POWERS. The business and affairs of the
corporation shall be managed by or under the authority of the Board of
Directors, except as otherwise permitted by statute.
Section 3.02. NUMBER, QUALIFICATIONS AND TERM OF OFFICE. The size of
the Board of Directors shall be fixed by the Board of Directors within the
limits prescribed by the statute and the articles of incorporation. Directors
shall be natural persons, but need not be shareholders. Each of the directors
shall hold office until the regular meeting of shareholders next held after such
director's election and until such director's successor shall have been elected
and shall qualify, or until the earlier death, resignation, removal, or
disqualification of such director.
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Section 3.03. BOARD MEETINGS. Meetings of the Board of Directors may
be held from time to time at such time and place within or without the state of
Minnesota as may be designated in the notice of such meeting.
Section 3.04. CALLING MEETINGS; NOTICE. Meetings of the Board of
Directors may be called by the chairman of the Board by giving at least
twenty-four hours' notice, or by any other director by giving at least five
days' notice, of the date, time and place thereof to each director, by mail,
telephone, telegram or in person. If the day or date, time and place of a
meeting of the Board of Directors have been announced at a previous meeting of
the Board, no notice is required. Notice of an adjourned meeting of the Board
of Directors need not be given other than by announcement at the meeting at
which adjournment is taken.
Section 3.05. WAIVER OF NOTICE. Notice of any meeting of the Board
of Directors may be waived by any director either before, at, or after such
meeting, orally or in a writing signed by such director. A director, by his or
her attendance at any meeting of the Board of Directors, shall be deemed to have
waived notice of such meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting is
not lawfully called or convened and such objecting director does not participate
thereafter in the meeting.
Section 3.06. QUORUM. A majority of the directors holding office
immediately prior to a meeting of the Board of Directors shall constitute a
quorum for the transaction of business at such meeting.
Section 3.07. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors. If such director is not present at the meeting, consent or
opposition to a proposal does not constitute presence for purposes of
determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted upon
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
Section 3.08. ELECTRONIC COMMUNICATIONS. Any or all directors may
participate in any meeting of the Board of Directors, or of any duly constituted
committee thereof, by any means of communication through which the directors may
simultaneously hear each other during such meeting. For the purposes of
establishing a quorum and taking any action at the meeting, such directors
participating pursuant to this Section 3.08 shall be deemed present in person at
the meeting; and the place of the meeting shall be the place of origination of
the conference telephone conversation or other comparable communication
technique, unless otherwise specified in the notice of such meeting.
Section 3.09. VACANCIES; NEWLY CREATED DIRECTORSHIPS. Vacancies on
the Board of Directors of this corporation occurring by reason of death,
resignation,
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removal or disqualification shall be filled for the unexpired term by the
affirmative vote of a majority of the remaining directors of the Board although
less than a quorum; newly created directorships resulting from an increase in
the authorized number of directors by action of the Board of Directors as
permitted by Section 3.02 may be filled by the affirmative vote of a majority
vote of the directors serving at the time of such increase; and each director
elected pursuant to this Section 3.09 shall be a director until such director's
successor is elected by the shareholders at their next regular or special
meeting.
Section 3.10. REMOVAL. Any or all of the directors may be removed
from office at any time, with or without cause, by the affirmative vote of the
shareholders holding a majority of the shares entitled to vote at an election of
directors, except as otherwise provided by the Minnesota Business Corporation
Act, Section 302A.223, as amended. A director named by the Board of Directors
to fill a vacancy may be removed from office at any time, with or without cause,
by the affirmative vote of the remaining directors if the shareholders have not
elected directors in the interim between the time of the appointment to fill
such vacancy and the time of the removal. In the event that the entire Board or
any one or more directors be so removed, new directors may be elected at the
same meeting.
Section 3.11. COMMITTEES. A resolution approved by the affirmative
vote of a majority of the Board of Directors may establish committees having the
authority of the Board in the management of the business of the corporation to
the extent provided in the resolution. A committee shall consist of one or more
natural persons, who need not be directors, appointed by affirmative vote of a
majority of the directors present. Committees are subject to the direction and
control of, and vacancies in the membership thereof shall be filled by, the
Board of Directors, except as provided by the Minnesota Business Corporation
Act, Section 302A.241, Subd. 1.
A majority of the members of the committee present at a meeting is a
quorum for the transaction of business, unless a larger or smaller proportion or
number is provided in a resolution approved by the affirmative vote of a
majority of the directors present.
Section 3.12. COMMITTEE OF DISINTERESTED PERSONS. The Board may
establish a committee composed of two or more disinterested directors or other
disinterested persons to determine whether it is in the best interests of the
corporation to pursue a particular legal right or remedy of the corporation and
whether to cause the dismissal or discontinuance of a particular proceeding that
seeks to assert a right of remedy on behalf of the corporation. The committee,
once established, is not subject to the direction or control of, or termination
by, the Board. A vacancy on the committee may be filled by a majority vote of
the remaining committee members. The good faith determinations of the committee
are binding upon the corporation and its directors, officers and shareholders.
The committee terminates when it issues a written report of its determinations
to the Board.
Section 3.13. WRITTEN ACTION. Any action which might be taken at a
meeting of the Board of Directors, or any duly constituted committee thereof,
except
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for those actions which must be approved by the shareholders, may be taken
without a meeting if done in writing and signed by the number of directors that
would be required to take the same action at a meeting of the Board at which all
directors were present, as permitted by the corporation's articles of
incorporation.
Section 3.14. COMPENSATION. Directors who are not salaried officers
of this corporation, shall receive such fixed sum per Board or committee meeting
attended or such fixed annual sum as shall be determined, from time to time, by
resolution of the Board of Directors. Salaried officers of this corporation who
also serve as directors may also receive such fixed sum per Board or committee
meeting attended or such fixed annual sum, in either case, in an amount equal to
that paid to the other directors, at the discretion of the Board of Directors.
The Board of Directors may, by resolution, provide that all directors shall
receive their expenses, if any, of attendance at meetings of the Board of
Directors or any committee thereof. Nothing herein contained shall be construed
to preclude any director from serving this corporation in any other capacity and
receiving proper compensation therefor.
ARTICLE IV.
OFFICERS
Section 4.01. NUMBER. The corporation shall have one or more natural
persons exercising the function of Chief Executive Officer and Chief Financial
Officer. The Board of Directors may elect or appoint such other officers or
agents as it deems necessary for the operation and management of the
corporation, with such rights, powers, duties and responsibilities as may be
determined by these bylaws, or the Board, including, without limitation, a
chairman of the Board, a president, one or more vice presidents, a treasurer and
a secretary. Any number of offices may be held by the same person.
Section 4.02. ELECTION, TERM OF OFFICE AND QUALIFICATIONS. The Board
of Directors shall elect or appoint, by resolution approved by the affirmative
vote of a majority of the directors present, from within or without their
number, the president, treasurer and such other officers as may be deemed
advisable, each of whom shall have the powers, rights, duties, responsibilities,
and terms of office provided for in these bylaws or a resolution of the Board of
Directors not inconsistent therewith. The president and all other officers who
may be directors shall continue to hold office until the election and
qualification of their successors, notwithstanding an earlier termination of
their directorship.
Section 4.03. REMOVAL AND VACANCIES. Any officer may be removed from
office by the affirmative vote of a majority of the Board of Directors at any
time, with or without cause. Such removal, however, shall be without prejudice
to the contract rights of the person so removed. If there be a vacancy in an
office of the corporation by reason of death, resignation, removal,
disqualification or otherwise, such vacancy shall be filled for the unexpired
term by the Board of Directors.
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Section 4.04. CHAIRMAN OF THE BOARD. The chairman of the Board, if
one is elected, shall preside at all meetings of the directors and shall have
such other duties as may be prescribed, from time to time, by the Board of
Directors.
Section 4.05. PRESIDENT. The president shall be the chief executive
officer and shall have general active management of the business of the
corporation. In the absence of the chairman of the Board, the president shall
preside at all meetings of the directors. The president shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
president shall execute and deliver, in the name of the corporation, any deeds,
mortgages, bonds, contracts or other instruments pertaining to the business of
the corporation unless the authority to execute and deliver is required by law
to be exercised by another person or is expressly delegated by the articles or
bylaws or by the Board of Directors to some other officer or agent of the
corporation. The president shall maintain records of and, whenever necessary,
certify all proceedings of the Board of Directors and the shareholders, and in
general, shall perform all duties usually incident to the office of the
president, and shall have such other duties as may, from time to time, be
prescribed by the Board of Directors.
Section 4.06. VICE PRESIDENT. Each vice president, if one or more is
elected, shall have such powers and shall perform such duties as prescribed by
the Board of Directors or by the president. In the event of the absence or
disability of the president, the vice president(s) shall succeed to the
president's power and duties in the order designated by the Board of Directors.
Section 4.07. SECRETARY. The secretary, if one is elected, shall be
secretary of and shall attend all meetings of the shareholders and Board of
Directors and shall record all proceedings of such meetings in the minute book
of the corporation, shall give or cause to be given proper notice of meetings of
shareholders and directors, and shall perform such other duties as may, from
time to time, be prescribed by the Board of Directors or by the president.
Section 4.08. TREASURER. The treasurer shall be the chief financial
officer and shall keep accurate financial records for the corporation, and shall
deposit all moneys, drafts and checks in the name of, and to the credit of, the
corporation, in such banks and depositories as the Board of Directors shall,
from time to time, designate. The treasurer shall have power to endorse, or
caused to be endorsed, for deposit, all notes, checks and drafts received by the
corporation, and shall disburse the funds of the corporation, as ordered by the
Board of Directors, making proper vouchers therefor. The treasurer shall render
to the president and the directors, whenever requested, an account of all
transactions as treasurer and of the financial condition of the corporation, and
shall perform such other duties as may, from time to time, be prescribed by the
Board of Directors or by the president.
Section 4.09. COMPENSATION. The officers of the corporation shall
receive such compensation for their services as may be determined, from time to
time, by resolution of the Board of Directors.
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ARTICLE V.
SHARES AND THEIR TRANSFER
Section 5.01. CERTIFICATES FOR SHARES. All shares of the corporation
shall be certificated shares. Every owner of shares of the corporation shall be
entitled to a certificate, to be in such form as shall be prescribed by the
Board of Directors, in accordance with the Minnesota Business Corporation Act,
Section 302A.417, Subd. 4. The certificates for such shares shall be numbered
in the order in which they shall be issued and shall be signed, in the name of
the corporation, by the president and by the secretary or an assistant secretary
or by such officers as the Board of Directors may designate. If the certificate
is signed by a transfer agent or registrar, such signatures of the corporate
officers may be by facsimile, if authorized by the Board of Directors. Every
certificate surrendered to the corporation for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange for
any existing certificate until such existing certificate shall have been so
canceled, except in cases provided for in Section 5.04.
Section 5.02. ISSUANCE OF SHARES. The Board of Directors is
authorized to cause to be issued shares of the corporation up to the full amount
authorized by the articles of incorporation in such amounts and representing
such classes and series, if any, as may be determined by the Board of Directors
and as may be permitted by law and the articles of incorporation. Shares may be
issued for any consideration, including, without limitation, in consideration of
money or other property, tangible or intangible, received or to be received by
the corporation under a written agreement, or of services rendered or to be
rendered to the corporation under a written agreement. At the time of approval
of the issuance of shares, the Board of Directors shall state, by resolution,
its determination of the fair value to the corporation in monetary terms of any
consideration other than cash for which shares are to be issued.
Section 5.03. TRANSFER OF SHARES. Transfer of shares on the books of
the corporation may be authorized only by the shareholder named in the
certificate, or the shareholder's legal representative, or the shareholder's
duly authorized attorney-in-fact, and upon surrender of the certificate or the
certificates for such shares. The corporation may treat as the absolute owner
of shares of the corporation, the person or persons in whose name shares are
registered on the books of the corporation.
Section 5.04. LOSS OF CERTIFICATES. Except as otherwise provided by
the Minnesota Business Corporation Act, Section 302A.419, as amended, any
shareholder claiming a certificate for shares to be lost, stolen, or destroyed
shall make an affidavit of that fact in such form as the Board of Directors
shall require and shall, if the Board of Directors so requires, give the
corporation a bond of indemnity in form, in an amount, and with one or more
sureties satisfactory to the Board of Directors, to indemnify the corporation
against any claim which may be made against it on account of the reissuance of
such certificate, whereupon a new
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certificate may be issued in the same tenor and for the same number of shares as
the one alleged to have been lost, stolen or destroyed.
ARTICLE VI.
DISTRIBUTIONS, RECORD DATE
Section 6.01. DISTRIBUTIONS. Subject to the provisions of the
articles of incorporation, of these bylaws, and of law, the Board of Directors
may authorize and cause the corporation to make distributions whenever, and in
such amounts or forms as, in its opinion, are deemed advisable.
Section 6.02. RECORD DATE. Subject to any provisions of the articles
of incorporation, the Board of Directors may fix a date not exceeding 120 days
preceding the date fixed for the payment of any distribution as the record date
for the determination of the shareholders entitled to receive payment of the
distribution and, in such case, only shareholders of record on the date so fixed
shall be entitled to receive payment of such distribution notwithstanding any
transfer of shares on the books of the corporation after the record date.
ARTICLE VII.
BOOKS AND RECORDS, FISCAL YEAR
Section 7.01. SHARE REGISTER. The Board of Directors of the
corporation shall cause to be kept at its principal executive office, or at
another place or places within the United States determined by the Board:
(1) a share register not more than one year old, containing the names
and addresses of the shareholders and the number and classes of
shares held by each shareholder; and
(2) a record of the dates on which certificates or transaction
statements representing shares were issued.
Section 7.02. OTHER BOOKS AND RECORDS. The Board of Directors shall
cause to be kept at its principal executive office, or, if its principal
executive office is not in Minnesota, shall make available at its Minnesota
registered office within ten days after receipt by an officer of the corporation
of a written demand for them made by a shareholder or other person authorized by
the Minnesota Business Corporation Act, Section 302A.461, as amended, originals
or copies of:
(1) records of all proceedings of shareholders for the last three
years;
(2) records of all proceedings of the Board for the last three years;
(3) its articles of incorporation and all amendments currently in
effect;
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(4) its bylaws and all amendments currently in effect;
(5) financial statements required by the Minnesota Business
Corporation Act, Section 302A.463 and the financial statements
for the most recent interim period prepared in the course of the
operation of the corporation for distribution to the shareholders
or to a governmental agency as a matter of public record;
(6) reports made to shareholders generally within the last three
years;
(7) a statement of the names and usual business addresses of its
directors and principal officers; and
(8) any shareholder voting or control agreements of which the
corporation is aware.
Section 7.03. FISCAL YEAR. The fiscal year of the corporation shall
be determined by the Board of Directors.
ARTICLE VIII.
LOANS, GUARANTEES, SURETYSHIP
Section 8.01. The corporation may lend money to, guarantee an
obligation of, become a surety for, or otherwise financially assist a person if
the transaction, or a class of transactions to which the transaction belongs, is
approved by the affirmative vote of a majority of the directors present, and:
(1) is in the usual and regular course of business of the
corporation;
(2) is with, or for the benefit of, a related corporation, an
organization in which the corporation has a financial interest,
an organization with which the corporation has a business
relationship, or an organization to which the corporation has the
power to make donations;
(3) is with, or for the benefit of, an officer or other employee of
the corporation or a subsidiary, including an officer or employee
who is a director of the corporation or a subsidiary, and may
reasonably be expected, in the judgment of the Board, to benefit
the corporation; or
(4) has been approved by (a) the holders of two-thirds of the voting
power of the shares entitled to vote which are owned by persons
other than the interested person or persons, or (b) the
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unanimous affirmative vote of the holders of all outstanding
shares whether or not entitled to vote.
Such loan, guarantee, surety contract or other financial assistance may be with
or without interest, and may be unsecured, or may be secured in the manner as a
majority of the directors present approve, including, without limitation, a
grant of or other security interest in shares of the corporation. Nothing in
this section shall be deemed to deny, limit or restrict the powers of guaranty,
surety or warranty of the corporation at common law or under a statute of the
state of Minnesota.
ARTICLE IX.
INDEMNIFICATION OF CERTAIN PERSONS
Section 9.01. INDEMNIFICATION. The corporation shall indemnify all
officers and directors of the corporation, for such expenses and liabilities, in
such manner, under such circumstances and to such extent as permitted by
Minnesota Business Corporation Act Section 302A.521, as now enacted or hereafter
amended. Unless otherwise approved by the Board of Directors, the corporation
shall not indemnify any employee of the corporation who is not otherwise
entitled to indemnification pursuant to the prior sentence of this Section 9.01.
Section 9.02. INSURANCE. The corporation may purchase and maintain
insurance on behalf of any person in such person's official capacity against any
liability asserted against and incurred by such person in or arising from that
capacity, whether or not the corporation would otherwise be required to
indemnify the person against the liability.
ARTICLE X.
AMENDMENTS
These bylaws may be amended or altered by a vote of the majority of
the whole Board of Directors at any meeting. Such authority of the Board of
Directors is subject to the power of the shareholders, exercisable in the manner
provided in the Minnesota Business Corporation Act, Section 302A.181, Subd. 3,
to adopt, amend, or repeal bylaws adopted, amended, or repealed by the Board of
Directors. The Board of Directors shall not adopt, amend or repeal any bylaws
fixing a quorum for meetings of shareholders, prescribing procedures for
removing directors or filling vacancies in the Board of Directors, or fixing the
number of directors or their classifications, qualifications, or terms of
office, except that the Board of Directors may adopt or amend any bylaw to
increase their number.
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ARTICLE XI.
SECURITIES OF OTHER CORPORATIONS
Section 11.01. VOTING SECURITIES HELD BY THE CORPORATION. Unless
otherwise ordered by the Board of Directors, the president shall have full power
and authority on behalf of the corporation (a) to attend any meeting of security
holders of other corporations in which the corporation may hold securities and
to vote such securities on behalf of this corporation; (b) to execute any proxy
for such meeting on behalf of the corporation; or (c) to execute a written
action in lieu of a meeting of such other corporation on behalf of this
corporation. At such meeting, the president shall possess and may exercise any
and all rights and powers incident to the ownership of such securities that the
corporation possesses. The Board of Directors may, from time to time, grant
such power and authority to one or more other persons and may remove such power
and authority from the president or any other person or persons.
Section 11.02. PURCHASE AND SALE OF SECURITIES. Unless otherwise
ordered by the Board of Directors, the president shall have full power and
authority on behalf of the corporation to purchase, sell, transfer or encumber
any and all securities of any other corporation owned by the corporation, and
may execute and deliver such documents as may be necessary to effectuate such
purchase, sale, transfer or encumbrance. The Board of Directors may, from time
to time, confer like powers upon any other person or persons.
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SECOND SUPPLEMENTAL INDENTURE
BETWEEN
NORTH STAR UNIVERSAL, INC.
AND
NATIONAL CITY BANK OF MINNEAPOLIS
AS
TRUSTEE
____________________
SUBORDINATED TIME CERTIFICATES
____________________
Dated
as of
March 16, 1995
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<PAGE>
SECOND SUPPLEMENTAL INDENTURE
Pertaining to
North Star Universal, Inc.
Subordinated Time Certificates
This Second Supplemental Indenture, dated as of the 16th day of March,
1995 (the "Second Supplemental Indenture"), is made by and between North Star
Universal, Inc., a Minnesota corporation (the "Company"), and National City Bank
of Minneapolis, a National Banking Association (the "Trustee").
WHEREAS, the Company has heretofore entered into a trust indenture,
dated as of April 26, 1989 (the "Trust Indenture"), with the Trustee, which
Trust Indenture provides in Section 9.01 that the Company and Trustee may make
certain amendments to the Trust Indenture;
WHEREAS, the Company has heretofore entered into a first supplemental
indenture, dated as of March 16, 1992 (the "First Supplement"), with the
Trustee, which provided for the issuance of an additional $40,000,000 in
aggregate principal amount of Time Certificates under the Trust Indenture;
WHEREAS, the Company desires to amend the Trust Indenture to allow for
the authentication and issuance of an additional $40,000,000 in aggregate
principal amount of Time Certificates under the Trust Indenture;
WHEREAS, such amendment to the Trust Indenture may be effected without
the consent of the Certificateholders pursuant to Section 9.01(4) of the Trust
Indenture;
WHEREAS, in connection with the above described amendment to the Trust
Indenture, the Company and the Trustee desire to modify the Time Certificates,
in substantially the form of Exhibit E and Exhibit F attached hereto, to reflect
the execution and delivery of this Second Supplemental Indenture;
WHEREAS, a resolution duly adopted by the Board of Directors of the
Company on March 15, 1995 authorizes and provides for the execution,
acknowledgment and delivery of this Second Supplemental Indenture; and
WHEREAS, the Company and the Trustee have in all respects complied
with the provisions of the Trust Indenture.
NOW, THEREFORE, the Company and the Trustee, in consideration of the
mutual premises and covenants herein contained, agree as follows:
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<PAGE>
SECTION 1. DEFINITIONS. In addition to the words and terms
otherwise defined in this Second Supplemental Indenture, capitalized words and
terms not otherwise defined herein shall have the same meanings as set forth in
the Trust Indenture, unless the context or use indicates another or different
meaning or intent.
SECTION 2. AMENDMENTS TO TRUST INDENTURE.
AMENDMENT I
The references to Exhibit A and Exhibit B in Section 2.01 to the Trust
Indenture shall hereinafter be deemed to refer to Exhibit E and Exhibit F,
respectively, which are attached hereto.
AMENDMENT II
Paragraph (a) of Section 2.02 of the Trust Indenture is hereby amended
to state in its entirety as follows:
(a) GENERAL PROVISIONS. The aggregate principal amount of Time
Certificates which may be authenticated and delivered under this Indenture
is limited to $120,000,000.00 (except for Time Certificates authenticated
upon transfer of, in exchange for, or in lieu of other Time Certificates
pursuant to Sections 2.07 and 2.08) and may be issued in one or more
series.
SECTION 3. COUNTERPARTS. This Second Supplemental Indenture may be
executed in several counterparts, each of which shall be an original and all of
which shall constitute but one and the same instrument.
SECTION 4. RELATION TO TRUST INDENTURE. This Second Supplemental
Indenture shall be construed in connection with and as a part of the Trust
Indenture. As amended hereby, the Trust Indenture shall be read, taken and
construed as one and the same instrument.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Second
Supplemental Indenture to be duly executed and attested, all as of the day and
year first above written.
Attest: NORTH STAR UNIVERSAL, INC.
/s/ Jeffrey J. Michael By /s/ Peter E. Flynn
- ----------------------------------- ----------------------------------------
Jeffrey J. Michael Peter E. Flynn
President and Chief Executive Executive Vice President and Chief
Officer Financial Officer
Attest: NATIONAL CITY BANK OF
MINNEAPOLIS
/s/ Linda S. Sowers By /s/ Karen Omtvedt
- ----------------------------------- ----------------------------------------
Linda S. Sowers Katen Omtvedt
Corporate Trust Administrator Vice President
-3-
<PAGE>
Exhibit E
[FORM OF FACE OF EXTENDIBLE TIME CERTIFICATE]
NORTH STAR UNIVERSAL, INC.
Subordinated Extendible Time Certificates
No. ________________________________ $__________________________
Certificate:
[ ] Six Month Subordinated Extendible Time Certificate
[ ] Twelve Month Subordinated Extendible Time Certificate
DATE OF ISSUE: ________________________ STATED MATURITY: _____________
INITIAL INTEREST RATE: ________________ INTEREST PAYMENT DATES:
INTEREST RATE ADJUSTMENT: _______________________________
[ ] Six Months [ ] Twelve Months
HOLDER: _______________________________ PRINCIPAL AMOUNT: ____________
NORTH STAR UNIVERSAL, INC., a Minnesota corporation (herein called the
"Company"), for value received, hereby promises to pay to the Holder, or
registered assigns, the Principal Amount on the Stated Maturity and to pay
interest thereon from the Date of Issue, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, semiannually
on each Interest Payment Date, at the rate per annum as adjusted and in effect
from time to time while this Extendible Time Certificate is outstanding as
provided below and on the reverse hereof, until the principal hereof is paid or
made available for payment. Interest will be calculated based on a 360-day
year. The interest so payable, on any Interest Payment Date will, except as
provided in the Indenture referred to below and on the reverse hereof, be paid
to the person in whose name this Extendible Time Certificate is registered at
the close of business on the 15th calendar day prior to such interest payment
date whether or not such day is a business day.
Reference is made to the further provisions of this Extendible Time
Certificate set forth below and on the reverse hereof. Such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
<PAGE>
Dated:______________________________ NORTH STAR UNIVERSAL, INC.
By:_____________________________________
President
Authenticated:
National City Bank of
Minneapolis, as Trustee
By:_________________________________
Authorized Signature
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<PAGE>
NORTH STAR UNIVERSAL, INC.
Subordinated Extendible Time Certificates
1. INDENTURE. This Extendible Time Certificate is one certificate in
a series of Time Certificates issued under an Indenture dated as of April 26,
1989, as amended as of March 16, 1992 and March 16, 1995 ("Indenture") between
the Company and National City Bank of Minneapolis, as trustee (the "Trustee").
The terms of the Time Certificates include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of
1939, as amended by the Trust Indenture Reform Act of 1990, (15 U.S. Code
77aaa-77bbbb) as in effect on the date of the Indenture. The Time Certificates
are subject to all such terms, and Holders of the Time Certificates are referred
to the Indenture and the Act for a statement of such terms. The Time
Certificates are unsecured general obligations of the Company currently limited
to $120,000,000 in aggregate principal amount.
2. INTEREST RATE ADJUSTMENT AND ROLL-OVER. If the interest rate
applicable to this Extendible Time Certificate shall adjust every six months,
the first adjustment shall occur on the same calendar day as the sixth month
following the Date of Issue of such certificate. If, however, the Date of Issue
was the 29th, 30th or 3lst day of any calendar month and the calendar month six
months following the Date of Issue does not include the actual calendar day of
the Date of Issue, then the interest rate shall be adjusted on the last calendar
day of the sixth month following the Date of Issue. Thereafter, the interest
rate will continue to adjust every six months on the anniversary date of the
Date of Issue and on the anniversary date of the date of the first interest rate
adjustment until the maturity, unless earlier redeemed. If the interest rate
applicable to the Extendible Time Certificate shall adjust every twelve months,
the interest rate applicable to this Extendible Time Certificate shall adjust on
the anniversary date of the Date of Issue. Each date on which the interest rate
applicable to this Extendible Time Certificate 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 this Extendible Time Certificate until
the next Roll-Over Date.
The Company will give the Holder of this Extendible Time Certificate
written notice at least ten business days prior to a Roll-Over Date (a "Notice
Date") which shall set forth the Roll-Over Date and the interest rate applicable
to this series of Extendible Time Certificate as of the Notice Date. The
Holders of Record of this Extendible Time Certificate for the purpose of sending
such written notice shall be determined at the close of business on the 15th
calendar day prior to the Roll-Over Date. The Holder of this Extendible Time
Certificate may elect to hold this Extendible Time Certificate at the announced
interest rate until the next Roll-Over Date or present this Extendible Time
Certificate to the Company within ten business
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<PAGE>
days after a Roll-Over Date for redemption; provided, however, in the event that
the interest rate applicable to this series of Extendible Time Certificates has
been changed by Company Order since the Notice Date, the Company shall notify
the Holder of this Extendible Time Certificate of the change in interest rates
within five days of the Roll-Over Date and the Holder hereof may elect to hold
the Extendible Time Certificate at the interest rate as of the Roll-Over Date or
to present this Extendible Time Certificate to the Company for redemption within
ten business days from the date of such notice of the change in interest rates.
Subject to the requirement that Time Certificates be issued in denominations of
$1,000 or greater, the Holder of this Extendible Time Certificate may elect,
with respect to any Roll-Over Date, to redeem 100 percent of the certificate's
principal amount or any portion thereof. Failure by a Holder to present this
Extendible Time Certificate for redemption within ten business days of a
Roll-Over Date or the date of notice of change in interest rates will be deemed
an election to hold this Extendible Time Certificate until the following
Roll-Over Date at the interest rate specified in the written notice.
If a Holder, in connection with a Roll-Over Date, submits this
Extendible Time Certificate for redemption, principal and any accrued but unpaid
interest with respect to this Extendible Time Certificate shall be payable on
the later of (i) the Roll-Over Date or (ii) the business day next following the
Date of Presentment; PROVIDED, HOWEVER, that no interest will be paid by the
Company with respect to an Extendible Time Certificate during the period from
the Roll-Over Date to the Date of Presentment. If a Holder elects not to redeem
this Extendible Time Certificate as of the Roll-Over Date, the adjusted interest
rate for this Extendible Time Certificate will be the rate set forth in the
notice to the Holder.
3. METHOD OF PAYMENT. The Company will pay interest on the Time
Certificates (except defaulted interest) to the persons who are registered
holders of Time Certificates at the close of business on the record date for the
next interest payment date even though Time Certificates are canceled after the
record date and on or before the interest payment date. Holders must surrender
Time Certificates to the Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal and interest by check payable in such
money. It may mail an interest check to a Holder's registered address.
4. PAYING AGENT, REGISTRAR. The Company will act as Paying Agent and
Registrar. The Company may change any Paying Agent and Registrar, or
co-registrar without notice.
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<PAGE>
5. OPTIONAL REDEMPTION. The Company may redeem all the Time
Certificates at any time or some of them from time to time at a price of 100% of
the principal amount of the Time Certificates plus accrued interest to the
redemption date.
6. REDEMPTION BY THE HOLDER ON DEATH OR DISABILITY. Under certain
circumstances as provided in the Indenture and upon request, the Company will,
upon the death or total permanent disability of the Holder of a Time
Certificate, repay the principal amount of the Time Certificate, together with
interest accrued to the redemption date, within 30 days following a request
therefor from the Holder or the Holder's authorized representative, in
accordance with the provisions of the Indenture, if (i) the Time Certificate has
been registered in the Holder's name since the Date of Issue, (ii) the principal
amount of all Time Certificates to be repaid does not exceed $25,000, and (iii)
the Company or the Trustee has been notified in writing of the request for
repayment within 180 days after the Holder's death or total permanent
disability. If two or more persons are joint record holders of a Time
Certificate, the election to redeem will not apply until all record holders are
either deceased or disabled, except that, if the joint holders are husband and
wife, the election may be made after the death or total permanent disability of
either spouse.
7. NOTICE OF REDEMPTION. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
holder of Time Certificates to be redeemed at his registered address. On and
after the redemption date, interest ceases to accrue on Time Certificates or
portions of them called for redemption.
8. SUBORDINATION. The Time Certificates are subordinated to Senior
Indebtedness, which is any Indebtedness of the Company outstanding on the date
of the Indenture or Indebtedness thereafter created, incurred, assumed or
guaranteed by the Company and all renewals, extensions and refundings thereof,
except (a) such Indebtedness that by its terms expressly provides that such
Indebtedness is not senior or superior in right of payment to the Time
Certificates, (b) for the Company's Subordinated Debentures, Series 87/88 issued
pursuant to an Indenture, dated as of December 1, 1986, between the Company and
National City Bank of Minneapolis and (c) for the Company's Subordinated
Debentures, Series 1985, issued pursuant to an Indenture, dated as of September
1985, between the Company and American National Bank and Trust Company, as
Trustee. Indebtedness is any indebtedness, contingent or otherwise, in respect
of borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or any subsidiary or only to a portion thereof), 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. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Time Certificates may be paid. The
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<PAGE>
Company agrees, and each Certificateholder by accepting a Time Certificate
agrees, to the subordination and authorizes the Trustee to give it effect.
9. TRANSFER OR EXCHANGE. The Time Certificates are in registered
form. The transfer of Time Certificates may be registered and Time Certificates
may be exchanged as provided in the Indenture. The Registrar 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 Registrar need not exchange or register the transfer of any Time
Certificate or portion of a Time Certificate selected for redemption. Also, it
need not exchange or register the transfer of any Time Certificates for a period
of 15 days before a selection of Time Certificates to be redeemed.
10. PERSONS DEEMED OWNERS. The registered holder of a Time
Certificate may be treated as its owner for all purposes.
11. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Time Certificates may be amended with the consent of the
Holders of at least 51% in principal amount of the then outstanding Time
Certificates, and any existing default may be waived with the consent of the
holders of 51% in principal amount of the then outstanding Time Certificates,
except that no amendment may alter or impair the obligation of the Company to
pay principal of and interest on this Time Certificate at the times, place and
rate, and in the coin or currency, or reduce the principal amount of Time
Certificates the Holders of which must consent to an amendment, without the
consent of the Holder hereof. Without the consent of any Certificateholder, the
Indenture or the Time Certificates may be amended to cure any ambiguity, defect
or inconsistency, to provide for assumption of Company obligations to
Certificateholders or to make any change that does not adversely affect the
rights of any Certificateholder.
12. DEFAULTS AND REMEDIES. An Event of Default is: 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 event 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. If an Event of Default
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Time Certificates may declare all the
Time Certificates to be due and payable immediately.
-6-
<PAGE>
Certificateholders may not enforce the Indenture or the Time Certificates except
as provided in the Indenture. The Trustee may require indemnity satisfactory to
it before it enforces the Indenture or the Time Certificates. Subject to
certain limitations, holders of a majority in principal amount of the then
outstanding Time Certificates may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Certificateholders notice of any
continuing default (except a default in payment of principal or interest) if it
determines that withholding notice is in their interests. The Company must
furnish an annual compliance certificate to the Trustee.
13. TRUSTEE DEALINGS WITH THE COMPANY. The National City Bank of
Minneapolis, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
14. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Time Certificates or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Certificateholder by accepting a Time Certificate waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Time Certificates.
15. AUTHENTICATION. This Extendible Time Certificate shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
16. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Certificateholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Certificateholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Extendible Time Certificate in larger type. Request may be made to: Investment
Department, North Star Universal, Inc., 610 Park National Bank Building, 5353
Wayzata Boulevard, Minneapolis, Minnesota 55416.
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<PAGE>
ASSIGNMENT FORM
To assign this Extendible Time Certificate, fill in the form below:
I or we assign and transfer this Extendible Time Certificate to
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
(Print or type assignee's name, address and zip code)
and irrevocable appoint ________________________________________ agent to
transfer this Extendible Time Certificate on the books of the Company. The
agent may substitute another to act for him.
_____________________________________________
Date:_______________________ Your Signature:______________________________
_____________________________________________
(Sign exactly as your name appears on the
other side of this Extendible Time
Certificate.)
MATURITY FORM
To present this Extendible Time Certificate at maturity, fill in form below:
_____________________________________________
Date:_______________________ Your Signature:______________________________
_____________________________________________
(Sign exactly as your name appears on the
other side of this Extendible Time
Certificate.)
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<PAGE>
Exhibit F
[FORM OF FACE OF FIXED-TERM TIME CERTIFICATE]
NORTH STAR UNIVERSAL, INC.
Subordinated Fixed-Term Time Certificates
No. _______________________________ $__________________
Certificate:
[ ] Two Year Subordinated Fixed-Term Time Certificate
[ ] Five Year Subordinated Fixed-Term Time Certificate
[ ] Ten Year Subordinated Fixed-Term Time Certificate
DATE OF ISSUE: STATED MATURITY:
INTEREST RATE:
INTEREST PAYMENT DATES:
[ ] Quarterly [ ] Monthly [ ] At Stated Maturity
HOLDER:______________________________ PRINCIPAL AMOUNT:________________
NORTH STAR UNIVERSAL, INC., a Minnesota corporation (herein called the
"Company"), for value received, hereby promises to pay to the Holder or
registered assigns, the Principal Amount on the Stated Maturity and to pay
interest thereon from the Date of Issue, or from the most recent Interest
Payment Date to which interest has been paid or duly provided for, on each
Interest Payment Date at the Interest Rate, until the principal hereof is paid
or made available for payment. Interest will be calculated based on a 360-day
year. The interest so payable, on any Interest Payment Date will, except as
provided in the Indenture referred to below and on the reverse hereof, be paid
to the person in whose name this Fixed-Term Time Certificate is registered at
the close of business on the 15th calendar day prior to such interest payment
date whether or not such day is a business day.
Reference is made to the further provisions of this Fixed-Term Time
Certificate set forth below and on the reverse hereof. Such further provisions
shall for all purposes have the same effect as though fully set forth at this
place.
<PAGE>
Dated:______________________________ NORTH STAR UNIVERSAL, INC.
By:__________________________________
President
Authenticated:
National City Bank of
Minneapolis, as Trustee
By:_________________________________
Authorized Signature
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<PAGE>
NORTH STAR UNIVERSAL, INC.
Subordinated Fixed-Term Time Certificates
1. INDENTURE. This Fixed-Term Time Certificate is one certificate in
a series of Time Certificates issued under an Indenture dated as of April 26,
1989, as amended as of March 16, 1992 and March 16, 1995 ("Indenture"),
between the Company and National City Bank of Minneapolis, as trustee (the
"Trustee"). The terms of the Time Certificates include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended by the Trust Indenture Reform Act of 1990,
(15 U.S. Code 77aaa-77bbbb) as in effect on the date of the Indenture. The Time
Certificates are subject to all such terms, and Holders of the Time Certificates
are referred to the Indenture and the Act for a statement of such terms. The
Time Certificates are unsecured general obligations of the Company currently
limited to $120,000,000 in aggregate principal amount.
2. METHOD OF PAYMENT. The Company will pay interest on the Time
Certificates (except defaulted interest) to the persons who are registered
holders of Time Certificates at the close of business on the record date for the
next interest payment date even though Time Certificates are canceled after the
record date and on or before the interest payment date. Holders must surrender
Time Certificates to the Paying Agent to collect principal payments. The
Company will pay principal and interest in money of the United States that at
the time of payment is legal tender for payment of public and private debts.
However, the Company may pay principal and interest by check payable in such
money. It may mail an interest check to a Holder's registered address.
3. PAYING AGENT, REGISTRAR. The Company will act as Paying Agent and
Registrar. The Company may change any Paying Agent and Registrar, or
co-registrar without notice.
4. OPTIONAL REDEMPTION. The Company may redeem all the Time
Certificates at any time or some of them from time to time at a price of 100% of
the principal amount of the Time Certificates plus accrued interest to the
redemption date.
5. REDEMPTION BY THE HOLDER ON DEATH OR DISABILITY. Under certain
circumstances as provided in the Indenture and upon request, the Company will,
upon the death or total permanent disability of the Holder of a Time
Certificate, repay the principal amount of the Time Certificate, together with
interest accrued to the redemption date, within 30 days following a request
therefor from the Holder or the Holder's authorized representative, in
accordance with the provisions of the Indenture, if (i) the Time Certificate has
been registered in the Holder's name since the Date of Issue, (ii) the principal
amount of all Time Certificates to be repaid does
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<PAGE>
not exceed $25,000, and (iii) the Company or the Trustee has been notified in
writing of the request for repayment within 180 days after the Holder's death or
total permanent disability. If two or more persons are joint record holders of
a Time Certificate, the election to redeem will not apply until all record
holders are either deceased or disabled, except that, if the joint holders are
husband and wife, the election may be made after the death or total permanent
disability of either spouse.
6. NOTICE OF REDEMPTION. Notice of Redemption will be mailed at
least 30 days but not more than 60 days before the redemption date to each
holder of Time Certificates to be redeemed at his registered address. On and
after the redemption date, interest ceases to accrue on Time Certificates or
portions of them called for redemption.
7. SUBORDINATION. The Time Certificates are subordinated to Senior
Indebtedness, which is any Indebtedness of the Company outstanding on the date
of the Indenture or Indebtedness thereafter created, incurred, assumed or
guaranteed by the Company and all renewals, extensions and refundings thereof,
except (a) such Indebtedness that by its terms expressly provides that such
Indebtedness is not senior or superior in right of payment to the Time
Certificates, (b) for the Company's Subordinated Debentures, Series 87/88 issued
pursuant to an Indenture, dated as of December 1, 1986, between the Company and
National City Bank of Minneapolis and (c) for the Company's Subordinated
Debentures, Series 1985, issued pursuant to an Indenture, dated as of September
1985, between the Company and American National Bank and Trust Company, as
Trustee. Indebtedness is any indebtedness, contingent or otherwise, in respect
of borrowed money (whether or not the recourse of the lender is to the whole of
the assets of the Company or any subsidiary or only to a portion thereof), 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. To the extent provided in the Indenture, Senior Indebtedness
must be paid before the Time Certificates may be paid. The Company agrees, and
each Certificateholder by accepting a Time Certificate agrees, to the
subordination and authorizes the Trustee to give it effect.
8. TRANSFER OR EXCHANGE. The Time Certificates are in registered
form. The transfer of Time Certificates may be registered and Time Certificates
may be exchanged as provided in the Indenture. The Registrar 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 Registrar need not exchange or register the transfer of any Time
Certificate or portion of a Time Certificate selected for redemption. Also, it
need not exchange or register the transfer of any Time Certificates for a period
of 15 days before a selection of Time Certificates to be redeemed.
-4-
<PAGE>
9. PERSONS DEEMED OWNERS. The registered holder of a Time
Certificate may be treated as its owner for all purposes.
10. AMENDMENTS AND WAIVERS. Subject to certain exceptions, the
Indenture or the Time Certificates may be amended with the consent of the
Holders of at least 51% in principal amount of the then outstanding Time
Certificates, and any existing default may be waived with the consent of the
holders of 51% in principal amount of the then outstanding Time Certificates,
except that no amendment may alter or impair the obligation of the Company to
pay principal of and interest on this Time Certificate at the times, place and
rate, and in the coin or currency, or reduce the principal amount of Time
Certificates the Holders of which must consent to an amendment, without the
consent of the Holder hereof. Without the consent of any Certificateholder, the
Indenture or the Time Certificates may be amended to cure any ambiguity, defect
or inconsistency, to provide for assumption of Company obligations to
Certificateholders or to make any change that does not adversely affect the
rights of any Certificateholder.
11. DEFAULTS AND REMEDIES. An Event of Default is: 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 event 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. If an Event of Default
occurs and is continuing, the Trustee or the holders of at least 25% in
principal amount of the then outstanding Time Certificates may declare all the
Time Certificates to be due and payable immediately. Certificateholders may not
enforce the Indenture or the Time Certificates except as provided in the
Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Time Certificates. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Time Certificates may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Certificateholders notice of any continuing
default (except a default in payment of principal or interest) if it determines
that withholding notice is in their interests. The Company must furnish an
annual compliance certificate to the Trustee.
12. TRUSTEE DEALINGS WITH THE COMPANY. The National City Bank of
Minneapolis, the Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from, and perform services for the
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<PAGE>
Company or its Affiliates, and may otherwise deal with the Company or its
Affiliates, as if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS. A director, officer, employee or
stockholder, as such, of the Company shall not have any liability for any
obligations of the Company under the Time Certificates or the Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. Each Certificateholder by accepting a Time Certificate waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of the Time Certificates.
14. AUTHENTICATION. This Fixed-Term Time Certificate shall not be
valid until authenticated by the manual signature of the Trustee or an
authenticating agent.
15. ABBREVIATIONS. Customary abbreviations may be used in the name
of a Certificateholder or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with right of
survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (=
Uniform Gifts to Minors Act).
The Company will furnish to any Certificateholder upon written request
and without charge a copy of the Indenture, which has in it the text of this
Fixed-Term Time Certificate in larger type. Request may be made to: Investment
Department, North Star Universal, Inc., 610 Park National Bank Building, 5353
Wayzata Boulevard, Minneapolis, Minnesota 55416.
-6-
<PAGE>
ASSIGNMENT FORM
To assign this Fixed-Term Time Certificate, fill in the form below:
I or we assign and transfer this Fixed-Term Time Certificate to
_____________________________________________
(Insert assignee's soc. sec. or tax I.D. no.)
_____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
(Print or type assignee's name, address and zip code)
and irrevocable appoint _________________________________________________ agent
to transfer this Fixed-Term Time Certificate on the books of the Company. The
agent may substitute another to act for him.
_____________________________________________
Date:_________________________ Your Signature:______________________________
_____________________________________________
(Sign exactly as your name appears on the
other side of this Fixed-Term Time
Certificate.)
MATURITY FORM
To present this Fixed-Term Time Certificate at maturity, fill in form below:
_____________________________________________
Date:________________________ Your Signature:
_____________________________________________
(Sign exactly as your name appears on the
other side of this Fixed-Term Time
Certificate.)
-7-
<PAGE>
FOURTH AMENDMENT TO RESTATED AND AMENDED
REVOLVING CREDIT LOAN AGREEMENT
THIS FOURTH AMENDMENT, dated as of January 3, 1994, amends and modifies
that certain Restated and Amended Revolving Credit Loan Agreement, dated as of
May 17, 1990, as amended by Letters dated August 3, 1990 September 25, 1990,
October 29, 1990, and November 29, 1990, an Amendment dated January 11, 1991,
a Letter dated February 28, 1991, a Second Amendment, dated January 2, 1992 and
a Third Amendment, dated November 18, 1992 (as so amended, the "Credit
Agreement"), between NORTH STAR UNIVERSAL, INC., a Minnesota corporation (the
"Borrower") and FIRST BANK NATIONAL ASSOCIATION, a national banking association
(the "Bank"). Terms not otherwise expressly defined herein shall have the
meanings set forth in the Credit Agreement.
PRELIMINARY STATEMENT
The Borrower and the Bank desire to amend the Credit Agreement to extend
the maturity date and amend the Net Worth covenant as hereinafter set forth.
NOW THEREFORE, for value received, the Borrower and the Bank agree as
follows.
ARTICLE I - AMENDMENTS TO THE CREDIT AGREEMENT
1.1 DEFINITION. The definition of "Maturity" in Article I of the Credit
Agreement is amended by deleting the date "January 3, 1994" and substituting
therefor the date "January 2, 1995."
1.2 AMENDMENT. Section 7.9 of the Credit Agreement is amended by deleting
"Fifty Five Million Dollars ($55,000,000.00)" and substituting therefor "Fifty
Million Dollars ($50,000,000.00)."
1.3 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Advances and issue Letters of Credit under the Credit Agreement as amended
hereby, the Borrower hereby warrants and represents to the Bank that it is duly
authorized to execute and deliver this Amendment, and to perform its obligations
under the Credit Agreement as amended hereby, and that this Amendment
constitutes the legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms.
1
<PAGE>
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in Article VI of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower
of this Amendment shall be deemed a representation that the Borrower has
complied with the foregoing condition.
3.2 DEFAULTS. After giving effect to this Amendment, no Default or Event
of Default shall have occurred and be continuing under the Credit Agreement.
The execution by the Borrower of this Amendment shall be deemed a representation
that the Borrower has compiled with the foregoing condition.
3.3 DOCUMENTS. The following shall have been delivered to the Bank, each
duly executed and dated or certified as of the date hereof:
(a) RESOLUTIONS. Certified copies of the resolutions of the
Board of Directors of the Borrower authorizing or ratifying the
execution, delivery and performance, respectively, of this Amendment
and other documents provided for in this Amendment.
(b) CONSENTS. Certified copies of all documents evidencing any
necessary corporate action, consent or governmental or regulatory
approval (if any) with respect to this Amendment.
(c) INCUMBENCY AND SIGNATURES. A certificate of the Secretary
or an Assistant Secretary of the Borrower certifying the names of the
officer or officers of the Borrower authorized to sign this Amendment
and any other documents provided for in this Amendment, together with
a sample of the true signature of each such officer.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrower agrees to reimburse the Bank upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Bank in the preparation, negotiation and execution of
this Amendment and any other document required to be furnished herewith, and in
enforcing the obligations of the Borrower hereunder, and to pay and save the
Bank harmless from all liability for any stamp or other taxes which may be
payable with
2
<PAGE>
respect to the execution or delivery of this Amendment, which obligations of the
Borrower shall survive termination of the Credit Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto or
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first above written.
NORTH STAR UNIVERSAL, INC.
a Minnesota corporation
By:/s/ Peter E. Flynn
----------------------------------------------
Its:EVP/CFO
---------------------------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By:/s/ Michael J. Staloch
----------------------------------------------
Its:VICE PRESIDENT
3
<PAGE>
WAIVER AND FIFTH AMENDMENT TO
RESTATED AND AMENDED REVOLVING CREDIT LOAN AGREEMENT
THIS WAIVER AND FIFTH AMENDMENT, dated as of March 16, 1994, amends and
modifies that certain Restated and Amended Revolving Credit Loan Agreement,
dated as of May 17, 1990, as amended by Letters dated August 3, 1990, September
25, 1990, October 29, 1990, and November 29, 1990, an Amendment dated
January 11, 1991, a Letter dated February 28, 1991, a Second Amendment, dated
January 2, 1992, a Third Amendment dated November 18, 1992 and a Fourth
Amendment, dated January 3, 1994 (as so amended, the "Credit Agreement"),
between NORTH STAR UNIVERSAL, INC., a Minnesota corporation (the "Borrower") and
FIRST BANK NATIONAL ASSOCIATION, a national banking association (the "Bank").
Terms not otherwise expressly defined herein shall have the meanings set forth
in the Credit Agreement.
PRELIMINARY STATEMENT
The Bank has agreed to waive certain defaults under the Credit Agreement
and to amend certain provisions of the Credit Agreement as hereinafter set
forth.
NOW THEREFORE, for value received, the Borrower and the Bank agree as
follows.
ARTICLE I - WAIVER
1.1 Pursuant to Section 7.9 of the Credit Agreement, the Borrower is
required to maintain a Tangible Net Worth at the end of each fiscal quarter of
not less than $50,000,000 at any time. As of December 31, 1993, the Borrower
had a Tangible Net Worth of approximately $34,675,000.
1.2 Pursuant to Section 8.5 of the Credit Agreement, the Borrower will not
permit the ratio of Liabilities to Tangible Net Worth to be greater than 1.25 to
1. As of December 31, 1993, the ratio of Liabilities to Tangible Net Worth was
2.13 to 1.
1.3 Pursuant to Section 8.9 of the Credit Agreement, the Borrower will not
at any time permit the ratio of Liabilities to Capital Base to be greater than
1.0 to 1. As of December 31, 1993, the ratio of Liabilities to Capital Base was
1.57 to 1.
1.4 The Borrower has requested that the Bank waive any and all Events of
Default arising as a result of the above violations. The Bank hereby waives any
Event of Default arising from the Borrower's failure to comply with Sections
7.9, 8.5 and 8.9, PROVIDED, HOWEVER, that the Borrower shall be in compliance
with the requirements under Sections 7.9, 8.5 and 8.9 as amended by this
Amendment. Such waiver is limited specifically to the violations referred to
herein and shall not be construed or interpreted to be a waiver of any other
existing or future Events of Default or of compliance with any other existing
terms.
<PAGE>
ARTICLE II - AMENDMENTS TO THE CREDIT AGREEMENT
2.1 AMENDMENTS.
(a) Section 7.9 of the Credit Agreement is amended by deleting "Fifty
Million Dollars ($50,000,000.00)" and substituting therefor "Thirty-Two
Million Dollars ($32,000,000.00)".
(b) Section 8.5 of the Credit Agreement is amended by deleting "1.25
to 1" and substituting therefor "2.25 to 1".
(c) Section 8.9 of the Credit Agreement is amended by deleting "1.0
to 1" and substituting therefor 1.75 to 1".
2.2 CONSTRUCTION. All references in the Credit Agreement to "this
Agreement", "herein" and similar references shall be deemed to refer to the
Credit Agreement as amended by this Amendment.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Agreement and to make and maintain
the Advances and issue Letters of Credit under the Credit Agreement as amended
hereby, the Borrower hereby warrants and represents to the Bank that it is duly
authorized to execute and deliver this Amendment, and to perform its obligations
under the Credit Agreement as amended hereby, and that this Amendment
constitutes the legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms.
ARTICLE IV - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
4.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in Article VI of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower
of this Amendment shall be deemed a representation that the Borrower has
complied with the foregoing condition.
4.2 DEFAULTS. After giving effect to this Amendment, no Default or Event
of Default shall have occurred and be continuing under the Credit Agreement.
The
- 2 -
<PAGE>
execution by the Borrower of this Amendment shall be deemed a representation
that the Borrower has complied with the foregoing condition.
4.3 DOCUMENTS. The following shall have been delivered to the Bank, each
duly executed and dated or certified as of the date hereof:
(a) RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of the Borrower authorizing or ratifying the execution, delivery
and performance, respectively, of this Amendment and other documents
provided for in this Amendment.
(b) CONSENTS. Certified copies of all documents evidencing any
necessary corporate action, consent or governmental or regulatory approval
(if any) with respect to this Amendment.
(c) INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an
Assistant Secretary of the Borrower certifying the names of the officer or
officers of the Borrower authorized to sign this Amendment and any other
documents provided for in this Amendment, together with a sample of the
true signature of each such officer.
ARTICLE V - GENERAL
5.1 EXPENSES. The Borrower agrees to reimburse the Bank upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Bank in the preparation, negotiation and execution of
this Amendment and any other document required to be furnished herewith, and in
enforcing the obligations of the Borrower hereunder, and to pay and save the
Bank harmless from all liability for any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
5.2 CONFIRMATION OF PLEDGE AGREEMENT. The Borrower hereby ratifies and
confirms that its Pledge Agreement, dated as of May 17, 1990, in favor of the
Bank, remains in full force and effect after giving effect to this Amendment and
is enforceable against the Borrower in accordance with its terms. The Borrower
agrees and acknowledges that this Agreement shall in no way impair or limit the
right of the Bank under the Pledge Agreement, and confirms that the Pledge
Agreement continues to secure payment and performance of the obligations of the
Borrower to the Bank, including, without limitation, obligations under the
Credit Agreement as amended by this Amendment.
5.3 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties
- 3 -
<PAGE>
hereto on separate counterparts, each of which, when so executed, shall be
deemed an original but all such counterparts shall constitute but one and the
same instrument.
5.4 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
5.5 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
5.6 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
NORTH STAR UNIVERSAL, INC.,
a Minnesota corporation
By: /s/ Peter E. Flynn
-----------------------------------------------
Its: EVP/CFO
----------------------------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By: /s/ Michael J. Staloch
----------------------------------------------
Its: VICE PRESIDENT
----------------------------------------------
- 4 -
<PAGE>
C:\A-PAM\BIERKAMP\NORTHSTAR\6AMEND\AMEND.6
SIXTH AMENDMENT TO
RESTATED AND AMENDED REVOLVING CREDIT LOAN AGREEMENT
THIS SIXTH AMENDMENT, dated as of January 31, 1995, amends and modifies
that certain Restated and Amended Revolving Credit Loan Agreement, dated as of
May 17, 1990, as amended by Letters dated August 3, 1990, September 25, 1990,
October 29, 1990, and November 29, 1990, an Amendment dated January 11, 1991, a
Letter dated February 28, 1991, a Second Amendment, dated January 2, 1992, a
Third Amendment, dated November 18, 1992, a Fourth Amendment, dated January 3,
1994 and a Waiver and Fifth Amendment, dated March 16, 1994 (as so amended, the
"Credit Agreement"), between NORTH STAR UNIVERSAL, INC., a Minnesota corporation
(the "Borrower") and FIRST BANK NATIONAL ASSOCIATION, a national banking
association (the "Bank"). Terms not otherwise expressly defined herein shall
have the meanings set forth in the Credit Agreement.
PRELIMINARY STATEMENT
The Bank has agreed to extend the maturity date of the Credit Agreement as
hereinafter set forth.
NOW THEREFORE, for value received, the Borrower and the Bank agree as
follows.
ARTICLE I - AMENDMENT TO THE CREDIT AGREEMENT
1.1 DEFINITION. The definition of "maturity" in Article I of the credit
agreement is amended by deleting the date "January 2, 1995" and substituting
therefor the date "January 2, 1996".
1.2 CONSTRUCTION. All references in the credit agreement to "this
agreement", "herein" and similar references shall be deemed to refer to the
credit agreement as amended by this amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Advances and issue Letters of Credit under the Credit Agreement as amended
hereby, the Borrower hereby warrants and represents to the Bank that it is duly
authorized to execute and deliver this Amendment, and to perform its obligations
under the Credit Agreement as amended hereby, and that this Amendment
constitutes the legal, valid and binding obligation of the Borrower, enforceable
in accordance with its terms.
<PAGE>
ARTICLE III - CONDITIONS PRECEDENT
This Amendment shall become effective on the date first set forth above,
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions precedent:
3.1 WARRANTIES. Before and after giving effect to this Amendment, the
representations and warranties in ARTICLE VI of the Credit Agreement shall be
true and correct as though made on the date hereof, except for changes that are
permitted by the terms of the Credit Agreement. The execution by the Borrower
of this Amendment shall be deemed a representation that the Borrower has
complied with the foregoing condition.
3.2 DEFAULTS. Before and after giving effect to this Amendment, no
Default or Event of Default shall have occurred and be continuing under the
Credit Agreement. The execution by the Borrower of this Amendment shall be
deemed a representation that the Borrower has complied with the foregoing
condition.
3.3 DOCUMENTS. The following shall have been delivered to the Bank, each
duly executed and dated or certified, as the case may be:
(a) RESOLUTIONS. Certified copies of resolutions of the Board of
Directors of the Borrower authorizing or ratifying the execution, delivery
and performance, respectively, of this Amendment and other documents
provided for in this Amendment.
(b) INCUMBENCY AND SIGNATURES. A certificate of the Secretary or an
Assistant Secretary of the Borrower certifying the names of the officer or
officers of the Borrower authorized to sign this Amendment and any other
documents provided for in this Amendment, together with a sample of the
true signature of each such officer.
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrower agrees to reimburse the Bank upon demand for
all reasonable expenses (including reasonable attorneys' fees and legal
expenses) incurred by the Bank in the preparation, negotiation and execution of
this Amendment and any other document required to be furnished herewith, and in
enforcing the obligations of the Borrower hereunder, and to pay and save the
Bank harmless from all liability for any stamp or other taxes which may be
payable with respect to the execution or delivery of this Amendment, which
obligations of the Borrower shall survive any termination of the Credit
Agreement.
4.2 CONFIRMATION OF PLEDGE AGREEMENT. The Borrower hereby ratifies and
confirms that its Pledge Agreement, dated as of May 17, 1990, in favor of the
Bank, remains in full force and effect after giving effect to this Amendment and
is enforceable against the Borrower in accordance with its terms. The Borrower
agrees and acknowledges that this Agreement shall in no way impair or limit the
right of the Bank under the Pledge Agreement, and confirms that the Pledge
Agreement continues to secure payment and performance of the obligations of the
Borrower to the Bank, including, without limitation, obligations under the
Credit Agreement as amended by this Amendment.
4.3 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts,
<PAGE>
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same instrument.
4.4 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
4.5 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
4.6 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrower and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrower and the Bank and the successors and assigns
of the Bank. Except as hereby amended, the Credit Agreement shall remain in
full force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed at Minneapolis, Minnesota by their respective officers thereunto duly
authorized as of the date first written above.
NORTH STAR UNIVERSAL, INC.,
a Minnesota corporation
By: /s/ Peter E. Flynn
-----------------------------------------
Its: EVP/CFO
----------------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association
By: /s/ Michael J. Staloch
-----------------------------------------
Its: Vice Pres.
----------------------------------
<PAGE>
AMERICABLE.AMD.PJS
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
(the "AMENDMENT") is dated as of November 29, 1993, and is by and between
AMERICABLE, INC., a Minnesota corporation, TRANSITION ENGINEERING, INC., a
Minnesota corporation and CABLE DISTRIBUTION SYSTEMS, INC., a Georgia
corporation (hereinafter collectively referred to as the "BORROWERS") and FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "BANK"). Terms
not otherwise expressly defined herein shall have the meanings set forth in the
Loan Agreement (hereinafter described).
RECITALS
WHEREAS, the Borrowers and the Bank have executed and delivered an Amended
and Restated Loan and Security Agreement, dated as of June 1, 1993 (the "LOAN
AGREEMENT"), pursuant to which the Bank agreed, subject to the terms and
conditions contained therein, to extend certain financial accommodations to the
Borrowers; and
WHEREAS, the Borrowers and the Bank desire to further amend the terms of
the Loan Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I - AMENDMENTS TO THE LOAN AGREEMENT
1.1 AMENDMENT. Supplement A to the Loan Agreement is hereby amended to
read in its entirety as set forth in Supplement A attached hereto. All
references in the Loan Agreement to "Supplement A" shall be deemed to refer to
Supplement A attached hereto.
1.2 CONSTRUCTION. All references in the Loan Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the Loan
Agreement as amended by this Amendment.
ARTICLE II - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Advances under the Loan Agreement as amended hereby, the Borrowers hereby
warrant and represent to the Bank that they are duly authorized to execute and
deliver this Amendment, and to perform their obligations under the Loan
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and
<PAGE>
binding obligation of the Borrowers, enforceable in accordance with its terms.
ARTICLE III - CONDITIONS AND EFFECTIVENESS
This Amendment shall become effective on the date first set forth above,
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions:
3.1 Before and after giving effect to this Amendment, the representations
and warranties in ARTICLE IV of the Loan Agreement shall be true and correct as
though made on the date hereof, except for changes that are permitted by the
terms of the Loan Agreement and this Amendment. The execution by the Borrowers
of this Amendment shall be deemed a representation that the Borrowers have
complied with the foregoing condition.
3.2 After giving effect to this Amendment, no Event of Default or event
which would constitute an Event of Default but for the requirement that notice
be given or time elapse or both, shall have occurred and be continuing under the
Loan Agreement. The execution by the Borrowers of this Amendment shall be
deemed a representation that the Borrowers have complied with the foregoing
condition.
3.3 The Bank shall have received this Amendment appropriately completed
and duly executed by the Borrowers.
3.4 The Bank shall have received a certified copy of resolutions of the
Board of Directors of each of the Borrowers authorizing or ratifying the
execution, delivery and performance, respectively, of this Amendment and other
documents provided for in this Amendment.
3.5 The Bank shall have received a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying that the names of the
officer or officers of the Borrowers authorized to sign this Amendment and other
documents provided for in this Amendment, together with a sample of the true
signature of each such officer.
3.6 The Bank shall have received a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying that there has been no
amendment or restatement of the Certificate, Articles of Incorporation or the
By-Laws of such Borrower since June 1, 1993.
3.7 The Bank shall have received an Acknowledgement of Adanac Cable Ltd.
and North Star Universal, Inc. each appropriately completed and duly executed,
substantially in the form of EXHIBIT A AND B, respectively, to this Amendment.
2
<PAGE>
ARTICLE IV - GENERAL
4.1 EXPENSES. The Borrowers agree to reimburse the Bank upon demand for
all reasonable expenses, including reasonable fees of attorneys (who may be
employees of the Bank) and legal expenses incurred by the Bank in the
preparation, negotiation and execution of this Amendment and any other document
required to be furnished herewith, and in enforcing the obligations of the
Borrowers hereunder, and to pay and save the Bank harmless from all liability
for any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Borrowers shall survive
any termination of the Loan Agreement.
4.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
4.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
4.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
4.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrowers and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrowers and the Bank and the successors and
assigns of the Bank. Except as hereby amended, the Loan Agreement shall remain
in full force and effect and is hereby ratified and confirmed in all respects.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
AMERICABLE, INC.,
a Minnesota corporation
By: /s/ Peter E. Flynn
----------------------------------------------
Title: Secretary
-------------------------------------------
3
<PAGE>
TRANSITION ENGINEERING, INC.,
a Minnesota corporation
By: /s/ Peter E. Flynn
----------------------------------------------
Title: President
-------------------------------------------
CABLE DISTRIBUTION SYSTEMS, INC.,
a Georgia corporation
By: /s/ Peter E. Flynn
----------------------------------------------
Title: Assistant Secretary
-------------------------------------------
FIRST BANK NATIONAL ASSOCIATION,
a national banking association,
By: /s/ William C. Phelps
----------------------------------------------
Title: Vice President
-------------------------------------------
4
<PAGE>
F:\CLD\FBSBFC\AMERICABLE\2AMEND\AMENDMENT
WAIVER AND SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS WAIVER AND SECOND AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (the "Amendment") is dated as of March 3, 1995, and is by and between
AMERICABLE, INC., a Minnesota corporation, TRANSITION ENGINEERING, INC., a
Minnesota corporation, and CABLE DISTRIBUTION SYSTEMS, INC., a Georgia
corporation (hereinafter collectively referred to as the "Borrowers") and FIRST
BANK NATIONAL ASSOCIATION, a national banking association (the "Bank"). Terms
not otherwise expressly defined herein shall have the meanings set forth in the
Loan Agreement (hereinafter described).
RECITALS
WHEREAS, the Borrowers and the Bank have executed and delivered an Amended
and Restated Loan and Security Agreement, dated as of June 1, 1993, as amended
by First Amendment to Amended and Restated Loan and Security Agreement, dated as
of November 29, 1993 (as so amended, the "Loan Agreement"), pursuant to which
the Bank agreed, subject to the terms and conditions contained therein, to
extend certain financial accommodations to the Borrowers; and
WHEREAS, the Borrowers and the Bank desire to further amend the terms of
the Loan Agreement;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto agree as follows:
ARTICLE I - WAIVER
1.1 Pursuant to SECTION 5.1 of Supplement A to the Loan Agreement, the
Borrower agreed not to permit its Tangible Capital Base to be less than
$6,200,000 for the period commencing December 31, 1994 through and including
June 29, 1995. The Borrower has notified the Bank that as of December 31, 1994,
its Tangible Capital Base was $5,675,000, and that as of January 31, 1995, its
Tangible Capital Base was $5,708,000; and therefore, the Borrower is in default
under the terms of the Loan Agreement.
1.2 The Borrower has requested that the Bank waive the Events of Default
described in Section 1.1 above, and the Bank hereby waives such Events of
Default; PROVIDED THAT the Borrower complies with the requirements of SECTION
5.1 of Supplement A as amended by this Amendment. Such waiver is limited
specifically to the Events of Default described in Section 1.1 above and shall
not be construed or interpreted to be a waiver of any other existing or future
Events of Default or of compliance with any other existing terms.
1
<PAGE>
ARTICLE II - AMENDMENTS TO THE LOAN AGREEMENT
2.1 AMENDMENT. Supplement A to the Loan Agreement is hereby amended to
read in its entirety as set forth in Supplement A attached hereto. All
references in the Loan Agreement to "Supplement A" shall be deemed to refer to
Supplement A attached hereto.
2.2 CONSTRUCTION. All references in the Loan Agreement to "this
Agreement," "herein" and similar references shall be deemed to refer to the Loan
Agreement as amended by this Amendment.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
To induce the Bank to enter into this Amendment and to make and maintain
the Advances under the Loan Agreement as amended hereby, the Borrowers hereby
warrant and represent to the Bank that they are duly authorized to execute and
deliver this Amendment, and to perform their obligations under the Loan
Agreement as amended hereby, and that this Amendment constitutes the legal,
valid and binding obligation of the Borrowers, enforceable in accordance with
its terms.
ARTICLE IV - CONDITIONS AND EFFECTIVENESS
This Amendment shall become effective on the date first set forth above;
PROVIDED, HOWEVER, that the effectiveness of this Amendment is subject to the
satisfaction of each of the following conditions:
4.1 Before and after giving effect to this Amendment, the representations
and warranties in ARTICLE IV of the Loan Agreement shall be true and correct as
though made on the date hereof, except for changes that are permitted by the
terms of the Loan Agreement and this Amendment. The execution by the Borrowers
of this Amendment shall be deemed a representation that the Borrowers have
complied with the foregoing condition.
4.2 After giving effect to this Amendment, no Event of Default or event
which would constitute an Event of Default but for the requirement that notice
be given or time elapse or both, shall have occurred and be continuing under the
Loan Agreement. The execution by the Borrowers of this Amendment shall be
deemed a representation that the Borrowers have complied with the foregoing
condition.
4.3 The Bank shall have received this Amendment appropriately completed
and duly executed by the Borrowers.
4.4 The Bank shall have received a certified copy of resolutions of the
Board of Directors of each of the Borrowers authorizing or ratifying the
execution, delivery and performance, respectively, of this Amendment and other
documents provided for in this Amendment.
4.5 The Bank shall have received a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying that the names of the
officer or officers of the Borrowers authorized to sign this Amendment and other
documents provided for in this Amendment, together with a sample of the true
signature of each such officer.
2
<PAGE>
4.6 The Bank shall have received a certificate of the Secretary or an
Assistant Secretary of each of the Borrowers certifying that there has been no
amendment or restatement of the Certificate, Articles of Incorporation or the
By-Laws of such Borrower since June 1, 1993.
4.7 The Bank shall have received an Acknowledgment of Adanac Cable Ltd.
and North Star Universal, Inc. each appropriately completed and duly executed,
substantially in the form of EXHIBIT A AND B, respectively, to this Amendment.
ARTICLE V - GENERAL
5.1 EXPENSES. The Borrowers agree to reimburse the Bank upon demand for
all reasonable expenses, including reasonable fees of attorneys (who may be
employees of the Bank) and legal expenses incurred by the Bank in the
preparation, negotiation and execution of this Amendment and any other document
required to be furnished herewith, and in enforcing the obligations of the
Borrowers hereunder, and to pay and save the Bank harmless from all liability
for any stamp or other taxes which may be payable with respect to the execution
or delivery of this Amendment, which obligations of the Borrowers shall survive
any termination of the Loan Agreement.
5.2 COUNTERPARTS. This Amendment may be executed in as many counterparts
as may be deemed necessary or convenient, and by the different parties hereto on
separate counterparts, each of which, when so executed, shall be deemed an
original but all such counterparts shall constitute but one and the same
instrument.
5.3 SEVERABILITY. Any provision of this Amendment which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or affecting the validity or enforceability of such
provisions in any other jurisdiction.
5.4 LAW. This Amendment shall be a contract made under the laws of the
State of Minnesota, which laws shall govern all the rights and duties hereunder.
5.5 SUCCESSORS; ENFORCEABILITY. This Amendment shall be binding upon the
Borrowers and the Bank and their respective successors and assigns, and shall
inure to the benefit of the Borrowers and the Bank and the successors and
assigns of the Bank. Except as hereby amended, the Loan Agreement shall remain
in full force and effect and is hereby ratified and confirmed in all respects.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first written above.
AMERICABLE, INC.,
a Minnesota corporation
By:
Title:
TRANSITION ENGINEERING, INC.,
a Minnesota corporation
By:
Title:
CABLE DISTRIBUTION SYSTEMS, INC.,
a Georgia corporation
By:
Title:
FIRST BANK NATIONAL ASSOCIATION,
a national banking association,
By:
Title:
<PAGE>
F:\CLD\FBSBFC\AMERICABLE\2AMEND\SUPPLEMENT
SUPPLEMENT A
to
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
Dated as of JUNE 1, 1993 Among
FIRST BANK NATIONAL ASSOCIATION (the "Bank") and
AMERICABLE INC., TRANSITION ENGINEERING, INC.
and CABLE DISTRIBUTION SYSTEMS, INC.
(collectively, the "Borrowers")
1. LOAN AGREEMENT REFERENCE. This Supplement A, as it may be amended or
modified from time to time, is a part of the Amended and Restated Loan and
Security Agreement, dated as of June 1, 1993, among the Borrowers and the Bank
(together with all amendments, modifications and supplements thereto, the "Loan
Agreement"). Terms used herein which are defined in the Loan Agreement shall
have the meanings given such terms in the Loan Agreement unless the context
otherwise requires.
2. CREDIT AMOUNT; BORROWING BASE.
2.1 CREDIT AMOUNT. The maximum amount of Loans which the Bank will make
available to the Borrowers shall not exceed FIVE MILLION FIVE HUNDRED
THOUSAND AND NO/100 DOLLARS ($5,500,000) (such amount is herein called the
"Credit Amount") (unless such amount is increased by the Bank in its sole
and absolute discretion); PROVIDED, HOWEVER, that the aggregate outstanding
principal balance of the Loans plus the Letter of Credit Obligations shall
not exceed the Credit Amount.
2.2 BORROWING BASE. The term "Borrowing Base," as used herein, shall
mean:
(a) an amount of up to 75% of the net amount (as determined by the
Bank after deduction of such reserves and allowances as the Bank deems
proper and necessary) of the Borrowers' Eligible Accounts Receivable;
PLUS
(b) an amount of up to the lesser of (i) 30% of the net value (the
lower of the cost or market value of such Inventory as determined by the
Bank on a first in first out basis and after deduction of such reserves
and allowances as the Bank deems proper and necessary ) of the Borrowers'
Eligible Inventory, or (ii) $2,000,000.
2.3 BANK'S RIGHTS. The Borrowers agree that nothing contained in this
Supplement A (a) shall be construed as the Bank's agreement to resort or
look to a particular type or item of Collateral as security for any
specific Loan or advance or in any way limit the Bank's right to resort to
any or all of the Collateral as security for any of the Obligations, (b)
shall be deemed to limit or reduce any lien on or any security interest in
or upon any portion of the Collateral or other security for the
Obligations, or (c) shall supersede SECTION 2.10 of the Loan Agreement.
3. INTEREST.
3.1 REVOLVING LOANS. The unpaid balance of the Revolving Loans shall bear
interest to maturity at the Reference Rate in effect from time to time plus
one and one-half percent (1 1/2%) per annum.
<PAGE>
3.2 TERM LOAN. The unpaid principal balance of the Term Loan shall bear
interest to maturity at a fixed rate per annum equal to 10.665%.
3.3 DEFAULT RATE. If any amount of the Loans is not paid when due,
whether by acceleration or otherwise, the entire unpaid principal balance
of the Loans (other than Overdraft Loans and Over Advances) shall bear
interest until paid at a rate per annum equal to the greater of (i) the
Reference Rate from time to time in effect plus four percent (4%), or (ii)
two percent (2%) above the rate in effect at the time such amount became
due for such past due amount.
3.4 OVERDRAFT LOANS; OVER ADVANCES. Overdraft Loans and Over Advances
shall bear interest at the rate(s) determined pursuant to SECTION 2.8 or
SECTION 2.9 of the Credit Agreement, as applicable.
4. ELIGIBLE ACCOUNT RECEIVABLE DATA.
(a) The Account Receivable must not be unpaid on the date that is 90 days
after the date of the invoice evidencing such Account Receivable.
(b) If invoices representing 10% or more of the unpaid net amount of all
Accounts Receivable from any one Account Debtor are unpaid more than 90
days after the dates of the invoices evidencing such Accounts Receivable,
then all Accounts Receivable relating to such Account Debtor shall cease to
be Eligible Accounts Receivable.
5. ADDITIONAL COVENANTS. From the date of the Loan Agreement and thereafter
until all of the Borrowers' Obligations under the Loan Agreement are paid in
full, the Borrowers agree that, unless the Bank shall otherwise consent in
writing, it will not, and will not permit any Subsidiary to, do any of the
following:
5.1 TANGIBLE CAPITAL BASE. During each of the periods set forth below,
permit the Tangible Capital Base to be less than the amount set forth below
opposite such period at any time:
Period Tangible Capital Base
------ ---------------------
June 30, 1993 through and
including September 29, 1993 $5,300,000
September 30, 1993 through and
including October 31, 1993 $5,500,000
November 1, 1993 through and
including June 29, 1994 $5,000,000
June 30, 1994 through and
including December 30, 1994 $5,400,000
December 31, 1994 through and
including June 29, 1995 $5,400,000
<PAGE>
June 30, 1995 through and
including December 30, 1995 $5,600,000
December 31, 1995 and thereafter $5,800,000
5.2 LEVERAGE RATIO. During each of the periods set forth below, permit
the ratio of (a) the total of (i) Americable's consolidated Indebtedness,
MINUS (ii) Subordinated Debt, MINUS (iii) the aggregate unpaid accrued
interest on all Subordinated Debt of Americable owing to NSU, to (b)
Tangible Capital Base to be greater than the ratio set forth below opposite
such period at any time:
Period Leverage Ratio
------ --------------
June 1, 1993 through and
including September 29, 1993 2.0 to 1.0
September 30, 1993 and thereafter 2.2 to 1.0
5.3 INTEREST COVERAGE RATIO. Permit the ratio, as of the last day of any
fiscal quarter for the period commencing on the first day of Americable's
fiscal year through and including such day, of (a) Americable's EBITDA to
(b) the total of (i) Americable's consolidated interest expense (including,
without limitation, imputed interest expense on Capitalized Leases) MINUS
(ii) the aggregate unpaid accrued interest on all Subordinated Debt of
Americable owing to NSU, to be less than (w) 1.25 to 1.0 for the fiscal
quarter ending on September 30, 1993, (x) 2.0 to 1.0 for the fiscal quarter
ending December 31, 1993 and each fiscal quarter through the fiscal quarter
ending December 31, 1994, (y) 1.5 to 1.0 for fiscal quarter ending
March 31, 1995, and (z) 2.0 to 1.0 for each fiscal quarter thereafter.
5.4 CAPITAL EXPENDITURES. Make Capital Expenditures in an amount
exceeding $1,400,000 on a consolidated basis during Americable's fiscal
year ending December 31, 1993, and $750,000 during any fiscal year
thereafter.
Borrowers' Initials
Bank's Initials
DATE: AS OF MARCH 3, 1995
<PAGE>
Amended and Restated Credit Agreement
C.E. Services Inc.
August 1, 1994
AMENDED, RESTATED AND CONSOLIDATED CREDIT AGREEMENT
THIS AMENDED, RESTATED AND CONSOLIDATED CREDIT AGREEMENT (as further
amended, modified and/or supplemented from time to time, the "Agreement") dated
as of August 1, 1994 (the "Effective Date"), is by and between C. E. SERVICES,
INC., a Texas corporation, ("Borrower") and TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, a national banking association, (the "Bank") and is effective as of
the Effective Date.
WHEREAS, effective September 30, 1992, Borrower and Bank entered into a
Credit Agreement (as amended, the "Original Agreement"), under the terms of
which the Bank agreed to make a loan or loans to Borrower from time to time
before the Termination Date as defined therein, not to exceed at any one time
outstanding the lesser of a borrowing base or $1,500,000.00. The Original
Agreement was amended by First Amendment to Credit Agreement dated as of October
1, 1993, Second Amendment to Credit Agreement dated as of November 15, 1993,
Third Amendment to Credit Agreement dated as of March 15, 1994, and Fourth
Amendment to Credit Agreement dated as of May 2, 1994; and
WHEREAS, effective July 1, 1993, Borrower and Bank entered into a Credit
Agreement for Discretionary Loans (as amended, the "Original Agreement for
Discretionary Loans"), under the terms of which the Bank agreed to make a loan
or loans to Borrower from time to time before the Termination Date as defined
therein, not to exceed at any one time outstanding $2,000,000.00. The Original
Agreement for Discretionary Loans was amended by First Amendment to Credit
Agreement dated as of October 1, 1993, Second Amendment to Credit Agreement
dated as of November 15, 1993, Third Amendment to Credit Agreement dated as of
March 15, 1994, Fourth Amendment to Credit Agreement dated as of May 7, 1994,
and Fifth Amendment to Credit Agreement dated as of May 7, 1994 (the Original
Agreement and the Original Agreement for Discretionary Loans are sometimes
hereinafter referred to collectively as the "Original Agreements"); and
WHEREAS, Borrower and Bank wish to amend, restate and consolidate the
Original Agreements in their entirety.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Borrower and Bank hereby agree as follows:
1. LOANS UNDER THE COMMITMENT.
REVOLVING CREDIT NOTE 1.1 Subject to the terms and conditions hereof, the Bank
agrees to make a loan or loans (the "Commitment Loans" or "Commitment Loan") to
Borrower from time to time before the Termination Date (as defined herein), not
to exceed at any one time outstanding the lesser of the Borrowing Base (as
defined herein) 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 Commitment Note
or any Commitment Loan. The Commitment 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 "Commitment Note") which is given in renewal, modification and
extension of that certain promissory note dated May 2, 1994, in the original
principal amount of $1,500,000.00 (the "Existing Committed Note"). The parties
hereto agree that there is as of July 21, 1994, an outstanding principal balance
of $ - 0 - under the Existing Committed Note. The purpose of the Commitment
Loans is to support accounts receivables and the purchase of inventory.
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
<PAGE>
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 receivable agings
and listings, listings of invoices relating to customer prepayments or deposits
which have not been applied as credits, listings of accounts receivable which
represent 12 month maintenance contracts, and listings of accounts receivable-
future billings, and, if requested by Bank, inventory listings.
BORROWING BASE 1.3 The Borrowing Base shall be the Amount Available for
Borrowing on each Borrowing Base Report, subject to verification by the Bank.
The calculation of the Borrowing Base shall utilize the eligibility criteria,
borrowing base factors and dollar ceilings for various components as are
specified in the attached EXHIBIT A, incorporated herein by reference.
REQUIRED PAYDOWNS 1.4 If the unpaid amount of the Commitment Loans at any time
exceeds the Borrowing Base then in effect, the Borrower shall make a paydown on
the Commitment Note in an amount sufficient to reduce the total unpaid balance
of the Commitment Note to an amount no greater than the Borrowing Base. Such
paydown shall be accompanied by: (a) all accrued and unpaid interest on the
amount prepaid; and (b) any prepayment charge required by the note on which a
prepayment is made and shall be due concurrently with the Borrowing Base Report.
COMMITMENT FEE 1.5 The Commitment is not subject to a commitment fee.
LOAN DOCUMENTS 1.6 The Commitment Loans and all other obligations and
indebtedness of the Borrower to the Bank are entitled to the benefit of the Loan
Documents.
PAST DUE AMOUNTS 1.7 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 Commitment Note).
2. LOANS UNDER THE DISCRETIONARY LINE.
REVOLVING CREDIT NOTE 2.1 Subject to the terms and conditions hereof, the Bank
agrees to make a loan or loans (the "Discretionary Loans" or "Discretionary
Loan") to Borrower from time to time before the Termination Date (as defined
herein), 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 Discretionary Loan will be in a maximum amount of 70% of the amount of the
contract for the purchase of Borrower's inventory of computer hardware. Each
Discretionary Loan will be outstanding for not more than 60 days. The
Discretionary 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 the Discretionary
Note or any Discretionary Loan. The Discretionary 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 "Discretionary Note") which is given in renewal,
modification and extension of that certain promissory note dated May 7, 1994, in
the original principal amount of $2,000,000.00 (the "Existing Discretionary
Note"). The parties hereto agree that there is as of July 21, 1994, an
outstanding principal balance of $ - 0 - under the Existing Discretionary Note.
THE BANK IS NOT OBLIGATED IN ANY WAY TO MAKE ANY DISCRETIONARY LOANS UNDER THIS
SECTION 2 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 DISCRETIONARY NOTE TO MAKE ANY LOAN UNDER THIS
SECTION 2 OR UNDER THE DISCRETIONARY LINE OR UNDER THE DISCRETIONARY NOTE. ALL
DISCRETIONARY LOANS HEREUNDER OR UNDER THE DISCRETIONARY LINE OR UNDER THE
DISCRETIONARY NOTE SHALL BE AT THE SOLE AND ABSOLUTE DISCRETION OF THE BANK OR
ANY SUBSEQUENT OWNER OR HOLDER OF THE DISCRETIONARY NOTE AND THE BANK OR ANY
SUBSEQUENT OWNER OR HOLDER OF THE DISCRETIONARY NOTE MAY, FOR ANY REASON OR NO
REASON AT ALL, REFUSE TO MAKE ANY DISCRETIONARY LOAN TO THE MAKER HEREUNDER OR
UNDER THE DISCRETIONARY LINE OR UNDER THE DISCRETIONARY NOTE.
<PAGE>
FEE 2.2 Each Discretionary Loan made by Bank to Borrower hereunder shall be
subject to a fee equal to the greater of (i) one quarter of one percent (.25%)
of the amount of each such Discretionary Loan or (ii) $1,000.00.
LOAN DOCUMENTS 3.2 The Discretionary Loans and all other obligations and
indebtedness of the Borrower to the Bank are entitled to the benefit of the Loan
Documents.
PAST DUE AMOUNTS 3.3 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 Discretionary Note).
(The Commitment Line and the Discretionary Line may hereinafter be referred to
collectively as the "Line"; the Commitment Note and the Discretionary Note may
hereinafter be referred to collectively as the "Note" or "Notes"; the Commitment
Loan or Commitment Loans and the Discretionary Loan or Discretionary Loans may
hereinafter be referred to collectively as the "Loan" or "Loans".)
3. CONDITIONS PRECEDENT TO COMMITMENT LOANS.
COMMITMENT LOANS 3.1 The obligation of the Bank to make any Commitment Loan is
subject to 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 C, not later than noon of the Business Day of the proposed
Commitment Loan; (2) a Borrowing Base Report within the time provided by SECTION
1.2 of this Agreement; and (3) 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 Commitment 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 3.2 In addition to the matters described in the preceding section,
the obligation, if any, of the Bank to make the first Commitment Loan is subject
to the receipt by the Bank of all of the Loan Documents specified on ANNEX I,
all of which shall be in Proper Form.
4. CONDITIONS PRECEDENT TO DISCRETIONARY LOANS.
DISCRETIONARY LOANS 4.1 The Bank shall consider making Discretionary 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 C, not later than noon of the Business Day of the proposed
Discretionary Loan; (2) the contract for the purchase of the computer hardware
being purchased by Borrower; (3) the contract for the sale of the computer
hardware 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
Discretionary Loan shall not be prohibited by, or subject the Bank to any
penalty or onerous condition under, any Legal Requirement.
FIRST LOAN 4.2 In addition to the matters described in the preceding section,
the Bank shall not consider making Discretionary Loans until the receipt by the
Bank of all of the Loan Documents specified on ANNEX I, all of which shall be in
Proper Form.
5. REPRESENTATIONS AND WARRANTIES.
To induce the Bank to enter into this Agreement and to make the Commitment Loans
and to consider making the Discretionary Loans, the Borrower represents and
warrants as of the Effective Date and as of the date of each Request for Loan:
<PAGE>
ORGANIZATION AND STATUS 5.1 Borrower and each Subsidiary of Borrower is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization; 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 Subsidiary other than
C. E. Services (Europe) Limited, a U.K. Company, which is wholly-owned by
Borrower.
FINANCIAL STATEMENTS 5.2 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 and each Subsidiary 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 or any Subsidiary of Borrower since the dates of such financial
statements. Borrower is not, and no Subsidiary of Borrower is, subject to any
instrument or agreement materially and adversely affecting its financial
condition, business or affairs.
ENFORCEABILITY 5.3 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 5.4 Borrower and each Subsidiary of 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 and each
Subsidiary of 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. Neither Borrower nor any Subsidiary
of Borrower is in default in the payment of any other indebtedness or under any
agreement to which it is a party. All consents, 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 5.5 Except as heretofore disclosed to the Bank in writing, there is
no litigation or administrative proceeding pending or, to the knowledge of
Borrower, threatened against, nor any outstanding judgment, order or decree
affecting, Borrower or any Subsidiary of Borrower before or by any Governmental
Authority. Neither Borrower nor any Subsidiary of Borrower is in default with
respect to any judgment, order or decree of any Governmental Authority.
TITLE AND RIGHTS 5.6 Borrower and each Subsidiary of 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 and each Subsidiary of 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 and each Subsidiary of Borrower have
been obtained and are in full force and effect.
REGULATION U 5.7 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.
<PAGE>
ENVIRONMENT 5.8 Neither Borrower nor any Subsidiary of Borrower has generated,
handled, used, stored or disposed of any hazardous or toxic waste or substance,
on or off its premises (whether or not owned by it), other than in accordance
with applicable Legal Requirements. Neither Borrower nor any Subsidiary of
Borrower has material contingent liability with respect to noncompliance with
environmental or hazardous waste laws or has not 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 5.9 All statements made by or on behalf of Borrower or
any Subsidiary 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 5.10 Borrower is a wholly owned Subsidiary of North Star Universal,
Inc. ("Parent").
6. 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 6.1 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 6.2 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 6.3 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 audited annual financial
statements, prepared in conformity with GAAP, accompanied by a report and
opinion of independent certified public accountants satisfactory to Bank; (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 work papers to establish compliance or noncompliance with the
financial covenants set forth in SECTION 7.3; (c) as soon as available and in
any event within 25 days after the end of each month, the monthly borrowing base
calculation, a listing of accounts receivable agings and a Compliance
Certificate; (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 120 days of the end of each fiscal year of Parent, Parent's annual
financial statements, prepared in conformity with GAAP,
<PAGE>
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 6.4 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 6.5 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 6.6 Promptly execute and deliver any and all other and 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 6.7 Notify the Bank at least 30 days prior to the date that
any Party 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.
7. 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 7.1 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; and
(c) Subordinated Debt to Parent made after the Effective Date, the proceeds of
which are used exclusively for the purchase of Borrower's inventory and to
support Borrower's accounts receivable.
LIENS 7.2 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 or 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;
<PAGE>
(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 7.3 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.
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 month end $5,500,000.00
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 each month end 1.25 : 1.0
3. SUBORDINATED DEBT TO PARENT. Maintain at least $3,057,000 of Subordinated
Debt to Parent.
4. ROLLING NET LOSS. Not permit a Net Loss in excess of $200,000 to occur
during any consecutive three-month period from and after June 1, 1994.
5. CUMULATIVE NET LOSS. Not permit a cumulative Net Loss in excess of
$300,000 to occur from and after June 1, 1994.
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 7.4 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 of 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 7.5 At any time: (a) redeem, retire or otherwise acquire,
directly or indirectly, any shares of its capital stock or other equity
interest; (b) declare or pay any dividend (EXCEPT stock dividends); (c)
make any other payment or distribution of any Property or cash to owners of
an equity interest in their capacity as such or to any affiliate of
Borrower (including, but not limited to, reimbursement of taxes to Parent);
or (d) make any loan, advance, or investment to or in any officer, agent,
employee, shareholder, affiliate or any other Person, provided that the
foregoing shall not limit repayment of Indebtedness allowed by SECTION
7.1(C).
NATURE OF BUSINESS; MANAGEMENT 7.6 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 (and any change in the management of Borrower as of the
Effective Date, including, without limitation, any change affecting C. B.
Russey and/or Douglas T. McLeod, shall be deemed a material
<PAGE>
change in Borrower's management), or enter into any investments outside of
current lines of business.
AFFILIATE TRANSACTIONS 7.7 Enter into any transaction or agreement with any
officer, director 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 7.8 Form, create or acquire any Subsidiary, other than C. E.
Services (Europe) Limited.
USE OF PROCEEDS 7.9 Use proceeds of any Loan for any purpose other than as
specified in Sections 1.1 and 2.1.
8. EVENTS OF DEFAULT AND REMEDIES.
EVENTS OF DEFAULT 8.1 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
or all of the Notes to be, and thereupon the Notes 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/or the Discretionary Line 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 shall fail to pay at maturity, or within any applicable period of
grace, any principal of or interest on any other borrowed money obligations
or shall fail to observe or perform any term, covenant or agreement
contained in any agreement or obligation by which it is bound; 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
(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
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
<PAGE>
(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 of 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 and each 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 (other than a one-time
transfer by Parent of all of Parent's ownership of Borrower to a new
wholly-owned subsidiary of Parent ("New Parent"), with New Parent becoming
a guarantor of Borrower's indebtedness to Bank under a guaranty agreement
acceptable to Bank, and thereafter, the "Parent" under this Agreement shall
be the New Parent);
provided that for a period of five (5) days following any Event of Default
pursuant to SECTION 8.1(A) hereof, Bank agrees not to exercise the remedies
set forth in SECTION 8.1(1) AND (2) hereof.
REMEDIES CUMULATIVE 8.2 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.
9. MISCELLANEOUS.
NO WAIVER 9.1 No waiver of any Event of Default shall be deemed to be a waiver
of any other Event of Default. No failure to exercise or delay in
exercising any right or power under any of the Loan Documents shall operate
as a 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 9.2 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 and
SECTION 3.1 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 9.3 (a) 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"). It 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 which
would otherwise be applicable shall apply, and (ii) the proceeding shall
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
<PAGE>
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, sequestration, appointments or
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; ASSIGNMENT 9.4 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 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 Notes and the full
and final payment of all amounts due under the Loan Documents. This
Agreement and the Loans may be transferred or assigned by Bank in Bank's
sole discretion, and any transferee or assignee shall be entitled to the
benefits hereof.
<PAGE>
DOCUMENTARY MATTERS 9.5 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 undertakings. 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 9.6 Any provisions 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 $1,500.00. The obligations of the Borrower under this and the
following section shall survive the termination of this Agreement.
INDEMNIFICATION 9.7 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 9.8 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 9.9 All financial statements for Borrower shall be prepared on
both a consolidated and consolidating basis and all financial amounts and
ratios with respect to Borrower shall be computed on a consolidated basis.
USURY NOT INTENDED 9.10 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 the 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 in 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.
CONFLICT 9.11 In the event of a conflict or an inconsistency between the terms
of this Agreement and the terms of the Original Credit Agreements, this
Agreement shall prevail.
<PAGE>
10. 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 Agreements, 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.
CURRENT RATIO shall mean the ratio of Current Assets to Current Liabilities.
GOVERNMENT AUTHORITY shall mean 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 Notes, Security Agreements, the
Original 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.
<PAGE>
NET LOSS shall mean the net loss (before income taxes) of Borrower and
Subsidiary on a consolidated basis, determined in accordance with GAAP.
ORGANIZATION 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 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 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.
SECURITY AGREEMENTS shall mean any security agreement, deed of trust,
assignment or other security document which secures repayment of any of the
Notes.
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 after
deducting loans and advances to officers and employees, any amounts due
Borrower's parent Corporation, 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) June 30, 1995; or (b) the date
specified by the Bank pursuant to SECTION 8.1 hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date set
forth above.
<PAGE>
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/ C.B. Russey
Name: C.B. Russey
Title: President
Address: 2895 113th Street
Grand Prairie, Texas 75050
BANK:
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ Ray Kingsbury
Name: Ray Kingsbury
Title: Senior Vice President
Address: 201 Main Street
Fort Worth, Texas 76102
LIST OF EXHIBITS
A: Borrowing Base Report
B: Compliance Certificate
C: Request for Loan
Annex I: List of Loan Documents
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FIRST AMENDMENT TO AMENDED,
RESTATED AND CONSOLIDATED
CREDIT AGREEMENT
This First Amendment to Amended, Restated and Consolidated Credit Agreement
(the "First Amendment") is dated as of December 27, 1994, and is by and between
C. E. SERVICES, INC., a Texas corporation ("Borrower"), and TEXAS COMMERCE BANK
NATIONAL ASSOCIATION (the "Bank").
WHEREAS, Borrower and Bank entered into that certain Amended, Restated and
Consolidated Credit Agreement dated as of August 1, 1994 (the "Amended
Agreement") with respect to certain loans which Bank agreed to make to Borrower;
and
WHEREAS, as a result of certain defaults by Borrower under the Amended
Agreement, Borrower and Bank wish to amend the Amended Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Bank hereby agree as
follows:
1. Certain Events of Default currently exist under the Amended Agreement.
As a result of such Events of Default, Bank has the right, among other rights,
to accelerate payment of all Loans made thereunder and to terminate any
Commitment to lend thereunder. In consideration of Bank's agreement hereby to
not immediately exercise its rights under the Amended Agreement (Bank does not
hereby waive any Event of Default, but instead hereby reserves the right to
exercise its rights under the Amended Agreement at any time hereafter, as a
result of existing Events of Default or future Events of Default), Borrower
hereby agrees to cause all of its indebtedness to Bank to be guaranteed by North
Star Universal, Inc. and Dalworth Holdings, Inc., each an affiliate of Borrower,
pursuant to guarantee agreements in form and substance acceptable to Bank.
2. Section 1.1 of the Amended Agreement is hereby amended such that the
first sentence thereof shall be as follows:
Subject to the terms and conditions hereof, the Bank agrees to make a
loan or loans (the "Commitment Loans" or "Commitment Loan") to
Borrower from time to time before the Termination Date (as defined
herein), not to exceed at any one time outstanding the lesser of the
Borrowing Base (as defined herein) or $700,000.00 (the "Commitment"),
Borrower having the right to borrow, repay and reborrow.
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3. The term "Termination Date," as defined in Section 10 of the Amended
Agreement, is hereby amended to mean "the earlier of (a) March 31, 1995; or (b)
the date specified by the Bank pursuant to Section 8.1 hereof."
4. Bank has notified Borrower, and Borrower hereby acknowledges, that
Bank is not obligated in any way to make any Discretionary Loans under the
Amended Agreement and nothing therein, herein or in any other agreements,
documents, instruments, certificates or other writings, executed or delivered in
connection with or pursuant to the terms of the Amended Agreement, this First
Amendment or any such other agreement, document, instrument, certificate or
other writing 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
Discretionary Note to make any loan thereunder or hereunder or under the
Discretionary Line or under the Discretionary Note. All Discretionary Loans
thereunder or under the Discretionary Line or under the Discretionary Note shall
be at the sole and absolute discretion of the Bank or any subsequent owner or
holder of the Discretionary Note, and the Bank or any subsequent owner or holder
of the Discretionary Note may, for any reason, or no reason at all, refuse to
make any Discretionary Loan to Borrower hereunder or under the Discretionary
Line or under the Discretionary Note. As a result of the existing Events of
Default under the Amended Agreement, Borrower acknowledges that Bank has
informed it that any request by Borrower for a Discretionary Loan will be very
carefully analyzed by Bank, and it is unlikely that any Discretionary Loan will
be approved by Bank.
5. Except as amended by this First Amendment, the Amended Agreement shall
remain in full force and effect as therein written. Borrower hereby
acknowledges and agrees that there are no offsets, defenses or claims against
any part of the indebtedness evidenced by the Discretionary Note or the
Commitment Note or otherwise arising pursuant to the Amended Agreement and, to
the extent any such offsets, defenses or claims exist, Borrower hereby
irrevocably waives same. Borrower hereby releases, acquits and forever
discharges Bank, and each of its officers, directors, shareholders, agents,
employees, successors and assigns, from any and all claims, demands, liens,
damages, actions or suits, of whatsoever nature or character, in contract or in
tort, known or unknown, which has accrued or may accrue to Borrower arising out
of or in any way connected to any extension of credit by Bank to Borrower on or
prior to the date hereof or any other matter or thing done, omitted or suffered
to be done by any party being released hereby on or prior to the date hereof.
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6. Each capitalized term not otherwise defined in this First Amendment
shall have the meaning ascribed to such term in the Amended Agreement.
7. This First Amendment may be executed in one or more counterparts, and
each counterpart shall constitute an original instrument and all such
counterparts shall constitute one and the same instrument.
8. THIS WRITTEN LOAN AGREEMENT 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.
EXECUTED as of the day and year first above written.
C. E. SERVICES, INC.
By: /s/ C. B. Russey
Name: C. B. Russey
Title: President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION
By: /s/ Matt Reynolds
Name: D. Matt Reynolds
Title: Senior Vice President
<PAGE>
CONTINUING GUARANTY
WHEREAS, C.E. SERVICES, INC., hereinafter called "Borrower," may from time
to time become indebted to TEXAS COMMERCE BANK NATIONAL ASSOCIATION, a national
banking association of Fort Worth, Tarrant County, Texas, hereinafter called
"Lender."
For good and valuable consideration, receipt of which is hereby
acknowledged, and to induce Lender, at its option, at any time or from time to
time to lend money to Borrower, the undersigned (individually and collectively
called "Guarantor") hereby (jointly and severally if more than one)
unconditionally guarantees unto Lender the prompt and complete payment of the
Guaranteed Indebtedness (as herein defined) when due (whether at its stated
maturity, by acceleration or otherwise) in accordance with the terms of the Loan
Documents (as herein defined).
The term "Guaranteed Indebtedness" as used herein, means all indebtedness
of every kind and character, whether now existing or hereafter arising, of
Borrower to Lender, whether direct or indirect, primary or secondary, joint or
several, fixed or contingent and whether evidenced by note, draft, open account,
acceptance, overdraft, line of credit, endorsement, guaranty, security
agreement, loan agreement, application for letter of credit or otherwise, and
without limit as to amount, together with all interest thereon, and all
penalties, costs, fees and expenses (including, but not limited to attorneys'
fees) as provided for under any of the Loan Documents and as incurred by Lender
in connection with any of the foregoing indebtedness, including, but not limited
to, collecting or attempting to collect any of the foregoing indebtedness from
Borrower or incurred by Lender in connection with this Guaranty (including, but
not limited to, attorneys' fees and costs of collection). The term "Other
Indebtedness," as used herein, means all indebtedness, if any, of Borrower to
Lender that is not Guaranteed Indebtedness. "Loan Documents" as used herein
shall include each and every note, draft, line of credit, loan agreement,
application for letter of credit, guaranty or other similar document or
instrument (if any) from time to time executed in connection with the Guaranteed
Indebtedness, all amendments, modifications, restatements, supplements,
endorsements, renewals, extensions and rearrangements thereof and substitutions
therefor, and each and every deed of trust, mortgage, security agreement,
pledge, assignment or other similar instrument (if any), from time to time
securing, in whole or part, the Guaranteed Indebtedness. "Collateral Proceeds"
shall mean any proceeds, credits or recoveries from any source, including,
without limitation, all proceeds, credits and amounts received from the exercise
of any Non-Exclusive Remedy. "Non-Exclusive Remedies" shall mean the right,
power and privilege of Lender, following the occurrence of a default or an event
of default hereunder or under any of the other Loan Documents (a) to receive and
obtain payment of all or a portion of the Guaranteed Indebtedness and (b) to
seek and obtain performance of the obligations, covenants and agreements of
Borrower and each Guarantor to and with Lender, through pursuit of, among other
remedies, rights and privileges, one or more of the following remedies, rights
and privileges:
(i) foreclosure of any liens and security interests relating to the
Loan Documents to the full extent of the value of the collateral securing
the Guaranteed Indebtedness;
(ii) enforcement of Borrower's monetary obligations to Lender under
the Loan Documents;
(iii) enforcement of any Guarantor's monetary obligations to Lender
under this Guaranty;
(iv) enforcement of all other obligations, covenants and agreements
of Borrower, any of its joint venturers or partners, and any Guarantor
under the Loan Documents, whether through any judicial or non-judicial
foreclosure, self-help or other repossession of
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collateral or security, institution or suit, settlement, compromise,
enforcement of specific performance or any other means which Lender may
elect in its sole discretion;
(v) recovery against Borrower, any of its joint venturers or
partners, for appropriation by the Borrower, any of its joint venturers or
partners, to its own use of any rents, revenues, insurance proceeds,
deposits, distributions or other property of a similar nature after Lender
shall have become entitled thereto; and
(vi) enforcement of all other rights, remedies, powers and privileges
of Lender under the Loan Documents or allowed by law.
This Guaranty is unconditional and absolute, and if for any reason all or
any portion of the Guaranteed Indebtedness shall not be paid promptly when due,
Guarantor will immediately (jointly and severally if more than one) pay the same
to Lender or any other person or entity entitled thereto, regardless of any
defense, right of setoff or counterclaim which Borrower may have or assert, and
regardless of whether Lender or any other person or entity shall have taken any
steps to enforce any rights against Borrower or any other entity to collect such
sum, and regardless of any other condition or contingency. This Guaranty shall
also cover interest on the Guaranteed Indebtedness (as provided for in the Loan
Documents) and all reasonable expenses incurred by Lender in enforcing any of
the Loan Documents, this Guaranty, or both.
The obligations, covenants, agreements and duties of Guarantor under this
Guaranty shall in no way be affected or impaired by reason of the happening from
time to time of any of the following with respect to the Loan Documents, without
the necessity of any notice to, or further consent of any Guarantor: (a) the
release or waiver, by operation of law or otherwise, of the performance or
observance by Borrower or any co-guarantor, surety, endorser or other obligor of
any express or implied agreement, covenant, term or condition in any of the Loan
Documents to be performed or observed by such party; (b) the extension of the
time for the payment of all or any portion of the Guaranteed Indebtedness or any
other sums payable under the Loan Documents or the extension of time for the
performance of any other obligation under, arising out of or in connection with
the Loan Documents; (c) the supplementing, modification or amendment (whether
material or otherwise) of any of the Loan Documents or of the obligations of
Borrower, any Guarantor or any surety for Borrower set forth in the Loan
Documents or otherwise; (d) any failure, omission, delay or lack of diligence on
the part of Lender, or any other person or entity, to enforce, assert or
exercise any right, privilege, power or remedy conferred on Lender or any other
person or entity in any of the Loan Documents, or any action on the part of
Lender or such other person or entity in any of the Loan Documents, or any
action on the part of Lender or such other person or entity granting indulgence
or extension of any kind; (e) the release of any security under any deed of
trust, mortgage, security agreement, pledge, assignment or other Loan Document,
or the release, modification, waiver or failure to enforce any pledge, security
device, insurance agreement, bond or other guaranty, surety or indemnity
agreement whatsoever; (f) the release, modification, waiver or failure to
enforce any right, benefit, privilege or interest under any contract or
agreement, under which the rights of Borrower or any other obligor have been
collaterally or absolutely assigned, or in which a security interest has been
granted to Lender as direct or indirect security for payment of the Guaranteed
Indebtedness or performance of any obligations to Lender; (g) the voluntary or
involuntary liquidation, dissolution, sale of any collateral, marshalling of
assets and liabilities, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, Borrower or any other surety
for Borrower or any of the assets of Borrower; (h) any invalidity of or defect
or deficiency in any of the Loan Documents or failure to acquire, perfect or to
maintain perfection of any lien on or security interest in any collateral
securing payment of the Guaranteed Indebtedness or any portion thereof or
performance of Borrower's or any other person's obligations under the Loan
Documents or securing this Guaranty; (i) the settlement, compromise or
subordination of any obligation
<PAGE>
guaranteed hereby or hereby incurred; (j) the insanity, minority or other
disability or bankruptcy, insolvency, death or corporate dissolution of Borrower
(even though the same shall render the Guaranteed Indebtedness void or
unenforceable or uncollectible, in whole or in part, as against Borrower); (k)
the receipt of any Collateral Proceeds by Lender from whatever source, each
Guarantor hereby expressly agreeing that, unless otherwise agreed to by Lender
in writing, Collateral Proceeds shall not be applied to reduce the Guaranteed
Indebtedness unless and until Lender has determined, in its sole discretion,
that all Other Indebtedness has been fully paid and satisfied and that all
obligations, if any, of Lender to advance monies to or on behalf of Borrower
pursuant to the Loan Documents have terminated.
Each Guarantor hereby WAIVES marshalling of assets and liabilities, sale in
inverse order of alienation, notice of acceptance of this Guaranty and of any
liability to which it applies or may apply, presentment, demand for payment,
protest, notice of nonpayment, notice of dishonor, notice of acceleration,
notice of intent to accelerate and all other notices and demands, collection
suit or the taking of any other action by Lender. Further, each Guarantor
expressly waives each and every right to which it may be entitled by virtue of
the suretyship law of the State of Texas, including, without limitation, any
rights it may have pursuant to Rule 31, Texas Rules of Civil Procedure, Chapter
34 of the Texas Business and Commerce Code and Section 17.001, Texas Civil
Practice and Remedies Code.
This is an absolute guaranty of payment and not of collection, and each
Guarantor WAIVES any right to require that any action be brought against
Borrower or any other person or entity. Should Lender seek to enforce the
obligations of Guarantor by action in any court, such Guarantor WAIVES any
necessity, substantive or procedural, that a judgment previously be rendered
against Borrower or any other person or entity or that Borrower or any other
person or entity be joined in such cause or that a separate action be brought
against Borrower or any other person or entity; the obligations of each
Guarantor hereunder are several from those of Borrower or any other person or
entity (including any other surety for Borrower), and are primary obligations
concerning which each Guarantor is the principal obligor. All waivers herein
contained shall be without prejudice to Lender at its option to proceed against
Borrower or any other person or entity, whether by separate action or by
joinder. Notwithstanding any payment or payments made by any Guarantor
hereunder or any setoff or application of funds of any Guarantor by Lender, no
Guarantor shall be entitled to be subrogated to any of the rights of Lender
against Borrower or any collateral security or rights of offset held by Lender
for the payment of the Guaranteed Indebtedness until all of the Guaranteed
Indebtedness is paid in full and all obligations (if any) to Lender to extend
credit to Borrower in connection with the Loan Documents shall have terminated.
This is a continuing guaranty, and all extensions of credit and financial
accommodations heretofore, concurrently herewith or hereafter made by Lender to
Borrower shall be conclusively presumed to have been made in acceptance of and
reliance on this Guaranty.
This Guaranty is an absolute and unconditional guaranty of the Guaranteed
Indebtedness, is irrevocable (except as stated elsewhere in this paragraph) and
shall continue in full force and effect until payment in full of the Guaranteed
Indebtedness. Any Guarantor may at any time terminate its obligations hereunder
as to any portion of the Guaranteed Indebtedness not theretofore arising in the
following manner. Any Guarantor may deliver written notice to any Vice
President of Lender or the President of Lender against written receipt therefor,
such notice to state that such Guarantor will not be liable hereunder for any
obligations incurred to Lender after a day five business days after the date of
such delivery, provided that such notice shall not in any wise affect, impair or
limit the liability and responsibility of such Guarantor or any other Guarantor
hereunder with respect to any obligations theretofore existing or the liability
of any other Guarantor hereunder with respect to any obligation thereafter
arising. In the event of the death of any Guarantor, the obligations of the
deceased shall continue in full force and effect as to all indebtedness
guaranteed hereby prior to the day of five business days after the day on which
Lender shall have received notice in writing of the termination of this Guaranty
as hereinabove set forth. Each Guarantor shall remain fully liable hereunder in
accordance with
<PAGE>
the terms set forth herein notwithstanding a revocation by, or the death of, or
complete or partial release for any cause of, any one or more of the remainder
of the undersigned, or of Borrower or of anyone liable in any manner for the
liabilities (including those hereunder) incurred directly or indirectly in
respect thereof or hereof, and notwithstanding the dissolution, termination or
change in personnel of any one or more of the undersigned. No revocation or
termination hereof shall affect in any manner rights arising under this Guaranty
with respect to liabilities arising prior to the effective date of such written
notice, and the sole effect of revocation or termination shall be to exclude
from this Guaranty liabilities more than five business days after the delivery
of such notice which are unconnected with liabilities theretofore arising or
transactions theretofore entered into.
Guarantor (jointly and severally if more than one) represents and warrants
to Lender that: (a) as to any Guarantor which is a corporation, it is duly
organized and validly existing and in good standing under the laws of its
jurisdiction of incorporation, is duly qualified and in good standing in each
other jurisdiction in which the conduct of its business or the maintenance of
its property so requires, and has full power and authority to carry on its
business as presently conducted and to execute, deliver and perform this
Guaranty; (b) this Guaranty has been duly authorized, executed and delivered by
such Guarantor and constitutes a legal, valid and binding obligation of such
Guarantor enforceable in accordance with its terms; (c) the execution, delivery
and performance of this Guaranty (i) do not and will not violate any of
Guarantor's articles of incorporation, certificate of incorporation, bylaws or
any other restriction by which any Guarantor or any of its properties may be
bound, (ii) do not and will not violate or conflict with any law, governmental
rule or regulation or any judgment, writ, order, injunction, award or decree of
any court, arbitrator, administrative agency or other governmental authority
applicable to any Guarantor or any indenture, mortgage, contract, agreement or
other undertaking to which any Guarantor is a party or by which any Guarantor or
any of its property may be bound or affected, and (iii) do not and will not
require any consent of any other person or any consent, license, permit,
authorization or other approval of, registration with, any giving of notice to
or any exemption by, any court, arbitrator, administrative agency or other
governmental authority; (d) there is no action, suit, or proceeding pending or,
to the knowledge of Guarantor, threatened against or affecting any Guarantor
before any court or administrative agency which might result in any material
adverse change in the business or financial condition of any Guarantor; (e) each
Guarantor has filed all federal and state income tax returns which are required
to be filed, and has paid all taxes as shown on said returns and all assessments
against the property of such Guarantor to the extent that such taxes and
assessments have become due and payable; (f) no Guarantor is a party to any
contract or agreement which materially and adversely affects the business,
property or assets, or financial condition of such Guarantor; (g) all
information supplied and statements made to Lender by or on behalf of any
Guarantor prior to, contemporaneously with or subsequent to the execution of
this Guaranty are and shall be true, correct, complete, valid and genuine; (h)
all financial statements and applications for credit furnished to Lender by or
on behalf of any Guarantor fully and accurately present the financial condition
of the subject thereof as of the dates thereof and for the periods then ended;
(i) no material adverse change has occurred in the financial condition reflected
in such financial statement and applications for credit since the respective
dates thereof; (j) no Guarantor is in default with respect to any order, writ,
injunction, decree or demand of any court or other governmental authority, or in
the payment of any indebtedness for borrowed money or under the terms or
provisions of any agreement or instrument evidencing or securing any such
indebtedness; (k) as to any Guarantor which is a corporation, the execution and
delivery of this Guaranty to Lender will benefit directly or indirectly such
Guarantor; (l) no representation or warranty contained in this Guaranty and no
statement contained in any certificate, schedule, list, financial statement or
other instrument furnished to Lender contains, or will contain, any untrue
statement of material fact or omits, or will omit, to state a material fact
necessary to make the statement contained herein or therein not misleading.
<PAGE>
Each Guarantor shall furnish to Lender all such financial statements and
other information relating to the financial condition, properties and affairs of
such Guarantor as Lender may from time to time request.
No Guarantor will change its address, name or identity without notifying
Lender of such change in writing at least thirty (30) days prior to the
effective date of such change.
Upon the occurrence of any of the following events: (a) Borrower's failure
to pay any Guaranteed Indebtedness when due or any other default or event of
default under any terms of the Loan Documents; or (b) any representation or
warranty made by or on behalf of any Guarantor herein or in any writing
furnished in connection with or pursuant to this Guaranty shall be incorrect,
false or misleading on the date as of which made; or (c) any Guarantor shall
default in the punctual and complete performance or observance of any agreement,
covenant, term or condition contained herein or in any instrument given to
secure Guarantor's obligations hereunder; or (d) any Guarantor shall fail to pay
at maturity, or within any applicable period of grace, any obligation for
borrowed monies or advances, or fail to observe or perform any term, covenant or
agreement contained in any agreement or obligation by which it is bound
evidencing or securing borrowed money for such period of time as would
accelerate, or would permit the holder thereof or of any obligation issued
thereunder, to accelerate, the maturity thereof, or of any such obligation; or
(e) final judgment or judgments in the aggregate for the payment of money in
excess of $10,000.00 shall be rendered against any Guarantor and the same shall
remain undischarged for a period of thirty (30) days during which execution
shall not effectively be stayed; or (f) any Guarantor or any other person shall
claim, or any court shall find or rule, that Lender does not have a valid lien
on any security which may have been provided by any Guarantor or such other
person for the Guaranteed Indebtedness; or (g) any Guarantor shall make a
general assignment for the benefit of creditors or shall petition or apply to
any tribunal for the appointment of a custodian, liquidator, trustee or receiver
of all or any substantial part of the business, estate or assets of any
Guarantor or shall commence any proceeding relating to such Guarantor or its
property under any bankruptcy, reorganization, arrangement, insolvency,
readjustment of debt, dissolution or liquidation law of any jurisdiction,
whether now or hereafter in effect; or (h) any such petition or application
shall be filed or any such proceeding shall be commenced against any Guarantor,
and such Guarantor by any act or omission shall indicate approval thereof,
consent thereto or acquiescence therein, or an order shall be entered appointing
any such custodian, liquidator, trustee or receiver of all or any substantial
part of the assets of any Guarantor, or granting relief to any Guarantor or
approving the petition in any such proceeding, and such order shall remain in
effect for more than thirty (30) days; or (i) any Guarantor 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 thirty (30) days after its issue or levy; or (j) any Guarantor
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 shall have
suffered or permitted, while insolvent, any creditor to obtain a lien upon any
of its property through legal proceedings or distraint which is not vacated
within thirty (30) days from the date thereof; or (k) as to any Guarantor who is
an individual, such Guarantor shall die and his estate or a substantial part of
such estate shall be distributed by the executor or administrator thereof to his
heirs or in accordance with such Guarantor's will prior to all the distributees
of such estate or part thereof (by an instrument approved in form and substance
by Lender) either (i) jointly and severally assuming all of such deceased
Guarantor's obligation hereunder or (ii) to secure the payment of the Guaranteed
Indebtedness effectively pledging, mortgaging or otherwise creating a first lien
(but without any personal liability on such distributee's part) on a portion of
the assets of such estate valued by a qualified appraiser approved by Lender at
not less than the principal amount of the
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Guaranteed Indebtedness then outstanding; or (l) as to any Guarantor which is a
corporation, partnership or joint venture, the dissolution, liquidation or
termination of existence of such Guarantor or the sale, conveyance, lease or
other disposition of a substantial part of the assets of such Guarantor; or (m)
any adverse material change shall occur in the assets, liabilities, financial
condition, business, operations, affairs or circumstances of any Guarantor; then
an event of default under this Guaranty shall have occurred and the holder or
holders of the Guaranteed Indebtedness may, at its or their option, declare the
unpaid balance of the Guaranteed Indebtedness, together with all interest then
accrued thereon, to be immediately due and payable, and thereupon the Guaranteed
Indebtedness shall immediately be due and payable without presentation, notice
of protest, other notice of dishonor, notice of intent to accelerate, or notice
of acceleration, all of which are hereby expressly WAIVED by each Guarantor.
If, at any time, there be Other Indebtedness, (a) Lender, without in any
manner impairing its rights hereunder, may, at its option, exercise rights of
offset by applying, first, to the Other Indebtedness, any deposit balances to
the credit of Borrower and (b) except as stated in the last sentence of this
paragraph, Lender may apply, first, to the Other Indebtedness all amounts by
Borrower and all amounts realized by Lender from collateral or security held by
Lender for the payment of Borrower's indebtedness. If a particular security
instrument expressly requires an application different from that permitted under
the preceding sentence, proceeds realized by Lender from such security
instrument shall be applied as provided in such instrument.
If more than one person executes this Guaranty, their obligations under
this Guaranty shall be joint and several. Suit may be brought against such
person jointly and severally or against any one or more but less than all of
them, without impairing or releasing the rights of Lender against any other such
person.
No delay on the part of Lender in exercising any right hereunder or failure
to exercise the same shall operate as a waiver of such right, nor shall any
single or partial exercise of any right, power or privilege bar any further or
subsequent exercise of the same or any other right, power or privilege.
This Guaranty shall not be changed orally, but shall be changed only by
agreement in writing signed by the person against whom enforcement of such
change is sought.
Any notice, request or other communication required or permitted to be
given hereunder shall be given in writing by delivering the same against receipt
therefor or (except as otherwise expressly provided herein) by depositing the
same in the United States Postal Service, postage prepaid, registered or
certified mail, return receipt requested, addressed to the respective parties at
the address shown below or to such other address as the intended recipient may
have specified in a prior written notice received by the sender (and if so
given, shall be deemed given on the business day following the day on which such
communication was mailed).
The masculine and neuter genders used herein shall each include the
masculine, feminine and neuter genders and the singular number used herein shall
include the plural number. The words "person" and "entity" shall include
individuals, corporations, partnerships, joint ventures, associations, joint
stock companies, trusts, unincorporated organizations, and governments and any
agency or political subdivision thereof.
This Guaranty shall be binding upon each Guarantor, his heirs, devisees,
executors, administrators, personal representatives, trustees, receivers,
successors and assigns and shall inure to the benefit of, and be enforceable by,
Lender and its successors and assigns and each and every other person who shall
from time to time be or become the owner or holder of any of the Guaranteed
Indebtedness, and each and every reference herein to "Lender" shall also include
each and every successor or holder. No Guarantor shall assign its obligations
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hereunder without the prior written consent of Lender. This Guaranty may be
executed in multiple counterparts, and each counterpart executed by any party
shall be deemed an original and shall be binding upon the person or entity
executing the same, irrespective of whether any other Guarantor has executed
that or any other counterpart of this Guaranty. Production of any counterpart
other than the one to be enforced shall not be required.
This Guaranty shall be governed by and construed and interpreted in
accordance with the laws of the United States of America and the State of Texas.
The county in which Lender has its principal place of business in Texas shall be
the proper place of venue to enforce payment or performance of this Guaranty.
Each Guarantor irrevocably agrees that any legal proceeding arising out of or in
connection with this Guaranty shall be brought in the state district courts of
the county in which Lender has its principal place of business in Texas, or in
the United States District Court for the district in which such county is
located.
Notwithstanding anything to the contrary contained herein, with respect to
any portion of the Guaranteed Indebtedness which is a "consumer credit
obligation" (hereinafter called a "consumer credit obligation") as defined in 12
C.F.R., 227, Regulation AA, promulgated by the Federal Reserve Board
(hereinafter called "Regulation AA"), this Guaranty shall be construed as to
comply with Regulation AA. In the event any provision hereof, including,
without limitation, any waiver provisions, shall be found by either the Lender
or a court of competent jurisdiction to be in violation of Regulation AA, then
such provision only shall automatically become a nullity as to such consumer
credit obligation and shall have no further force and effect with respect
thereto, without, however, rendering such provision unenforceable as to any
portion of this Guaranty which is not a consumer credit obligation and without
hereby rendering any other provision of this Guaranty unenforceable as to any of
the Guaranteed Indebtedness or rendering this entire Guaranty unenforceable and
without in any other manner cancelling, amending, discharging or limiting this
Guaranty.
If any other person or entity shall with respect to any of the Guaranteed
Indebtedness at any time execute and deliver any guaranty, or any other
agreement or document with substantially the same effect as a guaranty, or grant
any collateral security, the obligations of each Guarantor hereunder shall be
joint and several with the obligations of such other person or entity pursuant
to such agreement or document and the agreement or document granting such
collateral security.
Nothing herein shall be construed to cancel, amend, discharge or limit any
other guaranty or similar obligation executed by any Guarantor in favor of
Lender. If any Guarantor shall have previously executed any other guaranty in
favor of Lender which has not been cancelled, terminated, or revoked, then the
aggregate amount of the Guaranteed Indebtedness shall be in addition to the
aggregate of the debt guaranteed by all such previous uncancelled, unrevoked and
unterminated guaranties.
THIS GUARANTY is executed as of the ____ day of December, 1994.
NOTICE OF GUARANTOR
THIS NOTICE IS BEING SUPPLIED IN COMPLIANCE WITH 12 C.F.R. 227, REGULATION
AA, PROMULGATED BY THE FEDERAL RESERVE BOARD AND APPLIES TO ANY GUARANTEED
INDEBTEDNESS WHICH MAY BE A CONSUMER CREDIT OBLIGATION AS DEFINED IN SUCH
REGULATION AA.
YOU ARE BEING ASKED TO GUARANTEE THE DEBT OF BORROWER NOW EXISTING OR
HEREAFTER ARISING. THERE IS NO LIMIT AS TO THE AMOUNT UNLESS THIS GUARANTY
EXPRESSLY PROVIDES FOR SUCH LIMITATION. THINK CAREFULLY BEFORE YOU GUARANTEE
<PAGE>
THE EXISTING AND FUTURE DEBTS OF BORROWER. IF THE BORROWER DOES NOT PAY ANY OF
SUCH DEBTS, YOU WILL HAVE TO. BE SURE THAT YOU CAN AFFORD TO PAY ALL SUCH DEBTS
IF YOU HAVE TO AND THAT YOU WANT TO ACCEPT THIS RESPONSIBILITY. YOU MAY HAVE TO
PAY UP TO THE FULL AMOUNT OF ALL BORROWER'S DEBTS IF THE BORROWER DOES NOT PAY.
YOU MAY ALSO HAVE TO PAY LATE FEES OR COLLECTION COSTS, WHICH INCREASE THIS
AMOUNT. LENDER CAN COLLECT SUCH DEBTS FROM YOU WITHOUT FIRST TRYING TO COLLECT
FROM THE BORROWER. LENDER CAN USE THE SAME COLLECTION METHODS AGAINST YOU THAT
CAN BE USED AGAINST THE BORROWER, SUCH AS SUING YOU, ETC. IF ANY OF SUCH DEBTS
IS EVER IN DEFAULT, THAT FACT MAY BECOME PART OF YOUR CREDIT RECORD.
THIS NOTICE IS NOT THE CONTRACT THAT MAKES YOU LIABLE FOR THE BORROWER'S
DEBTS. THE GUARANTY SET FORTH ABOVE IS, HOWEVER, A CONTRACT THAT MAKES YOU
LIABLE FOR THE BORROWER'S DEBTS.
By signing below, each Guarantor acknowledges (1) that such Guarantor has
received, read and understood (a) the Guaranty and (b) the NOTICE TO EACH
GUARANTOR and (2) that all information provided to Lender is true, correct and
sufficiently complete so as not to be misleading and that the Lender has relied
on such information in extending financial accommodations to the Borrower.
<PAGE>
THIS WRITTEN LOAN AGREEMENT 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.
GUARANTOR:
NORTH STAR UNIVERSAL, INC., a Minnesota
corporation
By: /s/ Peter E. Flynn
Name: Peter E. Flynn
Title: EVP and CFO
Address: 5353 Wayzata Blvd.
Minneapolis, MN 55416
LENDER: (Lender's signature is provided
as its acknowledgement of the above as
the final written agreement between the
parties.)
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By: /s/ Matt Reynolds
Name: D. Matt Reynolds
Title: Senior Vice President
<PAGE>
<TABLE>
<CAPTION>
North Star Universal, Inc.
Computation of ratio of earnings to fixed charges
For the Twelve Months ended December 31, 1994
(in thousands, except ratios)
<S> <C>
Earnings:
Loss from continuing operations before
income taxes and minority interest (7,642)
Fixed charges 5,051
-------
Income from continuing operations before
income taxes, minority interest and fixed charges (2,591)
-------
-------
Fixed Charges:
Interest expense 4,232
Interest portion of rentals 819
Amortization of debt expense 0
-------
5,051
-------
-------
Ratio of earnings to fixed charges (0.51)
</TABLE>
<PAGE>
NORTH STAR UNIVERSAL, INC.
1994 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
connectivity and networking products and services. Transition Engineering
designs and manufactures connectivity devices used in local area network
applications. C.E. Services is a third-party provider of systems, parts and
services for mainframe computers and peripherals. As of December 31, 1994,
North Star also owned a 38 percent interest in Michael Foods, Inc.
(NASDAQ:MIKL), and a 37 percent interest in CorVel Corporation (NASDAQ:CRVL).
<PAGE>
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
(In thousands, except per share amounts) 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS:
Revenues $ 92,307 $107,485 $ 86,363
Operating income (loss) (3,410) 651 (585)
Net loss (674) (11,872) (1,637)
--------------------------------------
--------------------------------------
Loss per share $ (.07) $ (1.26) $ (.17)
--------------------------------------
--------------------------------------
FINANCIAL POSITION:
Long-term debt $ 45,061 $ 43,194 $ 41,849
Shareholders' equity 34,196 34,675 61,083
--------------------------------------
--------------------------------------
</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) 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BOOK VALUE
Assets -
Michael Foods $ 63,274 $ 59,025 $ 66,654
CorVel 12,389 10,083 8,159
Computer group 16,863 18,352 17,117
Cash and other, net 4,317 7,059 9,657
--------------------------------------
96,843 94,519 101,587
Liabilities -
Subordinated debentures (41,422) (39,579) (38,899)
Deferred income taxes(1) (21,225) (20,265) (1,605)
--------------------------------------
Net book value $ 34,196 $ 34,675 $ 61,083
--------------------------------------
--------------------------------------
MARKET VALUE(2)
Michael Foods $ 72,630 $ 58,840 $ 74,469
CorVel 43,706 41,344 21,656
--------------------------------------
--------------------------------------
<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 8 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 tax consequences that may be realized upon a
taxable disposition of such shares.
</TABLE>
-1-
<PAGE>
TO OUR SHAREHOLDERS
North Star experienced a year of mixed results in 1994. Strong
earnings contributions from our equity holdings in Michael Foods and CorVel were
offset by operating losses within our computer group. While we enjoyed positive
growth within our equity holdings, the losses in the computer group were
disappointing.
Our primary focus at North Star is to achieve growth in the long term
value of our holdings. We are working to build value by investing in the
development of our computer companies through the expansion of their products
and services. Going forward, the computer group will seek to restore
profitability by adapting its sales and technical operations to changing
customer and technological needs. Our equity holdings and stable financial
position support our efforts to further develop these businesses.
Americable increased its revenues last year by 10 percent following
the closure of its Canadian operations in December 1993. This was driven by
increased sales of network technology products and services together with the
development of new vendor relationships. However, margins decreased during the
year due to fierce price competition in its traditional distribution business.
The company responded by implementing expense reductions and reorganizing key
operating segments, including the creation of its national distribution group.
In 1995, Americable is focusing on stabilizing its margins and expanding its
offerings of value-added networking products and services. We also expect
Americable to fully implement an ISO 9002 program underlining its commitment to
quality and customer orientation.
C.E. Services incurred losses in 1994 due to lower demand for used IBM
mainframe systems and a significant decrease in equipment market values. The
decline in its remarketing business was in sharp contrast with the previous
years strong results, indicative of the high degree of volatility in the
secondary market as new systems are introduced. To counter the effect of
slowing revenues, C.E. Services cut costs and introduced new services intended
to take advantage of its technical capabilities. In addition, Bridging
Solutions Corporation was formed to provide businesses with interim solutions
for their hardware capacity needs. This service gives customers the flexibility
to access short-term computing resources while they test new software or
evaluate longer-term hardware alternatives.
Revenues at Transition Engineering grew by 18 percent in 1994 as the
company continued to broaden its product line of local area network (LAN)
components. Operating profits were lower due to planned increases in personnel
and new product development expenses. Transition's international business
outpaced its growth in the domestic market as demand from foreign distributors
increased. During 1994, the company introduced switch technology and modular
products with high performance/value characteristics. Further expansion of its
product line and sales organization are anticipated in the coming year.
The market value of our largest equity holding, a 38 percent interest
in Michael Foods, appreciated 23 percent during 1994. Overall operating results
improved following the disposal of the company's reduced cholesterol liquid egg
joint venture in 1993. Michael Food's core business units each posted earnings
increases, with particularly strong results from value-added egg products
including Easy Eggs[REGISTERED TRADEMARK] and refrigerated potatoes. Unit
sales gains at both the dairy and refrigerated distribution divisions also
contributed to the positive earnings picture. The company continues to reduce
its exposure to commodity price swings in the shell egg market and generate
greater sales of value-added products through its national distribution sales
force.
-2-
<PAGE>
North Star's other equity investment is CorVel, which sustained its
string of consecutive record earnings reports through 1994. CorVel continues to
benefit from the strong demand for managed care solutions to rising healthcare
costs. During the year, additional investments were made to expand the
company's preferred provider organization (PPO) network and enhance its
information processing capabilities. Systems development has led to integration
of its service offerings from early intervention in a healthcare episode to the
reporting of savings produced. CorVel's national scope of coverage, its PPO
network and patient management programs have attracted large employers with
multiple service sites. As new legislation is introduced by states to reform
healthcare, opportunities for CorVel to expand its presence in the managed care
market are being identified. We are pleased with CorVel's progress and expect
good things to come.
Moving forward in 1995, North Star continues to strive to maximize
value for our shareholders. This goal requires a continuous assessment of the
strategies at each company together with their relative risks and rewards. We
continue to encourage innovation by our many valued employees, who are primarily
responsible for our past success. It is with their initiatives and your support
as shareholders that we look forward to the future.
Sincerely,
/s/ Jeffrey J. Michael
Jeffrey J. Michael
PRESIDENT AND CHIEF EXECUTIVE OFFICER
MARCH 17, 1995
-3-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS 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. The Company owned a 38 percent interest in Michael Foods at December 31,
1994. CorVel is a provider of managed care services founded by North Star in
1988. The Company's ownership interest in CorVel was approximately 37 percent
at December 31, 1994. The Company's investments in Michael Foods and CorVel are
accounted for as unconsolidated subsidiaries using the equity method of
accounting.
The Company's 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 connectivity and
networking products and services. Transition Engineering designs and
manufactures connectivity devices used in local area network ("LAN")
applications. C.E. Services is a third-party provider of systems, parts and
services for mainframe computers and peripherals.
The following are summarized operating results for each of the Company's
operations for the three years ended December 31, 1994 (in thousands).
<TABLE>
<CAPTION>
Years ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
C.E. Services $ 45,114 $ 60,729 $ 44,338
Americable 36,940 38,266 35,885
Transition Engineering 11,779 10,025 7,062
Eliminations (1,526) (1,535) (922)
--------------------------------------
$ 92,307 $107,485 $ 86,363
--------------------------------------
--------------------------------------
Gross Profit
C.E. Services $ 6,161 $ 12,269 $ 9,216
Americable 8,262 10,254 9,648
Transition Engineering 4,603 3,903 2,701
--------------------------------------
$ 19,026 $ 26,426 $ 21,565
--------------------------------------
--------------------------------------
Operating Income (Loss)
C.E. Services $ (2,626) $ 2,794 $ 1,024
Americable 42 179 (466)
Transition Engineering 351 918 533
Restructuring charges -- (1,953) --
Corporate expenses (1,177) (1,287) (1,676)
--------------------------------------
$ (3,410) $ 651 $ (585)
--------------------------------------
--------------------------------------
</TABLE>
-4-
<PAGE>
RESULTS OF OPERATIONS --
1994 VERSUS 1993
Consolidated revenues decreased $15.2 million or 14.1% to $92.3
million from $107.5 million in 1993. The $15.6 million, or 26%, decrease in
revenues at C.E. Services includes approximately $14.1 million of decreased
revenues from the resale of used mainframe systems and features and
approximately $1.7 million of lower technical service and warehousing revenues.
Offsetting these decreases was approximately $250,000 of revenue from the
startup of a new computer service bureau business which commenced operations in
the fourth quarter of 1994. Sales from the remarketing of used mainframes and
peripherals consisted of 83% and 84% of C.E. Services' revenues in 1994 and
1993, respectively. Sales from C.E. Services' European operations decreased
approximately $5.2 million, or 40%, to $8.0 million for the year. The decline
in revenues at C.E. Services is attributable to a dramatic reduction in the
domestic and international demand for used mainframe and peripherals along with
a significant decline in the market value of certain used equipment. C.E.
Services does not expect demand for its products and services to measurably
improve in 1995.
Revenues at Americable, excluding approximately $4.6 million of
revenue in 1993 from its Canadian operations, which were closed in December
1993, increased $3.3 million, or 9.8%, to $36.9 million. This includes
increased revenues of $5 million resulting from higher demand for value-added
networking products and services offset by decreased sales of bulk cable and
other connectivity products of $1.2 million due primarily to lower volume of
sales to contractors and resellers. In addition, sales of cable assemblies
decreased by approximately $500,000 as a result of reduced pricing within
modular assembly applications due to technological changes.
Revenues at Transition Engineering increased approximately $1.8
million, or 18% which includes increased sales of approximately $1.1 million, or
33%, to international customers and approximately $700,000, or 10% higher sales
to domestic customers. Sales to international customers consisted of 35% and
31% of Transition Engineering's revenues in 1994 and 1993, respectively.
Overall, these increases are primarily a result of new product introductions
during the end of 1993 and throughout 1994. During 1994, new product
introductions and enhancements accounted for approximately $3.3 million, or
28%, of net sales. 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 percentage of revenues, decreased to
20.6% in 1994 as compared to 24.6% in 1993. This is primarily a result of lower
margins at C.E. Services, which were attributable to a significant price decline
in the secondary market of IBM equipment, increased cost of services associated
with a new IBM service contract and reduced pricing of technical services due to
increased competition and the maturing product life cycle of certain IBM
mainframes. Margins at Americable decreased due to overall lower pricing
resulting from increased competition. North Star does not expect consolidated
gross profit margins to measurably improve in 1995.
The Company's selling, general and administrative expenses decreased
$1.4 million, or 5.8% to $22.4 million from $23.8 million in 1993. C.E.
Services had lower selling, general and administrative expenses of approximately
$688,000 due primarily to staff reductions implemented during the third quarter
of 1994. Operating expenses at Americable decreased approximately $1.9
million, which reflects approximately $1.2 million of expenses eliminated
through the closure of its Canadian facilities effected in December 1993, and
$700,000 of other savings realized through a reorganization effected within its
U.S. operations in the third
-5-
<PAGE>
quarter. These decreases were offset by increased expenses of $1.3 million at
Transition Engineering due 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 1994, C.E. Services had an operating loss of $2.6 million versus
operating income of $2.8 million in 1993. These amounts include an operating
loss of $1.1 million in 1994 and operating income of $169,000 in 1993 from its
United Kingdom subsidiary. This significant decline in operating results is
attributable to the overall decline in revenues and gross margins discussed
above. In addition, 1994 results include approximately $400,000 of losses
incurred by C.E. Services in the startup and development of a new computer
service bureau business. Despite favorable effects of expense reductions
implemented in 1994 and additional revenues anticipated from its new computer
service bureau business and other new business developments, C.E. Services
expects its operating losses to continue throughout 1995.
Foreign currency transactions were not significant in 1994 or 1993.
The Company does not believe 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 1994 and 1993.
The Company's effective consolidated income tax rate was (29.2)% in
1994 and (19.6)% in 1993. See Note 8 to the Consolidated Financial Statements.
Equity in earnings (loss) of unconsolidated subsidiaries increased
$13.7 million to $4.7 million in 1994 from a loss of $9 million in 1993. This
includes an increase of $13.4 million and $300,000 in the equity in earnings of
Michael Foods and CorVel, respectively, which is a result of higher earnings at
each of these companies. Michael Foods' net earnings for 1994 were
approximately $15.2 million, an increase of approximately $31.5 million from the
previous year. CorVel's net earnings for 1994 were approximately $5.5 million,
an increase of approximately $1.7 million or 43% from the previous year.
At December 31, 1994, the Company has recorded a deferred tax
liability of approximately $21 million related to the accounting for temporary
differences between financial and tax reporting of its investment in Michael
Foods. 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 of its Michael
Foods holdings in future periods. Depending on market conditions, North Star's
strategic objectives and other factors, the Company may from time-to-time sell
all or a portion of its Michael Foods holdings.
RESULTS OF OPERATIONS --
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 for 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 the
maturing product life cycle of certain
-6-
<PAGE>
IBM mainframes. Sales from C.E. Services' European operations increased
approximately $5.1 million or 64% to $13.2 million for the year.
Revenues at Americable's U.S. operations increased $3.7 million, or
12.4%, to $33.6 million due primarily to higher demand for 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.
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.
Consolidated gross profit, as a percent of revenues, decreased to
24.6% 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.
The Company's selling, general and administrative expenses increased
$1.7 million, or 8%, to $23.8 million from $22.1 million in 1992. 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 $1.3 million due primarily to higher selling expenses
associated with the expanded 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.
Net interest expense was relatively unchanged between 1993 and 1992.
The Company's effective consolidated income tax rate was (19.6)% in
1993 and (23.4)% in 1992. See Note 8 to the Consolidated Financial Statements.
-7-
<PAGE>
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. 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.
CAPITAL RESOURCES AND LIQUIDITY
Historically, the Company has experienced cash flow deficits from
operations. Cash used in operations was $4.6 million in 1994 and $3.1 million
in 1993. 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 1994 and 1993, the Company
received dividends of $1,471,000. There can be no assurance that Michael Foods
will continue to declare such dividends.
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, 1994 and 1993, the Company had
$41.4 million and $39.6 million principal amount of subordinated debentures
outstanding. The weighted average interest of 10.0% and 10.4% at December 31,
1994 and 1993, 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, 1994, is as follows (dollars in thousands):
<TABLE>
<CAPTION>
New Net
Debentures Debentures Debentures Debentures
Redeemed Reinvested Sold Sold*
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994 $ 4,653 37% $ 7,914 63% $ 6,496 $ 1,843
1993 5,758 46 6,689 54 6,438 680
1992 5,917 48 6,422 52 7,249 1,332
<FN>
*Represents the difference between new debentures sold and debentures redeemed.
</TABLE>
-8-
<PAGE>
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 1995. However, there can be no assurance that future reinvested and
newly sold debentures will equal or exceed redemptions. Approximately $12
million of debentures are scheduled to mature during 1995.
Long-term debt repayments for the year ended December 31, 1994,
include approximately $4.7 million of redemptions of subordinated debentures and
$569,000 of other debt repayments of Americable and C.E. Services. Proceeds
from long-term debt for the year ended December 31, 1994, include
$ 4.4 million of new debentures sold along with $2.1 million of compounded
interest on debentures.
During 1994, North Star provided $1 million in cash to C.E. Services
of which $700,000 was used for capital expenditures in connection with its new
computer service bureau business and $300,000 was used to fund a portion of its
operating losses and working capital requirements. Additional cash investments
from North Star may be required in 1995 to fund anticipated operating losses.
North Star maintains a $6.5 million revolving credit facility with its
principal bank that bears interest at the bank's reference rate (8.5% at
December 31, 1994). At December 31, 1994 and 1993, the Company had no
borrowings outstanding under this facility. In addition, at December 31, 1994,
North Star had approximately $4 million of cash and cash equivalents, excluding
cash of its operating subsidiaries.
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, including capital expenditures and
potential acquisitions. During 1995, the Company's operating plans call for
approximately $1 million in capital expenditures.
-9-
<PAGE>
Consolidated Statements of Operations
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands, except per share amounts) 1994 1993 1992
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 92,307 $107,485 $ 86,363
Operating and Product Costs 73,281 81,059 64,798
--------------------------------------
Gross profit 19,026 26,426 21,565
Selling, General and Administrative Expenses 22,436 23,822 22,150
Restructuring Charges -- 1,953 --
--------------------------------------
Operating income (loss) (3,410) 651 (585)
Other Income (Expense)
Interest expense (4,477) (4,472) (4,738)
Interest income 245 206 501
--------------------------------------
(4,232) (4,266) (4,237)
--------------------------------------
Loss before taxes and equity in earnings (loss)
of unconsolidated subsidiaries (7,642) (3,615) (4,822)
Income Tax Benefit (2,230) (710) (1,130)
--------------------------------------
Loss before equity in earnings (loss) of
unconsolidated subsidiaries (5,412) (2,905) (3,692)
Equity in Earnings (Loss) of
Unconsolidated Subsidiaries 4,738 (8,967) 2,055
--------------------------------------
Net Loss $ (674) $(11,872) $ (1,637)
--------------------------------------
--------------------------------------
Net Loss Per Share $ (.07) $ (1.26) $ (.17)
--------------------------------------
--------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-10-
<PAGE>
Consolidated Balance Sheets
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands) 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 5,102 $ 6,981
Accounts receivable, net of allowances 8,980 7,617
Inventories 7,994 10,800
Prepaid expenses and other 579 452
Net assets held for sale 714 857
---------- ----------
Total current assets 23,369 26,707
Property and Equipment, net 3,747 3,150
Other Assets
Goodwill 6,816 7,275
Investment in unconsolidated subsidiaries 75,663 69,108
Other 1,498 1,967
---------- ----------
$ 111,093 $ 108,207
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable to bank $ 600 $ --
Current maturities of long-term debt 12,547 12,799
Accounts payable 5,116 5,315
Accrued expenses
Payroll related 762 1,186
Other 3,800 3,292
Income taxes payable 333 280
---------- ----------
Total current liabilities 23,158 22,872
Long-Term Debt, less current maturities 32,514 30,395
Deferred Income Taxes 21,225 20,265
Commitments -- --
Shareholders' Equity
Common stock, authorized 100,000,000 shares of $.25
par value; issued and outstanding 9,438,000 shares in
1994 and 1993 2,360 2,360
Additional paid-in capital 31,015 30,937
Foreign currency translation adjustment (128) (245)
Retained earnings 949 1,623
---------- ----------
Total shareholders' equity 34,196 34,675
---------- ----------
$ 111,093 $ 108,207
---------- ----------
---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE BALANCE SHEETS.
-11-
<PAGE>
Consolidated Statements of Shareholders' Equity
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Common Stock Foreign
------------------------ Additional Currency
Years ended December 31, 1994, 1993 and 1992 Shares Paid-In Translation Retained
(Dollars in thousands) Issued Amount Capital Adjustment Earnings
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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
Effect of equity transactions of
unconsolidated subsidiaries -- -- 78 -- --
Translation adjustment -- -- -- 117 --
Net loss -- -- -- -- (674)
------------------------------------------------------------------------
Balance at December 31, 1994 9,438,000 $ 2,360 $ 31,015 $ (128) $ 949
------------------------------------------------------------------------
------------------------------------------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-12-
<PAGE>
Consolidated Statements of Cash Flows
NORTH STAR UNIVERSAL, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Years ended December 31,
(In thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net loss $ (674) $ (11,872) $ (1,637)
Adjustments to reconcile net loss to net
cash used in operating activities:
Equity in (earnings) loss of unconsolidated subsidiaries (4,738) 8,967 (2,055)
Non-cash restructuring charges -- 1,596 --
Depreciation and amortization 1,707 1,646 1,811
Deferred income taxes (2,250) (730) (1,150)
Foreign currency translation adjustment 117 (198) (591)
Changes in operating assets and liabilities,
net of effects of restructuring charges
Accounts receivable (1,363) 482 295
Inventories 2,806 (2,863) (1,245)
Accounts payable, accruals and other (193) (131) 711
---------------------------------------
Net Cash used in operating activities (4,588) (3,103) (3,861)
---------------------------------------
Cash Flows From Investing Activities
Capital expenditures (1,841) (1,641) (617)
Other 612 829 186
---------------------------------------
Net Cash used in financing activities (1,229) (812) (431)
---------------------------------------
Cash Flows From Financing Activities
Proceeds from long-term debt 55,365 29,704 7,249
Payments on long-term debt (53,498) (29,659) (6,851)
Proceeds from notes payable 4,553 4,750 5,745
Payments on notes payable (3,953) (4,750) (4,445)
Cash dividends received from Michael Foods 1,471 1,471 1,471
---------------------------------------
Net Cash provided by financing activities 3,938 1,516 3,169
---------------------------------------
Net Decrease in cash and cash equivalents (1,879) (2,399) (1,123)
---------------------------------------
Cash and Cash Equivalents at beginning of year 6,981 9,380 10,503
---------------------------------------
Cash and Cash Equivalents at end of year $ 5,102 $ 6,981 $ 9,380
---------------------------------------
---------------------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
-13-
<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 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 connectivity and
networking products and services. Transition Engineering designs and
manufactures connectivity devices used in local area network ("LAN")
applications. C.E. Services is a third-party provider of systems, parts and
services for mainframe computers and peripherals. In 1994, C.E. Services
established a new computer services business to provide mainframe computer
access and processing services to its customers. This business consists of
Bridging Solutions Corporation ("Bridging"), an entity formed in 1994, and
Commercial Computer Services, Inc. ("CCS"), an entity acquired by C.E. Services
in 1994. In connection with the organizaiton of this new business, Dalworth
Holdings, Inc., was formed as a holding company which is now the parent of C.E.
Services, Bridging and CCS.
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 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, 1994. The Company's investment in Michael Foods is accounted for as an
unconsolidated subsidiary using the equity method of accounting.
In January 1988, the Company founded CorVel to integrate and develop the
operations of a number of healthcare 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. The Company owned a 37% minority ownership
in CorVel Corporation ("CorVel", formerly FORTIS Corporation) as of December 31,
1994. 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 1993 and 1992 amounts have been reclassified to
conform with the financial statement presentation used in 1994.
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>
1994 1993
- ---------------------------------------------------------------
<S> <C> <C>
Work in process and finished goods $ 4,775 $ 8,741
Purchased parts 3,219 2,059
-----------------------
$ 7,994 $ 10,800
-----------------------
-----------------------
</TABLE>
-14-
<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 which are generally three to five years. 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>
1994 1993
------- -------
<S> <C> <C>
Leasehold improvements $ 1,201 $ 1,025
Machinery and equipment 7,033 6,051
------- -------
8,234 7,076
Less-accumulated depreciation and amortization 4,487 3,926
------- -------
$ 3,747 $ 3,150
------- -------
------- -------
</TABLE>
GOODWILL Goodwill is amortized on a straight-line basis over periods not
exceeding 40 years. Accumulated amortization was $2,969,000 at December 31,
1994 and $2,506,000 at December 31, 1993. 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 8.
EARNINGS (LOSS) PER SHARE Earnings (loss) per share are based upon the
weighted average number of shares outstanding during each period (9,438,000 in
1994, 1993 and 1992) after giving effect to the assumed exercise of outstanding
stock options, except where the effects are antidilutive.
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION The Company increased its
investment in unconsolidated subsidiaries by $129,000, $396,000 and $467,000 and
additional paid-in capital by $78,000, $344,000 and $65,000 during 1994, 1993
and 1992, respectively, as a result of equity transactions of Michael Foods and
CorVel.
Additional disclosures of cash flow information is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $ 4,591 $ 4,506 $ 4,806
Income taxes (32) -- (574)
</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. This plan was completed in 1994. In connection with this
consolidation, Americable recorded a restructuring charge of approximately
$1.9 million in 1993. 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.
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, 1994. The summarized
income statement information for Michael Foods is for the year ended December
31, 1994. CorVel has a fiscal year end of March 31. The summarized income
statement information for CorVel is for the twelve month period ended December
31, 1994 (in thousands):
-15-
<PAGE>
<TABLE>
<CAPTION>
Michael Foods CorVel
- -----------------------------------------------------------------
<S> <C> <C>
Current assets $ 93,985 $ 27,935
Noncurrent assets 242,660 12,697
Current liabilities 60,396 7,209
Noncurrent liabilities 110,220 340
Revenues 505,965 91,262
Gross profit 75,048 15,862
Net income 15,189 5,536
</TABLE>
At December 31, 1994, CorVel had stock options outstanding to purchase
approximately 836,000 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 31%. If the exercise of these options had occurred at
December 31, 1994, it would have decreased the Company's investment in
unconsolidated subsidiaries, deferred income taxes and additional paid-in
capital by approximately $2,054,000, $801,000 and $1,253,000, respectively.
At December 31, 1994, consolidated retained earnings includes approximately
$10.8 million of unremitted earnings related to the Company's investment in
unconsolidated subsidiaries.
NOTE 5 - NET ASSETS HELD FOR SALE
In March 1991, the Company announced its intention to sell its remaining non-
computer related manufacturing company, Eagle Engineering and Manufacturing,
Inc. The Company has recorded the net assets related to this subsidiary in the
balance sheet under the caption "Net Assets Held For Sale". Operating results
of this subsidiary are not material.
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 1996. Borrowings
under the revolving line of credit bear interest at the bank's reference rate
(8.5% at December 31, 1994), 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 line of credit during the year ended December 31,
1994.
C.E. Services maintains revolving credit facilities with its principal bank
which provide for borrowings up to $2.7 million, with $700,000 due March 31,
1995 and $2.0 million due July 31, 1995, 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 (9% and 9.5% at
December 31, 1994) and are used to finance the working capital requirements of
C.E. Services. At December 31, 1994, there was $600,000 outstanding under these
facilities due March 31, 1995. In connection with C.E. Services' noncompliance
with certain financial covenants under these facilities, the agreement was
amended in December 1994, the effect of which was to make the indebtedness
thereunder payable on demand. In addition, the amendment provided for a
guarantee of the indebtedness by North Star.
NOTE 7 - LONG-TERM DEBT
At December 31, long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------
<S> <C> <C>
Subordinated debentures $ 41,422 $ 39,579
Revolving line of credit 2,107 1,408
Term note payable 1,500 1,893
Notes payable for business acquisitions -- 173
Other 32 141
-------------------------
45,061 43,194
Less current maturities 12,547 12,799
-------------------------
$ 32,514 $ 30,395
-------------------------
-------------------------
</TABLE>
-16-
<PAGE>
Aggregate minimum annual principal payments of long-term debt at December 31,
1994, are as follows (in thousands):
<TABLE>
<CAPTION>
Years ending December 31,
- -------------------------------------------------
<S> <C>
1995 $ 12,547
1996 14,406
1997 3,916
1998 4,688
1999 4,879
2000 and thereafter 4,625
---------
$ 45,061
---------
---------
</TABLE>
Subordinated debentures are unsecured and due in varying monthly installments
through 2004. Weighted average interest of 10% and 10.4% at December 31, 1994
and 1993, respectively, is payable monthly, quarterly or at maturity.
Americable maintains a revolving line of credit and term loan facility
which provides borrowings up to $5.5 million due in May 1996. Borrowings under
this facility are based on eligible accounts receivable and inventory with
interest at prime plus 1.5% (10% at December 31, 1994). 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. In March
1995, Americable obtained the necessary waivers from its bank to waive its
compliance with certain financial covenants.
NOTE 8 - INCOME TAXES
The Company and its consolidated subsidiaries file a consolidated federal income
tax return and separate state income tax returns, where legally required. The
provision (benefit) for consolidated income taxes consists of the following (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ -- $ -- $ --
State 20 20 20
----------------------------------
20 20 20
----------------------------------
Deferred
Federal (1,870) (625) (912)
State (380) (105) (238)
----------------------------------
(2,250) (730) (1,150)
----------------------------------
$(2,230) $ (710) $(1,130)
----------------------------------
----------------------------------
</TABLE>
The following is a reconciliation of income taxes at the federal statutory rate
to the effective rate:
<TABLE>
<CAPTION>
Years ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory rate (34.0)% (34.0)% (34.0)%
State income taxes,
net of federal tax benefit (4.7) (1.6) (3.0)
Losses producing no current benefit 4.8 17.1 10.9
Prior year overaccruals -- (3.5) --
Goodwill amortization .9 2.0 1.5
Other 3.8 .4 1.2
----------------------------------
(29.2)% (19.6)% (23.4)%
----------------------------------
----------------------------------
</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. At December 31, 1994, the deferred tax
liability includes temporary differences related to the Company's share of
Michael Foods public offering proceeds and other equity transactions of $15
million, and income taxes recorded on equity in earnings of Michael Foods of
$2.3 million in 1994 and $3.7 million in 1993.
-17-
<PAGE>
In addition, at December 31, 1994, 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
$845,000 in 1994, $690,000 in 1993, $402,000 in 1992, 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>
1994 1993
- -----------------------------------------------------------------
<S> <C> <C>
Investment in Michael Foods $ (21,014) $ (18,700)
Investment in CorVel (4,868) (3,945)
Depreciation (291) (99)
Accrued expenses not
deductible until paid 2,092 1,826
Other (1,175) (346)
Net operating loss carryforwards 4,651 1,664
State taxes (100) 125
-------------------------
(20,705) (19,475)
Valuation allowance (520) (790)
-------------------------
$ (21,225) $ (20,265)
-------------------------
-------------------------
</TABLE>
At December 31, 1994, 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, 1994, the Company had federal net
operating loss carryforwards for income tax purposes of approximately $10.8
million. This amount has been recognized for financial reporting purposes.
NOTE 9 - 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>
1994 1993 1992
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding, beginning of year 656,600 656,600 615,400
Granted:
$4.63/share -- -- 48,700
Cancelled:
$8.75/share (22,400) -- --
$10.25/share -- -- (7,500)
-------------------------------------
Outstanding, end of year 634,200 656,600 656,600
-------------------------------------
-------------------------------------
Exercisable, end of year:
Number of shares 625,880 634,140 631,900
Exercise price per share $.94 $.94 $.94
to $10.12 to $10.12 to $10.12
</TABLE>
NOTE 10 - COMMITMENTS
The Company and its subsidiaries lease 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>
1995 $ 2,198
1996 1,915
1997 1,841
1998 1,855
1999 2,044
2000 and thereafter 4,551
---------
$ 14,404
---------
---------
</TABLE>
Certain of the leases provide for payment of taxes and other expenses.
Total rent expense on all leases including month-to-month leases was $2,653,000
in 1994, $2,517,000 in 1993, and $2,542,000 in 1992.
-18-
<PAGE>
NOTE 11 - 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 $271,000, $267,000, $239,000, were charged to operations in
the years ended December 31, 1994, 1993 and 1992, respectively.
NOTE 12 - RELATED PARTY TRANSACTION
The Company has an unsecured note receivable from its majority shareholder and
former chairman of the board of $407,872 at December 31, 1994. The note bears
interest at the Company's principal bank's reference rate plus 1% (9.5% at
December 31, 1994). A principal payment of $50,000 was made in December 1994.
NOTE 13 - 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 14 - BUSINESS SEGMENT INFORMATION
The Company's foreign operations consist of C.E. Services' United Kingdom
subsidiary, C.E. Services (Europe) Limited . Prior to 1994, the Company's
foreign operations also included Americable's Canadian subsidiary, Adanac Cable,
Ltd. which was closed in December 1993 as discussed in Note 3. Summary
financial information by geographic area is as follows:
<TABLE>
<CAPTION>
Years ended December 31, (in thousands) 1994 1993 1992
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
United States $ 84,347 $ 89,662 $ 72,334
Canada -- 4,616 5,957
United Kingdom 7,960 13,207 8,072
Operating income (loss)
United States (2,307) 677 (80)
Canada -- (195) (219)
United Kingdom (1,103) 169 (286)
Identifiable assets
United States 109,109 106,212 111,937
Canada -- 137 2,409
United Kingdom 1,984 1,858 1,527
</TABLE>
-19-
<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, 1994 and 1993, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1994. 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, 1994 and 1993, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements effective
January 1, 1993, the Company changed its method of accounting for income taxes.
/s/ GRANT THORTON LLP
Minneapolis, Minnesota
February 21, 1995
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
Year ended December 31,
(In thousands, except per share amounts and ratios) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA(1), (2)
Revenues $ 92,307 $ 107,485 $ 86,363 $ 71,575 $ 553,022
Operating income (loss) (3,410) 651 (585) (1,356) 41,038
Interest expense, net (4,232) (4,266) (4,237) (4,442) (16,022)
Income (loss) from continuing operations before
income taxes, minority interest, and equity in
earnings (loss) of unconsolidated subsidiaries (7,642) (3,615) (4,822) 2,766 27,109
Income (loss) from continuing operations (674) (11,872) (1,637) 10,899 5,643
Loss from discontinued operations -- -- -- (598) (1,832)
-------------------------------------------------------------
Net income (loss) $ (674) $ (11,872) $ (1,637) $ 10,301 $ 3,811
-------------------------------------------------------------
-------------------------------------------------------------
Income (loss) per common and
common equivalent share:
Income (loss) from continuing operations $ (.07) $ (1.26) $ (.17) $ 1.07 $ .54
Discontinued operations -- -- -- (.06) (.19)
-------------------------------------------------------------
Net income (loss) $ (.07) $ (1.26) $ (.17) $ 1.01 $ .35
-------------------------------------------------------------
-------------------------------------------------------------
Ratio of earnings to fixed charges (.51)x .28x .02x 1.53x 2.46x
BALANCE SHEET DATA(1), (2)
Total assets $ 111,093 $ 108,207 $ 115,873 $ 116,355 $ 354,473
Long-term debt, including current maturities 45,061 43,194 41,849 41,451 149,353
Shareholders' equity 34,196 34,675 61,083 63,246 39,223
-------------------------------------------------------------
-------------------------------------------------------------
<FN>
_________________________
(1) AMOUNTS IN 1991 AND 1990 HAVE BEEN RECLASSIFIED TO GIVE EFFECT TO
DISCONTINUED OPERATIONS IN THOSE YEARS.
(2) 1990 INCLUDES 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.
</TABLE>
-20-
<PAGE>
SELECTED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited, in thousands,
except per share amounts) First Second Third Fourth(1)
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Revenues $ 23,989 $ 24,001 $ 24,147 $ 20,170
Operating loss (235) (852) (431) (1,892)
Interest expense, net (1,036) (1,044) (1,105) (1,047)
Net income (loss) $ 146 $ (88) $ 57 $ (789)
--------- --------- --------- ---------
--------- --------- --------- ---------
Income (loss) per share $ (.01) $ (.01) $ .01 $ (.08)
--------- --------- --------- ---------
--------- --------- --------- ---------
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)
--------- --------- --------- ---------
--------- --------- --------- ---------
<FN>
(1) See Note 13 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)
1994 Low High
- ------------------------------------------------------------
<S> <C> <C>
First 4 5/8 5 5/8
Second 4 3/8 6
Third 4 7/8 6 3/8
Fourth 4 3/8 5 3/4
<CAPTION>
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
</TABLE>
The number of common shareholders of record as of December 31, 1994, was 242.
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 1994 or 1993 on North Star's common stock.
Management does not anticipate that cash dividends will be paid in the
foreseeable future.
-21-
<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
JAMES H. MICHAEL/Retired Chairman of the Board of the Company
JEFFREY J. MICHAEL/President and Chief Executive Officer of the Company
RICHARD J. BRAUN/Managing Director of Headwaters Capital Management L.L.C.
FRED E. STOUT/Retired Chief Executive Officer Superior Water Light & Power
Company
PETER E. FLYNN/Executive Vice President, Chief Financial Officer and Secretary
of the 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>
SUBSIDIARIES OF NORTH STAR UNIVERSAL, INC.
Name State of Incorporation
- ---- ----------------------
Americable, Inc. Minnesota
Adanac Cable, Ltd. Canada
Cable Distribution Systems, Inc. Georgia
Transition Engineering Minnesota
Dalworth Holdings, Inc. Texas
C.E. Services, Inc. Texas
C.E. Services (Europe) Limited United Kingdom
Bridging Solutions Corporation Texas
Commercial Computer Services, Inc. Texas
Eagle Engineering & Manufacturing, Inc. Minnesota
(Inactive subsidiaries are omitted)
<PAGE>
EXHIBIT 23.1
------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our reports dated February 21, 1995 accompanying the
consolidated financial statements and schedule of North Star Universal, Inc. and
Subsidiaries incorporated by reference or included in the Annual Report on Form
10-K of North Star Universal, Inc. for the year ended December 31, 1994. We
hereby consent to the incorporation by reference of said reports in the
Registration Statements of North Star Universal, Inc. on Forms S-8 (File
No. 33-15257, effective July 19, 1987, File No. 33-15258, effective July 19,
1987 and File No. 33-34748, effective May 29, 1990).
We have issued our reports dated February 15, 1995 accompanying the
consolidated financial statements and schedule of Michael Foods, Inc. and
Subsidiaries which are included in the Annual Report on Form 10-K of North Star
Universal, Inc. for the year ended December 31, 1994. We hereby consent to the
incorporation by reference of said reports in the Registration Statements of
North Star Universal, Inc. on Forms S-8 (File No. 33-15257, effective July 19,
1987, File No. 33-15258, effective July 19, 1987 and File No. 33-34748,
effective May 29, 1990).
/s/ GRANT THORNTON LLP
Minneapolis, Minnesota
February 21, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 5,102
<SECURITIES> 0
<RECEIVABLES> 9,362
<ALLOWANCES> (382)
<INVENTORY> 7,994
<CURRENT-ASSETS> 23,369
<PP&E> 8,234
<DEPRECIATION> (4,487)
<TOTAL-ASSETS> 111,093
<CURRENT-LIABILITIES> 23,158
<BONDS> 32,514
<COMMON> 2,360
0
0
<OTHER-SE> 31,015
<TOTAL-LIABILITY-AND-EQUITY> 111,093
<SALES> 92,307
<TOTAL-REVENUES> 92,307
<CGS> 73,281
<TOTAL-COSTS> 73,281
<OTHER-EXPENSES> 22,387
<LOSS-PROVISION> 49
<INTEREST-EXPENSE> 4,232
<INCOME-PRETAX> (7,642)
<INCOME-TAX> (2,230)
<INCOME-CONTINUING> (674)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (674)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
