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                                 UNITED STATES
                       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  [FEE REQUIRED]

For the fiscal year ended                   December 31, 1996
Commission file number                           0-15638

                              MICHAEL FOODS, INC.
            (Exact name of registrant as specified in its charter)

Minnesota                                                  41-0498850
(State or other jurisdiction of                          (IRS Employer
incorporation or organization)                        Identification No.)

Suite 324, 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) 546-1500

Securities registered pursuant to Section 12(b) of the Act:  None

          Securities registered pursuant to Section 12(g) of the Act:

                         Common Stock $.01 par value
                                (Title of class)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [  ] No

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]

The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 3, 1997 was approximately $191,500,000 based on the last
price of such stock as reported by the Nasdaq National Market.

The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of March 3, 1997, was 21,042,322  shares.




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                      DOCUMENTS INCORPORATED BY REFERENCE

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 to the
information contained in the Company's Proxy Statement for its 1997 Annual
Meeting of Shareholders to be held on June 5, 1997, to be filed with the
Securities and Exchange Commission on or about April 25, 1997.

PART I

ITEM 1 - BUSINESS

INTRODUCTORY NOTE

On February 28, 1997, the Registrant and Michael Foods, Inc., a Delaware
corporation, completed a series of transactions described in detail in
Registration Statement 333-01863 (the "Reorganization").  Prior to the
Reorganization, the name of the Registrant was North Star Universal, Inc.  The
Registrant's common stock traded on the Nasdaq National Market System under the
symbol NSRU.  The Common Stock of Michael Foods, Inc. (Commission File No.
0-15568) traded on the Nasdaq National Market System under the symbol MIKL.  As
a result of the Reorganization, Michael Foods, Inc., a Delaware corporation,
became a wholly-owned subsidiary of the Registrant and changed its name to
Michael Foods of Delaware, Inc.  The Registrant, continuing the business of
Michael Foods of Delaware, Inc., changed its name to Michael Foods, Inc., a
Minnesota corporation, and now trades on the Nasdaq National Market System under
the symbol MIKLD.

Prior to the Reorganization, the Registrant transferred all of its assets and
liabilities other than Michael Foods, Inc. (Delaware) stock and certain debt to
ENStar Inc.  Immediately following the Reorganization, all of the common stock
of ENStar Inc. was distributed ratably to the Registrant's shareholders of
record as of February 27, 1997.  The ENStar Inc. common stock is traded on the
Nasdaq National Market System under the symbol ENSR.  All of the business
formerly conducted by North Star Universal, Inc. is now conducted by ENStar
Inc. and the business of Michael Foods, Inc. (Delaware) is conducted by the
Registrant.

A Form 8-K giving effect to this Reorganization, which shows the distribution
of ENStar Inc. and a merger with Michael Foods, Inc., was filed with the
Securities and Exchange Commission on March 13, 1997. Immediately following the
merger and distribution, a former shareholder of North Star Universal, Inc.
would own stock in two publicly-held companies - ENStar Inc. and Michael Foods,
Inc. 

The information in this Form 10-K includes only historical information of
Michael Foods, Inc. (Delaware) and information relating to the business of the
Registrant following the Reorganization.  Information with respect to the
business of the Registrant prior to the Reorganization may be found in the
ENStar Inc. Form 10-K for the year ended December 31, 1996 (Commission File No.
333-12301).

GENERAL

Michael Foods, Inc. (the "Company") is a diversified producer and distributor of
food products operating in four basic areas - egg products, distribution of
refrigerated grocery products, potato products and dairy products.  The Company,
through its egg products division, is the largest producer, processor and
distributor of extended shelf-life liquid eggs and dried, hard-cooked and frozen
egg products in the United States.  The refrigerated distribution division
distributes a broad line of refrigerated grocery products directly to
supermarkets, including cheese, shell eggs, bagels, butter, margarine, muffins,
potato products, juice and ethnic foods.  The potato products division processes
and distributes refrigerated potato products for foodservice and retail markets
in the United States.  The dairy products division processes and distributes
soft serve mix, ice cream mix, and extended shelf-life ultrapasteurized milk and
specialty dairy products to domestic fast food businesses and other foodservice
outlets, independent retailers, ice cream manufacturers and others.


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The strategic thrust of the Company is to grow value-added food product sales,
primarily in the foodservice market, by focusing on developing, marketing and
distributing innovative, refrigerated products.  The key to this strategy is
"value-added", whether that be in the product, the distribution channel or in
the service provided to customers.

EGG PRODUCTS

M. G. Waldbaum Company ("Waldbaum") is a producer, processor and distributor of
numerous egg products and shell eggs.  Principal value-added egg products are
ultrapasteurized "Easy Eggs(R)", which is a proprietary extended shelf-life and
salmonella-negative (pursuant to United States Department of Agriculture
("USDA") regulations) liquid egg product, hard-cooked eggs, and Simply Eggs(R)
Brand Liquid Scrambled Egg Mix. Other egg products include frozen and dried egg
whites, yolks and whole eggs, prepared egg patties and omelets, and frozen
breakfast entrees.

Management believes that Waldbaum is the second largest egg producer in the
United States.  Waldbaum is the largest supplier of ultrapasteurized whole eggs
and hard-cooked eggs in the United States and is a leading supplier of dried,
frozen and liquid refrigerated whole eggs, whites and yolks.  Waldbaum
distributes its egg products to food processors and foodservice customers
primarily throughout the United States and has some international sales in the
Far East, Europe and South America.  Easy Eggs(R) and other egg products are
marketed nationally to a wide variety of foodservice and industrial customers.
Waldbaum's shell eggs are sold to the Company's refrigerated distribution
division, Crystal Farms Refrigerated Distribution Company, which, in turn,
distributes them throughout its 23 state territory.

Shell eggs are essentially a commodity and are sold based upon reported egg
prices.  Egg prices, in turn, are significantly influenced by shifts in supply
and demand.  Pricing of shell eggs is also typically affected by seasonal
demand related to increased consumption during holiday periods.  In general,
egg market pricing in the United States reflects levels reported by Urner Barry
Spot Egg Market Quotations ("Urner Barry"), a recognized publication.  Prices
for certain of the Company's products are affected by these factors,
particularly shell eggs.  The Company has endeavored to moderate these effects
primarily through a continuing emphasis on value-added products and internal
production of shell eggs.  In 1996, the Company's egg operations derived
approximately 15% of net sales from shell eggs, with the remaining 85% derived
from the sales of value-added egg products.  In 1996, approximately 80% of the
Company's egg needs were satisfied by production from Company-owned hens, with
the balance purchased on the spot market.

Waldbaum's shell egg and egg products businesses are fully integrated from the
production and maintenance of laying flocks through processing of shell eggs
and further processed egg products.  Waldbaum maintains facilities with
approximately 2,600,000 pullets located in Nebraska and Minnesota.  Fully
automated laying barns, housing approximately 12,500,000 producing hens, are
located in Nebraska, Colorado and Minnesota.  In addition, approximately
600,000 Waldbaum-owned producing hens are housed in contract facilities.  Major
laying facilities also maintain their own grain and feed storage facilities.
Principal egg processing plants are located in Nebraska, Colorado and
Minnesota.

Subsequent to the close of the Company's fiscal year, the Company consummated
the acquisition of Papetti's Hygrade Egg Products, Inc. and its affiliates
("Papetti's"). The February 26, 1997 acquisition was accounted for as a
purchase.   Papetti's, based in Elizabeth, New Jersey, is the world's largest
further processed egg products producer with annual sales in excess of $300
million.  Papetti's is a major producer of extended and short shelf-life 
liquid, dried and frozen whole eggs, whites and yolks, prepared egg patties and
omelets, and hard-cooked eggs. Papetti's purchases approximately 90% of its
annual egg needs under contracts with egg producers whereby the price

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paid for the eggs varies with the market as reported by Urner Barry .  The
production from approximately 5,000,000 hens is under long-term contracts, with
an additional 11,000,000 hens under shorter-term contracts. The remainder of
annual egg needs are secured in the spot market.

REFRIGERATED DISTRIBUTION

Crystal Farms Refrigerated Distribution Company ("Crystal Farms") distributes a
wide range of refrigerated grocery products directly to retailers and to
wholesale warehouses.  Crystal Farms believes that its strategy of offering
quality branded products, many of which are sold under the Crystal Farms name
as a lower-priced alternative to national brands, has contributed to its
growth.  These distributed refrigerated products, which consist principally of
cheese, bagels, butter, margarine, muffins, potato products, juice and ethnic
foods, are supplied by vendors, or other divisions of the Company, to Crystal
Farms' specifications.  Cheese accounts for approximately 51% of Crystal Farms'
annual sales.  Crystal Farms operates a cheese packaging facility in Lake
Mills, Wisconsin, which allows for the cutting and wrapping of various cheese
products for its Crystal Farms brand cheese business and for private label
customers.

Crystal Farms has expanded its market area both directly and through the use of
independent egg producers as distributors.  Whereas Crystal Farms' market area
covered only seven states in 1987, it now includes 23 states primarily in the
Midwest and Southwest.  Retail locations served by Crystal Farms number over
1,500.  In 1996, sales to the warehouse operations of SUPERVALU, INC., and to
SUPERVALU owned and franchised formats, including Cub Foods, were approximately
35% of Crystal Farms' net sales.  Crystal Farms maintains a fleet of
refrigerated tractor-trailers to deliver products daily to its retail customers
from ten distribution centers located centrally in its key trade areas.

POTATO PRODUCTS

Potato products are produced and sold by Northern Star Co. ("Northern Star") and
Farm Fresh Foods, Inc. ("Farm Fresh").  The potato products division processes
and sells refrigerated potato products to both foodservice and retail markets.
Refrigerated products consist of a line of hash brown, mashed, and specialty
potato products.  In 1996, approximately 19% of the potato products division's
net sales were to the retail trade, with the balance to foodservice.
Refrigerated potato products accounted for approximately 69% of divisional net
sales in 1996.  The potato products division typically purchases approximately
80%-90% of its annual potato requirements from contract producers, of which a
large majority are grown on irrigated land.  The balance of potato requirements
are purchased on the spot market.

The potato products division maintains storage facilities in North Dakota,
Wisconsin and Minnesota.  Processing and refrigerated/frozen warehouse
facilities are located principally in Minnesota, with a smaller facility
located in California.  The potato products division maintains a high
percentage of its contracted supply from irrigated fields, as well as
maintaining geographic diversification of its sources.  However, weather
remains an important factor in determining raw potato prices and quality.
Small variations in the purchase price and/or quality of potatoes can have a
significant effect on the potato products division's operating results.

Subsequent to the end of the fiscal year, the Company announced it is exiting
the frozen french fry business in 1997. As described in Note B to the
Consolidated Financial Statements of Michael Foods, Inc. and Subsidiaries the
Company recorded two charges in the fourth quarter of 1996 related to the
frozen french fry product line.






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DAIRY PRODUCTS

Through Kohler Mix Specialties, Inc. ("Kohler"), the Company processes and
sells soft serve mix, ice cream mix, frozen yogurt mix, milk and specialty
dairy products, many of which are ultra-high temperature ("UHT") pasteurized
products.   Kohler sells its products throughout much of the central United
States from facilities in Minnesota and Texas.

Kohler's UHT processing is designed to produce bacteria-free products with
delicate flavors, such as milk, ice cream mixes and specialty dairy products
such as whipping cream, half and half and cordials.  Many of Kohler's products
have an extended shelf life of up to ninety days, thus extending the trade
territory which can be effectively served by Kohler to include most of the
United States.

Kohler soft serve, frozen yogurt and ice cream mixes are made to customer's
specifications.  Currently, Kohler produces approximately 65 different
formulations.  Kohler believes that the customization of high quality products
and high customer service levels are critical to their business.

Kohler has approximately 400 customers, including branded ice cream
manufacturers, quick service restaurants, other foodservice outlets and
independent ice cream retailers.  Kohler has a significant customer who is an
ice cream manufacturer.  However, sales to this customer represent less than 5%
of the consolidated sales of the Company.  In 1996, most of Kohler's net sales
were generated from customers who purchased products on a cost-plus basis.
This includes sales to most of the large fast food chains operating in its
market area.  Sales of soft serve, shake, and ice cream mixes are more seasonal
than the Company's other products, with higher sales volumes occurring between
May and September.  The addition of other specialty dairy products in recent
years has somewhat offset this seasonality.

SALES, MARKETING AND CUSTOMER SERVICE

Each of the Company's four divisions has developed a marketing strategy which
emphasizes high quality products and customer service.  Michael Foods Sales, an
internal sales group, coordinates the sales of Waldbaum, Northern Star and
Kohler and is supported by a centralized order entry and customer service
staff.  Additionally, Waldbaum maintains a small sales group in Wakefield,
Nebraska, which handles certain egg product sales.  The Company has a small
marketing staff, which executes marketing plans in the foodservice market, with
additional resources from outside consultants.   Crystal Farms sales personnel
obtain orders from retail stores which are usually placed no more than one day
ahead of the requested delivery date.  Crystal Farms' marketing efforts are
primarily focused on in-store and co-op advertising programs, which are
executed with grocers on a market-by-market basis.  Papetti's uses a nationwide
system of brokers, supplemented by a small internal national accounts sales
group, to sell its products.

ACQUISITIONS

There were no acquisitions in 1993 or 1994, but in 1995 the institutional
refrigerated potato products line of Interstate Food Processing Corp. was
acquired.  This asset purchase was made for cash and included a customer list,
processing equipment, goodwill and certain other assets.    The acquisition
increased the potato products division's refrigerated potato product sales in
the U. S. foodservice market.

On February 26, 1997 the Papetti's acquisition was consummated.  The
consideration included cash and stock in the amount of approximately $80.6
million, including approximately 3.2 million shares of the Company's common
stock.  Additionally, the Company assumed approximately $23.4 million of

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Papetti's debt.  The acquisition significantly increases the Company's sales of
further-processed egg products in the U. S. foodservice, industrial and retail
markets.

The Company anticipates that it will continue to make acquisitions as part of
its strategic plan.

PROPRIETARY TECHNOLOGIES

In 1988, the Company acquired an exclusive license to use a patented process,
developed at North Carolina State University, for the ultrapasteurization of
liquid eggs.  The patents expire in 2006.  The process results in liquid eggs
that are salmonella and listeria negative, pursuant to USDA regulations.
Salmonella and listeria are bacteria which can contaminate shell eggs.  The
process also extends the shelf life of liquid eggs from less than two weeks to
ten weeks or more.  The Company has an aseptic plant in Gaylord, Minnesota
which processes the ultrapasteurized liquid egg needs of Waldbaum.

The Company and the patent holder have initiated litigation against several
processors of competing liquid egg products, claiming infringement of the
original and subsequent related process patents with respect to
ultrapasteurized liquid egg production.  In 1992, a jury for the United States
District Court for the Middle District of Florida found the original patent to
be valid and that a processor, Bartow Food Co., willfully and deliberately
infringed the patent.  In another action, against Papetti's, the United States
District Court for the District of New Jersey found in 1992 and 1993 that the
defendant had infringed the patents and that the licensed patents are valid and
enforceable.  In 1994, the Court of Appeals for the Federal Circuit upheld this
judgment.  In 1995 and 1996 there were other developments regarding the
patentability of the claims under the patents.  See Item 3 "Legal Proceedings."
The litigation outstanding between the Company and Papetti's at the time of
the Papetti's acquisition was settled as part of the acquisition transaction.

Papetti's owns an exclusive sublicense to use a patented process, developed by
a non-employee inventor, for the electro-heating of liquid eggs.  The patent
expires in 2006 .  The process results in liquid eggs that are salmonella and
listeria negative, pursuant to USDA regulations.  The process  extends the
shelf life of liquid eggs from less than two weeks to ten weeks or more.
Papetti's has an aseptic plant in Elizabeth, New Jersey which processes the
ultrapasteurized liquid egg needs of Papetti's.

TRADENAMES

Waldbaum markets its products using several tradenames including "Logan
Valley", "Wakefield", "Sunny Side Up(R)", "Michael Foods", "Deep Chill(TM)",
"MicroFresh" and "MGW".  Ultrapasteurized liquid eggs are marketed using the
"Easy Eggs(R)" tradename.  The Company's liquid scrambled egg mix is marketed
under the tradename "Simply Eggs(R) Brand".

Crystal Farms products are marketed principally under the "Crystal Farms(R)"
tradename.  In addition, Crystal Farms is the principal distributor of
"Bongards" cheese in Minnesota.  Crystal Farms also distributes eggs, butter,
cheese, bagels, and ethnic foods under a number of other customer-owned
tradenames.

Within the potato products division, Northern Star markets its frozen potato
products to foodservice customers under a variety of brands, including "Northern
Star". The "Simply Potatoes(TM)" brand is used for retail refrigerated products,
with "Farmer Select" used on retail frozen products.  Farm Fresh also maintains
various tradenames for their products.  The "Quality Farms" brand of Interstate
Food Processing Corporation is now controlled by the potato products division
and is used in the sale of institutional refrigerated potato products.

Within the dairy products division, "Kohler" and "Midwest Mix, Inc." are two
main tradenames.

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Papetti's markets its products under tradenames that include "Table Ready(R)",
"Better N' Eggs" "Quaker State " and "Lite-N- Hearty".

COMPETITION

All aspects of the Company's businesses are extremely competitive.  In general,
food products are price sensitive and affected by many factors beyond the
control of the Company, including changes in consumer tastes, fluctuating
commodity prices, and changes in supply due to weather, production and feed
costs.

The Company's egg products division is considered the second largest egg
producer and, with the recent acquisition of Papetti's, the largest egg
products processor  in the United States.  The egg products division competes
with many suppliers of eggs and egg products.  While the egg products and shell
egg industry is highly fragmented, there has been a trend toward consolidation
in recent years and further consolidation in the industry is expected.  Other
major egg producers include Cal-Maine Foods, Inc. and Rose Acres Farms, Inc.
The Company believes that Waldbaum is among the lowest cost egg producers in
the United States.  The Company also believes that Easy Eggs'(R) and Table 
Ready's(R) salmonella-negative aspects, extended shelf-lives and ease of use are
significant competitive advantages in the foodservice and industrial food
markets for eggs. The Company believes its largest competitor in further
processed egg products is the Sunny Fresh Foods, Inc. subsidiary of Cargill,
Inc. 

The Company's refrigerated distribution division competed with the refrigerated
products of other suppliers such as Beatrice Companies, Inc.; Kraft Foods,
Inc.; Land O' Lakes, Inc.; and Sargento Cheese Company, Incorporated.  Crystal
Farms believes that its emphasis on a high level of service and lower-priced
branded products has enabled it to compete in its market area with larger
companies having national brands.

Through 1996, Northern Star's frozen potato products competed with significantly
larger producers such as Carnation Co., J. R. Simplot Co., Lamb-Weston, Inc. (a
subsidiary of ConAgra, Inc.), Ore-Ida Foods, Inc. (a subsidiary of H. J. Heinz
Co.) and McCain Foods, Inc. In the fourth quarter of 1996 the Company recorded
asset impairment losses and lower of cost or market inventory markdowns as
described in Note B to the Consolidated Financial Statements of Michael Foods,
Inc. and Subsidiaries. Subsequent to year-end, the Company decided to exit the
frozen french fry business, which is expected to be completed during 1997. The
Company believes it has a dominant market share in refrigerated potato products
sold in the U.S., where competitors are generally smaller local or regional
companies.   Within the retail frozen market, Ore-Ida Foods, Inc. is a major 
competitor.  While the Company has a modest share of the U. S. frozen french 
fry market, it believes it has a dominant market share in refrigerated potato 
products sold in the U. S., where competitors are generally smaller local or 
regional companies.

Within the dairy products division, management believes that Kohler provides
the majority of the soft serve mix, and a significant percentage of ice cream
mix, sold in  Minnesota, Wisconsin and South Dakota.  Kohler also has a large
percentage of the UHT soft serve mix and UHT fluid milk business with quick
service restaurant chains in the central U. S.  Competitors include local
dairies utilizing conventional pasteurization and regional dairies with UHT
products.

GOVERNMENT REGULATION

All of the Company's subsidiaries are subject to federal and state regulations
relating to grading, quality control, product branding and labeling, waste
disposal and other aspects of their businesses.  The subsidiaries are subject
to USDA or FDA regulation regarding grading, quality, labeling and sanitary
control.  Waldbaum's and Papetti's egg breaking plants are subject to
continuous on-site USDA inspection.  All other subsidiaries are subject to
periodic USDA inspections.

Crystal Farms' cheese and butter products and Kohler's soft serve mix and ice
cream mix are effected by milk price supports established by the USDA.  The
support price serves as an

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artificial minimum price for these products, which may not be indicative of
market conditions that would prevail if such supports were abolished.

All of the Company's subsidiaries must also comply with state and local waste
disposal requirements.  Waldbaum disposes of chicken waste primarily to farmers
for use as fertilizer.  Northern Star disposes of solid waste from potato
processing by selling the solid waste to a processor who converts it to animal
feed and disposes of effluent under a waste discharge permit issued by the
Minneapolis-St. Paul Metropolitan Waste Control Commission.  Farm Fresh holds a
permit with the Los Angeles County Sanitation District to discharge industrial
waste into the Sanitation District's sewage system.  Waldbaum and Papetti's
have permits to discharge waste products into available sewer systems and
maintain discharge ponds for certain wastes.

EMPLOYEES

The Company employed approximately 2,700 employees at December 31, 1996.  Of
this total, Waldbaum employed approximately 1,200 full-time and 300 part-time
employees, none of whom are represented by a union.  Crystal Farms employed
approximately 300 employees, none of whom are represented by a union.  Northern
Star employed approximately 545 employees of whom 465 are represented by the
Bakery, Laundry, Allied Sales Drivers and Warehousemen Union affiliated with
the Teamsters.  Farm Fresh had 65 employees as of December 31, 1996 with none
being represented by a union.  Kohler employed 150 people at December 31, 1996.
Historically, Kohler increases its number of employees by approximately 10 to
20 percent during the summer season.  Its production personnel and drivers are
represented by the Milk Drivers and Dairy Employees Union.  The Michael Foods
Sales, Distribution and Customer Service groups collectively employed
approximately 170 people at December 31, 1996.  Papetti's had approximately
1,100 employees as of the date of acquisition.  Approximately 23 of these
employees are represented by a union.

EXECUTIVE OFFICERS OF THE REGISTRANT


<TABLE>
<CAPTION>
                                                                  Officer 
Name                 Age  Position                                Since
-------------------------------------------------------------------------------
<S>                  <C>  <C>                                     <C>
Gregg A. Ostrander   44   President and Chief Executive Officer   1993
Jeffrey M. Shapiro   49   Executive Vice President and Secretary  1987
John D. Reedy        51   Vice President - Finance, Chief         1988
                          Financial Officer and Treasurer
Mark D. Witmer       39   Assistant Treasurer                     1995
Bill L. Goucher      50   President - Waldbaum                    1993
James J. Kohler      43   President - Kohler                      1988
James D. Clarkson    44   President - Northern Star               1995
Norman A. Rodriguez  53   President - Crystal Farms               1989
Kevin O. Kelly       39   President - Michael Foods Sales         1993
Arthur N. Papetti    65   President - Papetti's                   1997
</TABLE>


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ITEM 2 - PROPERTIES

FACILITIES

The Company maintains leased space for its executive headquarters, customer
service office and sales office in suburban Minneapolis, Minnesota.

Waldbaum owns and operates 29 pullet growing houses, each containing
approximately 14,600 square feet, in Wakefield, Nebraska; two grain elevators
in Wayne, Nebraska; 87 laying houses, each containing approximately 19,500
square feet, in Wakefield, Nebraska, Bloomfield, Nebraska and Hudson, Colorado;
two feed mills in Wakefield, Nebraska, one in Bloomfield, Nebraska and one in
Hudson, Colorado; processing facilities in Wakefield, Nebraska (approximately
323,000 square feet), Hudson, Colorado (approximately 49,000 square feet),
Bloomfield, Nebraska (approximately 80,000 square feet); and warehouse, office
and distribution facilities aggregating approximately 40,000 square feet
located in Wakefield, Nebraska, Hudson, Colorado, Daytona Beach, Florida, and
Bloomfield, Nebraska.  Additionally, leased space approximating 11,000 square
feet is located in Daytona Beach, Florida.  Waldbaum owns in the aggregate
approximately 950 acres of land in Nebraska, Colorado and Minnesota and leases
land in Bloomfield, Nebraska.

Waldbaum also owns and operates facilities in Minnesota, including 9 pullet
growing houses (approximately 160,000 square feet) at Gaylord, Minnesota; 48
laying houses, each averaging 15,000 square feet, in Gaylord and LeSueur,
Minnesota; feed mills in Gaylord and LeSueur, Minnesota; processing facilities
in Gaylord, Minnesota (approximately 164,000 square feet) and LeSueur,
Minnesota approximately (29,000 square feet).  The Gaylord, Minnesota facility
includes a centralized warehouse for the distribution of the Company's core
refrigerated foodservice products.  Waldbaum leases space for its
administrative offices in suburban Minneapolis, Minnesota.

Papetti's operates its egg processing and distribution business in New Jersey
from five leased facilities in Elizabeth, New Jersey.  In the aggregate, these
facilities comprise approximately 273,000 square feet, of which approximately
79,000 square feet are refrigerated warehouse space.  Papetti's leases an egg
processing and distribution facility of approximately 75,000 square feet in
Klingerstown, Pennsylvania.  Papetti's also conducts business from an 87,000
square foot egg processing and distribution facilities in Lenox, Iowa and two
leased facilities which aggregate approximately 24,000 square feet.
Additionally, Papetti's owns an egg drying operation in Kansas City, Missouri
which operates out of two buildings   comprising 63,000 square feet.

The refrigerated distribution division leases administrative and sales offices
in suburban Minneapolis and several small warehouses across the U. S., and has
an owned 33,000 square foot distribution center located near LeSueur,
Minnesota.  Wisco Farm Cooperative owns and operates a 48,200 square foot
refrigerated warehouse on a 19 acre site in Lake Mills, Wisconsin.  A 19,000
square foot cheese packaging facility is also located in Lake Mills.

Within the potato products division, Northern Star owns its processing plant
and seven raw potato storage facilities in Minnesota, Wisconsin and North
Dakota totaling over 378,000 square feet.  Six of the storage facilities are
located on land owned by Northern Star.  The East Grand Forks, Minnesota
facility is located on leased land.  These facilities have an aggregate storage
capacity of over 220 million pounds of raw potatoes.  The processing plant
contains approximately 175,000 square feet of production area and an automated
frozen storage area with a capacity of approximately 18 million pounds of
finished product.  Farm Fresh leases five buildings in Bell Gardens,
California, comprising approximately 28,600 square feet, from the former owner
of Farm Fresh.

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In the dairy products division, Kohler's facilities in White Bear Lake,
Minnesota consist of three company-owned buildings, with the main plant
containing approximately 110,000 square feet.  Kohler also leases a UHT dairy
plant in Sulphur Springs, Texas comprising approximately 40,000 square feet.

A production and warehouse facility approximating 35,000 square feet is located
in Lake Mills, Wisconsin. Management has determined that this facility exceeds
the needs of the business and intends to sell the partially constructed
facility. 

Management believes that the facilities of the Company, together with budgeted
capital improvements in each of its four operating divisions, are adequate to
meet the Company's anticipated requirements for its current lines of business
over the foreseeable future.

NEBRASKA CONSTITUTIONAL PROVISION

A substantial portion of the egg production and processing operations of
Waldbaum is located in the state of Nebraska.  With certain exceptions, a
provision of the Nebraska constitution generally prohibits corporations from
engaging in farming or ranching in Nebraska.  Although the constitutional
provision contains an exemption for agricultural land operated by a corporation
for the purpose of raising poultry, the Nebraska Attorney General has, in
written opinions, taken the position that facilities devoted primarily to the
production of eggs do not fall within such exemption and therefore are subject
to the restrictions contained in the constitutional provision.  The Company
believes that the egg production facilities of Waldbaum are part of Waldbaum's
integrated facilities for the production, processing and distribution of egg
products, and therefore, that any agricultural land presently owned by Waldbaum
is being used for non-farming and non-ranching purposes.

The constitution empowers the Nebraska Attorney General, or if the Attorney
General fails to act, a Nebraska citizen, to obtain a court order to, among
other things, force divestiture of land held in violation of the constitutional
provision.  If land subject to such a court order is not divested within a
two-year period, the constitutional provision directs the court to declare the
land escheated to the State of Nebraska.  The Company is not aware of any
proceedings under such constitutional provision pending or threatened against
either Waldbaum or the Company.  Until the scope of such provision has been
clarified by further judicial, legislative, or executive action, there can be
no assurance as to the effect, if any, that it may have on the business of
Waldbaum or the Company.

ITEM 3 - LEGAL PROCEEDINGS

Four patents for ultrapasteurizing liquid eggs licensed by the Company from
North Carolina State University ("NCSU") (see "Proprietary Technologies") are
presently involved in proceedings before the United States Patent and Trademark
Office ("PTO").  In the first commenced proceeding, a reissue proceeding
initiated by NCSU to obtain product claims in addition to existing process
claims, the objections of an examiner, which had been sustained by the PTO
Board of Patent Appeals and Interferences, were reversed by the Court of
Appeals for the Federal Circuit.  All four patents are presently involved in
ongoing reexamination proceedings in the PTO as requested by various egg
industry competitors of the Company.  In addition, a second reissue proceeding
has been initiated with respect to the patent in which product claims were
sought and, in this reissue proceeding, both process and product claims are
being reexamined for patentability.




                                     10


<PAGE>   11


In 1996, NCSU received Final Official Actions issued by the PTO.  In these
Actions, the examiner rejected claims under the four process patents held by
NCSU.  NCSU and the Company are continuing to process the claims with the
examiner and have appealed the rejection to the PTO's Board of Patent Appeals
and Interferences.  An unsatisfactory result of the PTO appeal would be
appealed to the Court of Appeals for the Federal Circuit.  Counsel to NCSU and
the Company estimates that a full appeal process could take up to two years to
complete.  Pending the outcome of such appeals, the patents will remain valid
and in full force and effect and parties infringing the patents may be liable
for damages based upon their infringement.

On December 31, 1996, the following material litigation was pending with
respect to the Company:

1.  MICHAEL FOODS AND NORTH CAROLINA STATE UNIVERSITY V. PAPETTI'S HYGRADE EGG
PRODUCTS, INC., U. S. District Court for the District of New Jersey, File No.
89-4645.  This action arose out of an alleged infringement by the defendant upon
certain patents owned by NCSU and licensed to the Company.  The Company obtained
summary judgment affirming the validity of one of the patents and finding the
defendant to have infringed the patent.  This judgment was affirmed on appeal to
the Court of Appeals for the Federal Circuit.  Discovery on the question of
damages was suspended pending a reexamination of the patent in the PTO as
described above.  As a result of the acquisition of Papetti's by the Company on
February 26, 1997, this litigation was settled for $6,000,000 and dismissed.

2.  NULAID FOODS, INC. V. MICHAEL FOODS, INC. AND NORTH CAROLINA STATE
UNIVERSITY.  U. S. District Court for the Eastern District of California, Civil
Action No. CIV-S-93-1319WBSJFM.  This is an action commenced by Nulaid Foods,
Inc. seeking a declaratory judgment that the patents which are subject of the
patent litigation described in No. 1 above are invalid.  The Company and NCSU
have counterclaimed for infringement of the patents by the plaintiff.  Further
proceedings in this litigation are stayed pending reexamination of the patents
in the PTO as described above.

3.  SCHWAN'S SALES ENTERPRISES, INC. V. KOHLER MIX SPECIALTIES, INC., ET. AL.,
Lyon County District Court, Fifth Judicial District, State of Minnesota, File
No. C-95-357.  In May, 1995, an action was commenced against the Company's
subsidiary, Kohler Mix Specialties, Inc., and certain other parties by Schwan's
Sales Enterprises, Inc. ("Schwan's") seeking recovery of damages arising out of
an alleged salmonella contamination of Schwan's ice cream that had been
distributed to its customers in the summer and fall of 1994.  Following an
investigation by Schwan's and various governmental agencies, it was determined
that Schwan's ice cream product evidenced the presence of salmonella
bacteria.  Schwan's operations were interrupted for a period of time and
Schwan's has made settlements with their customers who claimed injury from
consuming Schwan's ice cream.   Kohler Mix and others supplied ice cream mix to
Schwan's in tanker trucks operated by the same transporter during the time in
question.  The complaint seeks to recover all or a portion of the loss
sustained by Schwan's as a result of the incident.  Discovery is ongoing.  A
mediation conference is scheduled in April, 1997.    The Company's product
liability carrier has undertaken defense of the litigation without waiving
coverage defenses.  Underlying insurance and excess insurance provides
$51,000,000 in coverage.

The Company is also 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.



                                     11


<PAGE>   12



ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 1996 Annual Meeting of Stockholders of Michael Foods, Inc. was held on
December 30, 1996.  The items voted upon and the results of the vote follow:

1.  Proposal to approve an Agreement and Plan of Reorganization between Michael
Foods, Inc., North Star Universal, Inc. and NSU Merger Co.


<TABLE>
<CAPTION>
   For           Against         Abstain
----------       -------         -------
<S>              <C>             <C>
17,046,422       22,903          15,439
</TABLE>

2.  The election of nine persons to serve as directors until the next annual
election and until their successors are duly elected and qualified (only eight
voted for, as a director resigned subsequent to the issuance of proxy
material):


<TABLE>
<CAPTION>
                          For           Withhold Authority
                       ----------       ------------------
<S>                    <C>                   <C>
Richard A. Coonrod     17,988,952             111,659
Miles E. Efron         17,983,290             117,321
Arvid C. Knudtson      17,987,190             113,421
Joseph D. Marshburn    17,987,552             113,059
James H. Michael       17,929,075             171,536
Jeffrey J. Michael     17,934,447             166,164
Maureen B. Bellantoni  17,987,167             113,444
Gregg A. Ostrander     17,936,403             164,208
</TABLE>

Note: Subsequent to the Annual Meeting of Stockholders, the Registrant merged
with Michael Foods, Inc. (of Delaware) on February 28, 1997.  As a result of
the merger, North Star Universal, Inc. was re-named Michael Foods, Inc.
(Minnesota).  Certain directors of North Star Universal, Inc. resigned from the
Board of Directors at the time of the merger, including James H. Michael.  The
remaining North Star Universal, Inc. directors, consisting of Jeffrey J.
Michael and Miles E. Efron, appointed Richard A. Coonrod, Arvid C. Knudtson,
Joseph D. Marshburn, Maureen B. Bellantoni, Gregg A. Ostrander, Arthur J.
Papetti and Stephen T. Papetti as directors of the Registrant.

3.  Proposal to approve the appointment of Grant Thornton LLP as the independent
auditors of the corporation for 1996:


<TABLE>
<CAPTION>
   For            Against       Abstain
----------        -------       -------
<S>               <C>           <C>
18,067,069        22,262        11,280
</TABLE>


                                     12


<PAGE>   13



PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

The Company's common stock trades on the Nasdaq National Market tier of The
Nasdaq National Market under the symbol: MIKLD. Nasdaq has informed the Company
that the stock trading symbol will revert to MIKL on, or about, March 31, 1997.
The following table sets forth the high and low daily sale prices for the
Company's common stock for each quarter of 1996 and 1995:


<TABLE>
<CAPTION>
1996             Low       High
----            ------    ------
<S>             <C>       <C>
First Quarter    9 7/8    12 3/4
Second Quarter  10 1/4    11 7/8
Third Quarter    9 1/2    13 1/2
Fourth Quarter  10 1/8    13 1/8

<CAPTION>

1995             Low       High
----            ------    ------
<S>             <C>       <C>
First Quarter    9        12 3/8
Second Quarter  10 1/4    13 1/4
Third Quarter   10 5/8    14 1/2
Fourth Quarter  10 3/4    13 3/4
</TABLE>

The following table sets forth the regular quarterly cash dividends paid per
share of common stock in 1996 and 1995:


<TABLE>
<CAPTION>
                    1996      1995
                    -----     -----
<S>                <C>        <C>
First Quarter      $0.05      $0.05
Second Quarter      0.05       0.05
Third Quarter       0.05       0.05
Fourth Quarter      0.05       0.05
</TABLE>

At year-end 1996 the Company had 505 common shareholders of record and an
estimated 3,700 beneficial owners whose shares were held by nominees or broker
dealers.

ITEM 6 - SELECTED FINANCIAL DATA

The Summary of Consolidated Financial Data given below as of, and for the five
years ended, December 31, 1996 has been derived from the Company's consolidated
financial statements. Such data should be read in conjunction with the
Company's consolidated financial statements and notes thereto included
elsewhere herein and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."


                     SUMMARY OF CONSOLIDATED FINANCIAL DATA
                    (In thousands, except per share amounts)


<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                             1996      1995       1994       1993      1992
---------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS DATA                                                              
<S>                                              <C>       <C>        <C>        <C>       <C>
Net sales .....................................  $616,395  $536,627   $505,965   $474,783  $442,734
Cost of sales .................................   545,055   454,652    430,917    414,965   390,185
Product line inventory markdown................    12,225         -          -          -         -
                                                 --------------------------------------------------
Gross profit ..................................    59,115    81,975     75,048     59,818    52,549
Selling, general and administrative expenses ..    44,822    45,729     41,851     39,122    36,936
Product line asset impairment..................    10,472         -          -          -         -
Disposal of product line ......................         -         -          -     22,769         -
Restructuring charges .........................         -         -          -     11,164         -
                                                 --------------------------------------------------
                                                   55,294    45,729     41,851     73,055    36,936
                                                 --------------------------------------------------
Operating profit (loss) .......................     3,821    36,246     33,197    (13,237)   15,613
Interest expense, net .........................     7,264     7,635      8,498      8,363     9,588
                                                 --------------------------------------------------
Earnings (loss) before income taxes ...........    (3,443)   28,611     24,699    (21,600)    6,025
Income tax expense (benefit) ..................      (370)   11,020      9,510     (5,280)    2,175
                                                 --------------------------------------------------
  Net earnings (loss) .........................  $ (3,073) $ 17,591   $ 15,189   $(16,320) $  3,850
                                                 ==================================================
Net earnings (loss) per share .................  $   (.16) $    .91   $    .79   $   (.84) $    .20
                                                 ==================================================
Weighted average shares outstanding ...........    19,386    19,328     19,315     19,416    19,516
Dividends per common share ....................  $    .20  $    .20   $    .20   $    .20  $    .20
BALANCE SHEET DATA (end of period)                                                           
Working capital ...............................  $ 56,677  $ 42,095   $ 33,589   $ 22,267  $ 54,826
Total assets ..................................   364,659   359,227    336,645    329,087   370,218
Long-term debt, including current maturities ..   112,901   101,421    100,604    104,008   135,798
Shareholders' equity ..........................   174,042   180,095    166,029    155,003   177,037
                                                 ==================================================
</TABLE> 



ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS


The following discussion of the financial condition and results of operations
of the Company should be read in conjunction with the Consolidated Financial
Statements and the Notes thereto included elsewhere in this report.

GENERAL
The following table sets forth the percentage of net sales accounted for by
each of the Company's operating divisions for the periods indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,                 1996    1995    1994
-------------------------------------------------------------
<S>                                     <C>     <C>     <C>   
Egg Products ......................      43%     42%     42%
Refrigerated Distribution .........      34      34      33
Potato Products ...................      14      16      15
Dairy Products ....................      15      14      14
Prepared Foods* ...................       -       -       2
Intercompany Sales ................      (6)     (6)     (6)
                                        --------------------
  Total ...........................     100%    100%    100%
                                        ====================
</TABLE>

The following table sets forth the percentage of operating earnings (before
corporate, interest and income tax expenses) accounted for by each of the
Company's operating divisions for the periods indicated:
        
<TABLE>
<CAPTION>

YEAR ENDED DECEMBER 31,                 1996**  1995     1994
-------------------------------------------------------------
<S>                                     <C>     <C>     <C>   
Egg Products ......................       64%    59%     51%
Refrigerated Distribution .........       26     15      13
Potato Products ...................      (11)    12      23
Dairy Products ....................       21     14      14
Prepared Foods* ...................        -      -      (1)
                                        --------------------
  Total ...........................      100%   100%    100%
                                        ====================
</TABLE>



* The assets of the subsidiary comprising the Prepared Foods Division were sold
in late 1994.

** Before product line inventory markdown and product line asset impairment
charges. 


RESULTS OF OPERATIONS
The Egg Products Division had higher dollar sales and lower dollar earnings in
1996, as compared to the results for 1995. Sales increased for egg products,
most notably for value-added product lines such as Easy Eggs(R) and MicroFresh.
Egg prices increased approximately 20 percent  in 1996, as compared to 1995, as
reported by Urner Barry Publications - a widely quoted industry pricing
service. This increase helped support generally higher pricing for egg products
during the year. Feed costs, which typically represent roughly two-thirds of
the cost of producing an egg, were significantly higher in 1996 than in 1995,
as a result of poor domestic harvests of corn and soybeans in the fall of 1995.
The division's pricing and productivity improvements were not sufficient to
offset the sharp rise in feed costs.
     The Refrigerated Distribution Division had higher dollar sales and higher
dollar earnings in 1996, as compared to the results for 1995. The divisional
earnings are particularly volume-sensitive and unit sales increased compared to
1995 levels. The combination of volume growth, pricing improvements in certain
product lines and effective expense control allowed for divisional profit
improvement.

     The Potato Products Division had flat dollar sales as compared to the
results for 1995 and the division operated at a loss in 1996, due primarily to
losses in the frozen french fry business. A competitive environment in the
french fry processing industry depressed unit sales and selling prices for
frozen potato products, and the division continued to experience a loss of
market share in the frozen french fry business. Additionally, potatoes from the
fall 1995 harvest were generally available in lesser quantities than normal,
resulting in significant purchases of costly open market potatoes to supplement
those delivered under contracts. Potatoes from this harvest, which were
processed during most of 1996, were also smaller in size than normal, which
reduced processing yields for potato products. As a result of these and other
factors, the Potato Products Division recorded  fourth quarter  product line
asset impairments of $9,172,000 related to its frozen french fry product line.
The impairment loss was necessary to reduce the carrying cost of these assets
to fair value. There was also a product line inventory markdown of $12,225,000
in the fourth quarter of 1996 to reduce frozen french fry product line
inventory to the lower of cost or market, including an adjustment for this
product line's potato costs that are estimated to be in excess of the Company's
production plans. (See Note B to the consolidated financial statements.)
Subsequent to year end, the Company decided to dispose of the frozen french fry
business, which management expects to complete during 1997.  Sales of
value-added refrigerated potato products in both the foodservice and retail
markets increased. However, margins for refrigerated potato products were also
negatively effected by the raw material\processing yield issues, as well as by
certain temporary production difficulties.

     The Dairy Products Division had higher dollar sales and higher dollar
earnings in 1996, as compared to the results for 1995. Unit sales rose
significantly, with an increase in core UHT ("ultra-high temperature"
pasteurization) dairy mixes providing for much of the growth. Pricing and
operating costs rose significantly during the year, reflecting strength in raw
milk prices as a result of a restricted milk supply due to high feed costs
for dairy herds. 

     The gross profit margin of the Company, exclusive of the product line
inventory markdown, was 11.6 percent in 1996, as compared to 15.3 percent in
1995 and 14.8 percent in 1994. The 1996 decrease reflected the factors
discussed above, particularly the increased feed and potato processing costs.
It is management's strategy to increase value-added product sales as a percent
of total sales over time, while decreasing commodity-sensitive products'
contribution to consolidated sales. These efforts historically have been
beneficial to gross profit margins.

     Selling, general and administrative expenses were 7.3 percent of net sales
in 1996, as compared to 8.5 percent in 1995 and 8.3 percent in 1994. The
decrease in 1996 was due to the significant corporate sales increase and
effective expense management.
     During the fourth quarter of 1996, the Company recorded a $1,300,000
impairment loss related to management's decision to abandon completion of a
building that was originally intended for use in its refrigerated distribution
business.
     Interest expense in 1996 was comparable to 1995 levels. The effect of
increased borrowings under the Company's unsecured revolving line of credit was
offset by lower average interest rates on these borrowings in 1996 than in
1995.
     Certain of the Company's products are sensitive to changes in commodity
prices. Currently, the Company's egg products operations derive approximately
15 percent of net sales from shell eggs which are sensitive to commodity price
changes. The remainder of Egg Products Division sales are derived from the sale 
of egg products that are value-added to varying degrees. Gross profit from
shell eggs is primarily dependent upon the relationship between shell egg
prices and feed costs, both of which can fluctuate significantly and at
variance to each other. While certain egg products exhibit commodity price
sensitivity, gross margins from egg products are generally less sensitive to
commodity price fluctuations than are shell eggs. The Company's refrigerated
distribution operations derive approximately 70 percent of net sales from
refrigerated products, with the balance coming from shell egg sales. As a
majority of these eggs are supplied by the Egg Products Division and are,
in-turn, sold on a distribution or non-commodity basis by the Refrigerated
Distribution Division, this division's sales are generally not sensitive to
commodity price fluctuations. The Potato Products Division typically purchases
approximately 80 to 90 percent of its estimated annual potato needs under
annual grower contracts. The remainder is purchased at market prices to satisfy
short-term production requirements or to take advantage of spot prices when
they are lower than contract prices. Frozen french fry pricing for both the
industry and the Company is significantly influenced by the size and quality of
the annual U.S. potato crop, as well as by consumer demand. While small
variations in potato prices or selling prices of end products can have a
significant effect on the earnings of the potato products division, such
impacts have been lessened in recent years through significant increases in
higher value-added refrigerated potato product sales. The Dairy Products
Division sells its products primarily on a cost-plus basis. Therefore, the
earnings of this division are not typically greatly affected by raw ingredient
price fluctuations.
     Inflation is not expected to have a significant impact on the Company's
business. The Company generally has been able to offset the impact of inflation
through a combination of productivity gains and price increases.
     Competitors have infringed the Company's exclusive license for a patented
technology to safely extend the shelf-life of liquid eggs and the Company is
pursuing its legal rights. The Company has prevailed in U. S. District Court
cases in Florida and New Jersey. The judgment in the New Jersey case was
appealed in 1994 and the Court of Appeals for the Federal Circuit upheld the
summary judgment of the U. S. District Court, which found the patents valid and
enforceable. Since then, present and potential extended shelf-life liquid egg
competitors have filed protests with the U. S. Patent and Trademark Office
("PTO") challenging the validity of one or more of the claims under the
patents. As a result, litigation in two patent infringement lawsuits where the
Company is a plaintiff were stayed and another lawsuit was dismissed without
prejudice. One of the stayed suits was settled as a result of the Company's
acquisition of Papetti's Hygrade Egg Products, Inc. and related entities in
February, 1997. During 1995 and 1996 the PTO issued actions in which an
examiner rejected claims under the patents licensed by the Company. The Company
and patent holder are appealing the rejections to the PTO's Board of Patent
Appeals and Interferences and will, if necessary, appeal further to the Court
of Appeals for the Federal Circuit. The patents remain valid and in full force
and effect during this appeal process.
     While management is resolved to protect the Company's proprietary rights
and expects those rights to continue to be upheld, the number of present and
potential competitors in this egg product category continues to increase. As a
result of such competition, pricing pressure in the category may increase
beyond that which has already been experienced. Sales of extended shelf-life
liquid eggs represent the largest contributor to operating profits within the
Egg Products Division.

CAPITAL RESOURCES AND LIQUIDITY
The Company's investments in acquisitions and capital expenditures have been a
significant use of capital. The Company plans to continue to invest in
state-of-the-art production facilities to enhance its competitive position.
Historically, the Company has financed its growth principally from internally
generated funds, bank borrowings, issuance of senior debt and the sale of
common stock. The Company believes that these financing alternatives will
continue to meet its anticipated needs.
     The Company invested $30,088,000 in capital expenditures in 1996,
$23,782,000 in 1995 and $22,839,000 in 1994. In 1995, the Company acquired the
institutional refrigerated potato products line of Interstate Food Processing
Corp. There were no acquisitions in 1996 or 1994.

     As more fully described in Note J to the consolidated financial statements,
the Company has completed four significant transactions subsequent to the end of
1996. A new bank financing was completed as noted below. Also, $125 million in
senior notes were issued to various insurance company lenders. The notes mature
in February, 2009 and bear interest at 7.58%. Additionally, the Company acquired
Papetti's Hygrade Egg Products, Inc. and certain other related entities for
total consideration of approximately $80.6 million and the assumption of $23.4
million of debt. Lastly, the merger with North Star Universal, Inc. ("NSU") was
completed. As a result of the merger, the Company effectively repurchased
approximately 1.8 million shares of its common stock with a discounted value of
$21.25 million through the assumption of NSU net indebtedness of the same
amount. The Company expects to extinguish the debt assumed in the NSU merger
during the second quarter of 1997 by utilizing its borrowing capacity under the
Company's unsecured line of credit.

     As of February, 1997, the Company has an unsecured line of credit for
$80,000,000 from its principal banks. As of December 31, 1996, $60,700,000 was
borrowed under a predecessor line of credit.


ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

      The consolidated financial statements of the Company listed in the index
under Item 14 hereof are filed as part of this Annual Report on Form 10-K and
are incorporated by reference in this Item 8.

      Certain quarterly financial data is set forth below.

                     QUARTERLY FINANCIAL DATA (UNAUDITED)
                   (In thousands, except per share amounts)

<TABLE>
<CAPTION>
                                                         QUARTER
                                        -------------------------------------- 
                                           FIRST    SECOND     THIRD    FOURTH
------------------------------------------------------------------------------
<S>                                     <C>       <C>       <C>       <C>
1996
Net sales ............................  $143,872  $151,678  $159,928  $160,917
Gross profit .........................    18,913    18,198    15,100     6,904
Net earnings (loss) ..................     3,278     3,277     1,325   (10,953)

Net earnings (loss) per share ........  $    .17  $    .17  $    .07  $   (.56)
Weighted average shares outstanding ..    19,353    19,389    19,396    19,408

1995
Net sales ............................  $126,692  $130,872  $136,257  $142,806
Gross profit .........................    19,943    19,951    20,014    22,067
Net earnings .........................     3,692     4,223     4,229     5,447

Net earnings per share ...............  $    .19  $    .22  $    .22  $    .28
Weighted average shares outstanding ..    19,314    19,332    19,332    19,332
</TABLE>

                                      
<PAGE>   14


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), information is incorporated by reference
to "Election of   Directors" in the Proxy Statement of the Company to be filed
with the Securities and Exchange Commission on or about April 25, 1997.  For
information with respect to executive officers, reference is made to Part I,
Item 1 of this Report on Form 10-K.

ITEM 11 - EXECUTIVE COMPENSATION

Pursuant to General Instruction G(3), information is incorporated by reference
to "Executive Compensation" in the Proxy Statement of the Company to be filed
with the Securities and Exchange Commission on or about April 25, 1997.  In
addition, Mark D. Witmer, Assistant Treasurer, and James D. Clarkson, President
of Northern Star Co., are participants in the Severance Plan for Eligible
Employees of Michael Foods, Inc. and its Subsidiaries (the "Plan").  Under the
Plan, certain identified employees of Michael Foods, Inc. are entitled to
severance pay upon termination of employment if such termination of employment
occurs within two years following a change in control, as defined in the Plan,
and such termination is due to reasons other than death, permanent disability,
retirement, cause, or resignation by the employee other than for Good Reason.
Good Reason is a defined term which includes, among other things, a termination
by the employee due to a significant change in his responsibilities, titles or
offices, a requirement that he or she move outside of his or her geographic
location, a reduction in the employee's base salary or the failure of the
employer to increase compensation proportionate to other similarly situated
employees, the failure of the employer to maintain any benefit plan or a
substantial modification in such plan which would reduce the employee's
benefits, and any purported termination of employment by the Company which is
not effected pursuant to a notice of termination as required under the Plan.
The amount of compensation to which Mr. Clarkson would be entitled to equals
two times his Annual Compensation, as defined, which generally means base
compensation excluding bonuses, benefits and allowances.  The Plan
automatically terminates unless it is renewed by action of the Compensation
Committee and the Board of Directors of the Company prior to July 1, 1997 and
annually thereafter, except that the Plan will remain in effect after a change
in control for at least 24 months unless otherwise terminated by the Board of
Directors of the Company with the consent of 80% of the Plan participants who
were Plan participants at the time of the change in control.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Pursuant to General Instruction G(3), information is incorporated by reference
to "Security Ownership" in the Proxy Statement of the Company to be filed with 
the Securities and Exchange Commission on or about April 25, 1997.



                                     14


<PAGE>   15


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Pursuant to General Instruction G(3), information is incorporated by reference
to "Election of  Directors" and "Security Ownership" in the Proxy Statement of
the Company to be filed with the Securities and Exchange Commission on or about
April 25, 1997.

PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)   Documents filed as a part of the report:

 1.   Consolidated Financial Statements

                                                               Form 10-K
                                                            Page Reference
                                                            --------------
      Report of Independent Certified Public Accountants........   F-1

      Consolidated Balance Sheets - December 31, 1996 and 1995..   F-2

      Consolidated Statements of Operations - years ended
      December 31, 1996, 1995 and 1994..........................   F-3

      Consolidated Statements of Shareholders' Equity -
      years ended December 31, 1996, 1995 and 1994..............   F-4

      Consolidated Statements of Cash Flows - years ended
      December 31, 1996, 1995 and 1994..........................   F-5

      Notes to Consolidated Financial Statements..........F-6 through F-10

 2.   Consolidated Financial Statement Schedules

                                                            Form 10-K
      Description                                         Page Reference
      -----------                                         --------------
      Report of Independent Certified Public Accounts
      on Schedule............................................   F-11

      Schedule II - Valuation and Qualifying Accounts........   F-12

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.

(b)   Reports on Form 8-K


There were three reports filed on Form 8-K since September 30, 1996:

On December 2, 1996 Michael Foods, Inc, a Delaware corporation, announced that
Richard Olson resigned from its Board of Directors.  (Form 8-K filed December
5, 1996)

On December 23, 1996 Michael Foods, Inc., a Delaware corporation, and North
Star Universal, Inc. issued a joint news release discussing their election to   
proceed with the merger of the companies based upon the receipt of a mutually   
acceptable opinion of certified public accountants as to the tax consequences
of the transaction.  (Form 8-K filed December 26, 1996)

On February 26, 1997 Michael Foods, Inc., a Delaware corporation, acquired
Papetti's and completed a private placement of senior notes; on February 28,
1997 Michael Foods, Inc., a Delaware corporation, completed the transactions
between it, North Star Universal, Inc. and NSU Merger Co. resulting in the
merger of Michael Foods, Inc., a Delaware corporation, with North Star
Universal, Inc. and completed a bank financing. (Form 8-K filed March 13, 1997)












                                      15
<PAGE>   16
(c)  Exhibits and Exhibit Index

Exhibit 
Number    Description

2.1       Agreement and Plan of Reorganization, dated as of 
          December 21, 1995, by and among North Star Universal, Inc.,
          Michael Foods, Inc. and NSU Merger Co. (filed as an
          exhibit to the Report on Form 8-K filed by the Company on
          December 27, 1995 (schedules omitted -- the Registrant
          agrees to furnish a copy of any schedule to the Commission
          upon request))(1).
          
3.1       Amended and Restated Articles of Incorporation of the
          Company dated February 28, 1997(1).
          
3.2       Amended and Restated Bylaws of the Company (filed as
          Exhibit 3.2 to the Company's Annual Report on Form 10-K for
          the year ended December 31, 1994 and incorporated herein by
          reference)(1).
          
4.1       Form of Common Stock Certificate(1).
          
4.2       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)(1).
          
4.3       Form of First Supplemental Indenture, dated as of
          March 16, 1992, amending the Indenture described in
          Exhibit 4.2 above (filed as Exhibit 4.2 to Registration
          No. 33-46418 and incorporated herein by reference)(1).
          
4.4       Form of Second Supplemental Indenture, dated as of
          March 16, 1995, amending the Indenture described in
          Exhibit 4.2 above (filed as Exhibit 4.3 to the Company's
          Annual Report on Form 10-K for
<PAGE>   17
            the year ended December 31, 1994 and incorporated herein by
            reference)(1).

4.5         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)(1).

4.6         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)(1).

10.1      * Michael Foods, Inc. 1987 Incentive Stock Option Plan and Incentive
            Stock Option Agreement (filed as Exhibit 10.15 to Michael Foods,
            Inc., a Delaware corporation's Registration Statement on Form S-1
            Registration No. 33-12949 and incorporated herein by reference)(1).

10.2      * Michael Foods, Inc. 1987 Non-Qualified Stock Option Plan and
            Non-Qualified Stock Option Agreement (filed as Exhibit 10.16 to
            Michael Foods, Inc., a Delaware corporation's Registration  
            Statement on Form S-1 Registration No. 33-12949 and incorporated
            herein by reference)(1).

10.3      * Form of Michael Foods, Inc. Director Stock Option Agreement (filed
            as Exhibit 10.25 to Michael Foods, Inc., a Delaware corporation's
            Registration Statement on Form S-1 Registration No. 33-12949 and
            incorporated herein by reference)(1).

10.4      * Retirement Compensation Agreement between Milton G. Waldbaum Company
            and Daniel W. Gardner, dated September 24, 1987 (filed as Exhibit
            10.40 to Michael Foods, Inc., a Delaware corporation's Annual Report
            on Form 10-K for the year ended December 31, 1989 and incorporated
            herein by reference)(1).

10.5        Loan Agreement and Promissory Note between Metropolitan Life
            Insurance Company and Michael Foods, Inc., dated December 1, 1989 
            (filed as Exhibit 10.43 to Michael Foods, Inc., a Delaware
            corporation's Annual Report on Form 10-K for the year ended
            December 31, 1989 and incorporated herein by reference)(1).

10.6      * Amendment to Michael Foods, Inc. Incentive and Non-Qualified Stock
            Option Plans, dated November 21, 1989 (filed as Exhibit 4.6 to
            Michael Foods, Inc., a Delaware corporation's Registration
            Statement on Form S-8 effective November 21, 1989, Registration No.
            33-31914 and incorporated herein by reference)(1).

10.7        License Agreement between Michael Foods, Inc. and North Carolina
            State University, dated November 28, 1989 (filed as Exhibit 10.56
            to Michael Foods, Inc., a Delaware corporation's Annual Report on   
            Form 10-K for the year ended December 31, 1990 and incorporated
            herein by reference)(1).

10.8        Amendment dated December 18, 1996 to License Agreement between
            Michael Foods, Inc., a Delaware corporation, and North Carolina 
            State University, dated November 28, 1989(1).

10.9      * Severance Plan for Eligible Employees of Michael Foods, Inc. and
            its Subsidiaries (incorporated by reference from the Michael
            Foods, Inc., a Delaware corporation's Form 8, Amendment No. 1 to
            Report on Form 10-K for the year ended December 31, 1990)(1).

10.10       First Amendment to December 1, 1989 Loan Agreement and Promissory
            Note between Michael Foods, Inc. and Metropolitan Life Insurance
            Company, dated October 14, 1992 (filed as Exhibit 10.67 to
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form
            10-K for the year ended December 31, 1992 and incorporated herein
            by reference)(1).

<PAGE>   18


10.11     * Amendment to the Michael Foods, Inc. Non-Qualified Stock Option
            Plan (filed as Exhibit 4.7 to the Michael Foods, Inc., a Delaware
            corporation's Registration Statement on Form S-8 effective June 9,
            1993 Registration No. 33-64078 and incorporated by reference)(1).

10.12     * Stock Option Plan for Non-Employee Directors (filed as Exhibit 4.1
            to the Michael Foods, Inc., a Delaware corporation's Registration
            Statement on Form S-8 effective June 9, 1993 Registration No.
            33-64076 and incorporated herein by reference)(1).

10.13     * Michael Foods, Inc. 1994 Executive Incentive Plan (filed as
            Exhibit 10.76 to Michael Foods, Inc., a Delaware corporation's 
            Annual Report on Form 10-K for the year ended December 31, 1993 and 
            incorporated herein by reference)(1). 

10.14     * Michael Foods, Inc. 1994 Executive Performance Stock Award Plan 
            (filed as Exhibit 10.77 to Michael Foods, Inc., a Delaware 
            corporation's Annual Report on Form 10-K for the year ended 
            December 31,1993 and incorporated herein by reference)(1).

10.15     * Employment Agreement between Michael Foods, Inc. and Gregg A.
            Ostrander, dated January 31, 1994 (filed as Exhibit 10.79 to
            Michael Foods, Inc., a Delaware corporation's Annual Report 
            on Form 10-K for the year ended December 31, 1993 and 
            incorporated herein by reference)(1).

10.16       Second Amendment to December 1, 1989 Loan Agreement and Promissory
            Note between Michael Foods, Inc. and Metropolitan Life Insurance
            Company, dated February 23, 1994 (filed as Exhibit 10.81 to Michael 
            Foods, Inc., a Delaware corporation's Annual Report on Form 10-K 
            for the year ended December 31, 1993 and incorporated herein by 
            reference)(1).

10.17     * Michael Foods, Inc. Employee Stock Purchase Plan (filed as Exhibit 
            10.88 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1994 and        
            incorporated herein by reference)(1).
       
10.18     * Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and Gregg A. Ostrander, dated December 31, 1994 (filed as Exhibit
            10.89 to the Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1994 and
            incorporated herein by reference)(1).

10.19     * Employment Agreement between Michael Foods, Inc. and Jeffrey M.
            Shapiro, dated December 31, 1994 (filed as Exhibit 10.90 to 
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form 
            10-K for the year ended December 31, 1994 and incorporated herein
            by reference)(1).

10.20     * Employment Agreement between Michael Foods, Inc. and Norman A.
            Rodriguez, dated December 31, 1994 (filed as Exhibit 10.92 to 
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form
            10-K for the year ended December 31, 1994 and incorporated herein
            by reference)(1).

10.21     * Employment Agreement between Michael Foods, Inc. and James J.
            Kohler dated December 31, 1994 (filed as Exhibit 10.93 to 
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form 
            10-K for the year ended December 31, 1994 and incorporated herein
            by reference)(1).

10.22     * Employment Agreement between Michael Foods, Inc. and Kevin O.
            Kelly, dated December 31, 1994 (filed as Exhibit 10.94 to 
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form 
            10-K for the year ended December 31, 1994 and incorporated herein
            by reference)(1).

10.23     * Employment Agreement between Michael Foods, Inc. and John D. Reedy,
            dated December 31, 1994 (filed as Exhibit 10.95 to Michael
            Foods, Inc., a Delaware corporation's Annual Report on Form 10-K
            for the year ended December 31, 1994 and incorporated herein by
            reference)(1).
<PAGE>   19
10.24    *  Michael Foods, Inc. 1994 Executive Incentive Plan, as Amended
            Effective January 1, 1995 (filed as Exhibit 10.97 to Michael Foods,
            Inc., a Delaware corporation's Annual Report on Form 10-K for the
            year ended  December 31, 1994 and incorporated herein by
            reference)(1).

10.25    *  Michael Foods, Inc. 1994 Executive Incentive Plan, as Amended
            Effective January 1, 1996 (filed as Exhibit 10.98 to Michael Foods,
            Inc., a Delaware corporation's Annual Report on Form 10-K for the
            year ended December 31, 1995 and incorporated herein by
            reference)(1).
 
10.26    *  Employment Agreement between Michael Foods, Inc. and Bill L.
            Goucher, dated December 31, 1995 (filed as Exhibit 10.99 to 
            Michael Foods, Inc., a Delaware corporation's Annual Report on Form
            10-K for the year ended December 31, 1995 and incorporated herein
            by reference)(1).
 
10.27    *  Resolution adopted by the Michael Foods, Inc. Board of Directors on
            July 27, 1995 extending the termination date of the Severance Plan
            for Eligible Employees of Michael Foods, Inc. and its Subsidiaries
            for one additional year (filed as Exhibit 10.98 to Michael Foods, 
            Inc., a Delaware corporation's Quarterly Report on Form 10-Q for
            the quarter ended June 30, 1995 and incorporated herein by
            reference)(1).
        
10.28    *  Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and Jeffrey M. Shapiro, dated December 31, 1995 (filed as Exhibit 
            10.101 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1995 and
            incorporated herein by reference)(1).
 
10.29    *  Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and Norman A. Rodriguez, dated December 31, 1995 (filed as Exhibit
            10.102 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1995 and
            incorporated herein by reference)(1).

10.30    *  Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and James J. Kohler, dated December 31, 1995 (filed as Exhibit 
            10.103 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1995 and
            incorporated herein by reference)(1).
 
10.31    *  Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and Kevin O. Kelly, dated December 31, 1995 (filed as Exhibit
            10.104 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1995 and
            incorporated herein by reference)(1).

10.32    *  Amendment No. 1 to Employment Agreement between Michael Foods, Inc.
            and John D. Reedy, dated December 31, 1995 (filed as Exhibit 10.105
            to Michael Foods, Inc., a Delaware corporation's Annual Report on
            Form 10-K for the year ended December 31, 1995 and incorporated 
            herein by reference)(1).

10.33    *  Amendment No. 2 to Employment Agreement between Michael Foods, Inc.
            and Gregg A. Ostrander, dated December 31, 1995 (filed as Exhibit
            10.106 to Michael Foods, Inc., a Delaware corporation's Annual
            Report on Form 10-K for the year ended December 31, 1995 and
            incorporated herein by reference)(1).
 
10.34    *  Resolution adopted by the Board of Directors on June 26, 1996,
            amending the Severance Plan for Eligible Employees of Michael
            Foods, Inc. and Subsidiaries and extending its termination date for
            one additional year (filed as Exhibit 10.107 to Michael Foods,
            Inc., a Delaware corporation's Quarterly Report on Form 10-Q for 
            the quarter ended June 30, 1996, and incorporated herein by 
            reference)(1).

10.35       Agreement and Plan of Reorganization, and Amendment No. 1, by and
            among Michael Foods, Inc., M. G. Waldbaum Company and Papetti's
            Hygrade Egg Products, Inc., and Quaker State Farms, Inc., Papetti's
            of Iowa Food Products, Inc., Monark Egg
<PAGE>   20


            Corporation, Egg Specialties, Inc., Papetti Foods, Inc.,
            Casa Trucking Limited Partnership, Papetti Transport Leasing
            Limited Partnership, and Papetti Equipment Leasing Partnership
            (filed as Exhibit 10.111 to Michael Foods, Inc., a Delaware
            corporation's Quarterly Report on Form 10-Q for the quarter 
            ended September 30, 1996, and incorporated herein by
            reference)(1).

10.36       Amendment No. 2, dated February 26, 1997, to Agreement and Plan of
            Reorganization by and among Michael Foods, Inc., a Delaware
            corporation, M. G. Waldbaum Company and Papetti's Hygrade Egg
            Products, Inc., and Quaker State Farms, Inc., Papetti's of Iowa Food
            Products, Inc., Monark Egg Corporation, Egg Specialties, Inc.,
            Papetti Foods, Inc., Casa Trucking Limited Partnership, Papetti
            Transport Leasing Limited Partnership, and Papetti Equipment Leasing
            Partnership (filed as Exhibit B to Arthur J. Papetti Schedule 13D
            relating to Michael Foods, Inc. filed March 7, 1997 and incorporated
            herein by reference)(1).

10.37    *  Form of Employment Agreement between Michael Foods, Inc., a 
            Delaware corporation and Arthur J. Papetti dated February 26, 
            1997.
            
10.38       Shareholder Agreement, dated February 26, 1997, by and among Michael
            Foods, Inc., a Delaware corporation and Arthur N. Papetti as
            Representative of and attorney-in-fact for the Shareholders and
            Sellers Listed on Schedule I (filed as Exhibit D to Arthur J.
            Papetti Schedule 13D filed March 7, 1997 and incorporated herein by
            reference)(1).

10.39       Form of Loan Agreement dated as of February 26, 1997 between Michael
            Foods, Inc., a Delaware corporation and various Lenders with regard
            to $125,000,000 of 7.58% Senior Notes due February 26, 2009,
            including form of Note and Novation and Assumption Agreement(1).

10.40       Form of Amendment Agreement dated as of February 26, 1997 between
            Michael Foods, Inc., a Delaware corporation and Metropolitan Life
            Insurance Company regarding up to $50,000,000 of 9.5% Senior Notes
            due December 1, 1999, including form of Note and Novation and
            Assumption Agreement(1).

10.41       Form of Revolving Loan Agreement dated as of February 28, 1997 among
            Michael Foods, Inc., a Delaware corporation, the Listed Banks and
            Bank of America National Trust, including exhibits(1).


10.42    *  Form of Employment Agreement between Michael Foods, Inc., a Delaware
            corporation and Stephen Papetti dated February 26, 1997.

10.43    *  Form of Employment Agreement between Michael Foods, Inc., a Delaware
            corporation and Arthur N. Papetti dated February 26, 1997(1).

10.44       Lease by and between ASA Company, as Landlord and Michael Foods,
            Inc., a Delaware corporation as Tenant dated February 26, 1997(1). 

10.45       Lease by and between Rechsteiner/Papetti, et al., as Landlord and
            Michael Foods, Inc., a Delaware corporation as Tenant dated February
            26, 1997(1). 

10.46       Lease by and between Jersey Pride Urban Renewal, as Landlord and 
            Michael Foods, Inc., a Delaware corporation as Tenant dated February
            26, 1997(1).

10.47       Lease by and between Papetti Holding Company, as Landlord and
            Michael Foods, Inc., a Delaware corporation as Tenant dated February
            26, 1997(1). 

10.48       Lease by and between Papetti Holding Company, as Landlord and
            Michael Foods, Inc., a Delaware corporation as Tenant dated February
            26, 1997(1).

10.49       Lease by and between Papetti Holding Company, Jack Bernstein,
            Sherwood Weiser and Estate of David Levinson, as Landlord and
            Michael Foods, Inc., a Delaware corporation as Tenant dated February
            26, 1997(1). 

10.50       Lease by and between A & A Urban Renewal, as Landlord and Michael
            Foods, Inc., a Delaware corporation as Tenant dated February 26,
            1997(1).

21.1        Schedule of Michael Foods, Inc. Subsidiaries

23.1        Auditors' Consent - Grant Thornton LLP

27.1        Financial Data Schedule

<PAGE>   21

*    Management Contract or Compensation Plan Arrangement

(1)  Incorporated by reference from the Company's Report on Form 8-K filed
     March 13, 1997.




                                     16


<PAGE>   22


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.

     MICHAEL FOODS, INC.


Date:  March 28, 1997  By:        /s/ Gregg A. Ostrander
                                  ----------------------
                                  Gregg A. Ostrander
                                  (President and Chief Executive Officer)


Date:  March 28, 1997  By:        /s/  John D. Reedy
                                  ----------------------
                                  John D. Reedy
                                  (Vice-President-Finance, Treasurer, Chief 
                                  Financial Officer and Principal Accounting 
                                  Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:

/s/  Arvid C. Knudtson                March 28, 1997
----------------------
Arvid C. Knudtson
(Chairman of the Board)

/s/  Gregg A. Ostrander               March 28, 1997
-----------------------
Gregg A. Ostrander (Director,
President & Chief Executive Officer)

/s/ Maureen B. Bellantoni             March 28, 1997
-------------------------
Maureen B. Bellantoni (Director)

/s/  Miles E. Efron                   March 28, 1997
-------------------
Miles E. Efron (Director)

/s/  Richard A. Coonrod               March 28, 1997
-----------------------
Richard A. Coonrod (Director)

/s/  Joseph D. Marshburn              March 28, 1997
------------------------
Joseph D. Marshburn (Director)

/s/  Jeffrey J. Michael               March 28, 1997
-----------------------
Jeffrey J. Michael (Director)

/s/ Arthur J. Papetti                 March 28, 1997
---------------------
Arthur J. Papetti (Director)

/s/ Stephen Papetti                   March 28, 1997
-------------------
Stephen Papetti (Director)


                                     17


<PAGE>   23



                      Michael Foods, Inc. and Subsidiaries
              REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

                                                   [GRANT THORNTON LETTERHEAD]

Board of Directors
Michael Foods, Inc.

We have audited the accompanying consolidated balance sheets of Michael Foods,
Inc. and Subsidiaries as of December 31, 1996 and 1995 and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1996. 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, 1996 and 1995 and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.

/s/ Grant Thornton LLP

Minneapolis, Minnesota
February 28, 1997

                                      F-1

<PAGE>   24



                      Michael Foods, Inc. and Subsidiaries
                         CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
DECEMBER 31,                                                            1996                 1995            
ASSETS                                                                                                       
<S>                                                             <C>                  <C>                     
CURRENT ASSETS                                                                                               
  Cash and cash equivalents ..................................  $  2,585,000         $  1,921,000            
  Accounts receivable, less allowances .......................    51,394,000           40,583,000            
  Inventories ................................................    58,976,000           58,845,000            
  Prepaid expenses and other .................................     2,976,000            1,622,000            
                                                                ------------         ------------            
    Total current assets .....................................   115,931,000          102,971,000            
PROPERTY, PLANT AND EQUIPMENT - AT COST                                                                      
  Land .......................................................     4,110,000            4,117,000            
  Buildings and improvements .................................    97,470,000           95,109,000            
  Machinery and equipment ....................................   225,215,000          203,557,000            
                                                                ------------         ------------            
                                                                 326,795,000          302,783,000            
  Less accumulated depreciation ..............................   144,556,000          118,642,000            
                                                                ------------         ------------            
                                                                 182,239,000          184,141,000            
OTHER ASSETS                                                                                                 
  Goodwill, net ..............................................    53,602,000           57,829,000            
  Net assets held for sale ...................................     3,486,000            4,431,000            
  Other ......................................................     9,401,000            9,855,000            
                                                                ------------         ------------            
                                                                  66,489,000           72,115,000            
                                                                ------------         ------------            
                                                                $364,659,000         $359,227,000            
                                                                ============         ============            
LIABILITIES AND SHAREHOLDERS' EQUITY                                                                         
CURRENT LIABILITIES                                                                                          
  Current maturities of long-term debt .......................  $  8,410,000         $ 11,731,000            
  Accounts payable ...........................................    32,146,000           27,362,000            
  Accrued compensation .......................................     4,604,000            6,543,000            
  Accrued insurance ..........................................     6,471,000            6,945,000            
  Other accrued expenses .....................................     7,623,000            7,095,000            
  Deferred income taxes ......................................             -            1,200,000            
                                                                ------------         ------------            
    Total current liabilities ................................    59,254,000           60,876,000            
LONG-TERM DEBT, less current maturities ......................   104,491,000           89,690,000            
DEFERRED INCOME TAXES ........................................    26,872,000           28,566,000            
CONTINGENCIES ................................................             -                    -            
SHAREHOLDERS' EQUITY                                                                                         
  Common stock, $.01 par value, 40,000,000 shares authorized,                                                
    shares issued 19,459,731 in 1996 and 19,332,001 in 1995 ..       195,000              193,000            
  Additional paid-in capital .................................   113,268,000          112,374,000            
  Retained earnings ..........................................    60,579,000           67,528,000            
                                                                ------------         ------------            
    Total shareholders' equity ...............................   174,042,000          180,095,000            
                                                                ------------         ------------            
                                                                $364,659,000         $359,227,000            
                                                                ============         ============            
</TABLE>


        The accompanying notes are an integral part of these statements.


                                      F-2
<PAGE>   25

                      Michael Foods, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 



<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,                                      1996                    1995                   1994
                                                             ------                  ------                 ------
<S>                                                    <C>                   <C>                     <C>
Net sales .....................................          $ 616,395,000           $ 536,627,000          $ 505,965,000
Cost of sales .................................            545,055,000             454,652,000            430,917,000
Product line inventory markdown................             12,225,000                       -                      -
                                                          ---------------------------------------------------------------
    Gross profit ..............................             59,115,000              81,975,000             75,048,000
Selling, general and administrative expenses ..             44,822,000              45,729,000             41,851,000
Product line asset impairment..................             10,472,000                       -                      -
                                                          ---------------------------------------------------------------
    Operating profit ..........................              3,821,000              36,246,000             33,197,000
Interest expense, net .........................              7,264,000               7,635,000              8,498,000
                                                          --------------------------------------------------------------- 
    Earnings (loss) before income taxes .......             (3,443,000)             28,611,000             24,699,000
Income tax expense (benefit)...................               (370,000)             11,020,000              9,510,000
                                                          ---------------------------------------------------------------  
    NET EARNINGS (LOSS)........................           $ (3,073,000)          $  17,591,000          $  15,189,000
                                                          ===============================================================
    NET EARNINGS (LOSS) PER SHARE .............           $       (.16)          $         .91          $         .79
                                                          ===============================================================
Weighted average shares outstanding ...........             19,386,000              19,328,000             19,315,000
                                                          ===============================================================     
</TABLE>



The accompanying notes are an integral part of these statements.


                                      F-3

<PAGE>   26



                      Michael Foods, Inc. and Subsidiaries
               CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY




<TABLE>
<CAPTION>                                                                                            
                                      COMMON STOCK         ADDITIONAL                                  TOTAL
                                     --------------         PAID-IN       RETAINED     TREASURY     SHAREHOLDERS'
                                SHARES ISSUED   AMOUNT      CAPITAL       EARNINGS      STOCK          EQUITY
                                -------------  --------   ------------   -----------  -----------   ------------  
<S>                             <C>            <C>        <C>            <C>          <C>           <C>        
Balance at
  January 1, 1994 ..........    19,915,489     $199,000   $117,640,000   $42,475,000  $(5,311,000)  $155,003,000
  Purchase of shares                                                                                 
    for treasury ...........             -            -              -             -     (300,000)      (300,000)  
  Net earnings .............             -            -              -    15,189,000            -     15,189,000
  Cash dividends                                                                                     
    ($.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
  Treasury stock retired ...      (613,912)      (6,000)    (5,605,000)            -    5,611,000              -
  Incentive plan stock                                                                                
    compensation ...........        30,424            -        339,000             -            -        339,000
  Net earnings .............             -            -              -    17,591,000            -     17,591,000
  Cash dividends                                                                                     
    ($.20 per share) .......             -            -              -    (3,864,000)           -     (3,864,000)
                                ----------     --------   ------------   -----------  -----------   ------------  
Balance at                                                                                           
  December 31, 1995 ........    19,332,001      193,000    112,374,000    67,528,000            -    180,095,000
  Purchase of shares .......       (13,543)           -       (500,000)            -            -       (500,000)
  Incentive plan stock                                                                               
    compensation ...........        47,273        1,000        525,000             -            -        526,000
  Stock options exercised ..        94,000        1,000        869,000             -            -        870,000
  Net loss .................             -            -              -    (3,073,000)           -     (3,073,000)
  Cash dividends                                                                                    
    ($.20 per share) .......             -            -              -    (3,876,000)           -     (3,876,000)
                                ----------     --------   ------------   -----------  -----------   ------------  
Balance at                                                                                           
  December 31, 1996 ........    19,459,731     $195,000  $ 113,268,000   $60,579,000  $         -   $174,042,000
                                ==========     ========    ===========   ===========  ===========   ============  
</TABLE>



The accompanying notes are an integral part of these statements.



                                      F-4
<PAGE>   27



                      Michael Foods, Inc. and Subsidiaries
                     CONSOLIDATED STATEMENTS OF CASH FLOWS




<TABLE>
<S>                                                     <C>             <C>                 <C>
YEARS ENDED DECEMBER 31,                                       1996                1995               1994
---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
  Net earnings (loss) ................................    $  (3,073,000)      $  17,591,000      $  15,189,000
  Adjustments to reconcile net earnings (loss) to
     net cash provided by operating activities:
     Depreciation ....................................       24,732,000          22,461,000         21,616,000
     Amortization ....................................        1,944,000           1,575,000          1,633,000
     Deferred income taxes ...........................       (2,894,000)          5,241,000          6,095,000
     Product line disposal, impairment and                                                                    
         inventory markdowns..........................       22,697,000                   -        (11,345,000)
     Incentive plan stock compensation ...............          526,000             339,000                  -
     Cash provided from changes in working capital 
        employed, net of effect of product line        
        disposal, impairment and inventory markdowns:
        Accounts receivable ..........................      (10,811,000)        (3,961,000)        (3,535,000)
        Inventories ..................................      (12,356,000)        (4,214,000)        (5,493,000)
        Prepaid expenses and other ...................       (1,354,000)          (531,000)           188,000
        Accounts payable .............................        4,784,000          1,002,000          5,824,000
        Accrued expenses .............................       (2,385,000)         1,456,000          1,706,000
                                                         -----------------------------------------------------    
          Total adjustments ..........................       24,883,000         23,368,000         16,689,000
                                                         -----------------------------------------------------
Net cash provided by operating activities ............       21,810,000         40,959,000         31,878,000
Cash flows from investing activities:                                     
  Capital expenditures ...............................      (30,088,000)       (23,782,000)       (22,839,000)
  Sale of net assets held for sale ...................          754,000            889,000          1,786,000
  Business acquisition and other assets ..............          214,000        (15,419,000)        (1,840,000)
                                                         ----------------------------------------------------- 
Net cash used in investing activities ................      (29,120,000)       (38,312,000)       (22,893,000)
Cash flows from financing activities:                                                         
  Payments on notes payable and long-term debt .......     (146,934,000)      (100,806,000)      (100,604,000)
  Proceeds from notes payable and long-term debt .....      158,414,000        102,303,000         97,200,000
  Repurchase of shares ...............................         (500,000)                 -           (300,000)
  Proceeds from issuance of common stock .............          870,000                  -                  -
  Cash dividends .....................................       (3,876,000)        (3,864,000)        (3,863,000)
                                                         -----------------------------------------------------
Net cash provided by (used in) financing activities ..        7,974,000         (2,367,000)        (7,567,000)
                                                         ----------------------------------------------------- 
Net increase in cash and cash equivalents ............          664,000            280,000          1,418,000
Cash and cash equivalents at beginning of year .......        1,921,000          1,641,000            223,000
                                                         -----------------------------------------------------
Cash and cash equivalents at end of year .............     $  2,585,000       $  1,921,000       $  1,641,000
                                                         =====================================================
Supplemental disclosures of cash flow information:           
  Cash paid during the year for:
     Interest.........................................     $  7,810,000       $  8,183,000       $  8,853,000
     Income taxes ....................................        2,953,000          6,363,000          4,432,000
</TABLE>


The accompanying notes are an integral part of these statements.

                                      F-5
<PAGE>   28

                      Michael Foods, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A
SUMMARY OF SIGNIFICANT
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, as a
percent of 1996 sales before the elimination of intercompany sales of 6%, are
egg products 43%, refrigerated distribution 34%, fresh and frozen potato
products 14%, ice milk mix, ice cream mix and milk 15%.
     At December 31, 1996, North Star Universal, Inc. ("NSU") held 7,354,950
shares of the issued and outstanding common stock of the Company or 38.0%.
Certain directors of the Company were also officers and directors of NSU prior
to the merger completed in February, 1997 (see Note J).

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. The Company utilizes a
fifty-two, fifty-three week fiscal year ending on the Saturday nearest to
December 31. For clarity of presentation, the Company has described all periods
as if the year end is December 31.

Cash and Cash Equivalents:
The Company considers all highly liquid temporary investments with original
maturities of three months or less to be cash equivalents.

Inventories:
Inventories other than flocks, raw potatoes, and potato products are stated at
the lower of cost (determined on a first-in, first-out basis) or market. Flock
inventory represents the cost of purchasing and raising flocks to laying
maturity, at which time their cost is amortized to operations over their
expected useful life of generally 1 to 2 years assuming no salvage value. 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>
             <S>                            <C>         <C>
             DECEMBER 31,                         1996         1995
             ------------------------------------------------------
             Raw materials and supplies .. $11,065,000  $16,597,000
             Work in process and
                  finished goods .........  21,235,000   19,848,000
             Flocks ......................  26,676,000   22,400,000
                                           ------------------------       
                                           $58,976,000  $58,845,000
                                           ======================== 
</TABLE>

Property, Plant and Equipment:
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. Accelerated and straight-line methods are used for income tax
purposes.
     The Company capitalized approximately $743,000, $172,000 and $304,000 of
interest costs during 1996, 1995 and 1994 relating to the construction and
installation of property, plant and equipment.

Goodwill:
The Company's 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 amortized on the straight-line
basis over 40 years. Accumulated amortization was $10,184,000 and $9,415,000 at
December 31, 1996 and 1995.  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 B). 

Stock-Based Compensation:
The Company utilizes the intrinsic value method of accounting for its
stock-based employee compensation plans. Pro forma information related to the
fair value based method of accounting is contained in Note H.

Use of Estimates:
In the preparation of the Company's consolidated financial statements,
management is required to make estimates and assumptions that affect reported
amounts of assets and liabilities and related revenues and expenses. Actual
results could differ from the estimates used by management.

Net Earnings (Loss) Per Share:
Net earnings (loss) per share is based upon the weighted average common shares
outstanding and common share equivalents, when dilutive.

Reclassifications:
Certain 1995 and 1994 amounts have been reclassified to conform to the 1996
presentation.



                                      F-6
<PAGE>   29
                     Michael Foods, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE B

PRODUCT LINE ASSET IMPAIRMENT

FROZEN FRENCH FRY PRODUCT LINE:
The Company's frozen french fry product line experienced significant profit
margin and volume declines during the second half of 1996.  Continued projected
losses for this product line resulted in the evaluation by management that this
product line's long-lived assets had incurred an impairment of the assets'
carrying cost.  In December, 1996 management recorded an impairment loss of
$9,172,000 to eliminate goodwill directly attributable to this product line and
to reduce the carrying value of the remaining long-lived assets to their
estimated fair market value.  Management estimated fair market value based upon
the projected future cash flows of these assets.  In addition, the Company
recorded a fourth quarter 1996 markdown of $12,225,000 to reduce its frozen
french fry product line inventory to the lower of cost or market.  This
adjustment also reduced the product line's raw potato costs, that are estimated
to be in excess of the Company's production plans, to estimated net realizable
value. Subsequent to year end, the Company decided to dispose of this product
line, which management expects to complete during 1997.

The Company has a raw potato supply contract to purchase 3.5 million hundred
weight of potatoes in the 1997 and 1998 crop years, which is in excess of the
requirements of the refrigerated potato product lines.  Management believes it
will be able to successfully re-negotiate this supply contract or sell any
excess potatoes.  However, there can be no assurance that the Company will be
able to satisfy its commitments under the potato contract without incurring a
further loss.  Furthermore, the Company may be unable to realize the remaining
estimated fair value of the frozen french fry product line assets.

The approximate revenues and expenses directly associated with this frozen
french fry product line for each of the years 1996, 1995 and 1994 were as
follows:  net sales were $26,908,000, $34,718,000 and $37,173,000; cost of
sales were $28,572,000, $32,867,000 and $31,313,000; and selling, general and
administrative expenses were $2,987,000, $3,961,000 and $4,100,000. 
Therefore, the Company recorded pre-tax earnings (loss) directly attributable
to the product line of $(4,651,000) in 1996, $(2,110,000) in 1995 and $1,760,000
in 1994.  In addition, in 1996 the Company recorded a product line inventory
markdown of $12,225,000 as a component of cost of sales, and a product line
asset impairment of $9,172,000 as a component of selling, general and
administrative expenses.

CONSTRUCTION PROJECT IMPAIRMENT:
The Company recorded an impairment loss of $1,300,000 related to management's
decision to abandon completion of a building.  This building was originally
intended for use in the Company's refrigerated distribution business; however,
management has determined that it is not consistent with the current needs of
the business.  The Company has included this loss in the caption "Product line
asset impairment" in the statement of operations and classified the estimated
fair value of this building in "Net assets held for sale" at December 31, 1996.


NOTE C
NET ASSETS HELD FOR SALE
In the fourth quarter of 1993 the Company disposed of a product line which
produced reduced cholesterol liquid whole eggs and restructured certain of its
other operations. As a result of these actions the Company recorded net assets
held for sale of $11,939,000 at December 31, 1993. Certain of the net assets
held for sale were disposed of during 1994 through 1996. Various egg operating
assets continue to be held for sale, together with the construction project
described in Note B, which have aggregate estimated fair
values of $3,486,000 at December 31, 1996.

NOTE D
LONG-TERM DEBT
Long-term debt consists of:

<TABLE>

       DECEMBER 31,                       1996          1995
                                         ------        ------
       <S>                          <C>           <C>
       Revolving line of
         credit (a) ..............  $  60,700,000 $  42,500,000    
       9.5% senior promissory                                      
         note (b) ................     26,000,000    32,000,000    
       9.85% senior promissory                                     
         notes (c) ...............     11,600,000    14,400,000    
       10.4% senior promissory                                     
         notes (d) ...............      7,500,000    10,000,000    
       Other......................      7,101,000     2,521,000    
                                     --------------------------    
                                      112,901,000   101,421,000    
       Less current maturities....      8,410,000    11,731,000    
                                     --------------------------    
                                    $ 104,491,000 $  89,690,000    
                                     ==========================    
</TABLE>

     Aggregate minimum annual principal payments of long-term debt maturing in
years subsequent to December 31, 1996, which were adjusted to reflect the
contractual maturities of the new debt described in Note J, are as follows:

<TABLE>
<CAPTION>

YEAR ENDING DECEMBER 31,           AMOUNT
-----------------------------------------
<S>                         <C>
1997 ...................     $  8,410,000
1998 ...................        8,298,000
1999 ...................       10,308,000
2000 ...................          312,000
2001 ...................          301,000
Thereafter .............       85,272,000
                             ------------ 
                             $112,901,000
                             ============
</TABLE>

(a)  The Company had an unsecured revolving line of credit with its principal
     banks for $65,000,000 with interest at the principal banks' reference
     rate, or alternative variable rates, at the Company's option. At December
     31, 1996, the Company had $3,700,000 outstanding at a reference rate of
     8.25% and $57,000,000 outstanding at an average variable rate of 5.9%.
     This revolving line of credit was scheduled to mature on March 31, 1997.
     It was retired and a new revolving line of credit was established in
     February, 1997 (see Note J).
(b)  The 9.5% senior promissory note is due in varying semi-annual
     installments of $4,000,000 to $5,000,000 from June, 1997 through December,
     1999. Interest is payable semi-annually. The note is unsecured and
     contains certain restrictive covenants, the most significant of which 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 which were unsecured were retired in
     February, 1997 (see Note J).
(d)  The 10.4% senior promissory notes which were unsecured were retired in
     February, 1997 (see Note J).

     Management believes the fair value of long-term debt approximates its
carrying value in all material respects, based upon rates currently available
to the Company.


                                      F-7
<PAGE>   30
                     Michael Foods, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE E
INCOME TAXES
The provision for income taxes consists of the following:

<TABLE>
<CAPTION>
YEARS ENDED                               
DECEMBER 31,                                       1996        1995       1994
-------------------------------------------------------------------------------
<S>                                          <C>         <C>          <C> 
Current                                                                  
     Federal ............................    $2,013,000  $ 4,893,000  $2,888,000
     State ..............................       511,000      886,000     527,000
                                             -----------------------------------
                                              2,524,000    5,779,000   3,415,000
Deferred                                                               
     Federal ............................    (2,621,000)   4,804,000   5,510,000
     State ..............................      (273,000)     437,000     585,000
                                             -----------------------------------
                                             (2,894,000)   5,241,000   6,095,000
                                             -----------------------------------
                                             $ (370,000) $11,020,000  $9,510,000
                                             ===================================
</TABLE>

        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 liabilities are as follows:

<TABLE>
<CAPTION>                                     
DECEMBER 31,                                           1996             1995
----------------------------------------------------------------------------
<S>                                             <C>              <C>
Depreciation ............................       $31,035,000      $32,831,000
Farm inventory                                             
     accounting .........................         5,312,000        4,516,000
Inventory writedowns.....................        (4,550,000)              --
Other....................................        (4,925,000)      (7,581,000)
                                                ----------------------------  
                                                $26,872,000      $29,766,000
                                                ============================

</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,                          1996      1995     1994
-------------------------------------------------------------------------
<S>                                              <C>        <C>      <C>
Federal statutory rate ..................        (35.0)%    35.0%    35.0%
State tax effect ........................         (3.4)      3.0      2.9
Goodwill ................................         40.0       1.7      2.0
Other....................................        (12.3)     (1.2)    (1.4)
                                                 ------------------------
                                                 (10.7)%    38.5%    38.5%
                                                 ========================  
</TABLE>                                                         

NOTE F
EMPLOYEE RETIREMENT PLANS
Full-time employees of the Company who meet service requirements are eligible
to participate in a defined contribution employee retirement plan. The Company
will match up to 4% of each participant's eligible compensation. Contributions
of $1,488,000, $1,312,000 and $1,256,000 were charged to operations for the
years ended December 31, 1996, 1995 and 1994.

NOTE G
CONTINGENCIES
Patent Litigation:
The Company has an exclusive license agreement for the production and sale of
extended shelf-life liquid egg products. Under the terms of this license
agreement the Company has the right to defend and prosecute infringement of the
patents which are the basis of the exclusive license agreement. The Company can
offset up to 50% of the required royalty payments under the agreement with costs
associated with the legal defense of the licensed patents. To the extent defense
costs exceed the required royalty payments, the agreement permits the Company to
defer the excess costs and apply them to future royalty payments. At December
31, 1996 and 1995, the Company had prepaid royalty payments, of approximately
$7,923,000 and $8,300,000 included in other assets related to the defense of its
licensed patent rights against several infringing parties.
     In connection with the February 26, 1997 acquisition of Papetti's Hygrade
Egg Products, Inc. and certain other related entities (collectively "Papetti's")
(see Note J), who was a defendant in one of the patent infringement cases
described above, a settlement of $6,000,000 was received by the Company. Under
the terms of its license agreement the Company was required to apply this
settlement as a reduction of its prepaid royalty payments. During 1996, the
Company was informed by the U.S. Patent and Trademark Office that a patent
examiner rejected the claims under the four process patents which are the
subject of the license agreement. Management is appealing the decision of the
examiner and believes the validity of the patents will ultimately be upheld.
During the appeal process, the patents remain valid and in full force and
effect. There can be no assurance that the Company will be able to fully recover
its prepaid royalty payments. If the patents are ultimately denied, the Company,
would continue to produce and market the products currently subject to the
license agreement without incurring royalty cost.

Product Litigation:
In the fall of 1994, a customer of the Company recalled product which was
potentially contaminated and is settling claims with consumers who became ill
after eating the product. The customer has filed a suit, whereby the Company is
a co-defendant with other companies alleged to have supplied contaminated
product to the customer's plant. The customer is seeking damages for losses
incurred, as well as alleged loss of past and future profits. Management and
its counsel believe the Company has substantial defenses to the allegations and
believe it is unlikely the Company will incur a loss from this claim materially
in excess of its insurance coverage.

Other Litigation:
The Company is also engaged in routine litigation incidental to its business,
which management believes will not have a material effect upon its consolidated
financial position, liquidity or results of operations.


                                      F-8
<PAGE>   31
                     Michael Foods, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE H
SHAREHOLDERS' EQUITY
Capital Stock:
As a result of the merger with NSU (see Note J), the Company's articles of
incorporation provide that the authorized capital stock consists of 50,000,000
shares: 40,000,000 shares of $.01 par value common stock and 10,000,000 shares
of undesignated stock, which are issuable by the Board of Directors. The Board
of Directors also has the authority to determine voting, conversion and other
rights of the undesignated stock when issued.

Share Repurchases:
In December, 1995, the Company's Board of Directors authorized the retirement of
all 613,912 shares of treasury stock. During 1996 and 1994, the Company
purchased 13,543 and 14,562 shares of its common stock for $500,000 and
$300,000 related to put agreements issued in certain business acquisitions.

Stock Option and Incentive Plans:
The Company has two non-qualified stock option plans. The officer and key
employee plan has 2,048,500 shares reserved for grants and was adopted in 1987.
The other plan, for non-employee members of the Board of Directors, has 150,000
total shares reserved for grants and was adopted in 1992. The exercise price of
the options granted is typically the fair market value at the date of grant.
The ten-year options are generally not exercisable in the first year and vest
ratably over the first five years.
     Option transactions under the two plans during each of the three years
ended December 31, are summarized as follows:
                    
<TABLE>
<CAPTION>    
                                                             WEIGHTED    
                                            NUMBER OF         AVERAGE    
                                               SHARES  EXERCISE PRICE    
                                            -------------------------    
<S>                                         <C>                <C>       
Outstanding at                                                           
  January 1, 1994                           1,724,980          $10.77    
Granted . . . . . . . . . . . . . . . . .      64,000           10.14    
Canceled. . . . . . . . . . . . . . . . .     (16,503)          12.37    
                                            -------------------------    
Outstanding at                                
  December 31, 1994 . . . . . . . . . . .   1,772,477           10.73    
Granted . . . . . . . . . . . . . . . . .     176,000           10.71    
Canceled. . . . . . . . . . . . . . . . .     (17,461)          10.83    
                                            -------------------------    
Outstanding at                                                           
  December 31, 1995 . . . . . . . . . . .   1,931,016           10.73    
Granted . . . . . . . . . . . . . . . . .     149,620           11.74    
Exercised . . . . . . . . . . . . . . . .     (94,000)           7.52    
Canceled. . . . . . . . . . . . . . . . .     (33,860)          13.67    
                                            -------------------------    
Outstanding at                                                           
  December 31, 1996 . . . . . . . . . . .   1,952,776          $10.91    
                                            =========================    
                                                                         
Options exercisable at December 31:
  1994. . . . . . . . . . . . . . . . . .   1,514,661          $10.70    
                                            =========================    
  1995. . . . . . . . . . . . . . . . . .   1,599,226          $10.74    
                                            =========================    
  1996. . . . . . . . . . . . . . . . . .   1,574,304          $10.91    
                                            =========================    

</TABLE>
  
        The following tables summarize information concerning currently
outstanding and exercisable stock options:


<TABLE>
<CAPTION>
                              OPTIONS OUTSTANDING

                                  WEIGHTED AVERAGE
       RANGE OF       NUMBER             REMAINING   WEIGHTED AVERAGE
EXERCISE PRICES  OUTSTANDING      CONTRACTUAL LIFE     EXERCISE PRICE
---------------------------------------------------------------------
<S>                <C>                   <C>                   <C>
   $ 7.11-10.67      973,743             4.6 years             $ 8.80
    10.92-15.13      852,570             5.5 years              12.33
    17.83-18.88      126,463             4.4 years              17.97
                   ---------
                   1,952,776
                   =========

</TABLE>
















<TABLE>
<CAPTION>     
                              OPTIONS EXERCISABLE

RANGE OF                        NUMBER          WEIGHTED AVERAGE
EXERCISE PRICES            EXERCISABLE            EXERCISE PRICE
----------------------------------------------------------------
<S>                          <C>                          <C> 
$  7.11-10.67                  797,543                    $ 8.56
  10.92-15.13                  650,450                     12.42
  17.83-18.88                  126,311                     17.97
                             ---------
                             1,574,304
                             =========

</TABLE>

     The impact of applying the fair value method of accounting for stock based
compensation on a pro forma basis to the Company's 1996 and 1995 net earnings
(loss) was not material. However, the impact on net earnings (loss) may not be
representative of future disclosures because they do not take into effect pro
forma compensation expense related to grants made before 1995. The weighted
average fair value of options granted in 1996 and 1995 were $4.20 per share and
$4.23 per share computed by applying the following weighted average assumptions
to the binomial options pricing model: dividend yield of 2%; risk-free rate of
return of 6.6%; volatility of 31.4%; and an average term of 7 years.
     The Company has an incentive stock award plan for officers. Under this
plan the Company issued $526,000 and $339,000 of common stock to its officers
in 1996 and 1995.

NOTE I 
CONCENTRATIONS          
Sales to one customer accounted for 12%, 11% and 10% of consolidated
net sales in 1996, 1995 and 1994.

                                      F-9
<PAGE>   32
                     Michael Foods, Inc. and Subsidiaries
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE J
SIGNIFICANT SUBSEQUENT EVENTS
New Financing Arrangements:
In February, 1997, the Company issued senior notes in the principal amount of
$125,000,000 to finance the cash portion of the acquisition price of Papetti's,
described below, to retire certain Company long-term debt, and to refinance
all or a portion of the debt assumed in both the Papetti's acquisition and the
NSU merger, described below. Interest at the rate of 7.58% is due
semi-annually. Mandatory principal repayments are required in five equal annual
payments beginning in the year 2005. The notes are unsecured and contain
restrictive covenants, the most significant of which involve: minimum net
worth, interest coverage, limitations on additional borrowings and changes in
control of the Company.
     In February, 1997, the Company obtained a new $80,000,000 unsecured
revolving line of credit with its principal banks. The revolving line of credit
will mature in February, 2002, bears interest at the banks' reference rate or
at Eurodollar rates as defined, at the Company's option, and contains
restrictive financial covenants similar to those described in the preceding
paragraph. Proceeds from this revolving line of credit were used to retire the
outstanding balance of the revolving line described in Note D and to assist
with completing the transactions described below.

Acquisition of Papetti's and Merger with North Star Universal, Inc.:
On February 26, 1997, the Company completed the acquisition of Papetti's. The
acquisition will be accounted for as a purchase. Total consideration of
approximately $80,600,000, together with the assumption of $23,400,000 of notes
payable and long-term debt, was delivered through the issuance of 3,195,455 of
newly issued common shares, with a preliminary fair value of $37,700,000, and
$42,900,000 in cash. The Company entered into leases with the previous owners
of Papetti's for the majority of Papetti's operating facilities. The total
annual related party rental commitment under these leases is approximately
$2,100,000 through March, 2007. In addition, at the time of the acquisition,
existing patent litigation between Papetti's, the Company and the patent
licensor was settled, with the Company receiving $6,000,000 (see Note G).
     On February 28, 1997, the Company merged into NSU and immediately
distributed NSU's subsidiary, ENStar Inc. ("ENStar"), in a tax-free distribution
to the former shareholders of NSU. At the time of the merger, NSU changed its
name to Michael Foods, Inc. and the management and operations of the continuing
entity are those of the Company. The merger will be accounted for as a reverse
acquisition utilizing the purchase method of accounting. The effect of the
merger is that NSU delivered approximately $21,250,000 of net subordinated
indebtedness together with 1,782,961 shares of Michael common stock of
approximately equal value, which the Company effectively retired in the form of
a treasury stock redemption. The Company will use the proceeds of the above
borrowings to extinguish the subordinated debentures as soon as practical. As a
condition to the merger, ENStar has indemnified the Company against any and all
liabilities which related to the operations of NSU prior to this merger,
including the tax-free distribution of ENStar.

Unaudited Pro Forma Financial Information
The following table presents preliminary unaudited consolidated pro forma
balance sheet data as of December 31, 1996, giving effect to the preceding
subsequent events as if they had occurred on that date.

<TABLE>
<S>                                    <C>
Current assets                         $177,432,000
Property, plant and equipment, net      215,236,000
Goodwill                                108,638,000
Other assets                              8,138,000
                                       ------------
                                       $509,444,000
                                       ============

Current liabilities                    $ 97,111,000
Long-term debt                          196,491,000
Other long-term obligations              27,672,000
Shareholders' equity                    188,170,000
                                       ------------
                                       $509,444,000
                                       ============
</TABLE>

     The following preliminary unaudited consolidated pro forma statement of
operations information utilizes the audited information for the Company and
unaudited information for Papetti's for the period from January 1, 1996 through
December 31, 1996. The pro forma data assumes the Papetti's acquisition, the
merger with NSU and the borrowings described above had occurred on January 1,
1996. The unaudited pro forma information is not necessarily indicative of the
combined results that would have occurred had the acquisition, merger and the
borrowings occurred on that date, nor is it indicative of the results that may
occur in the future.

<TABLE>
<S>                         <C>
Net sales                   $982,532,000
Operating profit              13,561,000
Loss before income tax          (230,000)
Net loss                      (1,146,000)

Net loss per share          $       (.06)
</TABLE>
                                     F-10
<PAGE>   33



Report of Independent Certified Public Accountants on Schedule


Board of Directors 
Michael Foods, Inc.


In connection with our audits of the consolidated financial statements of
Michael Foods, Inc. and Subsidiaries referred to in our report dated February
28, 1997, we have also audited Schedule II for each of the three years in the 
period ended December 31, 1996.  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 28, 1997



                                     F-11


<PAGE>   34


                                                                     SCHEDULE II

                      MICHAEL FOODS, INC. AND SUBSIDIARIES

                       VALUATION AND QUALIFYING ACCOUNTS



<TABLE>
      Col. A                Col. B                           Col. C                           Col. D                Col. E
-------------------------------------------------------------------------------------------------------------------------------
                                                           Additions
                                           ---------------------------------------
                                                   (1)                   (2)
                          Balance at        Charged to Costs      Charges to Other      Deductions-Describe    Balance at End of
    Description      Beginning of Period      and Expenses        Accounts-Describe             (a)                  Period
-------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                   <C>                   <C>                   <C>
For the Year Ended   
  December 31, 1994:   

Allowance for        
  Doubtful Accounts         $883,000              $314,000                    $0              $502,000              $695,000
  
For the Year Ended   
  December 31, 1995:   

Allowance for        
  Doubtful Accounts         $695,000              $446,000                    $0              $358,000              $783,000

For the Year Ended   
  December 31, 1996:   

Allowance for        
  Doubtful Accounts         $783,000              $409,000                    $0              $294,000              $898,000
</TABLE>

------------------
(a)  Write-offs of accounts deemed uncollectible


                                      F-12


<PAGE>   35

EXHIBIT INDEX


Exhibit Number                                                       Page Number


10.37       Form of Employment Agreement between Michael Foods, Inc., a
            Delaware corporation and Arthur J. Papetti, dated February 26, 
            1997.  
            
10.42       Form of Employment Agreement between Michael Foods, Inc., a Delaware
            corporation and Stephen Papetti dated February 26, 1997.

21.1        Schedule of Michael Foods, Inc. Subsidiaries

23.1        Auditors' Consent - Grant Thornton LLP

27.1        Financial Data Schedule