<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 6, 1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-07477
THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-0590560
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
172 COMMERCE STREET-3RD FLOOR
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices) (Zip Code)
</TABLE>
(334) 834-5483
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required 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. YES [ X] NO [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [ X ] NO [ ]
The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at April 30, 1998 was 4,152,734.
<PAGE> 2
THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
ENSTAR GROUP, INC. OR ITS REPRESENTATIVES CONTAIN STATEMENTS WHICH MAY
CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS
77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING
THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE ENSTAR GROUP, INC. AND
MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH
STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH
FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE
RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM
THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS
CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE
HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT
99.1 TO THIS FORM 10-Q, AND ARE HEREBY INCORPORATED BY REFERENCE. THE COMPANY
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO
REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES
TO FUTURE OPERATING RESULTS OVER TIME.
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ENSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
--------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
ASSETS
<S> <C> <C>
Cash and cash equivalents $ 166 $ 700
Certificates of deposit 4,083 3,322
Other 452 484
Investment in First Union 70,010 68,380
Property and equipment, net 42 46
--------- ---------
Total assets $ 74,753 $ 72,932
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Note payable $ --- $ 513
Reserve for litigation settlements 1,913 1,877
Accounts payable and accrued liabilities 348 47
Deferred liabilities 1,140 473
Other 361 358
--------- ---------
Total liabilities 3,762 3,268
--------- ---------
Shareholders' equity:
Common stock ($.01 par value; 55,000,000 shares authorized,
4,549,060 shares issued at March 31, 1998 and
December 31, 1997) 45 45
Additional paid-in capital 167,878 167,878
Accumulated other comprehensive income - unrealized gain
on investment in First Union 41,543 37,606
Accumulated deficit (133,480) (134,825)
Treasury stock, at cost (387,826 and 84,126 shares at
March 31, 1998 and December 31, 1997, respectively) (4,995) (1,040)
----------- ---------
Total shareholders' equity 70,991 69,664
----------- ---------
Total liabilities and shareholders' equity $ 74,753 $ 72,932
=========== =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 4
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Investment income $ 2,170 $ 495
Litigation expense, net --- (29)
General and administrative expenses (739) (386)
Reorganization items, net --- (484)
Interest expense (46) (318)
------------ ------------
Income (loss) before income taxes 1,385 (722)
Income taxes (40) ---
------------ ------------
Net income (loss) $ 1,345 $ (722)
============ ============
Weighted average shares outstanding 4,355,951 241,438
============ ============
Weighted average shares
outstanding - assuming dilution 4,388,497 241,438
============ ============
Net income (loss) per common share $ 0.31 $ (2.99)
============ ============
Net income (loss) per common share
- - assuming dilution $ 0.31 $ (2.99)
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 5
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
MARCH 31, MARCH 31,
1998 1997
---------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Net income (loss) $ 1,345 $ (722)
Other comprehensive income:
Unrealized gains on investment in First Union:
Unrealized holding gains arising during period 6,755 6,081
Less: reclassification adjustment for gains
included in net income (2,818) ---
----------- ------------
Other comprehensive income 3,937 6,081
----------- ------------
Comprehensive income $ 5,282 $ 5,359
=========== =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 6
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,345 $ (722)
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation 4 3
Gain on sale of First Union common stock (2,818) ---
Loss on call option transactions 1,174 ---
Changes in assets and liabilities:
Accounts payable and accrued liabilities 337 (219)
Other 67 (210)
------------ -----------
Net cash provided by (used in) operating
activities 109 (1,148)
------------ -----------
Cash flows from investing activities:
Proceeds from sale of First Union common stock 5,125 ---
Proceeds from sale of call options 363 ---
Repurchases of call options sold (902) ---
Purchases of certificates of deposit (4,433) (4,104)
Maturities of certificates of deposit 3,672 1,238
------------ -----------
Net cash provided by (used in) investing
activities 3,825 (2,866)
------------ -----------
Cash flows from financing activities:
Proceeds from note payable 1,211 ---
Repayment of note payable (1,724) ---
Purchase of treasury stock (3,955) ---
------------ -----------
Net cash used in financing activities (4,468) ---
------------ -----------
Decrease in cash and cash equivalents (534) (4,014)
Cash and cash equivalents at the beginning of
the period 700 4,749
------------ -----------
Cash and cash equivalents at the end of the
period $ 166 $ 735
============ ===========
Supplemental disclosures of cash flow
information:
Interest paid $ 9 $ 429
============ ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE> 7
THE ENSTAR GROUP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: GENERAL
The consolidated financial statements of The Enstar Group, Inc. (the
"Company") are unaudited and, in the opinion of management, include all
adjustments consisting solely of normal recurring adjustments necessary to
fairly state the Company's financial condition and results of operations for
the interim period. The results of operations for the three months ended March
31, 1998 are not necessarily indicative of the results to be expected for the
full year. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1997 included in
the Company's Form 10-K/A-1 as filed with the Securities and Exchange
Commission on April 21, 1998 under the Securities Exchange Act of 1934, as
amended. Certain prior year amounts have been reclassified in the financial
statements to conform with the current year presentation.
NOTE 2: INVESTMENT IN FIRST UNION
In February 1998, the Company sold 101,939 shares of common stock of First
Union Corporation ("First Union") for net proceeds of $5,125,000 which were
used to repay indebtedness owed to First Union National Bank and to repurchase
shares of the Company's common stock. The First Union indebtedness was
incurred in conjunction with a stock repurchase program. The sale of the First
Union common stock resulted in a realized gain of $2,818,000. Following the
sale, the Company held 1,232,307 shares of First Union common stock.
See Note 6.
NOTE 3: TREASURY STOCK
During the first quarter of 1998, the Company repurchased 303,700 shares
of its common stock for approximately $3,955,000. The purchase of such shares
was financed through borrowings of approximately $1,211,000 under a revolving
credit agreement with First Union National Bank and the proceeds from the sale
of 101,939 shares of the Company's First Union common stock. The purchases
made in the first quarter of 1998 completed a stock repurchase program
announced in July 1997 under which the Company could repurchase up to $5
million of its common stock. Under the program, the Company repuchased a total
of 387,826 shares for approximately $4,995,000. See Note 8.
NOTE 4: LITIGATION CONTINGENCIES
In February 1993, the Company obtained a $15 million judgement against
Richard Grassgreen, one of the Company's former officers, who subsequently
filed for bankruptcy. In connection with the settlement of the Company's
claims against the Grassgreen bankruptcy estate
<PAGE> 8
(the "Estate") and others, the Company agreed to pay certain taxes of the
Estate in the event the Estate did not have sufficient funds. The United
States Internal Revenue Service (the "IRS") appealed a determination by the
bankruptcy court that the IRS cannot seek payment of the taxes from the Estate.
On March 25, 1998, the United States District Court for the Middle District of
Florida reversed and remanded the case to the bankruptcy court to determine
whether the Estate has any assets from which to satisfy any such tax liability,
and if so, for further proceedings to determine pursuant to Section 505(a) of
the Bankruptcy Code whether the Estate has any additional income tax liability.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company. The complaint, which deals with actions occurring
prior to the Company's filing for bankruptcy in 1991, alleges that the Company
along with its then principal officers and others defrauded the plaintiffs in
violation of the Alabama Securities Act and other Alabama statutory provisions.
The plaintiffs seek compensatory damages in the amount of their alleged losses
of approximately $2 million and unspecified punitive damages. The Company
filed a motion to dismiss and/or for summary judgement on March 17, 1997. The
motion filed by the Company contends that the claims asserted are barred by the
applicable statutes of limitations. The motion is still pending before the
court. In the event the plaintiffs' claims are not dismissed pursuant to the
Company's motion, the Company intends to contest the plaintiffs' claims
vigorously. The Company cannot, however, reasonably predict the outcome of
this lawsuit.
NOTE 5: INVESTMENT INCOME
Investment income for the three months ended March 31, 1998 is made up of
the following components: $2,818,000 gain on the sale of First Union common
stock, $1,174,000 loss on call option transactions and $526,000 in dividend
and interest income. Investment income for the three months ended March 31,
1997 is comprised of $495,000 in dividend income.
NOTE 6: FINANCIAL INSTRUMENTS
During the first quarter of 1998, the Company sold call options for
205,000 shares of its First Union common stock for total proceeds of
approximately $363,000. The options contain call prices of $50 and $55 a share
and have expiration dates ranging from February 21, 1998 to July 18, 1998.
Call options for 55,000 shares of the Company's First Union common stock, which
had been issued prior to December 31, 1997, expired unexercised resulting in a
realized gain of approximately $7,000. The 55,000 call options issued with an
expiration date of February 21, 1998 were exercised in conjunction with the
sale of First Union common stock. In March 1998, the Company repurchased call
options for 290,000 shares of its First Union common stock for approximately
$902,000. At March 31, 1998, the Company had 205,000 call options outstanding
with call prices of $50 and $55 expiring on July 18, 1998. See Note 2.
NOTE 7: INVESTMENT COMPANY ACT OF 1940
<PAGE> 9
As a result of holding the shares of First Union common stock as its
primary asset for a period of time longer than the twelve months ending March
27, 1998, the Company may be required to register as an investment company
under the Investment Company Act of 1940 (the "1940 Act"). On March 19, 1998,
the Company filed a document with the Securities and Exchange Commission
entitled "Application for an Order Pursuant to Sections 6(c) and 6(e) of the
Investment Company Act of 1940." This document requests a two year exemption
from registration requirements of the 1940 Act. If such application is denied
and/or the Company is otherwise deemed to be an investment company, the Company
would be required to register under the 1940 Act and would thereafter be
subject to regulation thereunder. If this occurred, it would add complexity to
the Company's pursuit of its acquisition strategy, add to the administrative
expenses of the Company and fundamentally alter the presentation of the
Company's financial statements.
NOTE 8: SUBSEQUENT EVENTS
On April 21, 1998, the Company announced a stock repurchase program under
which the Company would repurchase up to $5 million of its common stock in the
open market at prices per share deemed favorable from time to time by the
Company. The repurchase program commenced on April 23, 1998 and will continue
until such time as the Company has repurchased $5 million of its common stock
or until the Company otherwise determines to terminate the program. As of
April 30, 1998, the Company repurchased 8,500 shares of its common stock for
approximately $127,000. See Note 3.
<PAGE> 10
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama
We have reviewed the accompanying consolidated balance sheet of The Enstar
Group, Inc. and subsidiary as of March 31, 1998, and the related consolidated
statements of income, comprehensive income and cash flows for the three-month
periods ended March 31, 1998 and 1997. These financial statements are the
responsibility of The Enstar Group, Inc. and subsidiary's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of The Enstar Group, Inc. and
subsidiary as of December 31, 1997 and the related consolidated statements of
income, comprehensive income, shareholders' equity and cash flows for the year
then ended (not presented herein); and in our report dated January 30, 1998
(March 23, 1998 as to Note 14 and April 15, 1998 as to Note 13), we expressed
an unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1997 is fairly stated, in all material repects, in
relation to the consolidated balance sheet from which it has been derived.
DELOITTE & TOUCHE LLP
Atlanta, Georgia
April 15, 1998
(April 30, 1998 as to Note 8)
<PAGE> 11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Company's assets, aggregating approximately $74.8 million at March 31,
1998, consisted primarily of 1,232,307 shares of the common stock of First
Union Corporation ("First Union Common Stock") (with a market value of $70
million), cash, cash equivalents and certificates of deposit. Based on the
average daily trading volume of shares of First Union Common Stock, the Company
believes that its investment in First Union is readily marketable.
In February 1998, the Company sold 101,939 shares of First Union Common
Stock for net proceeds of approximately $5.1 million which were used to repay
indebtedness owed to First Union National Bank and to repurchase shares of the
Company's common stock. The First Union indebtedness was incurred in
conjunction with a stock repurchase program.
During the first quarter of 1998, the Company sold call options for
205,000 shares of its First Union Common Stock for net proceeds of
approximately $363,000. The options contain call prices of $50 and $55 a share
and have expiration dates ranging from February 21, 1998 to July 18, 1998.
Call options for 55,000 shares of the Company's First Union Common Stock, which
had been issued prior to December 31, 1997, expired unexercised resulting in a
realized gain of approximately $7,000. The 55,000 call options issued with an
expiration date of February 21, 1998 were exercised in conjunction with the
sale of First Union Common Stock. In March 1998, the Company repurchased call
options for 290,000 shares of its First Union Common Stock for approximately
$902,000. At March 31, 1998, there were 205,000 call options outstanding with
call prices of $50 and $55 expiring on July 18, 1998. The Company intends to
continue to evaluate ways in which it may maximize the value of its shares of
First Union Common Stock. This may include sales of First Union Common Stock
at prices deemed attractive by management, sales of call options on First Union
Common Stock, and other derivative transactions involving First Union Common
Stock.
The Company is seeking to acquire an operating business. Until such time
as the Company uses its assets for an acquisition, the Company's only liquidity
needs are to fund operating expenses. In the event the Company fails to acquire
an operating business within a reasonable period of time, the Company will
consider other alternatives, including, but not limited to, liquidation of the
Company.
Financial Condition
The Company had total assets of $74.8 million at March 31, 1998 compared
to $72.9 million at December 31, 1997. The change in total assets was
primarily due to an increase in the market value of the Company's First Union
Common Stock of approximately $6.7 million less $5.1 million which represents
the value of the 101,939 shares sold in February 1998.
<PAGE> 12
The Company's total liabilities at March 31, 1998 were $3.8 million
compared to $3.3 million at December 31, 1997. The increase in liabilities is
primarily due to additional accruals relating to professional fees and franchise
taxes and an increase in deferred liabilities as a result of outstanding call
options being adjusted to market value at March 31, 1998. These increases are
partially offset by the repayment of indebtedness of $513,000.
During the first quarter of 1998, the Company repurchased 303,700 shares of
its common stock for approximately $3,955,000. The purchase of such shares was
financed through borrowings of approximately $1,211,000 under a revolving credit
agreement with First Union National Bank and the proceeds from the sale of
101,939 shares of the Company's First Union common stock. The purchases made in
the first quarter of 1998 completed a stock repurchase program announced in July
1997 under which the Company could repurchase up to $5 million of its common
stock. Under the program, the Company repurchased a total of 387,826 shares for
approximately $4,995,000.
Results of Operations
Investment income was approximately $2.2 million for the three months ended
March 31, 1998 compared to $495,000 for the three months ended March 31, 1997.
This increase was primarily attributed to the gain on the sale of 101,939 shares
of First Union Common Stock of $2.8 million net of losses on call option
transactions of approximately $1.2 million. Investment income for the quarter
ended March 31, 1998, also included dividend and interest income of $526,000,
compared to $495,000 in dividend income for the same period in 1997. Interest
income for the first quarter of 1997 was classified as a reorganization item.
General and administrative expenses were $739,000 for the three months
ended March 31, 1998 compared to $386,000 for the same period in 1997. The
increase in 1998 was primarily due to $213,000 in additional franchise taxes and
an increase in legal and professional fees.
Since the completion of the Company's reorganization in March 1997, no
reorganization expenses have been incurred. Prior to that date, reorganization
items consisted of interest income less expenses directly related to the
reorganization of the Company. Net expenses of the reorganization for the three
months ended March 31, 1997 were $484,000.
Interest expense for the three months ended March 31, 1998 was $46,000
compared to $318,000 for the three months ended March 31, 1997. Interest
expense for the first quarter of 1997 included $279,000 relating to an $18.1
million loan which was repaid in July 1997.
Income tax expense was $40,000 for first quarter of 1998 and zero for the
comparable quarter in 1997 due to increases in the valuation allowance for
deferred tax assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Inapplicable.
<PAGE> 13
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Since May 31, 1991, the Company has been involved in extensive litigation
relating to its bankruptcy case. The Company's bankruptcy case was closed by
final decree dated July 17, 1997. Except as described below, the Company is
not aware of any pending litigation matters that could have a material adverse
effect on the Company.
In February 1993, the Company obtained a $15 million judgement against
Richard Grassgreen, one of the Company's former officers, who subsequently
filed for bankruptcy. In connection with the settlement of the Company's
claims against the Grassgreen bankruptcy estate (the "Estate"), and others, and
the confirmed plan of reorganization of the Estate (the "Grassgreen Bankruptcy
Estate Settlement") the Company agreed to pay certain taxes of the Estate in
the event the Estate did not have sufficient funds. The United States Internal
Revenue Service (the "IRS") asserted a liability of the Company for taxes
allegedly owed by the Estate. In December 1996, the IRS appealed a
determination by the United States Bankruptcy Court for the Middle District of
Florida (the "Florida Bankruptcy Court") that the IRS cannot seek payment of
the taxes. The alleged tax liability, for calendar year 1994, is for sums paid
to the Company in connection with the Grassgreen Bankruptcy Estate Settlement
by third parties to resolve the Company's claims against those parties. In
United States of America v. Richard J. Grassgreen and The Enstar Group, Inc.,
Case No. 96-1099-CIV-J-10 (U.S.D.C. M.D. Fla.), the IRS claims that it should
be entitled to assess additional taxes in the approximate amount of $1.6
million against the Estate for 1994 and that the IRS should be able to seek
payment of those taxes from the Company by virtue of the Company's agreement to
pay certain taxes of the Estate. On March 25, 1998, the United States District
Court for the Middle District of Florida reversed and remanded the case to the
Florida Bankruptcy Court to determine whether the Estate has any assets from
which to satisfy any such tax liability, and if so, for further proceedings to
determine pursuant to Section 505(a) of the Bankruptcy Code whether the Estate
has any additional income tax liability. Although the Company has accrued a
liability for the potential tax and accrued interest, the Company intends to
vigorously contest that the Estate has any assets from which to pay any taxes
that might be determined to be owed or that the Company has any obligation to
pay such taxes. In addition, the Company intends to contest vigorously that
any taxes are owed by the Estate.
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with
its then principal officers and others defrauded the plaintiffs in violation of
the Alabama Securities Act and other Alabama statutory provisions. The
plaintiffs seek compensatory damages in the amount of their alleged losses of
approximately $2 million and unspecified punitive damages. The
<PAGE> 14
complaint is virtually identical to a complaint brought by these plaintiffs
against the Company's former chairman, former president and others in December
1991, during the pendency of the Company's bankruptcy case and prior to the
confirmation of the reorganization plan. The plaintiffs allege that the
United States Bankruptcy Court for the Middle District of Alabama ("Alabama
Bankruptcy Court") issued an order on January 15, 1997, allowing them to
litigate their claims against the Company. The Alabama Bankruptcy Court's order
actually held that the plaintiffs could not bring a late claim against the
Company in its bankruptcy case and then went on to state that because of facts
relating to these particular plaintiffs, they were not bound by the provisions
of the reorganization plan and their claims were not subject to discharge under
the Bankruptcy Code. On March 17, 1997, the Company filed a motion to dismiss
and/or for summary judgment in response to the complaint on the basis that the
claims asserted are barred by the applicable statute of limitations. The
motion is still pending before the court. In the event the plaintiffs' claims
are not dismissed pursuant to the Company's motion, the Company intends to
contest the plaintiffs' claims vigorously.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Reference
Number Description of Exhibits
3.1 Articles of Incorporation of the Company, dated December 23, 1996
(incorporated by reference to Exhibit 3.1 to the Amendment No. 2 to
Registration Statement on Form 10, dated March 27, 1997).
3.2 Bylaws of the Company, as amended (incorporated by reference to
Exhibit 3.2 to the Annual Report on Form 10-K, dated March 25,
1998).
4.1 Rights Agreement between the Company and American Stock Transfer &
Trust Company, as Rights Agent, dated as of January 20, 1997
(incorporated by reference to Exhibit 4.1 to the Amendment No. 2 to
Registration Statement on Form 10, dated March 27, 1997).
27.1 Financial Data Schedule (For SEC use only)
99.1 The Enstar Group, Inc. Private Securities Litigation Reform Act of
1995 Safe Harbor Compliance Statement for Forward-Looking Statements
(incorporated by reference to Exhibit 99.1 to the Annual Report on Form
10-K, dated March 25, 1998).
99.2 Application for an Order Pursuant to Sections 6(c) and 6(e) of the
Investment Company Act of 1940 (incorporated by reference to
Application for an Order
<PAGE> 15
Pursuant to Sections 6(c) and 6(e) of the Investment Company Act of
1940, dated March 19, 1998).
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended March 31, 1998.
<PAGE> 16
SIGNATURES
Pursuant to the requirements 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.
THE ENSTAR GROUP, INC.
By: /s/ CHERYL D. DAVIS
-------------------------------------
Cheryl D. Davis
Chief Financial Officer, Vice President
of Corporate Taxes, Secretary
(Authorized Officer)
(Principal Financial Officer)
Date: May 6, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S UNAUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 166
<SECURITIES> 74,093
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 103
<DEPRECIATION> 61
<TOTAL-ASSETS> 74,753
<CURRENT-LIABILITIES> 348
<BONDS> 0
0
0
<COMMON> 45
<OTHER-SE> 70,946
<TOTAL-LIABILITY-AND-EQUITY> 74,753
<SALES> 0
<TOTAL-REVENUES> 2,170
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 739
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