ENSTAR GROUP INC, 10-K, 1998-03-25

ENSTAR GROUP INC
10-K, 1998-03-25
INVESTORS, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1998
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

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(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________
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COMMISSION FILE NUMBER 0-07477

THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)

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GEORGIA 63-0590560
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
172 COMMERCE STREET-3RD FLOOR 36104
MONTGOMERY, ALABAMA (Zip Code)
(Address of principal executive offices)
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(334) 834-5483
(Registrant's telephone number, including area code)

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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Not applicable Not applicable
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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. Yes [X] 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. [ ]

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 aggregate market value of the Registrant's Common Stock held by
non-affiliates of the registrant as of March 20, 1998, was $52,523,719 (Based on
the closing price on such date on the OTC Bulletin Board maintained by the
National Association of Security Dealers, Inc.).

The number of shares of the Registrant's Common Stock, $.01 par value per
share, outstanding at March 20, 1998 was 4,161,234.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on May 21, 1998 are incorporated herein by reference in Part III.
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TABLE OF CONTENTS

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ITEM PAGE
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PART I

1. Business.................................................... 2
2. Properties.................................................. 6
3. Legal Proceedings........................................... 7
4. Submission of Matters to a Vote of Security Holders......... 7
Supplementary Item. Certain Risk Factors.................... 7

PART II

5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 8
6. Selected Financial Data..................................... 9
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
8. Financial Statements and Supplementary Data................. 12
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 26

PART III

10. Directors and Executive Officers of the Registrant.......... 26
11. Executive Compensation...................................... 26
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 26
13. Certain Relationships and Related Transactions.............. 26

PART IV

14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 26
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THIS FORM 10-K 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-K, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. 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.

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PART I

ITEM 1. BUSINESS

GENERAL

The Enstar Group, Inc., a Georgia corporation (the "Company"), currently
holds assets, aggregating approximately $72.9 million at December 31, 1997,
consisting primarily of 1,334,246 shares of common stock, par value $3.33 1/3
per share, of First Union Corporation, cash or cash equivalent assets and
certificates of deposit. The Company filed for bankruptcy under Chapter 11 of
the United States Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991 and
operated as a reorganized debtor pursuant to its Second Amended Plan of
Reorganization, as modified (the "Reorganization Plan") until July 17, 1997 when
the United States Bankruptcy Court for the Middle District of Alabama (the
"Bankruptcy Court") closed the Company's Chapter 11 proceedings by final order.
See "History." Commencing in March 1997 and in accordance with the terms of the
Reorganization Plan and orders of the Bankruptcy Court, the Company issued
4,549,060 shares of common stock, par value $.01 per share (the "Common Stock"
or "Shares") to qualified former shareholders of record, or transferees of such
former shareholders, of the common stock of the Company which was cancelled in
the Company's bankruptcy proceeding (the "Cancelled Stock"). See "Distribution
of Common Stock." The Company currently is engaged actively in the search for
one or more operating businesses which meet the Company's acquisition criteria.
See "Strategy for Business Acquisitions."

ORGANIZATIONAL STRUCTURE

The Company's executive offices are located at 172 Commerce Street -- 3rd
Floor, Montgomery, Alabama 36104, and its telephone number is (334) 834-5483.
The Company has five full-time employees, whose principal duties currently
include managing the assets of the Company, evaluating potential acquisition
candidates, fulfilling reporting requirements associated with being a publicly
traded company and various other accounting and tax matters. The Company is a
Georgia corporation and successor by merger to a Delaware corporation of the
same name. See "History -- Reorganization as Georgia Corporation."

SUBSIDIARIES

The Company has one wholly owned subsidiary, Enstar Financial Services,
Inc., which currently is inactive.

DISTRIBUTION OF COMMON STOCK

As of December 31, 1997, the Company had issued 4,549,060 Shares of Common
Stock to qualified owners of record, or transferees of such owners, (the "Former
Shareholders") of the common stock of the Company which was cancelled on June 1,
1992, the effective date of the Reorganization Plan (the "Effective Date").
Former Shareholders included Depository Trust Company ("DTC"), the shareholder
of record for stock held in "street name" for "Beneficial Owners." Beneficial
Owners were (i) those persons who owned the Cancelled Stock in "street name" on
the Effective Date and who did not subsequently transfer their rights
represented by such beneficial ownership after that date and (ii) those persons
who held such "street name" rights and who acquired their street name rights
after the Effective Date. Commencing in March 1997, Former Shareholders received
one share of Common Stock for every ten shares of Cancelled Stock and cash in
lieu of fractional shares based on the net book value of the Company on December
31, 1996.

By order of the Bankruptcy Court, to qualify to receive Shares, a Former
Shareholder was required to have submitted a Certification of Ownership to the
Company by December 31, 1997. Former Shareholders who did not submit a complete
Certification of Ownership by December 31, 1997, are not entitled to receive
distributions of the Shares by virtue of their ownership of Cancelled Stock on
the Effective Date, and all rights represented by their ownership have vested in
the Company. Similarly, the rights to Shares of Common Stock held for
distribution to DTC that were not allocated to Beneficial Owners by December 31,
1997 vested in the Company. As of December 31, 1997, approximately 200,000
Shares were unclaimed and therefore will not be issued.

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HISTORY

Summary of the Company's Bankruptcy Case

The Company filed for protection under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991 in the United States
Bankruptcy Court for the Middle District of Alabama (the "Bankruptcy Court").
Prior to its bankruptcy filing, the Company was a publicly traded holding
company with subsidiaries operating primarily in the specialty retail business
and the financial services business. Prior to November 16, 1989, when its name
was changed, the Company's name was Kinder-Care, Inc., and prior to January
1987, the Company's name was Kinder-Care Learning Centers, Inc. The Company
originally was incorporated on October 26, 1970 in the State of Delaware.

Prior to its bankruptcy filing, the Company's financial situation had been
deteriorating rapidly and reached crisis proportions when its then Chairman and
Chief Executive Officer, Richard Grassgreen, was indicted in the Fall of 1990,
in connection with his activities and dealings with Michael Milken. In the wake
of his indictment, Mr. Grassgreen resigned from all of his positions with the
Company, and Nimrod T. Frazer was elected acting Chairman of the Board. Soon
thereafter most of the Company's Board of Directors resigned. The remaining
Board members, T. Wayne Davis, T. Whit Armstrong and Mr. Frazer affirmed Mr.
Frazer as Chairman of the Board. This three-member Board, with Mr. Frazer
serving as Chairman and Chief Executive Officer, directed and managed the
Company's affairs from the fall of 1990 until the addition of J. Christopher
Flowers and Jeffrey S. Halis as directors in October 1996 and April 1997,
respectively. The Company's Board currently consists of Messrs. Frazer, Davis,
Armstrong, Flowers and Halis.

The Company's retail services subsidiaries filed for bankruptcy prior to
May 31, 1991. At the time of its bankruptcy filing, the Company's principal
remaining business was its ownership of approximately 49% of the outstanding
common stock of American Savings of Florida, F.S.B. ("American").

As of May 31, 1991, the market value of the Company's American stock was
approximately $7 million. Shortly after the Company's bankruptcy filing, the
market value of the American stock fell to less than $3 million and American,
whose capital had fallen far below required levels, was facing the prospect of a
collapse or takeover by the United States Office of Thrift Supervision (the
"OTS"). Other than its stock in American, the Company's only significant assets
were contingent claims in the form of lawsuits against former officers and
directors, Richard Grassgreen and Perry Mendel, and a suit to be filed against
Michael Milken and others. The Company's non-contingent liabilities exceeded its
assets by more than $100 million.

At the time of the bankruptcy filing, substantial disputes arose among the
Company's major creditors, including the OTS, American, NationsBank of Texas,
and KinderCare Learning Centers, Inc. The disputes involved substantial
pre-bankruptcy transfers of assets from the Company to American which had been
mandated by the OTS. At the same time, the OTS was demanding that the Company
immediately cure American's regulatory capital deficiency in the amount of $28.9
million or face the prospect of immediate conversion of the Chapter 11 case to a
liquidation under Chapter 7 of the Bankruptcy Code.

The Company believed, and all creditors agreed, that a Chapter 11
proceeding would be preferable to a Chapter 7 proceeding because: (i) a Chapter
11 plan of reorganization could resolve the disputes between the creditors,
which if not resolved would have resulted in costly litigation over the priority
and enforceability of claims and the propriety of pre-petition transfers, and
likely would have depleted any remaining assets of the Company; (ii) the Company
was in the best position to pursue litigation against Mendel, Grassgreen and
Milken; and (iii) perhaps most importantly, the Company's new management, which
had gained the trust and confidence of the OTS, would have the chance under
Chapter 11 to salvage the situation at American, thereby enhancing the value of
the American stock for the benefit of the Company's creditors and interest
holders.

The Company was successful in negotiating a settlement with its creditors
which was incorporated into the Reorganization Plan. The Reorganization Plan was
confirmed in February, 1992, and became effective on June 1, 1992.

At the time the Reorganization Plan was proposed by the Company, in the
fall of 1991, there appeared to be no prospect that the shareholders of the
Company would receive any distribution under the Reorganization

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Plan or that the Company's stock would ever have any value. Liabilities exceeded
assets by more than $100 million. Accordingly, the Reorganization Plan provided
that creditors would receive all distributions under the Reorganization Plan
until paid in full and that the Company's stock would be cancelled on the
Effective Date. The Reorganization Plan provided that the stock would be
cancelled upon the Effective Date because: (i) it was not contemplated that
there would be property available for distribution to the equity ownership
interest; and (ii) the cancellation of the stock was necessary to avoid the
administrative burden and substantial cost of complying with the filing
requirements of the Securities Exchange Act of 1934, as amended. Under the
Reorganization Plan, new common stock was issued on the Effective Date to the
Company's Chief Executive Officer, as a trustee, who was directed to vote the
shares annually for purposes of electing the Board of Directors of the Company
based on directions given by at least 51% of the creditors holding certain
allowed unsecured claims.

Following the confirmation of its Reorganization Plan, the Company pursued
the liquidation of its assets, including the pursuit of its lawsuits against
Grassgreen, Mendel and Milken. More importantly, the Company continued as the
holding company of American. The Company was instrumental in and substantially
responsible for American's survival and return to capital compliance and
profitability.

By 1993, the success of the Reorganization Plan was exceeding all
expectations, and it appeared that there was at least a chance that the Company
might be able to pay all of its creditors in full. The market value of the
Company's American stock had increased at that time to approximately $60 million
to $70 million. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify the
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining property would be held
or distributed for the benefit of the Company's Former Shareholders. The
Reorganization Plan as modified provides in Section 5.11(d) as follows:

In the event that all Allowed Claims [of creditors] entitled
to receive Property pursuant to this [Reorganization] Plan and all
interest accrued on the Allowed Claims entitled to receive . . . are
paid in full, [Former Shareholders] who held such interests on the
Effective Date shall be entitled to receive any remaining Property
available for distribution. Such remaining Property shall be distributed
on a pro rata basis to [Former Shareholders] which held such interests
on the Effective Date provided, however, that the [Company] may
distribute to the [Former Shareholders] shares of Common Stock on a pro
rata basis, in lieu of any distributions of remaining Property.

The Bankruptcy Court authorized the modification of the Company's
Reorganization Plan in August of 1993.

On July 1, 1995, the Company disposed of its stock in American through a
merger with a wholly owned subsidiary of First Union Corporation ("First
Union"). On the date of the merger, the Company owned 5,689,391 shares of
American, in exchange for which it received $82,454,865 in cash to be used to
pay certain creditor claims and 815,549 shares of First Union common stock (the
"First Union Common Stock") with a market value on the exchange date of $45.25
per share. In addition to the shares of First Union Common Stock received
pursuant to the merger, the Company acquired 16,191 shares through settlements
with parties in the Grassgreen litigation and 21,683 shares purchased through
First Union's dividend reinvestment program. During 1997, the Company sold
186,300 shares of First Union Common Stock and subsequently First Union paid a
2-for-1 stock dividend. At December 31, 1997, the Company owned a total of
1,334,246 shares of First Union Common Stock.

In addition to the proceeds received from the disposition of the American
stock, the Company has received the bulk of anticipated recoveries from the
Grassgreen litigation through a settlement and confirmed plan of reorganization
in Grassgreen's Chapter 11 bankruptcy case (the "Grassgreen Bankruptcy Estate
Settlement"), the Mendel litigation and the Milken litigation. The total amount
of these recoveries, net of expenses, was approximately $22 million.

On October 24, 1996, the Company borrowed $18.1 million from First Union
National Bank and used the proceeds from such loan to pay off the remaining
allowed claims of creditors under the Reorganization Plan.

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In July 1997, the $18.1 million indebtedness to First Union National Bank was
repaid with proceeds received from the sale of 186,300 shares of First Union
Common Stock.

In total, the Company has paid approximately $118 million to satisfy the
allowed claims of creditors, including interest. The Company has now completed
its reorganization and distributed 4,549,060 Shares to its qualified Former
Shareholders in accordance with the terms of its Reorganization Plan. Based on
the market value of the Company's First Union Common Stock as of December 31,
1997 ($51 1/4 per share), the Company had a net worth of approximately $69.7
million as of December 31, 1997.

Under the Reorganization Plan, the Company had the option of distributing
its remaining assets to Former Shareholders or issuing Common Stock to the
Former Shareholders. The Company believes that the issuance of the Shares was
the most beneficial course for the Former Shareholders for the following
reasons: (i) the Company anticipates that it will be able to acquire an
operating business and enhance long-term shareholder value, (ii) the issuance of
the Shares to a Former Shareholder should not create a taxable event for that
Former Shareholder, and (iii) the Company preserves the possibility of using its
net operating loss carryforwards of approximately $87 million (the "NOLs") and
tax credit carryforwards of approximately $4.1 million for the benefit of its
former shareholders. See "Distribution of Common Stock."

Reorganization as Georgia Corporation

The Board of Directors of The Enstar Group, Inc., a Delaware corporation
("Enstar-Delaware"), after careful study, concluded that it was in the best
interests of Enstar-Delaware and its shareholders to reorganize Enstar-Delaware
as a Georgia corporation. As a result, the Board of Directors of Enstar-Delaware
and Enstar-Delaware's sole shareholder approved a change of Enstar-Delaware's
state of incorporation from Delaware to Georgia. The change in the state of
incorporation was accomplished through a merger of Enstar-Delaware with and into
the Company, a wholly owned subsidiary of Enstar-Delaware which was incorporated
on December 23, 1996 (the "Merger"). The Company and Enstar-Delaware entered
into an Agreement and Plan of Merger (the "Plan of Merger") pursuant to which
Enstar-Delaware merged with and into the Company. Pursuant to the Plan of
Merger, the sole shareholder of Enstar-Delaware prior to the Merger became the
sole shareholder of the Company after the Merger. The Company and
Enstar-Delaware filed Certificates of Merger with the Delaware Secretary of
State and the Georgia Secretary of State which were effective as of December 31,
1996.

The Merger was treated as a reorganization under Section 368(a)(1)(F) of
the United States Internal Revenue Code of 1986, as amended (the "Tax Code").
While the Merger effected a change in the legal domicile of the Company, the
Merger did not result in any change in the name, business, management, location
of the Company's principal executive offices or other facilities, assets,
liabilities, net worth or accounting practices. In addition, all of the
directors, officers and employees of Enstar-Delaware upon consummation of the
Merger became officers, directors, and employees of the Company.

STRATEGY FOR BUSINESS ACQUISITIONS

The Company currently is engaged in the active search for one or more
operating businesses. The Company's officers and directors have made efforts to
identify suitable acquisition targets. Such efforts, however, have not resulted
to date in any agreements or understandings, oral or written, with
representatives of any business or company.

The Company's strategy for making a suitable acquisition is to utilize the
considerable experience, knowledge and business contacts of the Company's five
directors, including Nimrod T. Frazer, the Company's Chief Executive Officer.
Each of the Company's directors has been asked by management to assist the
Company actively in its pursuit of an acquisition. Management follows up on the
leads and suggestions presented by directors and meets with various prospective
targets. The Company will conduct rigorous financial and legal due diligence
with respect to any entity about which it has a strong interest.

The Company has not hired, and does not presently intend to hire, any
consultants or advisers in connection with its pursuit of an acquisition.
However, the Company may in the future retain the services of

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an investment banking firm, business broker or other similar consultant or
advisor to assist the Company with respect to the identification of a suitable
acquisition candidate and/or to assist the Company with respect to consummation
of an acquisition transaction. Any such engagement will be on terms and
conditions approved by the Company's Board of Directors as fair and reasonable.

The Company does not presently focus on any particular industry or
geographical market. While the Company focuses its attention in the United
States, the Company does investigate acquisition opportunities outside of the
United States when management believes that such opportunities might be
attractive. Similarly, the Company does not yet know the structure of any
acquisition. The Company may pay consideration in the form of cash, securities
of the Company or some combination of both. The Company may also borrow money in
connection with the acquisition. In that event, the Company's shareholders would
be subject to the risks normally associated with leveraged transactions.
Depending upon the level of indebtedness, a leveraged transaction could have
important consequences to the Company, including the following: (i) if the
acquired business is unable to achieve satisfactory operating results, the
Company could prove unable to service such indebtedness; (ii) a substantial
portion of the Company's cash flow from operations may be dedicated to the
payment of principal or interest on its indebtedness and would not be available
for other purposes; (iii) the Company's ability to obtain additional financing
in the future for working capital, capital expenditures or other acquisitions
may be limited; and (iv) the Company's level of indebtedness could limit its
flexibility in planning for, or reacting to, changes in its industry. In order
to preserve the Company's possible use of the NOLs, the Company does not intend
to offer a controlling interest in the Company in connection with the
acquisition of one or more operating businesses.

If the Company were to continue to hold its 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 as defined by the Investment Company Act of 1940 (the "1940 Act"). In
order to provide management of the Company with the optimal amount of time to
evaluate potential acquisitions, the Company filed for an extension of the
one-year exemption from registration requirements of the 1940 Act. The Company
is seeking an extension of up to two years, but there can be no assurance that
it will be granted. 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.

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.

COMPETITION

The Company does not currently have an operating business. As a result, the
Company does not currently compete with any businesses in any particular
markets. However, the Company does face intense competition in its search for
one or more operating businesses. See "Strategy for Business Acquisitions." In
this regard, the Company competes with strategic buyers, financial buyers and
others who are looking to acquire suitable operating businesses, many of whom
have greater financial resources than the Company or have greater flexibility in
structuring acquisition transactions or strategic relationships.

ITEM 2. PROPERTIES

The Company does not currently own any real property. Pursuant to oral
agreements, the Company leases a suite of offices at 172 Commerce Street -- 3rd
Floor, Montgomery, Alabama and space in a warehouse at 703 Howe Street,
Montgomery, Alabama on a month-to-month basis. The Company leases the suite of
offices and warehouse space from unaffiliated third parties for $2,185 and $350
per month, respectively. The Company believes the rental amounts are competitive
with market rates. The cancellation or termination of either of these leases
would not have a material adverse effect on the Company's results of operations.

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ITEM 3. LEGAL PROCEEDINGS

Since May 31, 1991, the Company has been involved in extensive litigation
relating to its bankruptcy case. See "History." 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 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") has
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 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. Although the Company has accrued a liability for the potential tax
and accrued interest, the Company intends to contest vigorously that any taxes
are owed by the Estate. In the event a court determines that additional taxes
are owed, the Company will vigorously contest it has any obligation to pay such
taxes.

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 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 Bankruptcy Court issued an
order on January 15, 1997, allowing them to litigate their claims against the
Company. The 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of shareholders of the Company during
the quarter ended December 31, 1997.

SUPPLEMENTARY ITEM. CERTAIN RISK FACTORS

See "The Enstar Group, Inc. Private Securities Litigation Reform Act of
1995 Safe Harbor Compliance Statement For Forward-Looking Statements," included
as Exhibit 99.1 to this Form 10-K and incorporated herein by reference.

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PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

The Company's Common Stock is traded in the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Security Dealers,
Inc. On March 27, 1997, the Company commenced distribution of its Common Stock
to its former shareholders of record. See "Distribution of Common Stock." The
Company's Common Stock initially began trading on April 1, 1997. The following
table reflects the range of high and low selling prices of the Company's Common
Stock by quarter for 1997, as reflected in the OTC Bulletin Board Daily Trade
and Quote Summary Report.

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HIGH LOW
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First Quarter............................................... N/A N/A
Second Quarter.............................................. 12 8 1/8
Third Quarter............................................... 14 3/4 11 3/8
Fourth Quarter.............................................. 14 1/16 10 3/4
</TABLE>

At March 20, 1998, there were approximately 3,858 holders of record of the
Company's Common Stock.

The Company has not declared or paid a cash dividend on any of its
securities since 1989. In 1990, the Company distributed shares of stock in
American to its shareholders. The Company currently intends to retain its
earnings to finance the growth and development of its future business and does
not anticipate paying cash dividends in the foreseeable future. The payment of
cash dividends in the future will depend upon such factors as the Company's
earnings, capital requirements, financial condition, contractual restrictions
and other factors deemed relevant by the Board of Directors. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."

8
<PAGE> 10

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial information with respect
to the Company for each of the five years in the period ended December 31, 1997
and is derived in part from the audited Consolidated Financial Statements of the
Company. The data set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical consolidated financial statements and related
notes thereto, and other financial data included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
---------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations.... $ 8,917 $ 740 $ 14,122 $ (4,650) $ (9,266)
Income from discontinued operations(1)...... 54,482 9,477 13,845
---------- ------- -------- -------- --------
Income before extraordinary item............ 8,917 740 68,604 4,827 4,579
Extraordinary item(2)....................... 4,368
---------- ------- -------- -------- --------
Net income.................................. $ 8,917 $ 740 $ 68,604 $ 4,827 $ 8,947
========== ======= ======== ======== ========
Income (loss) per common share:
Continuing operations..................... $ 2.61 $ 7,400 $141,220 $(46,500) $(92,660)
Discontinued operations................... 544,820 94,770 138,450
Extraordinary item........................ 43,680
---------- ------- -------- -------- --------
Net income................................ $ 2.61 $ 7,400 $686,040 $ 48,270 $ 89,470
========== ======= ======== ======== ========
Weighted average shares outstanding(3)...... 3,413,351 100 100 100 100
========== ======= ======== ======== ========
Income (loss) per common share -- assuming
dilution:
Continuing operations..................... $ 2.49 $ 7,400 $141,220 $(46,500) $(92,660)
Discontinued operations................... 544,820 94,770 138,450
Extraordinary item........................ 43,680
---------- ------- -------- -------- --------
Net income................................ $ 2.49 $ 7,400 $686,040 $ 48,270 $ 89,470
========== ======= ======== ======== ========
Weighted average shares outstanding assuming
dilution(3)............................... 3,581,104 100 100 100 100
========== ======= ======== ======== ========
Pro forma income (loss) per common share
(4):
Continuing operations..................... $ 1.96 $ .16 $ 3.10 $ (1.02) $ (2.04)
Discontinued operations................... 11.98 2.08 3.04
Extraordinary item........................ .96
---------- ------- -------- -------- --------
Net income................................ $ 1.96 $ .16 $ 15.08 $ 1.06 $ 1.96
========== ======= ======== ======== ========
Balance Sheet data:
Total assets.............................. $ 72,932 $69,572 $ 59,602 $ 64,787 $ 54,211
Note payable.............................. 513 18,100
Liabilities subject to compromise......... 358 588 26,540 108,238 104,159
Shareholders' equity (deficit)............ 69,664 48,142 31,900 (45,528) (49,979)
</TABLE>

- ---------------

(1) Represents the equity in earnings of American Savings of Florida, F.S.B.
("American"), accounted for under the equity method of accounting, through
July 1, 1995. On July 1, 1995, the Company sold its investment in American
to First Union Corporation and recognized a gain of approximately $52.7
million. As a result of the disposition, the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American as
a discontinued operation.
(2) Extraordinary gain resulting from the disallowance of certain liabilities
subject to compromise.
(3) Upon confirmation of its Reorganization Plan on June 1, 1992, the Company
issued 100 shares of common stock to the Company's Chief Executive Officer
as trustee.
(4) Pro forma amounts per common share assuming that all shares issued
(4,549,060) as of December 31, 1997 had been outstanding for all years
presented.

9
<PAGE> 11

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

The following discussion should be read in conjunction with the Selected
Financial Data (Item 6) and the Consolidated Financial Statements including the
related footnotes thereto and is qualified in its entirety by the foregoing and
other more detailed financial information appearing elsewhere herein. Historical
results of operations and the percentage relationships among any amounts
included in the Consolidated Statements of Income, and any trends which might
appear to be inferable therefrom, should not be taken as being necessarily
indicative of trends in operations or the results of operations for any future
period. See "Business" for a description of the business of the Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets, aggregating approximately $72.9 million at December
31, 1997, consist primarily of 1,334,246 shares of First Union Common Stock
(with a market value of $68.4 million as of December 31, 1997), cash, cash
equivalents and certificates of deposit. The Company's holdings in First Union
Common Stock reflect a 2-for-1 stock split which was paid on July 31, 1997.
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 July 1997, the Company sold 186,300 shares (before the 2-for-1 split) of
First Union Common Stock for net proceeds of $18.1 million which was used to
repay the Company's indebtedness owed to First Union National Bank. The First
Union indebtedness was incurred by the Company in October 1996 for the purpose
of repaying certain of the Company's liabilities subject to compromise.

During 1997, the Company sold call options for 400,000 shares of its First
Union Common Stock for total proceeds of approximately $580,000. Proceeds from
the options sold were deferred and subsequently adjusted to reflect a market
value of approximately $443,000 at December 31, 1997, resulting in a gain of
approximately $137,000. The gain is included in investment income in the
Consolidated Statements of Income for the year ended December 31, 1997. The
options contain a call price of $55 per share with expiration dates ranging from
January 17 to 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 and debt service. 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. The Company has a $5,000,000 revolving credit
agreement from First Union National Bank for the purpose of acquiring the
Company's Common Stock under a stock repurchase program announced in July 1997.
Outstanding borrowings at December 31, 1997 were $513,000 and were
collateralized by 12,640 shares of First Union Common Stock owned by the
Company. The loan matures on July 30, 1998 and bears interest, at the Company's
option, at either a fixed rate equal to the Adjusted Eurodollar Rate, as
defined, plus .6%, or at a variable rate equal to Prime. The interest rate on
the loan was 6.475% at December 31, 1997.

FINANCIAL CONDITION

The Company had total assets of $72.9 million at December 31, 1997 compared
to $69.6 million at December 31, 1996. The change in total assets was due to an
increase in market value of the Company's First Union Common Stock of
approximately $23.4 million less $18.1 million which represents the value of the
186,300 shares sold in July 1997. In addition, cash and cash equivalents and
certificates of deposit decreased approximately $2 million.

The Company's total liabilities at December 31, 1997 were $3.3 million
compared to $21.4 million at December 31, 1996. The decrease in liabilities is
primarily due to the repayment of an $18.1 million indebtedness, repaying
certain liabilities subject to compromise and a reduction of accounts payable
and

10
<PAGE> 12

accrued liabilities. This decrease was partially offset by $513,000 of
indebtedness and $473,000 of deferred liabilities incurred in 1997.

Approximately $45,000 was reclassified from additional paid-in capital to
Common Stock to reflect the distribution of 4,549,060 shares of the Company's
$.01 par value Common Stock as of December 31, 1997.

In July 1997, the Company announced a stock repurchase program under which
the Company could 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. As
of December 31, 1997 the Company had repurchased 84,126 shares of its Common
Stock for approximately $1,040,000.

RESULTS OF OPERATIONS

1997 Compared to 1996

Investment income was $11.9 million in 1997 compared to $1.9 million in
1996. This increase resulted from the gain on the sale of 186,300 shares of
First Union Common Stock of approximately $9.7 million, a reclassification of
interest income of approximately $184,000 and a gain on sale of call options on
First Union Common Stock of approximately $137,000. Through March 1997 interest
income was classified as a reorganization item. After the distribution of its
common stock, the Company completed its reorganization and accordingly, interest
income subsequent to March 1997 is included in investment income.

The Company had litigation expense of $43,000 in 1997 and litigation income
of $2 million in 1996. In 1996 the Company received approximately $3.1 million
in proceeds from the Milken and Grassgreen litigation. This amount was partially
offset by payment of claims and adjustments to litigation reserves of
approximately $1.1 million.

General and administrative expenses were $1.4 million in 1997 and $2.3
million in 1996. The decrease in 1997 was primarily due to the payment of a one
time bonus for certain directors and employees of $1.2 million in September
1996. The substantial decrease was partially offset by an increase in
professional fees incurred in connection with the preparation of the Company's
registration statement and complying with other reporting and legal requirements
of a publicly traded company.

Reorganization items consist of interest income less expenses directly
related to the reorganization of the Company. The Company completed its
reorganization in March 1997 and therefore incurred no reorganization items for
the last nine months of 1997. Net reorganization expense was $484,000 for 1997
compared to net reorganization income of $79,000 for 1996. The increase in net
expenses for 1997 was a result of expenses incurred in connection with the
distribution of the Company's common stock.

Interest expense was $761,000 in 1997 compared to $871,000 in 1996.
Interest expense for 1997 was comprised of $597,000 relating to the $18.1
million loan (repaid in July 1997, see Liquidity and Capital Resources) and
$164,000 relating to the reserve for litigation settlements and liabilities
subject to compromise. Interest expense for 1996 was related to liabilities
subject to compromise and the reserve for litigation settlements.

Income tax expense of $221,000 was recorded in 1997 due to the alternative
minimum tax which limits the utilization of net operating loss carryforwards.
The additional income tax expense that would have been recordable for 1997 and
1996 was offset by the Company's utilization of the tax loss carryforwards.

Consolidated net income was $8.9 million in 1997 compared to $740,000 in
1996. The increase in 1997 from 1996 is primarily due to the $9.7 million gain
on the sale of 186,300 shares of First Union Common Stock.

1996 Compared to 1995

Investment income was $1.9 million in 1996 compared to $1 million in 1995.
The increase in investment income in 1996 was due primarily to the dividends
received by the Company from its investment in First Union. The Company received
shares of First Union Common Stock in connection with the merger of

11
<PAGE> 13

American with a wholly owned subsidiary of First Union in July of 1995.
Therefore, the Company received more dividend payments in 1996 than in 1995.

Litigation income was $2 million in 1996 compared to $15.3 million in 1995.
During 1995 the Company received the bulk of its litigation proceeds from the
legal action it brought against Michael Milken and others. The amount received
in 1995 from the Milken litigation was approximately $14 million compared to
approximately $2 million received in 1996.

General and administrative expenses were $2.3 million in 1996 compared to
$606,000 in 1995. The increase in general and administrative expenses was
primarily due to the one time bonus payments made to certain directors and
employees of $1.2 million in 1996. The increase in general and administrative
expenses in 1996 compared to 1995 was also due to the expenses incurred in 1996
of locating shareholders, preparing to register the Company's common stock and
preparing to issue such shares.

Interest expense was $871,000 in 1996 compared to $2.3 million in 1995.
Interest expense decreased in 1996 primarily because of the repayments of
allowed claims made to the Company's creditors in July of 1995 from the proceeds
of the sale of American.

Consolidated income from continuing operations was $740,000 in 1996
compared to $14.1 million in 1995. Consolidated income from continuing
operations decreased in 1996 compared to 1995 primarily because of the receipt
of $14 million in the Milken litigation proceeds that contributed to the
Company's income in 1995.

The Company's results of operations do not reflect any income tax expense
in 1996 and 1995 because of the Company's utilization of tax loss carryforwards.

The Company recorded equity in earnings of $1.8 million from its
approximately 49% owned subsidiary American in 1995. The disposal of American in
July of 1995 resulted in a gain to the Company of approximately $52.7 million
after deducting expenses of approximately $2.1 million. In connection with the
sale of American to First Union, the Company paid a $1.2 million commission to
its Chairman pursuant to a brokerage agreement between the Company and its
Chairman. The commission was a component of the approximately $2.1 million in
expenses recorded by the Company relative to the sale.

Consolidated net income was $740,000 in 1996 compared to $68.6 million in
1995. Consolidated net income decreased in 1996 compared to 1995 primarily
because of the gain on the sale of American and the receipt of the Milken
litigation proceeds in 1995.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

12
<PAGE> 14

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
of The Enstar Group, Inc.

We have audited the accompanying consolidated balance sheets of The Enstar
Group, Inc. and Subsidiary (the "Company") as of December 31, 1997 and 1996, and
the related consolidated statements of income, comprehensive income,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated 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
misstatements. 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, based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of the Company at December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.

Deloitte & Touche LLP

Atlanta, Georgia
January 30, 1998
(March 23, 1998 as to Note 14)

13
<PAGE> 15

THE ENSTAR GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 700 $ 4,749
Certificates of deposit..................................... 3,322 1,238
Other....................................................... 484 401
Investment in First Union................................... 68,380 63,153
Property and equipment, net................................. 46 31
--------- ---------
Total assets...................................... $ 72,932 $ 69,572
========= =========

LIABILITIES AND SHAREHOLDERS' EQUITY

Note payable................................................ $ 513 $ 18,100
Reserve for litigation settlements.......................... 1,877 1,861
Accounts payable and accrued liabilities.................... 47 881
Deferred liabilities........................................ 473 --
Other....................................................... 358 588
--------- ---------
Total liabilities................................. 3,268 21,430
--------- ---------
Shareholders' equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 4,549,060 and 100 shares issued at December
31, 1997 and 1996, respectively)....................... 45 --
Additional paid-in capital................................ 167,878 167,935
Accumulated other comprehensive income -- unrealized gain
on investment in First Union........................... 37,606 23,949
Accumulated deficit....................................... (134,825) (143,742)
Treasury stock, at cost (84,126 shares at December 31,
1997).................................................. (1,040) --
--------- ---------
Total shareholders' equity........................ 69,664 48,142
--------- ---------
Total liabilities and shareholders' equity........ $ 72,932 $ 69,572
========= =========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

14
<PAGE> 16

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF INCOME
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1997 1996 1995
---------- ------- --------
<S> <C> <C> <C>
Investment income........................................... $ 11,875 $ 1,871 $ 1,010
Litigation income (expense), net............................ (43) 1,999 15,341
General and administrative expenses......................... (1,449) (2,338) (606)
Reorganization items, net................................... (484) 79 665
Interest expense............................................ (761) (871) (2,288)
---------- ------- --------
Income from continuing operations before income taxes....... 9,138 740 14,122
Income taxes................................................ (221) -- --
---------- ------- --------
Income from continuing operations........................... 8,917 740 14,122
---------- ------- --------
Discontinued operations:
Equity in earnings of American Savings.................... -- -- 1,765
Gain on disposal of American Savings, net of expenses of
$2,070................................................. -- -- 52,717
---------- ------- --------
Income from discontinued operations....................... 0 0 54,482
---------- ------- --------
Net income.................................................. $ 8,917 $ 740 $ 68,604
========== ======= ========
Weighted average shares outstanding......................... 3,413,351 100 100
========== ======= ========
Weighted average shares outstanding -- assuming dilution.... 3,581,104 100 100
========== ======= ========
Income per common share:
Continuing operations..................................... $ 2.61 $ 7,400 $141,220
Discontinued operations................................... -- -- 544,820
---------- ------- --------
Net income................................................ $ 2.61 $ 7,400 $686,040
========== ======= ========
Income per common share -- assuming dilution:
Continuing operations..................................... $ 2.49 $ 7,400 $141,220
Discontinued operations................................... -- -- 544,820
---------- ------- --------
Net income................................................ $ 2.49 $ 7,400 $686,040
========== ======= ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

15
<PAGE> 17

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Net income.................................................. $ 8,917 $ 740 $68,604
Other comprehensive income:
Unrealized gains on investment in First Union:
Unrealized holding gains arising during period......... 23,368 15,502 8,447
Less: reclassification adjustment for gains included in
net income........................................... (9,711) -- --
------- ------- -------
Other comprehensive income.................................. 13,657 15,502 8,447
------- ------- -------
Comprehensive income........................................ $22,574 $16,242 $77,051
======= ======= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

16
<PAGE> 18

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
ADDITIONAL INCOME --
COMMON PAID-IN UNREALIZED ACCUMULATED TREASURY
STOCK CAPITAL GAIN DEFICIT STOCK
------ ---------- ------------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994.............. $ -- $167,935 $ -- $(213,086) $ --
Net income.............................. 68,604
Unrealized gain on investment in First
Union................................ 8,447
---- -------- ------- --------- -------
Balance at December 31, 1995.............. -- 167,935 8,447 (144,482) --
Net income.............................. 740
Unrealized gain on investment in First
Union................................ 15,502
---- -------- ------- --------- -------
Balance at December 31, 1996.............. -- 167,935 23,949 (143,742) --
Net income.............................. 8,917
Unrealized gain on investment in First
Union................................ 13,657
Common stock issued..................... 45 (45)
Cost of fractional shares............... (12)
Purchase of treasury stock.............. (1,040)
---- -------- ------- --------- -------
Balance at December 31, 1997.............. $ 45 $167,878 $37,606 $(134,825) $(1,040)
==== ======== ======= ========= =======
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

17
<PAGE> 19

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 8,917 $ 740 $ 68,604
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation............................................ 11 9 16
Equity in earnings of American Savings.................. -- -- (1,765)
Gain on sale of American Savings........................ -- -- (54,788)
Gain on sale of First Union common stock................ (9,711) -- --
Gain on sale of call options............................ (137) -- --
Litigation income....................................... -- (1,004) --
Changes in assets and liabilities:
Restricted cash......................................... (12) 3,857 (3,630)
Accounts payable and accrued expenses................... (818) 2,119 2,044
Liabilities subject to compromise....................... (230) (26,421) (83,967)
Other, net.............................................. (40) 841 (1,276)
-------- -------- --------
Net cash used in operating activities.............. (2,020) (19,859) (74,762)
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of First Union common stock............ 18,141 -- --
Proceeds from sale of American Savings.................... -- -- 82,455
Proceeds from sale of call options........................ 580 -- --
Reinvestment of First Union dividends..................... -- (868) (428)
Purchase of certificates of deposit....................... (8,978) (9,228) (6,800)
Maturities of certificates of deposit..................... 6,894 14,790 --
Other, net................................................ (27) -- 11
-------- -------- --------
Net cash provided by investing activities.......... 16,610 4,694 75,238
-------- -------- --------
Cash flows from financing activities:
Proceeds from note payable................................ 513 18,100 --
Repayment of note payable................................. (18,100) -- --
Purchase of treasury stock................................ (1,040) -- --
Cost of fractional shares................................. (12) -- --
-------- -------- --------
Net cash provided by (used in) financing
activities....................................... (18,639) 18,100 --
-------- -------- --------
Increase (decrease) in cash and cash equivalents............ (4,049) 2,935 476
Cash and cash equivalents at the beginning of the year...... 4,749 1,814 1,338
-------- -------- --------
Cash and cash equivalents at the end of the year............ $ 700 $ 4,749 $ 1,814
======== ======== ========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ 751 $ 14,474 $ 2,140
======== ======== ========
Income taxes paid (refunded).............................. $ 185 $ (500) $ 544
======== ======== ========
Supplemental disclosures of noncash investing and financing
activities:
During 1995 the Company sold its ownership interest in
American Savings to First
Union Corporation for approximately $82,455,000 in cash
and 815,549 shares of First Union common stock valued at
approximately $36,904,000.
During 1996 the Company received 16,191 shares of First
Union common stock valued at approximately $1,004,000 in
connection with a litigation settlement.
Supplemental disclosure of cash receipts (payments)
resulting from the reorganization:
Liabilities subject to compromise......................... $ (244) $(27,009) $(83,967)
======== ======== ========
Interest income........................................... $ 102 $ 990 $ 240
======== ======== ========
Professional fees......................................... $ (323) $ (245) $ --
======== ======== ========
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

18
<PAGE> 20

THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: NATURE OF BUSINESS AND HISTORY

(a) Nature of Business -- The Enstar Group, Inc. (the "Company") is a
publicly traded company engaged in the active search for one or more operating
businesses which meet its acquisition criteria. However, if the Company were to
continue to hold its shares of First Union Corporation 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 as
defined by the Investment Company Act of 1940 (the "1940 Act"). In order to
provide management of the Company with the optimal amount of time to evaluate
potential acquisitions, the Company filed for an extension of the one-year
exemption from registration requirements of the 1940 Act. The Company is seeking
an extension of up to two years, but there can be no assurance that it will be
granted. 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
occured, 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.

(b) History -- The Company filed for protection under Chapter 11 of the
United States Bankruptcy Code on May 31, 1991 in the United States Bankruptcy
Court for the Middle District of Alabama (the "Bankruptcy Court"). The Company
was successful in negotiating a settlement among its creditors which was
incorporated into the Company's Second Amended Plan of Reorganization (the
"Reorganization Plan"). The Reorganization Plan was confirmed in February 1992,
and became effective on June 1, 1992.

During 1993, the Company determined that it might be able to pay all of its
creditors in full. Because the Reorganization Plan had not anticipated or
specifically provided for the distribution of the estate proceeds after
creditors were paid in full, the Company filed a motion to modify its
Reorganization Plan to clarify the distributions and make clear that once all
creditors were paid in full with interest, any remaining property would be held
or distributed for the benefit of the Company's former shareholders. The
Bankruptcy Court authorized the modification of the Company's Reorganization
Plan in August 1993.

On July 1, 1995, the Company sold its ownership interest in American
Savings of Florida, F.S.B. ("American Savings") to First Union Corporation
("First Union") for approximately $82,455,000 in cash and 815,549 shares of
First Union common stock valued at $36,904,000, representing less than 0.5%
ownership interest in First Union at that date. As a result of this transaction,
the Company realized a gain of approximately $52,717,000, net of expenses of
$2,070,000. The cash proceeds from this transaction were used to pay the claims
of certain creditors of the Company in accordance with the Reorganization Plan.
As a result of the Company's investment in First Union, the Company receives
quarterly dividends and has reinvested a portion of those dividends in
additional First Union shares.

Prior to 1997, the Company also received approximately $22,000,000 in
recoveries, net of expenses, as a result of litigation against certain former
officers and advisors.

In July 1997, the Company's bankruptcy case was closed by final decree of
the Bankruptcy Court.

As of December 31, 1997, the Company had issued 4,549,060 shares of its
common stock to its qualified former shareholders in accordance with the terms
of its Reorganization Plan. Shareholders received one share for every ten shares
of stock formerly held and cash in lieu of any fractional shares.

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation -- The financial statements include the
accounts of the Company and its wholly owned subsidiary, Enstar Financial
Services, Inc. All significant intercompany balances and transactions have been
eliminated in consolidation.

19
<PAGE> 21
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

(b) Use of Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

(c) Cash Equivalents -- Cash equivalents consist of short term, highly
liquid investments with original purchased maturities of three months or less.

(d) Investments -- The Company has classified its investment in First Union
as available-for-sale, in accordance with Statement of Financial Accounting
Standard ("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, unrealized gains and losses associated with this
investment are excluded from net income and reported as a separate component of
comprehensive income and shareholders' equity. The Company accounts for its
investments under the first-in, first-out method.

Prior to the July 1, 1995 sale of the Company's ownership interest in
American Savings to First Union, the Company accounted for its investment in
American Savings using the equity method, as its ownership interest was
approximately 49%.

(e) Property and Equipment -- Property and equipment is stated at cost less
accumulated depreciation and is depreciated using the straight line method over
the estimated useful lives of the related assets.

(f) Financial Instruments -- The Company has from time-to-time sold call
options on its First Union common stock for trading purposes. Proceeds from the
sale of call options are deferred and adjusted to fair market value by a charge
or credit to investment income as such market value changes occur. As options
are exercised, the Company will recognize investment income in the amount of the
deferred balance.

(g) Liabilities Subject to Compromise -- Liabilities subject to compromise
represent amounts paid in accordance with the Reorganization Plan.

(h) Reorganization Items -- Prior to the initial distribution of the
Company's common stock in March 1997, reorganization items consisted of interest
income on cash and cash equivalents and certificates of deposit, professional
fees, and other expenses that related directly to the Company's bankruptcy.

(i) Income Taxes -- The Company computes deferred tax assets and
liabilities based on the differences between the financial statement and tax
bases of assets and liabilities using enacted tax rates in effect for the years
in which the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts expected
to be realized.

(j) Earnings per Share -- Effective January 1, 1997 the Company adopted
SFAS 128, "Earnings per Share" ("EPS"). This statement establishes standards for
computing and presenting EPS and applies to entities with publicly held stock.
The adoption of this statement has no impact on the EPS calculation for years
prior to 1997.

(k) Comprehensive Income -- The Company has elected the early adoption of
SFAS 130, "Reporting Comprehensive Income." This statement establishes standards
for reporting and display of comprehensive income. The statement defines
comprehensive income as all changes in equity from non-owner sources.

(l) Reclassifications -- Certain prior year amounts have been reclassified
in the financial statements to conform with the current year presentation.

NOTE 3: INVESTMENT IN FIRST UNION

In July 1997, the Company sold 186,300 shares of common stock of First
Union for net proceeds of $18.1 million which were used to repay indebtedness
owed to First Union National Bank. The First Union National

20
<PAGE> 22
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Bank indebtedness was incurred by the Company in October 1996 in order to make
final distributions to creditors under the Company's Reorganization Plan.
Following the sale, the Company held 667,123 shares of common stock of First
Union. On June 17, 1997, First Union declared a 2-for-1 stock split payable July
31, 1997 changing the Company's holdings to 1,334,246 shares. See Note 14.

NOTE 4: NOTE PAYABLE

The Company has a $5,000,000 revolving credit agreement from First Union
National Bank for the purpose of acquiring the Company's common stock under a
stock repurchase program announced in July 1997. Outstanding borrowings at
December 31, 1997 are $513,000 and are collateralized by 12,640 shares of First
Union common stock owned by the Company. The loan matures on July 30, 1998 and
bears interest, at the Company's option, at either a fixed rate equal to the
Adjusted Eurodollar Rate, as defined, plus .6%, or at a variable rate equal to
Prime. The interest rate on the loan was 6.475% at December 31, 1997. At
December 31, 1997 the carrying value of the note payable approximates fair value
based on interest rates that are believed to be available to the Company for
debt with provisions similar to those in the existing note payable agreements.

NOTE 5: LITIGATION CONTINGENCIES

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 6: LEASES

The Company leases its corporate office, warehouse space, and office
equipment on a month-to-month basis. Rent expense was approximately $34,000,
$34,000, and $33,000 in 1997, 1996, and 1995, respectively.

21
<PAGE> 23
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7: INCOME TAXES

The reconciliation of income taxes computed at statutory rates to the
actual tax provision is as follows:

<TABLE>
<CAPTION>
1997 1996 1995
------- ----- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate................. $ 3,198 $ 259 $ 24,012
State income taxes, net of federal benefit............. 297 24 2,230
Dividends received deduction........................... (494) (499) (235)
Capitalized reorganization costs....................... 251 -- --
Other.................................................. 143 16 118
Change in valuation allowance.......................... (3,174) 200 (26,125)
------- ----- --------
$ 221 $ -- $ --
======= ===== ========
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. The following items
comprise the Company's deferred taxes at December 31, 1997 and 1996:

<TABLE>
<CAPTION>
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards.............................. $ 33,288 $ 36,642
Tax credit carryforwards.................................. 4,106 4,591
Reserve for litigation settlements........................ 719 712
Other..................................................... 133 129
Alternative minimum tax................................... 221 --
-------- --------
Deferred tax assets....................................... 38,467 42,074
Valuation allowance....................................... (24,030) (32,914)
-------- --------
14,437 9,160
Deferred income tax liabilities:
Unrealized appreciation in investment in First Union...... (14,385) (9,160)
Other..................................................... (52) --
-------- --------
Net deferred taxes................................ $ -- $ --
======== ========
</TABLE>

The Company has established a valuation allowance equal to deferred tax
assets in excess of deferred tax liabilities as realization of such deferred tax
assets is dependent on future taxable income of sufficient amounts to utilize
the net operating loss carryforwards ("NOLs"), tax credit carryforwards and
other deferred tax assets. In addition, because there are possible applications
of certain provisions of the Tax Code that may limit the Company's use of the
NOLs in future tax returns, there can be no assurance that the Company will be
able to utilize its NOLs fully.

At December 31, 1997, the Company had NOLs of approximately $87,000,000,
which, if not utilized, expire in various years from 2000 through 2011. The
Company also had tax credit carryforwards of approximately $4,100,000 at
December 31, 1997. If not utilized, these credit carryforwards expire in various
years from 1998 through 2001.

NOTE 8: SHAREHOLDER'S EQUITY AND PRO FORMA EARNINGS PER SHARE

(a) Distribution of Common Stock -- As of December 31, 1997, the Company
had issued 4,549,060 shares of its common stock to its qualified former
shareholders in accordance with the terms of its Reorganization Plan.
Shareholders received one share for every ten shares of stock formerly held and
cash in

22
<PAGE> 24
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lieu of any fractional shares. To qualify for this distribution, former
shareholders had to submit a signed certification of ownership form on or before
December 31, 1997. As of that date approximately 200,000 shares were unclaimed
and therefore will not be issued. The pro forma impact on earnings per share of
this distribution, assuming that the distributed shares had been outstanding for
all of 1996 and 1995, is as follows:

<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Pro forma income per common share from:
Continuing operations..................................... $ .16 $ 3.10
Discontinued operations................................... 11.98
------ ------
Net income................................................ $ .16 $15.08
====== ======
</TABLE>

(b) Treasury Stock -- In July 1997, the Company announced a stock
repurchase program under which the Company could 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. In conjunction with the stock repurchase program
the Company executed a new $5 million revolving credit note with First Union
National Bank. As of December 31, 1997, the Company had repurchased 84,126
shares of its common stock for approximately $1,040,000. See Note 14.

(c) Share Purchase Rights Plan -- On January 20, 1997, the Board of
Directors of the Company adopted a Share Purchase Rights Plan (the "Rights
Plan"). The Rights Plan entitles shareholders to a right to purchase one share
of common stock for each outstanding share of common stock of the Company (a
"Right").

Until the occurrence of a "Distribution Triggering Event" as described
below, all future issuances of common stock by the Company will also carry the
Rights. The Rights will have no dividend or voting rights and will expire on the
tenth anniversary of their issuance unless exercised or redeemed prior to that
time.

Rights may not be exercised and are not detached from the common stock
until ten days after the occurrence of a Distribution Triggering Event. The
exercise price of the Rights is fixed at $40. The Rights generally are
redeemable by the Board of Directors of the Company at a nominal price of $.01
per Right at any time prior to the time that they are detached from the common
stock and separate certificates evidencing the Rights are delivered.

Distribution Triggering Events. Shortly after a person or group acquires
beneficial ownership of a fifteen percent (15%) interest or announces its
intention to commence a tender or exchange offer, the consummation of which
would result in beneficial ownership of fifteen percent (15%) of the Company's
common stock (a "Distribution Triggering Event"), the Rights will separate from
the common stock. Upon distribution of the Rights, they become exercisable and
are transferable separately from the Company's common stock. Each Right (other
than Rights beneficially owned by the acquiror) is then immediately converted
into the right to buy that number of shares of common stock of the Company (or
in certain circumstances, shares of stock of the acquiring company) that has a
market value of two times the exercise price of the Right.

NOTE 9: DISCONTINUED OPERATIONS

Subsequent to the July 1, 1995 sale of the Company's investment in American
Savings to First Union, the Company ceased to have banking operations and,
accordingly, accounted for its investment in American Savings as a discontinued
operation in the accompanying financial statements.

NOTE 10: RELATED PARTY TRANSACTIONS

In conjunction with the July 1, 1995 sale of the Company's ownership
interest in American Savings to First Union, the Company paid a $1,200,000
commission to its Chairman pursuant to a brokerage agreement between the Company
and its Chairman. This commission is a component of the $2,070,000 in expenses
recorded by the Company relative to the sale.

23
<PAGE> 25
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 11: FINANCIAL INSTRUMENTS

During 1997, the Company sold call options for 400,000 shares of its First
Union common stock for total proceeds of approximately $580,000. Proceeds from
the options sold were deferred and subsequently adjusted to reflect a market
value of approximately $443,000 at December 31, 1997, resulting in a gain of
approximately $137,000. This gain is included in investment income in the
Consolidated Statements of Income for the year ended December 31, 1997. The
options contain a call price of $55 per share with expiration dates ranging from
January 17 to July 18, 1998. See Note 14.

NOTE 12: STOCK COMPENSATION

(a) Deferred Compensation and Stock Plan for Non-Employee Directors -- In
September 1997, the Company adopted a Deferred Compensation and Stock Plan for
Non-Employee Directors. The purposes of this plan are to enable the Company to
attract and retain qualified persons to serve as non-employee directors, to
solidify the common interests of its non-employee directors and shareholders by
enhancing the equity interest of non-employee directors in the Company, and to
encourage the highest level of non-employee director performance by providing
such non-employee directors with a proprietary interest in the Company's
performance and progress by permitting non-employee directors to receive all or
a portion of their retainer and meeting fees in common stock and to defer all or
a portion of their retainer and meeting fees in stock units.

All current non-employee directors elected to receive 100% of their
compensation in stock units in lieu of cash payments for the retainer and
meeting fees. As of December 31, 1997, a total of $30,000 in stock compensation
has been deferred under this plan.

(b) Long-Term Incentive Program -- In January 1997, the Company adopted a
long-term incentive program made up of three stock option/incentive plans which,
as amended, authorize the issuance of up to 362,500 shares of common stock.
Under the program, the Company has established the 1997 Amended CEO Stock Option
Plan (the "CEO Plan"), the 1997 Amended Outside Directors' Stock Option Plan
(the "Directors' Plan"), and the 1997 Amended Omnibus Incentive Plan (the
"Omnibus Plan").

Under the CEO Plan, the CEO was granted options for 150,000 shares of
common stock with an exercise price of $10.50. The options granted under the CEO
Plan vest in four equal installments of 37,500 options through January 1, 2000.
Under the Directors' Plan, each Outside Director was granted options for 25,000
shares of common stock. The options have an exercise price of $10.8125 and vest
in five equal installments of 5,000 options through January 1, 2001. The Omnibus
Plan was established for the benefit of key employees and directors which
provides generally for stock appreciation awards, incentive stock options and
nonqualified stock options. As of December 31, 1997, no awards have been created
and no options have been granted under the Omnibus Plan.

As of December 31, 1997, 150,000 stock options have been granted under the
CEO Plan and 100,000 stock options have been granted under the Directors' Plan.
Additionally, 75,000 and 40,000 of such options have vested under the CEO Plan
and Directors' Plan, respectively, none of which have been exercised.

The fair value of options granted in 1997 were $2.16 and $2.62 for the CEO
Plan and Directors' Plan, respectively, using the Black-Scholes option pricing
model, as modified, with the following assumptions:

<TABLE>
<CAPTION>
CEO DIRECTORS'
PLAN PLAN
----- ----------
<S> <C> <C>
Dividend yield.............................................. 0.00% 0.00%
Expected volatility......................................... 17.24% 16.00%
Risk free interest rate..................................... 6.49% 6.48%
Expected life, in years..................................... 2.75 3.60
</TABLE>

24
<PAGE> 26
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Had compensation cost for grants under the Company's stock option plans in
1997 been determined based on the fair value at the date of grant consistent
with the method of SFAS 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net income and net income per share would have been as
follows:

<TABLE>
<S> <C>
Pro forma net income........................................ $8,331,000
Pro forma net income per common share....................... $ 2.44
Pro forma net income per common share -- assuming
dilution.................................................. $ 2.33
</TABLE>

NOTE 13: INCOME PER SHARE

In 1997, the Company implemented SFAS 128, "Earnings per Share." The table
below illustrates the reconciliation between Income per common share and Income
per common share -- assuming dilution for the year ended December 31, 1997. No
reconciliation is illustrated for the years ended December 31, 1996 and 1995
since the application of this statement has no impact on the income per share
calculations for those years.

<TABLE>
<CAPTION>
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
<S> <C> <C> <C>
INCOME PER COMMON SHARE
Net income............................................... $8,917,000 3,413,351 $2.61
EFFECT OF DILUTIVE SECURITIES
Stock options............................................ 167,753
INCOME PER COMMON SHARE -- ASSUMING DILUTION
Net income plus assumed conversions...................... $8,917,000 3,581,104 $2.49
</TABLE>

NOTE 14: SUBSEQUENT EVENTS

Subsequent to December 31, 1997, the Company repurchased 303,700 shares of
its common stock for approximately $3,954,000. The purchase of such shares was
financed through borrowings of approximately $1,211,000 under the 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 sale of the
First Union common stock resulted in proceeds of $5,125,000 and a realized gain
of $2,818,000. In addition to the repurchase of shares of the Company's common
stock, the proceeds from the sale were used to repay the $1,211,000 loan as well
as the $513,000 note payable balance at December 31, 1997. See Notes 3, 4 and 8.

Also, subsequent to December 31, 1997, the Company sold additional 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. Of the call options issued subsequent to
December 31, 1997, 55,000 were exercised in conjunction with the sale of First
Union common stock noted above. In March 1998, the Company repurchased call
options for 290,000 shares of its First Union common stock for approximately
$902,000. These options had a call price of $55 and were due to expire on April
18, 1998. See Note 11.

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 Investment Company Act of
1940. See Note 1.

25
<PAGE> 27

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

The information required by this Item with respect to directors and
executive officers of the Registrant, is included under the sections entitled,
"Election of Directors", "Executive Officers" and "Compliance with Section 16(a)
of the Securities Exchange Act of 1934" of the Proxy Statement for the Annual
Meeting of Shareholders to be held on May 21, 1998 and such sections are deemed
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is included under the sections
entitled, "Executive Compensation", "Report of Compensation Committee", "Option
Grants in Last Fiscal Year", "Aggregated Option Exercises in 1997 and Year-end
Option Values" and "Performance Graph" of the Proxy Statement for the Annual
Meeting of Shareholders to be held on May 21, 1998 and such sections are deemed
incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is included under the section
entitled, "Common Stock Ownership by Management" and "Principal Shareholders"
appearing in the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 21, 1998 and such section is deemed incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

PART IV

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

(a) Exhibits

<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
2.1 Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992 (incorporated by reference to
Exhibit 2.1 to the Amendment No. 2 to Registration Statement
on Form 10, dated March 27, 1997).
2.2 Amended Modification to Second Amended Plan of
Reorganization of the Company, confirmed on August 24, 1993
(incorporated by reference to Exhibit 2.2 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
2.3 Agreement and Plan of Merger, dated as of December 31, 1996
(incorporated by reference to Exhibit 2.3 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
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).
</TABLE>

26
<PAGE> 28

<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
3.2 Bylaws of the Company, as amended.
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).
10.1 Promissory Note dated as of October 24, 1996, made by the
Company in favor of First Union National Bank of Georgia
(incorporated by reference to Exhibit 10.1 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
10.2 Stock Pledge Agreement dated as of October 24, 1996, between
the Company and First Union National Bank of Georgia
(incorporated by reference to Exhibit 10.2 to the Amendment
No. 2 to Registration Statement on Form 10, dated March 27,
1997).
10.3 1997 Amended CEO Stock Option Plan (incorporated by
reference to Appendix A to the Proxy Statement for the
Annual Meeting of Shareholders, dated May 23, 1997).
10.4 1997 Amended Outside Directors' Stock Option Plan
(incorporated by reference to Appendix B to the Proxy
Statement for the Annual Meeting of Shareholders, dated May
23, 1997).
10.5 1997 Amended Omnibus Incentive Plan (incorporated by
reference to Appendix C to the Proxy Statement for the
Annual Meeting of Shareholders, dated May 23, 1997).
10.6 Revolving Credit Note dated July 31, 1997 made by the
Company in favor of First Union National Bank (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q, dated August 14, 1997).
10.7 Stock Pledge Agreement between the Company and First Union
National Bank, dated July 31, 1997 (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q, dated August 14, 1997).
10.8 Deferred Compensation and Stock Plan for Non-Employee
Directors (incorporated by reference to Exhibit 99.1 to the
Quarterly Report on Form 10-Q, dated October 30, 1997).
27.1 Financial Data Schedule.
99.1 The Enstar Group, Inc. Private Securities Litigation Reform
Act of 1995 Safe Harbor Compliance Statement For
Forward-Looking Statements.
99.2 Notice of Pending Distribution of New Common Stock in The
Enstar Group, Inc. (incorporated by reference to Exhibit
99.1 to the Amendment No. 2 to Registration Statement on
Form 10, dated March 27, 1997).
99.3 Modified Order on Proposed Distribution to Equity Security
Holders by the United States Bankruptcy Court for the Middle
District of Alabama (incorporated by reference to Exhibit
99.2 to the Amendment No. 2 to Registration Statement on
Form 10, dated March 27, 1997).
99.4 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 Pursuant to Sections
6(c) and 6(e) of the Investment Company Act of 1940, dated
March 19, 1998).
</TABLE>

(b) Reports on Form 8-K

There were no reports filed on Form 8-K during the quarter ended December
31, 1997.

27
<PAGE> 29

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.

THE ENSTAR GROUP, INC.

By: /s/ NIMROD T. FRAZER
------------------------------------
Nimrod T. Frazer
Chairman of the Board of Directors,
President
and Chief Executive Officer

28
<PAGE> 30

Pursuant to the requirements of the Securities 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.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>

/s/ NIMROD T. FRAZER Chairman of the Board of March 25, 1998
- ----------------------------------------------------- Directors, President and
Nimrod T. Frazer Chief Executive Officer

/s/ CHERYL D. DAVIS Chief Financial Officer, Vice March 25, 1998
- ----------------------------------------------------- President and Secretary
Cheryl D. Davis (Principal Accounting
Officer)

/s/ T. WHIT ARMSTRONG Director March 25, 1998
- -----------------------------------------------------
T. Whit Armstrong

/s/ T. WAYNE DAVIS Director March 25, 1998
- -----------------------------------------------------
T. Wayne Davis

/s/ J. CHRISTOPHER FLOWERS Director March 25, 1998
- -----------------------------------------------------
J. Christopher Flowers

/s/ JEFFREY S. HALIS Director March 25, 1998
- -----------------------------------------------------
Jeffrey S. Halis
</TABLE>

<PAGE> 1

EXHIBIT 3.2

THE ENSTAR GROUP, INC.

BYLAWS

ARTICLE I

SHAREHOLDERS

Section 1. ANNUAL MEETINGS. The annual meeting of the shareholders of
this Corporation for the election of directors, and for the transaction of such
other business as may properly come before the meeting, shall be held at the
principal business office of this Corporation, or at such other place within or
without the State of Georgia as may be designated from time to time, on the
third Thursday in May in each year, at 10:00 o'clock in the morning, or, in the
event that the same shall fall upon a legal holiday, then upon the next
succeeding business day. However, failure to hold the annual meeting at the
designated time or to elect a sufficient number of directors to conduct the
business of the Corporation shall not affect otherwise valid corporate acts or
work a forfeiture or dissolution of the Corporation except as may be otherwise
specifically provided by law. If the annual meeting for election of directors is
not held on the date designated therefor, the directors shall cause the meeting
to be held as soon thereafter as may be convenient. The annual meeting may be
called prior to the designated time, in which event each shareholder of record
shall be notified as provided in Article I, Section 3, of these Bylaws.

Section 2. NOTICE OF ANNUAL MEETING. Notice of any annual meeting of
the shareholders of this Corporation shall be given in writing, personally or by
mail, by the Secretary to each shareholder of record not less than ten (10) nor
more than sixty (60) days before such meeting. The notice shall state the place,
date and hour of such meeting and, if special action is to be taken, such notice
also shall state the special action which is proposed to be taken. If notice of
the annual meeting is mailed, it shall be deemed to have been given when
deposited in the United States mail, postage prepaid, directed to the
shareholder at his address as it appears on the records of the Corporation.

Section 3. SPECIAL MEETING. A special meeting of the shareholders of
this Corporation may be called at any time by the Chairman, or by the written
request of a majority of the Board of Directors; but such special meetings may
not be called by any other person or persons except as may be required by the
Georgia Business Corporation Code. Such meeting may be held at any time and at
any place within or without the State of Georgia, which time and place

<PAGE> 2
shall be specified in such request. No business other than that specified in the
notice of the meeting shall be transacted.

Section 4. NOTICE OF SPECIAL MEETING. Notice of any special meeting of
the shareholders of this Corporation shall be given in writing, personally or by
mail, by the Secretary to each shareholder of record not less than ten (10) nor
more than sixty (60) days before such meeting. The notice shall state the place,
date and hour of such meeting, and such notice also shall state the purpose or
purposes for which the meeting is called. If notice of a special meeting is
mailed, it shall be deemed to have been given when deposited in the United
States mail, postage prepaid, directed to the shareholder of record at his
address as it appears on the records of the Corporation.

Section 5. WAIVER OF NOTICE. Any shareholder entitled to notice
pursuant to these Bylaws may waive notice, either of the annual or any special
meeting of the shareholders, before or after the time stated in such notice. A
waiver of notice in writing signed by the shareholder entitled to such notice
shall be equivalent to the giving of such notice. Neither the business to be
transacted nor the purpose of any regular or special meeting of shareholders
need be specified in any such written waiver of notice. Attendance of a
shareholder at a shareholders' meeting shall constitute waiver of notice of such
meeting except when the shareholder attends the meeting for the express purpose
of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened.

Section 6. ACTION WITHOUT MEETING. Any action required to be, or which
may be, taken at a meeting of the shareholders, may be taken without a meeting
if written consent, setting forth the actions so taken, shall be signed by
persons who would be entitled to vote at a meeting those shares having voting
power to cast not less than the minimum number (or numbers, in the case of
voting by classes) of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote were present and voted;
except that, such written consent shall not be valid unless (i) the consenting
shareholders have been furnished the same materials, that pursuant to the
Georgia Business Corporation Code, would have been required to be sent to
shareholders in a notice of a meeting at which the proposed action would have
been submitted to the shareholders for action, including notice of any
applicable dissenters' rights as provided in Section 14-2-1320 of the Georgia
Business Corporation Code, or (ii) the written consent contains an express
waiver of the right to receive the material otherwise required to be furnished.
Pursuant to the Georgia Business Corporation Code, notice shall be given within
ten (10) days of the taking of corporate action without a meeting by less than
unanimous consent to those shareholders on the record date whose shares were not
represented on the written consent.

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Section 7. QUORUM. A quorum for the transaction of business at any
annual or special meeting of shareholders shall exist when the holders of a
majority of the outstanding shares entitled to vote are represented either in
person or by proxy at such meeting. If a quorum is present, the affirmative vote
of the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, unless a greater vote
is required by law, by the Articles of Incorporation or by these Bylaws. When a
quorum is once present to organize a meeting, the shareholders present may
continue to do business at the meeting or at any adjournment thereof
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum. The holders of a majority of the voting shares represented at a meeting,
whether or not a quorum is present, may adjourn such meeting from time to time.

Section 8. VOTING. Each shareholder of this Corporation shall be
entitled to one vote, in person or by proxy, for each share standing in the name
of such shareholder on the books of this Corporation. There shall be no voting
of treasury shares allowed. No shares shall be voted at any meeting of
shareholders or counted in determining the total number of outstanding shares at
any given time if the consideration for such shares has not been fully paid to
the Corporation.

Section 9. VOTING RIGHTS OF FIDUCIARIES, PLEDGORS AND JOINT OWNERS OF
STOCK.

(a) Persons holding stock in a fiduciary capacity shall be entitled to
vote the shares so held. Persons whose stock is pledged shall be entitled to
vote, unless in the transfer by the pledgor on the books of the Corporation he
has expressly empowered the pledgee to vote thereon, in which case only the
pledgee or his proxy may represent such stock and vote thereon.

(b) If shares or other securities having voting power stand of record
in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or if two or more persons have the same fiduciary relationship
respecting the same shares, unless the Secretary of the Corporation is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect:

(1) If only one vote, his act binds all;

(2) If more than one vote, the act of the majority so voting
binds all;

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(3) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionally, or any person voting the shares, or a beneficiary, if any, may
apply to such court as may have jurisdiction to appoint an additional person to
act with the persons so voting the shares, which shall then be voted as
determined by a majority of such persons and the person appointed by the court.
If the instrument so filed shows that any such tenancy is held in unequal
interests, a majority or even-split for the purposes hereof shall be a majority
or even-split in interest.

Section 10. PROXIES. A shareholder may vote either in person or by
proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. No proxy shall be voted or acted upon after eleven (11) months
from its date, unless the proxy provides for a longer period.

Section 11. CLOSING OF TRANSFER BOOKS AND FIXING RECORD DATES. For the
purpose of determining shareholders entitled to notice of or to vote at any
meeting of shareholders or any adjournment thereof, or entitled to receive
payment of any dividend, or in order to make a determination of shareholders for
any purpose, the Board of Directors of the Corporation may fix in advance a date
as the record date for any such determination, such date in any case to be not
more than seventy (70) days prior to the date on which the particular action,
requiring such determination of shareholders, is to be taken.

Section 12. LIST OF SHAREHOLDERS ENTITLED TO VOTE. After fixing a
record date for a meeting, the Secretary of the Corporation shall prepare and
make, or cause to be prepared and made, from the stock ledger of the
Corporation, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
This list shall be produced and kept open at the time and place of the meeting.
In the absence of objection by any shareholder, failure to comply with the
requirements of this Section shall not affect the validity of any action taken
at the meeting. If the Corporation refuses to allow a shareholder, his agent, or
his attorney to inspect the shareholders' list at the meeting, the superior
court of the county where the Corporation's registered office is located, on
application of the shareholder, may summarily order the inspection at the
Corporation's expense and may postpone the meeting for which the list was
prepared until the inspection is complete.

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ARTICLE II

DIRECTORS

Section 1. NUMBER, QUALIFICATION AND ELECTION. The business, affairs,
and property of this Corporation shall be managed by a board of directors. The
number of directors of the Corporation shall be no less than three (3) and no
more than fifteen (15). The number of directors serving on the Board shall be
decreased or increased only by a majority vote of the directors; provided,
however, that any increase or decrease in the number of directors shall be
apportioned among the classes provided for herein, so as to make all such
classes as nearly equal in number as possible. The Board of Directors shall be
divided into three classes, as nearly equal in number as the then total number
of directors constituting the whole Board, with the term of office of one class
expiring each year.

At the annual meeting of shareholders in 1997, directors in the first
class shall be elected to hold office for a term expiring at the next succeeding
annual meeting, directors of the second class shall be elected to hold office
for a term expiring at the second succeeding annual meeting, and directors of
the third class shall be elected to hold office for a term expiring at the third
succeeding annual meeting. Subject to the foregoing, at each annual meeting of
shareholders the successors to the class of directors whose term shall then
expire shall be elected to hold office for a term expiring at the third
succeeding annual meeting.

The Board of Directors shall nominate candidates to serve as members of
the Board of Directors, and the directors shall be elected by a plurality of the
votes cast by the shares entitled to vote in the election at an annual meeting
of the shareholders at which a quorum is present. Any shareholder entitled to
vote for the election of directors may submit to the Board of Directors
nominations for the election of directors only by giving written notice (such
notice to include a statement of the qualifications of the nominee) to the
Secretary of the Corporation at least sixty (60) days but not more than ninety
(90) days prior to the annual meeting of shareholders at which directors are to
be elected, unless such requirement is waived in advance of the meeting by the
Board of Directors.

Each director shall hold office until his or her successor shall have
been duly elected and qualified, or until the death, resignation or removal of
such director in the manner herein provided. Directors need not be shareholders.
The Board of Directors may exercise all such powers of the Corporation and do
all such lawful acts and things as are not by the statute, the Articles of
Incorporation, or by these Bylaws, directed or required to be exercised or done
by the shareholders. The age limit for

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Directors who are not full-time employees of the Corporation shall be seventy
(70) years. Directors turning seventy (70) years of age and who are not
full-time employees of the Corporation may continue to serve until the annual
meeting of the shareholders next following their seventieth (70th) birthday. No
such Director who is not a full-time employee of the Corporation shall be
eligible for nomination and election to serve as a Board member following his
seventieth (70th) birthday.

Section 2. VACANCIES AND REMOVAL. If the office of any director shall
become vacant between annual meetings by reason of death, resignation or
disqualification, or by reason of an increase in the number of directors, the
remaining directors may, by a majority vote, though less than a quorum of the
Board of Directors, elect a director to fill such vacancy, and any director so
elected shall hold office until the next annual meeting of the shareholders, and
until his successor shall have been duly elected by the shareholders. Any
director may resign at any time upon written notice to the Corporation. The
shareholders may remove a director only with cause.

Section 3. REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held immediately following the annual meeting of the shareholders,
provided that the failure to hold the annual meeting shall not work a forfeiture
or otherwise affect valid corporate acts. The Board of Directors may by
resolution provide for the time and place of such regular meetings and no notice
of such regular meetings need be given.

Section 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called at any time by the President or by two (2) members of the Board of
Directors. Notice of any special meeting of the Board of Directors shall be
given in writing, personally or by mail, or by telephone or telegraph to each
director not less than two (2) days before such meeting. The notice shall state
the time, place and the purpose or purposes for which the meeting is called. If
notice of a special meeting is mailed, it shall be deemed to have been given
when deposited in the United States mail, addressed to the director at his last
known post office address.

Section 5. WAIVER OF NOTICE. Notice of any meeting of the Board of
Directors may be waived either before or after the time stated in such notice. A
waiver of notice in writing signed by the director entitled to such notice shall
be equivalent to the giving of such notice. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of directors
need be specified in any such written waiver of notice. Attendance of a director
at a meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.

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Section 6. PLACE OF MEETINGS. All regular and special meetings of the
Board of Directors shall be held at the principal office of this Corporation, or
at such other place or places within or without the State of Georgia, as said
Board may designate. Members of the Board of Directors may participate in a
meeting of such Board by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation by such means shall constitute presence in person
at a meeting.

Section 7. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at any meeting of the Board of Directors, or any committee thereof,
may be taken without a meeting if a consent in writing, setting forth the
actions so taken, shall be signed by all directors entitled to vote with respect
to the subject matter thereof. Such consent shall have the same force and effect
as a unanimous vote of the directors, and may be stated as such in any writing
or document. Such written consent shall be filed with the minutes of proceedings
of the Board.

Section 8. QUORUM. A majority of the directors of this Corporation
shall constitute a quorum for the transaction of business at any regular or
special meeting of the Board of Directors. The act of the majority of the
directors present at a meeting at which a quorum is present shall be the act of
the Board of Directors, unless the act of a greater number is required by the
Georgia Business Corporation Code, the Articles of Incorporation or by these
Bylaws.

Section 9. VOTING. At all meetings of the Board of Directors each
director shall have one vote.

Section 10. COMPENSATION. Directors shall have authority to fix the
compensation to be paid for their services as directors. Nothing shall preclude
any director from serving the Corporation in any other capacity as an officer,
agent or otherwise, and receiving compensation therefor.

Section 11. TELEPHONE CONFERENCE MEETINGS. Unless the Articles of
Incorporation provide otherwise, members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board or committee by means of telephone conference or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
Section 11 shall constitute presence in person at such meeting.

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ARTICLE III

COMMITTEES

Section 1. DESIGNATION OF COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. No member of any committee shall continue to be a
member of it after he ceases to be a director of the Corporation. The Board of
Directors shall have the power at any time to increase or decrease the number of
members of any committee, to fill vacancies on it, to remove any member of it
and to change its functions or terminate its existence.

Section 2. POWERS OF COMMITTEES. The Board of Directors, by resolution
adopted by majority of all the directors, may designate from among its members
an Executive Committee, and/or other committees, each composed of two or more
directors, which may exercise such authority as is delegated by the Board of
Directors, provided that no committee shall have the authority of the Board of
Directors to (i) approve or propose to shareholders any action that the Georgia
Business Corporation Code requires to be approved by the shareholders, (ii) fill
vacancies on the Board of Directors or on any of its committees, (iii) amend the
Articles of Incorporation of the Corporation pursuant to Section 14-2-1002 of
the Georgia Business Corporation Code, (iv) adopt, amend, or repeal the Bylaws
of the Corporation, or (v) approve a plan of merger not requiring shareholder
approval.

Section 3. MEETINGS. Meetings of such committees, regular or special,
may be held either within or without the State of Georgia. Regular meetings may
be established by resolution of the Board of Directors, and no notice shall be
required thereof. Special meetings of the committees shall be called at the
request of any member of the committee and shall be held upon notice delivered
personally or by mail, telephone or telegraph, within two (2) days of the
meeting. Notice may be waived in writing either before or after the time of the
meeting. Attendance of any member of a committee shall constitute waiver of
notice of the meeting. Any committee designated by the Board may participate in
a meeting of such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting by such means shall
constitute presence in person at such meeting.

Section 4. RECORD OF PROCEEDINGS. Any committee established by the
resolution of the Board of Directors shall keep minutes of its acts and
proceedings. These minutes shall be submitted to the

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next succeeding meeting of the Board of Directors for approval, but failure to
submit or to receive approval of such minutes shall not invalidate any action
taken upon authorization contained in them.

Section 5. QUORUM. A majority of any committee established by the Board
of Directors shall be necessary to constitute a quorum for the transaction of
any business. The act of a majority of the members present at a meeting at which
a quorum is present shall be the act of such committee.

Section 6. COMPENSATION. The Board of Directors may vote to pay the
members of any committee established by it such compensation as it deems proper
for the performance of the duties required of such members of the committee.

ARTICLE IV

OFFICERS

Section 1. ELECTION AND APPOINTMENT. At the first meeting of the Board
of Directors after the annual meeting of the shareholders, the directors shall
choose a President, an Executive Vice President, a Secretary and a Treasurer,
and may choose a Chairman of the Board and such other officers and assistant
officers as the Corporation from time to time may need, none of whom need be
directors, except the Chairman of the Board. Any two offices or more may be held
by one person. All of said officers shall hold office until the first meeting of
the Board of Directors following the next annual meeting of the shareholders and
until their respective successors shall be duly elected and shall qualify;
provided, however, that a majority of the whole Board may authorize an
employment contract with an employee or an officer which may extend beyond the
term of one year. If any vacancy occurs among the above offices, such vacancy
may be filled for the remainder of the term by the Board of Directors at a
regular or special meeting thereof, and any officer so selected shall hold
office until his successor shall be duly elected and shall qualify.

Section 2. SUSPENSION AND REMOVAL. Any officer of the Corporation
appointed by the Board of Directors may be removed or suspended by a majority
vote of the Board of Directors at any time, with or without cause, or, if any
employment contract with the officer is in effect, in accordance with the terms
of such contract. Any agent or employee appointed or employed by the President
may be removed or discharged or suspended by him at any time, with or without
cause.

Section 3. POWERS AND DUTIES OF THE CHAIRMAN OF THE BOARD. The Chairman
of the Board of Directors shall give general supervision and direction to the
affairs of the Corporation, subject to the direction of the Board of Directors.
The Chairman shall have the authority to execute contracts, mortgages,

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agreements or instruments under the seal of the Corporation. He shall preside at
all meetings of the shareholders.

Section 4. POWERS AND DUTIES OF THE PRESIDENT. The President shall be
in charge of the day-to-day affairs of the Corporation, subject to the direction
of the Board of Directors and the Chairman. The President shall have the
authority to execute contracts, mortgages, agreements or instruments under the
seal of the Corporation. The President shall preside at meetings of the
shareholders in the absence of the Chairman and shall act in the case of absence
or disability of the Chairman

Section 5. POWERS AND DUTIES OF THE VICE PRESIDENTS. The Executive Vice
President of this Corporation and, if there shall be any, any additional Vice
President or Vice Presidents of this Corporation shall generally assist the
President and shall perform such duties as may be assigned by the Board of
Directors. In the event of death, resignation, absence or inability to act of
the President, the Executive Vice President or, if there shall be any, any
additional Vice President or Vice Presidents, in the order determined by the
Board of Directors, shall assume and discharge pro tempore the powers and duties
of the President of this Corporation.

Section 6. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall be
ex officio secretary of the Board of Directors. He shall keep the minutes of all
meetings of the Board of Directors and shareholders. He shall have charge of the
corporate books and records. He shall keep in safe custody the seal of this
Corporation and, when authorized by the Board of Directors, shall affix the seal
to any instrument requiring the same. He shall be authorized to sign
certificates of stock with other authorized officers of the Corporation. He
shall keep accounts of stock registered and transferred in the manner prescribed
by law. He shall give and serve all notices to the shareholders and directors,
except that notice for special meetings of directors called at the request of
two (2) directors, as provided in Section 4 of Article II of these Bylaws, may
be issued by such directors. In general, he shall perform all the duties
incident to his office.

Section 7. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall have
the care and custody of and be responsible for all the funds, securities,
evidences of indebtedness and other valuable documents of the Corporation, and
deposit all such funds in the name of the Corporation in such banks or trust
companies or other depositories, or in such safe deposit vaults as the Board of
Directors may designate. The Treasurer shall render a statement of the condition
of the finances of the Corporation at each regular meeting of the Board of
Directors and at such other times as shall be required of him, and a full
financial report at the annual meeting of the shareholders. The Treasurer shall
keep at the office of the Corporation full and accurate books of account of all

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its business and transactions and such other books of account as the Board of
Directors may require, and shall exhibit the same to any directors of the
Corporation upon application therefor. In general, he shall perform all the
duties incident to his office.

Section 8. ASSISTANT OFFICERS. The Board of Directors may elect one or
more assistants to any officer, and any such assistant shall exercise the duties
of his office in the absence of the officer whom he has been elected to assist.

Section 9. OTHER DUTIES AND AUTHORITY. Each officer, employee and
agent of the Corporation shall have such other duties and authority as may be
conferred upon him by the Board of Directors or delegated to him by the Chairman
of the Board of Directors.

Section 10. RETURNS AND STATEMENTS. It shall be the duty of each
officer of this Corporation to make and file any and all returns, reports, lists
or statements required by law to be made and filed by him, and to make full
report to the Board of Directors respecting the affairs of the Corporation in
his charge whenever he may be requested to do so.

Section 11. COMPENSATION. The salaries of all officers shall be fixed
by the Board of Directors, and the fact that any officer is a director shall not
preclude him from receiving a salary or from voting upon the resolution
providing the same.

ARTICLE V
STOCK

Section 1. PREEMPTIVE RIGHTS. No shareholder shall have the preemptive
right to subscribe for or purchase any shares or other securities issued by the
Corporation.

Section 2. STOCK CERTIFICATES. The shares of stock of the Corporation
shall be represented by certificates in such form as shall be approved by the
Board of Directors. Certificates of stock shall be signed by the Chairman of the
Board, or by the President or a Vice President, and by the Secretary or
Treasurer, or Assistant Secretary or Assistant Treasurer, and shall be sealed
with the corporate seal (which may be a facsimile engraved or printed upon the
certificate). Unless the Board of Directors shall determine to the contrary, any
or all such signatures may be facsimile, even though the signature of a transfer
agent or registrar, if any, is also facsimile. In case any officer, transfer
agent or registrar who has signed or whose facsimile signature has been placed
upon a certificate shall have ceased to be such officer, transfer agent or
registrar before such certificate is issued, it may be issued by the Corporation
with the same effect as if he were such an officer, transfer agent or registrar
at the date of its issue.

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Section 3. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
appoint a transfer agent or agents and a registrar for the stock of the
Corporation. The transfer agent shall be in charge of the issue, transfer and
cancellation of shares of stock and shall countersign all stock certificates,
which countersignatures may be by facsimile unless the Board of Directors
determines to the contrary. The transfer agent shall maintain stock transfer
books, which shall include a record of the shareholders, with their names and
addresses and the number of shares held by each. The transfer agent shall
prepare voting lists for meetings of shareholders, produce and keep open these
lists at meetings and perform such other duties as may be delegated by the Board
of Directors of the Corporation. Shareholders shall give notice of changes of
their addresses to the transfer agent. The registrar shall be in charge of
preventing the over issue of shares, shall register all stock certificates and
perform such other duties as may be delegated by the Board of Directors. The
transfer agent and registrar may be one and the same person, corporation or
other entity.

Section 4. TRANSFER OF STOCK. The Corporation shall register a stock
certificate presented to it for transfer if the certificate is properly endorsed
by the holder of record or by his duly authorized attorney, and the signature of
such person or persons has been guaranteed by a national banking association or
by a member of the New York, American or Midwest stock exchanges, and reasonable
assurance is given that such endorsements are effective. In order to register a
stock certificate for transfer, the Corporation shall have no notice of any
adverse claims or shall have discharged any duty to inquire into any such
claims.

Section 5. LOST, STOLEN OR DESTROYED CERTIFICATES. The Corporation
shall issue a new stock certificate in the place of any certificate previously
issued if the holder of record of the certificate (1) makes proof in affidavit
form that it has been lost, destroyed or wrongfully taken; (2) requests the
issue of a new certificate before the Corporation has notice that the old
certificate has been acquired by a purchaser for value in good faith and without
notice of any adverse claim; (3) gives bond in such form, and with surety or
sureties, with fixed or open penalty, as the Corporation may direct, to
indemnify the Corporation, the transfer agent and registrar against any claim
that may be made on account of the alleged loss, destruction or theft of a
certificate; and (4) satisfies any other reasonable requirements imposed by the
Corporation. When a certificate has been lost, apparently destroyed or
wrongfully taken, and the holder of record fails to notify the Corporation
within a reasonable time after he has notice of it, and the Corporation
registers a transfer of the shares represented by this certificate before
receiving notification, the holder of record is precluded from making any claim
against the Corporation.

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Section 6. RECORD HOLDERS. The Corporation shall be entitled to treat
the holder of record of any share or shares of its capital stock as the holder
in fact thereof and shall not be bound to recognize any equitable or other claim
to or interest in such share or shares on the part of any other person, whether
or not it shall have express or other notice thereof, save as expressly provided
by the laws of Georgia.

ARTICLE VI
PERSONAL LIABILITY OF DIRECTORS; INDEMNIFICATION

Section 1. LIABILITY OF DIRECTORS. No director of the Corporation shall
be liable to the Corporation or its shareholders for monetary damages for breach
of duty of care or other duty as a director, other than liability (i) for any
appropriation, in violation of his duties, of any business opportunity of the
Corporation, (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law, (iii) for the types of liability set forth in
Section 14-2-832 of the Georgia Business Corporation Code, or (iv) for any
transaction from which the director derived an improper personal benefit. If the
Georgia Business Corporation Code is hereafter amended to authorize the further
limitation or elimination of the liability of a director, then the liability of
a director of the Corporation shall be limited or eliminated to the fullest
extent permitted by the amended Georgia Business Corporation Code. Any repeal or
modification of this Section 1 shall be prospective only, and shall not
adversely affect any limitation or elimination of the personal liability of a
director of the Corporation existing at the time of such repeal or modification.

Section 2. AUTHORITY TO INDEMNIFY: THIRD PARTY ACTIONS. Every person
now or hereafter serving as a director or officer of the Corporation and any and
all former directors and officers shall be indemnified and held harmless by the
Corporation from and against any and all loss, cost, liability and expense that
may be imposed upon or incurred by him in connection with or resulting from any
threatened, pending, or completed claim, action, suit, or proceeding (other than
an action by or in the right of the Corporation), whether civil, criminal,
administrative, or investigative, whether formal or informal, in which he may
become involved, as a party or otherwise, by reason of his being or having been
a director or officer of the Corporation, or arising from his status as such, or
that he is or was serving at the request of the Corporation as a director,
officer, employee, partner, trustee or agent of another corporation, limited
liability company, partnership, limited partnership, limited liability
partnership, joint venture, trust, employee benefit plan, or other enterprise,
regardless of whether such person is acting in such capacity at the time such
loss, cost, liability or expense shall have been imposed or incurred. As used
herein, the term "loss, cost, liability and expense" shall include, but shall
not be limited to, any and all

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costs, expenses (including attorneys' fees and disbursements), judgments,
penalties, fines, and amounts paid in settlement incurred in connection with any
such claim, action, suit or proceeding if such person acted in good faith and,
while acting in an official capacity as a director or officer, acted in a manner
he reasonably believed to be in the best interests of the Corporation, and, in
all other cases, acted in a manner he reasonably believed was not opposed to the
best interests of the Corporation, and with respect to any criminal action or
proceeding, if such person had no reasonable cause to believe his conduct was
unlawful. The termination of any claim, action, suit or proceeding by judgment,
order, settlement, conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, create a presumption that the person did not
act in a manner which meets the standard described in the immediately preceding
sentence. If any such claim, action, suit or proceeding is settled (whether by
agreement, plea of nolo contendere, entry of judgment or consent, or otherwise),
the determination in good faith by the Board of Directors of the Corporation
that such person acted in a manner that met the standards set forth in this
Section 2, shall be necessary and sufficient to justify indemnification. If the
Georgia Business Corporation Code is hereafter amended to expand the minimum
statutory indemnification rights for directors and officers, then the
indemnification rights of directors and officers of the Corporation granted
pursuant to this Section 2 shall be construed to provide such minimum
indemnification rights to the fullest extent permitted by the amended Georgia
Business Corporation Code. Any repeal or modifications to this Section 2 shall
be prospective only, and shall not adversely affect any indemnification rights
of an officer or director of the Corporation existing at the time of such repeal
or modification.

Section 3. AUTHORITY TO INDEMNIFY: DERIVATIVE ACTIONS. The Corporation
shall indemnify and hold harmless any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action or
suit by or in the right of the Corporation to procure a judgment in its favor by
reason of the fact he is or was a director or officer of the Corporation or is
or was serving at the request of the Corporation as a director, officer,
partner, employee, trustee or agent of another corporation, limited liability
company, partnership, limited partnership, limited liability partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses
(including attorneys' fees and disbursements), judgments and any other amounts
now or hereafter permitted by applicable law actually and reasonably incurred by
him or in connection with the defense or settlement of such action or suit;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless the director or officer has not been adjudged liable or
subject to injunctive relief in favor of the Corporation (i) for any
appropriation, in violation of his duties, of any

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business opportunity of the Corporation; (ii) for acts or omissions which
involve intentional misconduct or a knowing violation of law; (iii) for the
types of liability set forth in Code Section 14-2- 832; or (iv) for any
transaction from which he received an improper benefit and in the event the
foregoing conditions are not met, then only to the extent that the court in
which such action or suit was brought or another court of competent jurisdiction
shall determine upon application, that despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnification for such expenses which the court shall
deem proper. Any repeal or modifications to this Section 3 shall be prospective
only, and shall not adversely affect any indemnification rights of an officer or
director of the Corporation existing at the time of such repeal or modification.

Section 4. ADVANCEMENT OF EXPENSES. Expenses incurred in any claim,
action, suit or proceeding may be paid or reimbursed by the Corporation in
advance of the final disposition of such claim, action, suit or proceeding as
authorized by the Board of Directors in the specific case upon receipt from the
director or officer of (i) a written affirmation of his good faith belief that
he has met the relevant standard of conduct set forth under Section 14-2-851 of
the Georgia Business Corporation Code, or that the proceeding involves conduct
for which liability has been eliminated under a provision of the Articles of
Incorporation of the Corporation(as authorized by Section 14-2-202(b)(4) of the
Georgia Business Corporation Code),and (ii) his undertaking to repay such amount
if it ultimately shall be determined that such director or officer is not
entitled to be indemnified by the Corporation.

Section 5. DETERMINATION OF INDEMNIFICATION RIGHTS. Except as ordered
by a court, the Corporation may not indemnify a director or officer under this
Article unless authorized hereunder and a determination has been made in the
specific case that indemnification of the director or officer is permissible
under the circumstances because he has met the relevant standard of conduct set
forth in either Section 2 or Section 3 hereof. The determination shall be made
(i) if there are two or more disinterested directors, by the Board of Directors
by a majority vote of all the disinterested directors (a majority of whom shall
for such purposes constitute a quorum), or by a majority of the members of a
committee of two or more disinterested directors appointed by such a vote; (ii)
by special legal counsel: (a) selected in the manner prescribed in clause (i) of
this sentence; or (b) if there are fewer than two disinterested directors,
selected by the Board of Directors (in which selection directors who do not
qualify as disinterested directors may participate); or (iii) by the
shareholders, but shares owned by or voted under the control of a director who
at the time does not qualify as a disinterested director may not be voted on the
determination.

-15-
<PAGE> 16
Section 6. NON-EXCLUSIVE RIGHT OF INDEMNIFICATION. The foregoing rights
of indemnification and advancement of expenses shall not be deemed exclusive of
any other rights to which those indemnified may be entitled, and the Corporation
may provide additional indemnity and rights to its directors, officers,
employees or agents.

Section 7. INSURANCE. The Corporation may purchase and maintain
insurance, at its expense, on behalf of an individual who is or was a director,
officer, employee or agent of the Corporation or who, while a director, officer,
employee or agent of the Corporation, is or was serving at the request of the
Corporation, as a director, officer, partner, trustee, employee, or agent of
another corporation, limited liability company, partnership, limited
partnership, limited liability partnership, joint venture, trust, employee
benefit plan, or other enterprise, against liability asserted against or
incurred by him in any such capacity or arising from his status as a director,
officer, employee or agent, whether or not the Corporation would have power to
indemnify him against the same liability under this Article.

Section 8. MISCELLANEOUS. The provisions of this Article VI shall cover
claims, actions, suits and proceedings, civil or criminal, whether now pending
or hereafter commenced and shall be retroactive to cover acts or omissions or
alleged acts or omissions which heretofore have taken place. In the event of
death of any person having the right of indemnification or advancement of
expenses under the provisions of this Article, such rights shall inure to the
benefit of his heirs, executors, administrators and personal representatives. If
The Enstar Group, Inc., a Delaware corporation, is merged into the Corporation,
then the directors, officers, employees and agents thereof shall be entitled to
the same indemnification rights as directors, officers, employees and agents of
the Corporation are entitled under these Bylaws. If any part of this Article VI
should be found to be invalid or ineffective in any proceeding, the validity and
effect of the remaining provisions shall not be affected.

ARTICLE VII
BUSINESS COMBINATIONS
WITH INTERESTED SHAREHOLDERS

Pursuant to Section 14-2-1133 of the Georgia Business Corporation Code,
the Corporation hereby affirmatively elects that the provisions of Sections
14-2-1131 through 14-2-1133 of the Georgia Business Corporation Code
specifically shall apply to the Corporation. Nothing in this Article VII shall
be deemed as prohibiting or restricting a merger of the Corporation's present
parent company (The Enstar Group, Inc., a Delaware corporation) with and into
the Corporation.

ARTICLE VIII
MISCELLANEOUS

Section 1. CORPORATE SEAL. The directors shall provide a suitable
corporate seal, which seal may contain the following words:

-16-
<PAGE> 17
THE ENSTAR GROUP, INC.
CORPORATE SEAL
GEORGIA

Section 2. CONTRACTS, ETC. The Board of Directors may authorize any
officer or officers, agent or agents, employee or employees to enter into any
contract or other instrument on behalf of this Corporation, and such
authorization may be general or confined to specific instances. Except as herein
provided, or as authorized by the Board of Directors, no officer, agent or
employee, other than the President, Vice President, Secretary or Treasurer,
shall have any power or authority to bind this Corporation by any contract or
engagement, or to pledge its credit or to render it liable, for any purpose or
for any amount.

Section 3. DEPOSITS, CHECKS AND DRAFTS. All checks and drafts or funds
of this Corporation shall be deposited from time to time to the credit of this
Corporation in such banks or trust companies or to other depositories, as the
Board of Directors may from time to time designate. All checks shall be drawn
out of the regular checkbooks of this Corporation and upon the stub of each such
check, or upon the file copy of the check retained by the Corporation, the
purpose and amount for which the same is drawn shall be specified. All checks,
notes, drafts, bills of exchange, acceptances or other orders for the payment of
money or other evidences of the indebtedness of the Corporation shall be signed
as shall from time to time be designated by resolution of the Board of
Directors.

Section 4. DIVIDENDS. The directors may from time to time declare
dividends upon the outstanding shares of stock from any source permitted under
the Georgia Business Corporation Code as and when the Board of Directors deems
expedient. Before declaring any dividend, there may be reserved out of the
accumulated profits such sum or sums as the directors from time to time in their
discretion think proper for working capital, or as a reserve fund to meet
contingencies, or for equalizing dividends, or for such other purposes as, in
the opinion of the directors, are conducive to the interest of the Corporation.

ARTICLE IX
AMENDMENT OF BYLAWS

Except for the provisions of Article VII hereof which may only be
amended as provided in Part 3 of Article 11 of the Georgia Business Corporation
Code, the Board of Directors shall have the power to alter, amend or repeal the
Bylaws of the Corporation at any annual meeting, or at a special meeting called
for that purpose by the affirmative vote of a majority of all of the directors
then in office, or by action of the Board taken by unanimous written consent in
lieu of a meeting.

-17-

<ARTICLE> 5
<LEGEND>
EXHIBIT 27.1
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON
FORM 10-K, FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 700
<SECURITIES> 71,702
<RECEIVABLES> 484
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,506
<PP&E> 103
<DEPRECIATION> 57
<TOTAL-ASSETS> 72,932
<CURRENT-LIABILITIES> 2,437
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 69,664
<TOTAL-LIABILITY-AND-EQUITY> 72,932
<SALES> 0
<TOTAL-REVENUES> 11,875
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,976
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 761
<INCOME-PRETAX> 9,138
<INCOME-TAX> 221
<INCOME-CONTINUING> 8,917
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,917
<EPS-PRIMARY> 2.61
<EPS-DILUTED> 2.49

</TABLE>

<PAGE> 1

EXHIBIT 99.1

THE ENSTAR GROUP, INC.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS

In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. The Enstar Group, Inc. ("Enstar" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe harbor
provisions.

"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Enstar. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, Enstar 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.

Enstar provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward-looking statements for
the safe harbor protection of the Reform Act and any other similar safe harbor
provisions. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include the following:

NO RECENT OPERATING HISTORY; BLIND POOL INVESTMENT

During 1997, the Company completed its reorganization. Accordingly, the
Company does not have any significant operating history upon which an evaluation
of the Company or its prospects can be based. At present, the Company is a
"blind pool;" no acquisitions have as yet been identified by the Company. The
acquisitions to be made by the Company will be selected by the executive
officers and Board of Directors of the Company and may in certain circumstances
be made without shareholder approval. Thus, the Company's prospects must be
considered in light of the risks, expenses and difficulties frequently
encountered by companies in their beginning stages of development.

UNCERTAINTY OF ACQUISITION TARGET; COMPETITION FOR SUITABLE ACQUISITIONS

The Company has not yet identified an acquisition target or focused on a
particular industry or geographical market for such acquisition. Accordingly,
there can be no assurance that the Company will be successful in acquiring an
operating business that will bring value to the Company's shareholders.
Moreover, the business of the acquisition target may be subject to numerous
risks that are impossible to predict in this Annual Report. By way of example
only, the acquisition target may be subject to government regulation, or
dependent upon new technology or new product development. In sum, there can be
no assurance that the Company will make an acquisition that will prove
financially advantageous to the Company's shareholders. 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.
<PAGE> 2

The Company faces intense competition in its search for one or more
operating businesses. In this regard, the Company competes with strategic
buyers, financial buyers and others who are looking to acquire suitable
operating businesses, many of whom have greater financial resources than the
Company or have greater flexibility in structuring acquisition transactions or
strategic relationships.

SUBSTANTIAL CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS

The Company's long term viability, profitability and growth will depend on
its ability to successfully realize the plans of the Company's management and
Board of Directors. The magnitude of the changes in the Company that have
occurred since its emergence from bankruptcy make it difficult to evaluate its
future prospects on the basis of historical information relating to the Company.
In addition, significant challenges are often encountered in attempting to build
a business upon emerging from bankruptcy.

DEPENDENCE ON NIMROD T. FRAZER AND OTHER EXECUTIVE OFFICERS AND DIRECTORS

The success of the Company is highly dependent on the ability of Nimrod T.
Frazer, the Company's Chairman, President and Chief Executive Officer, and the
other executive officers and directors of the Company to identify a financially
advantageous acquisition target and to consummate a transaction for the purchase
of such target on favorable terms. The identification of attractive business
opportunities is difficult and involves a high degree of uncertainty. There can
be no assurance that the Company's Board of Directors and management will be
successful in identifying an attractive business opportunity or consummating a
successful transaction.

POSSIBLE VOLATILITY OF STOCK PRICE

There may be significant volatility in the market price for the Company's
common stock. Quarterly operating results of the Company, changes in the value
of the Company's assets, changes in general conditions in the economy, the
financial markets, adverse press or news announcements, or other developments
affecting the Company, could cause the market price of its Common Stock to
fluctuate substantially. In addition, in recent years, the stock market has
experienced significant price and volume fluctuations. This volatility has
affected the market prices of securities issued by many companies for reasons
unrelated to their operating performance.

VOLATILITY OF FIRST UNION COMMON STOCK

Substantially all of the Company's assets currently are comprised of shares
of common stock of First Union Corporation ("First Union Common Stock"). The
market price for such stock will fluctuate, and there can be no assurance that
such fluctuations will not be severe. To the extent that First Union Common
Stock were to decline in value, the Company's financial ability to make an
acquisition would be diminished. The Company does not have any representatives
on First Union's board of directors and does not have any knowledge concerning
the business of First Union that is not publicly available.

GENERAL ECONOMIC RISKS AND BUSINESS CYCLES

The climate for making a suitable acquisition is affected generally by the
prevailing economic conditions and the business cycle. There can be no assurance
that the economic conditions or status of the business cycle will be favorable.

RISK OF NO DIVERSIFICATION

The Company does not plan to acquire operating businesses in a sufficient
number of industries such that the Company's holdings will be diversified across
several industries. In fact, the Company may decide to acquire only one business
operating in one industry.

2
<PAGE> 3

FINANCING LIMITATIONS

The Company may be outbid by another company with respect to any given
acquisition that management of the Company identifies as in the best interests
of the Company. Moreover, there may be certain financing contingencies that will
restrict the ability of the Company to make a given acquisition.

INVESTMENT COMPANY ACT OF 1940

If the Company were to continue to hold 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"). Registration
under the 1940 Act would subject the Company to many constraints not incurred by
most operating companies. The Company anticipates that registration will not be
necessary, because the Company plans to acquire an operating business. If the
Company were required to register as an investment company under the 1940 Act,
registration could have material adverse consequences on the Company's
operations. In order to provide the management of the Company with the optimal
amount of time to evaluate potential acquisitions, the Company filed for an
extension of the one-year exemption from registration requirements of the 1940
Act. The Company is seeking an extension of up to two years, but there can be no
assurance that it will be granted. The 1940 Act imposes, among other things,
significant restrictions and requirements on an investment company's capital
structure, the composition and duties of its board of directors, the custody of
its assets, the declaration of dividends, and transactions with its affiliated
persons.

ANTITAKEOVER PROVISIONS

The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage other persons from attempting to acquire control of the Company,
including, without limitation, procedural requirements in connection with
shareholder nominations for election of directors. The Company has also elected
to be subject to certain provisions of the Georgia Business Corporation Code and
has adopted a share purchase rights plan. In certain circumstances, the fact
that provisions and agreements are in place which inhibit or discourage takeover
attempts may affect the market price of the Company's common stock.

TAX CONSIDERATIONS

In September 1996, pursuant to the expedited procedures of Section 505 of
the Bankruptcy Code, the IRS entered a consent order with the bankruptcy court
waiving its right to challenge the Company's federal income tax return for the
taxable year ended August 31, 1995. The consent order effectively confirmed the
validity of the Company's use of its net operating loss carryforwards ("NOLs")
to offset its taxable income for the taxable year ended August 31, 1995.
However, because there are possible applications of certain provisions of the
Tax Code that may limit the Company's use of the NOLs in future tax returns,
there can be no assurance that the Company will be able to utilize its NOLs
fully in subsequent taxable years.