<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
The Enstar Group, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
PRELIMINARY PROXY MATERIALS -- DATED NOVEMBER 3, 1998
(ENSTAR LOGO)
November , 1998
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
The Enstar Group, Inc. (the "Company" or "Enstar") to be held on Thursday,
December 17, 1998, in the Blue Gray Room at the Montgomery Civic Center, located
at 300 Bibb Street, Montgomery, Alabama 36104. The meeting will begin promptly
at 9:00 a.m., local time, and we hope you will be able to attend.
At the Special Meeting, you will be asked to consider and vote upon a
proposal to approve the transactions contemplated under the Investment
Agreement, dated as of October 20, 1998, between the Company and J. Christopher
Flowers ("Flowers") (the "Investment Agreement"), whereby the Company will sell
to Flowers 1,158,860 shares (the "Shares") of newly issued common stock, $.01
par value, of the Company ("Common Stock") for $15,000,000 (the "Purchase
Price") in exchange for a full recourse promissory note from Flowers
(collectively, the "Transaction"). If the Transaction is consummated, Flowers
will own approximately 23% of the outstanding Common Stock of Enstar. It also is
contemplated that Flowers will become Vice Chairman of the Board of Directors,
effective December 1, 1998.
Pursuant to the Investment Agreement, Flowers will purchase the Shares at a
price of $12.94375 per share. The price per share represents the average of the
reported closing prices for Enstar common stock for the ten trading days
immediately preceding October 20, 1998, the date the Board of Directors approved
the Transaction. In the Investment Agreement, Flowers has agreed to certain
restrictions on his ability to transfer the Shares and to acquire any additional
shares of Enstar or participate in any capacity in certain other significant
transactions involving Enstar without the approval of the Board of Directors.
The Investment Agreement also contains certain agreements and covenants relating
to conflicting business opportunities and competing transactions involving
Flowers and related entities, as it is anticipated that Flowers will have
business arrangements with other entities, funds or ventures with which he
affiliates or associates.
Flowers will deliver to Enstar a full recourse promissory note (the "Note")
for the Purchase Price of the Shares. The Note will bear interest at the rate of
4.06% per annum, will have a maturity of two years and will require quarterly
interest payments. Enstar and Flowers also propose to enter into a registration
rights agreement pursuant to which Flowers will be granted certain rights to
require Enstar to register his Shares in the future.
The Board of Directors has received an opinion from Stephens Inc.,
financial advisor to the Company with respect to the Transaction, that the
consideration to be received by the Company in the Transaction is fair to the
disinterested shareholders of the Company from a financial point of view.
The Board of Directors has decided to present the Transaction to the
shareholders for approval, even though such approval is not required under
Georgia law or the Articles of Incorporation or Bylaws of the Company. Holders
of "Qualified Shares" of Common Stock as of November 6, 1998 (the "Record Date")
will be entitled to vote at the Special Meeting or any adjournment thereof.
"Qualified Shares" includes all outstanding shares of Common Stock as of the
Record Date, except for the shares beneficially owned (or the voting of which is
controlled) by Flowers or one of his family members. The presence in person or
by proxy of holders of a majority of the Qualified Shares of Common Stock
outstanding on the Record Date will constitute a quorum for the transaction of
business at the Special Meeting or any adjournment thereof. The
(ENSTAR LETTERHEAD Address)
<PAGE> 3
affirmative vote of a majority of the Qualified Shares of Common Stock is
required to approve the Transaction.
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND HAS APPROVED THE TRANSACTION
AND RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO APPROVE THE TRANSACTION.
Details of the background and reasons for the proposed Transaction are set
forth in the accompanying Proxy Statement.
It is important that your shares be voted whether or not you plan to be
present at the meeting. You should specify your choices by marking the
appropriate boxes on the proxy, and date, sign and return your proxy in the
enclosed envelope as promptly as possible. If you date, sign and return your
proxy without specifying your choices, your shares will be voted in accordance
with the recommendation of the Board of Directors.
I am looking forward to seeing you at the meeting.
Sincerely,
/s/ Nimrod T. Frazer
Nimrod T. Frazer
Chairman, President and
Chief Executive Officer
<PAGE> 4
THE ENSTAR GROUP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1998
To the Shareholders of The Enstar Group, Inc.:
Notice is hereby given that a special meeting of shareholders (the "Special
Meeting") of The Enstar Group, Inc. (the "Company") will be held on Thursday,
December 17, 1998, beginning at 9:00 a.m., local time, in the Blue Gray Room at
the Montgomery Civic Center, located at 300 Bibb Street, Montgomery, Alabama
36104, for the following purposes:
(1) To consider and vote upon a proposal to approve the transactions
contemplated under the Investment Agreement, dated as of October 20, 1998,
between the Company and J. Christopher Flowers ("Flowers") (the "Investment
Agreement"), whereby the Company will sell to Flowers 1,158,860 shares of
newly issued common stock, $.01 par value, of the Company ("Common Stock")
for $15,000,000 in exchange for a full recourse promissory note from
Flowers (collectively, the "Transaction").
(2) To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournment thereof.
The Board has fixed the close of business on November 6, 1998 as the record
date (the "Record Date") for determination of shareholders entitled to receive
notice of, and to vote at, the Special Meeting and any adjournment thereof.
Holders of "Qualified Shares" of Common Stock as of the Record Date are entitled
to vote at the Special Meeting or any adjournment thereof. "Qualified Shares"
includes all outstanding shares of Common Stock as of the Record Date except for
the shares beneficially owned (or the voting of which is controlled) by Flowers
or one of his family members. The presence in person or by proxy of holders of a
majority of the Qualified Shares of Common Stock outstanding on the Record Date
will constitute a quorum for the transaction of business at the Special Meeting
or any adjournment thereof. The affirmative vote of a majority of the Qualified
Shares of Common Stock is required to approve the Transaction. A list of
shareholders as of the Record Date will be open for examination during the
Special Meeting.
Your attention is directed to the Proxy Statement submitted with this
Notice.
By Order of the Board of Directors
/s/ Cheryl D. Davis
Cheryl D. Davis
Chief Financial Officer,
Vice-President of
Corporate Taxes and Secretary
Montgomery, Alabama
November , 1998
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE IN PERSON
IF YOU WISH, EVEN IF YOU HAVE PREVIOUSLY RETURNED YOUR PROXY.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROXY STATEMENT FOR SPECIAL MEETING OF SHAREHOLDERS......... 1
GENERAL INFORMATION......................................... 1
THE ENSTAR SPECIAL MEETING.................................. 1
Time, Date, Place and Purpose............................. 1
Record Date and Shares Entitled to Vote................... 1
Vote Required............................................. 2
Security Ownership of Management.......................... 2
Solicitation and Revocation of Proxies.................... 2
THE TRANSACTION............................................. 3
General Description of the Transaction.................... 3
Background to the Transaction............................. 4
The Investment Agreement.................................. 6
Closing................................................. 6
Recommendation to the Shareholders; Withdrawal of
Recommendation; No Solicitation........................ 6
Transfer Restrictions................................... 7
Indemnification......................................... 7
Agreement to Nominate Flowers as a Director; Appointment
as Vice Chairman....................................... 7
Registration Rights Agreement........................... 8
Standstill Obligations.................................. 8
Conflicting Business Opportunities...................... 9
Conditions to Closing................................... 9
Termination; Termination Fee............................ 9
Fees and Expenses....................................... 10
Agreement to Vote Shares "FOR" the Transaction.......... 10
Amendment to Rights Agreement........................... 10
The Fairness Opinion...................................... 10
Historical Trading Price................................ 12
Book Value.............................................. 12
Past Acquisition Efforts................................ 12
Transaction Terms....................................... 12
Reasons for Submitting Transaction to a Vote of
Shareholders............................................ 12
Recommendation of the Board of Directors.................. 13
Reasons for the Transaction............................... 13
The Note.................................................. 13
Interest Rate; Maturity................................. 13
Events of Default; Remedies............................. 13
The Registration Rights Agreement......................... 14
Demand Rights........................................... 14
Incidental or "Piggyback" Rights........................ 14
Expenses................................................ 15
Effectiveness........................................... 15
Accounting Treatment...................................... 15
Effect on the Company's Net Operating Loss Carryforwards
and Tax Credits......................................... 16
CAPITALIZATION AND BOOK VALUE PER SHARE OF COMMON STOCK..... 17
DESCRIPTION OF THE COMPANY.................................. 17
History of the Company.................................... 17
Strategy for Business Acquisitions........................ 18
</TABLE>
<TABLE>
COMMON STOCK OWNERSHIP BY MANAGEMENT........................ 19
<S> <C>
PRINCIPAL SHAREHOLDERS...................................... 20
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS............ 21
Compensation of Directors................................. 21
Summary Compensation Table for Executive Officers......... 21
EXECUTIVE OFFICERS.......................................... 22
OPTION GRANTS IN LAST FISCAL YEAR........................... 23
Individual Grants......................................... 23
Stock Option Exercises.................................... 23
COMPENSATION COMMITTEE...................................... 24
Compensation Committee of the Board of Directors.......... 24
Report of the Compensation Committee for 1997............. 24
PERFORMANCE GRAPH........................................... 26
OTHER MATTERS............................................... 26
1999 SHAREHOLDER PROPOSALS.................................. 27
INCORPORATION OF PROXY STATEMENT BY REFERENCE............... 27
ANNEXES TO PROXY STATEMENT
Annex A -- Investment Agreement (includes the form of
promissory note, shareholder letter and
registration rights agreement)................. A-1
Annex B -- Fairness Opinion of Stephens Inc. ............. B-1
</TABLE>
ii
<PAGE> 6
THE ENSTAR GROUP, INC.
172 COMMERCE STREET
MONTGOMERY, ALABAMA 36104
---------------------
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 17, 1998
---------------------
GENERAL INFORMATION
This Proxy Statement is being furnished to the shareholders of The Enstar
Group, Inc., a Georgia corporation (the "Company" or "Enstar"), in connection
with the solicitation of proxies by the Board of Directors of the Company for
use at a special meeting of shareholders of the Company (the "Special Meeting").
At the Special Meeting, shareholders of Enstar will be asked to consider and
vote upon a proposal to approve the transactions contemplated under the
Investment Agreement, dated as of October 20, 1998, between the Company and J.
Christopher Flowers ("Flowers") (the "Investment Agreement"), whereby the
Company will sell to Flowers 1,158,860 shares (the "Shares") of newly issued
common stock, $.01 par value, of the Company ("Common Stock") for $15,000,000
(the "Purchase Price") in exchange for a full recourse promissory note from
Flowers (collectively, the "Transaction"). If the Transaction is consummated,
Flowers will own approximately 23% of the outstanding Common Stock of Enstar.
It is anticipated that this Proxy Statement will be first mailed to
shareholders of the Company on or about November , 1998.
THIS PROXY STATEMENT AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME
BY THE ENSTAR GROUP, INC. (THE "COMPANY") OR ITS REPRESENTATIVES CONTAIN
STATEMENTS WHICH MAY CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF THE SECURITIES ACT OF 1933 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 COMPANY 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 MAY 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 THE ANNUAL
REPORT ON FORM 10-K/A-1, DATED APRIL 21, 1998, AND ARE HEREBY INCORPORATED BY
REFERENCE. THE COMPANY UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE
FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED ASSUMPTIONS, THE OCCURRENCE OF
UNANTICIPATED EVENTS OR CHANGES TO FUTURE OPERATING RESULTS OVER TIME.
THE ENSTAR SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE
The Special Meeting will be held on Thursday, December 17, 1998, in the
Blue Gray Room at the Montgomery Civic Center, located at 300 Bibb Street,
Montgomery, Alabama 36104, beginning at 9:00 a.m., local time, and at any
adjournment thereof. At the Special Meeting, shareholders of Enstar will be
asked to consider and vote upon a proposal to approve the Transaction.
RECORD DATE AND SHARES ENTITLED TO VOTE
The Board has fixed November 6, 1998 as the record date (the "Record Date")
for the determination of shareholders entitled to notice of, and to vote at, the
Special Meeting.
1
<PAGE> 7
Only holders of Qualified Shares (defined herein) of Common Stock as of the
Record Date are entitled to vote at the Special Meeting or any adjournment
thereof. Under Section 14-2-863(b) of the Georgia Business Corporation Code (the
"GBCC"), "Qualified Shares" are defined as any shares of common stock entitled
to vote with respect to a director's conflicting interest transaction, except
shares that, to the knowledge, before the vote, of the tabulator of votes are
beneficially owned (or the voting of which is controlled) by a director who has
a conflicting interest respecting the transaction or by a related person of the
director, or both. Because Flowers, the purchaser of the Shares, is a director
of the Company, he has a conflicting interest in the Transaction under the GBCC.
Accordingly, any shares beneficially owned (or the voting of which is
controlled) by Flowers or a related person (the "Flowers Shares") will not be
voted at the Special Meeting.
On the Record Date, the Company had issued and outstanding 4,106,709 shares
of Common Stock. Of such shares, 75,195 were Flowers Shares, and will not be
voted at the Special Meeting. Therefore, the Company had issued and outstanding
4,031,514 Qualified Shares of Common Stock on the Record Date entitled to be
voted at the Special Meeting.
VOTE REQUIRED
The presence in person or by proxy of holders of a majority of the
Qualified Shares of Common Stock outstanding on the Record Date will constitute
a quorum for the transaction of business at the Special Meeting or any
adjournment thereof. If a quorum is present, the affirmative vote of a majority
of the Qualified Shares of Common Stock is required to approve the Transaction.
At the Special Meeting, votes cast "FOR" or "AGAINST" any matter may be
cast in person or by proxy. Shares of Common Stock held by nominees for
beneficial owners will be counted for purposes of determining whether a quorum
is present if the nominee executes and returns the enclosed form of proxy even
if voting instructions have not been received from the beneficial owner (a
"broker non-vote"). Broker non-votes will be counted as votes "AGAINST" the
proposed Transaction. Abstentions with respect to a proposal are counted for
purposes of establishing a quorum. If a quorum is present, abstentions will have
the effect of a vote "AGAINST" the proposed Transaction.
Each Qualified Share of Common Stock is entitled to one vote at the Special
Meeting. No preemptive rights under law or contract are associated with the
Common Stock. Appraisal rights for dissenting shareholders are not applicable to
the matter being proposed.
SECURITY OWNERSHIP OF MANAGEMENT
As of the Record Date, the directors of the Company (excluding Flowers)
owned an aggregate of 451,449 shares of Common Stock (not including 115,315
shares of Common Stock issuable upon the exercise of certain options and stock
units held by such persons), or approximately 11% of the shares of Common Stock
then outstanding. Each of the directors of the Company (excluding Flowers), in
his capacity as shareholder of the Company, has agreed with Flowers in a letter
agreement to vote or cause to be voted all shares owned by such director or
controlled affiliates of such director in favor of the Transaction.
SOLICITATION AND REVOCATION OF PROXIES
When the enclosed form of proxy is properly executed and returned, the
shares it represents will be voted as directed at the Special Meeting and any
adjournment thereof or, if no direction is indicated, such shares will be voted
"FOR" the proposal set forth in the notice attached hereto. If the shares owned
by a shareholder are registered in the name of more than one person, each such
person should sign the enclosed proxy. If the proxy is signed by an attorney,
executor, administrator, trustee, guardian or by any other person in a
representative capacity, the full title of the person signing the proxy should
be given and a certificate should be furnished showing evidence of appointment.
Any beneficial owner of shares of Common Stock as of the Record Date who intends
to vote such shares in person at the Special Meeting must obtain a legal proxy
from the record owner and present such proxy at the Special Meeting in order to
vote such shares. Votes cast by proxy or in
2
<PAGE> 8
person at the Special Meeting will be tabulated by the inspector of election
appointed for the meeting who will also determine whether a quorum is present
for the transaction of business.
Any shareholder giving a proxy has the power to revoke it at any time
before it is voted. All proxies delivered pursuant to the solicitation are
revocable at any time at the option of the persons executing them by giving
written notice to the Secretary of the Company, by delivering a later-dated
proxy or by voting in person at the Special Meeting.
The Company has retained Georgeson & Company Inc., New York, New York, to
aid in the mailing, tabulation and solicitation of proxies. It is estimated that
the cost of these services will be approximately $7,500, plus reimbursement for
out-of-pocket expenses. The cost of solicitation of proxies by the Board of
Directors in connection with the Special Meeting will be borne by the Company.
Proxies may be solicited by personal interview, mail, telephone or facsimile
transmission. In addition, the Company will reimburse brokers, fiduciaries and
custodians for reasonable expenses incurred by them in forwarding proxy
materials to beneficial owners of Common Stock held in their names. Proxies may
also be solicited by certain of the Company's directors and executive officers,
without additional compensation, personally or by mail, telephone or facsimile
transmission.
THE TRANSACTION
The following summary of the Transaction is qualified in its entirety by
reference to the provisions of the Investment Agreement attached as Annex A
hereto (including the form of promissory note, form of shareholder letter and
form of registration rights agreement attached as exhibits to the Investment
Agreement), and the fairness opinion of Stephens Inc., attached as Annex B
hereto, each of which is incorporated by reference herein.
GENERAL DESCRIPTION OF THE TRANSACTION
Pursuant to the Investment Agreement between the Company and Flowers, the
Company will sell to Flowers 1,158,860 Shares of newly issued Common Stock for
$15,000,000 in exchange for a promissory note from Flowers. Consummation of the
Transaction is conditioned on the approval of the terms of the proposed sale by
the Company's shareholders at the Special Meeting. See "-- The Investment
Agreement". It also is contemplated that Flowers will be appointed to the
position of Vice Chairman of the Board of Directors, effective December 1, 1998.
The purchase price per share is $12.94375, equal to the average of the
closing prices for shares of Common Stock for the 10 trading days immediately
preceding October 20, 1998, the date on which the Board of Directors approved
the Transaction. In consideration for the Shares, Flowers will deliver to the
Company a full recourse promissory note (the "Note") in the aggregate principal
amount of the Purchase Price. The Note will bear interest at 4.06% per annum,
will mature and be payable in full on the second anniversary of the Closing Date
(defined herein) of the Transaction and will require quarterly interest
payments. See "-- The Note".
If the Transaction is consummated, Flowers' beneficial ownership of Common
Stock will increase from 2.14% as of October 20, 1998 to 23.68%, and Flowers
will become the largest shareholder of the Company. See "Principal
Shareholders". Pursuant to the terms of the Investment Agreement, however,
Flowers has agreed to certain restrictions on his ability to transfer the Shares
and to acquire any additional shares of Enstar or participate in any capacity in
certain other significant transactions involving Enstar without the approval of
the Board of Directors. See "-- The Investment Agreement -- Standstill
Obligations". The Investment Agreement also contains certain agreements and
covenants relating to conflicting business opportunities and competing
transactions involving Flowers and related entities, as it is anticipated that
Flowers will have business arrangements with other entities, funds or ventures
with which he affiliates or associates. See "-- The Investment
Agreement -- Conflicting Business Opportunities".
The Shares will be unregistered, and in addition to any resale limitations
imposed by the Securities Act of 1933, as amended (the "Securities Act"), will
be subject to certain restrictions on transfer. See "-- The
3
<PAGE> 9
Investment Agreement -- Transfer Restrictions". Pursuant to a Registration
Rights Agreement between the Company and Flowers (the "Registration Rights
Agreement"), to be executed upon consummation of the Transaction, Flowers will
be granted certain rights to require Enstar to register his Shares in the
future. See "-- The Registration Rights Agreement".
The Board of Directors has received an opinion (the "Fairness Opinion")
from Stephens Inc. ("Stephens"), financial advisor to the Company with respect
to the Transaction, that the consideration to be received by the Company in the
Transaction is fair to the disinterested shareholders of the Company from a
financial point of view. See "-- The Fairness Opinion".
Subject to certain conditions, the Board of Directors has agreed to
recommend that the Enstar shareholders vote in favor of the Transaction. See
"-- The Investment Agreement -- Recommendation to the Shareholders; Withdrawal
of Recommendation; No Solicitation". The members of the Board of Directors have
agreed with Flowers in their capacity as shareholders of Enstar to vote their
shares of Common Stock "FOR" the Transaction. See "-- The Investment
Agreement -- Agreement to Vote Shares "FOR" the Transaction".
BACKGROUND TO THE TRANSACTION
In August 1998, Flowers advised Nimrod T. Frazer, Chairman, President and
Chief Executive Officer of the Company ("Frazer" or the "Chairman"), that he was
considering departing from Goldman, Sachs & Co. ("Goldman") to pursue his own
business interests. Frazer and Flowers discussed the possibility of Flowers
taking on an enhanced role with the Company in its search for an operating
company. Flowers indicated that he would be interested in taking on an enhanced
role with the Company so long as it was coupled with an increased financial
interest in the Company. Flowers' resignation from Goldman was publicly
announced on September 8, 1998 and is effective as of November 27, 1998.
A special meeting of the Board of Directors of the Company was held on
October 6, 1998 to discuss the possibility of Flowers taking on an enhanced role
with the Company. At the meeting, Flowers advised the Board that he was
interested in taking on an enhanced position with Enstar, but that he would need
to make a substantial investment in Enstar in order to create appropriate
financial incentives for the time commitment he anticipates devoting to the
Company. The Board of Directors discussed the enhanced role of Flowers and the
benefits of such an arrangement to the Company and its shareholders, as well as
possible investment arrangements designed to address Flowers' request. Counsel
for the Company and the Company's independent auditors advised the Board of
Directors with respect to certain legal and accounting considerations associated
with the possible investment arrangements that Flowers might make in the
Company. These alternative investment arrangements included a significant stock
option grant to Flowers and a significant investment by Flowers in the Company.
During the course of the October 6 Board meeting, the Chairman excused
Flowers from the meeting, allowing the disinterested directors to discuss the
possible enhanced role for Flowers and the possible investment arrangements in
confidence. The topics discussed included the Company's ongoing search for an
operating company, Flowers' background and reputation, the benefits to the
Company and its shareholders in securing Flowers' services to the Company and
the possible investment arrangements. During this discussion, management of the
Company, the Company's counsel and the Company's independent auditors responded
to questions from the disinterested directors concerning the business, legal and
accounting issues associated with the proposal. At the conclusion of such
discussion, the disinterested directors agreed to propose to Flowers that he
become Vice Chairman of Enstar, assume an enhanced role in the Company's efforts
to acquire an operating company and that he purchase $15 million of the
Company's Common Stock at the current market price in exchange for a full
recourse promissory note. Thereafter, Flowers was invited to return to the Board
meeting and the disinterested directors and Flowers further refined and agreed
to the proposed terms of the Transaction. At the conclusion of the meeting, the
Board of Directors scheduled a second special meeting to further review and
discuss the terms of the Transaction and to receive additional advice from the
Company's management and outside advisers.
4
<PAGE> 10
Subsequent to the October 6, 1998 Board meeting, Frazer contacted several
nationally recognized investment banking firms to serve as financial advisor
with respect to the proposed Transaction. After discussions with these firms,
Frazer selected Stephens to act as financial advisor to the Company, subject to
approval by the Board of Directors.
A second special meeting of the Board of Directors was held via telephone
conference on October 12, 1998. At the meeting, the Chairman led the discussion
with the Board of Directors in reviewing the proposed terms of the Transaction.
The Board members asked questions of management of the Company and the Company's
counsel relating to legal and accounting issues. The Chairman also discussed
with the Board members the due diligence he had undertaken with respect to
Flowers' creditworthiness. The Chairman reported on his discussions with
investment banking firms, and the Board of Directors agreed to engage Stephens
to provide an opinion as to the fairness of the Transaction to the disinterested
shareholders of the Company. The Board of Directors discussed the related-party
nature of the Transaction and decided that it was in the best interests of the
Company and its shareholders to seek shareholder approval of the proposed
Transaction, and to make consummation of the Transaction contingent on such
approval. The Board of Directors decided to call a third special meeting to
further discuss and take action with respect to the Transaction.
During the period from October 13 to October 20, 1998, Stephens reviewed
certain financial and other information and spoke with certain members of the
Company's management in preparation for their opinion as to the fairness of the
consideration to be received by the Company in the Transaction. The Company's
counsel distributed first drafts of the Investment Agreement, including the form
of Note and Registration Rights Agreement, and legal counsel to Flowers
responded with comments. Frazer and Flowers, along with their respective
counsel, participated in several telephone conferences to negotiate the terms of
the agreements.
A third special meeting of the Board of Directors was held via telephone
conference on October 20, 1998. At the meeting, management of the Company and
the Company's counsel reviewed the material terms and provisions of the
Investment Agreement and related exhibits and answered questions from the
directors concerning such documents. In addition, the Company's independent
auditors discussed with the Board the accounting issues associated with the
Transaction and answered questions from the directors concerning such accounting
matters. Flowers discussed the value that he could add to the Company's search
for an operating company, and management of the Company addressed the reasons
why they believed the Transaction was in the best interests of the Company and
its shareholders. Stephens made its presentation to the Board of Directors,
describing its analysis in reviewing the terms of the Transaction in connection
with the rendering of its opinion. Stephens expressed their oral opinion to the
Board of Directors, stating that the consideration to be received by the Company
was fair from a financial point of view to the disinterested shareholders of the
Company. The Board members discussed whether the Transaction was in the best
interests of the Company and its shareholders, and concluded that it was. The
Board of Directors then made a motion to approve and did approve the
Transaction; however, Flowers abstained from such vote. All members of the Board
of Directors (except for Flowers) voted in favor of the Transaction. The Board
of Directors then reiterated its decision to call a special meeting of the
shareholders at which the shareholders would have the opportunity to vote on the
Transaction, and that consummation thereof was contingent on the approval of the
Transaction by the shareholders. The outside directors agreed to waive their
meeting fees with respect to the October 20 Board meeting.
Subsequent to the Board meeting, on October 20, 1998, the Company and
Flowers held telephone conferences to resolve the remaining terms of the
agreements, resulting in an Investment Agreement mutually satisfactory to both
parties, and the parties executed the Investment Agreement. Each of the
directors executed and delivered to Flowers a letter in which such director
agreed that, in his capacity as a shareholder of the Company, such director
would vote the shares owned by him or any controlled affiliate in favor of the
Transaction. Stephens delivered its written opinion, dated October 20, 1998, as
to the fairness of the consideration to be received by the Company in the
Transaction. A press release describing the Transaction was released at the
close of business on October 20, 1998.
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<PAGE> 11
THE INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, the Company will sell to Flowers
1,158,860 newly issued shares of Common Stock for the Purchase Price of
$15,000,000 in exchange for a full recourse promissory note from Flowers. The
purchase price per share is $12.94375, equal to the average of the closing
prices for shares of Common Stock for the 10 trading days immediately preceding
October 20, 1998, the date on which the Board of Directors approved the
Transaction. In consideration for the Shares, Flowers will deliver to the
Company the Note in the aggregate principal amount of the Purchase Price. The
Note will bear interest at 4.06% per annum, will mature and be payable in full
on the second anniversary of the Closing Date of the Transaction and will
require quarterly interest payments. See "-- The Note".
Closing
The closing of the Transaction (the "Closing") will occur on a date (the
"Closing Date") no later than the fifth business day following the satisfaction
or waiver of all conditions to Closing. See "-- Conditions to Closing". At the
Closing, the Company will deliver the Shares in exchange for the Note, and the
parties will execute the Registration Rights Agreement.
Recommendation to the Shareholders; Withdrawal of Recommendation; No
Solicitation
Except as described below, the Board of Directors has agreed through its
Qualified Directors (defined herein) to recommend that the holders of Qualified
Shares approve the Transaction (the "Recommendation").
The Transaction is a conflicting interest transaction for Flowers under
Georgia law. Section 14-2-860(1) of the GBCC defines a "conflicting interest"
transaction as a transaction effected or proposed to be effected by a
corporation if a director has a beneficial financial interest in or is so
closely linked to the transaction and of such financial significance to the
director that it would reasonably be expected to exert an influence on the
director's judgment if he were called upon to vote on the transaction. Section
14-2-860(2) of the GBCC defines a "director's conflicting interest transaction"
as a transaction effected or proposed to be effected by the corporation
respecting which a director has a conflicting interest.
The GBCC defines a "Qualified Director" as a director who does not have
either (i) a conflicting interest respecting a director's conflicting interest
transaction, or (ii) a familial, financial, professional or employment
relationship with a second director who does have a conflicting interest
respecting the transaction, which relationship would, in the circumstances,
reasonably be expected to exert an influence on the first director's judgment
when voting on the transaction. All members of the Board of Directors other than
Flowers are Qualified Directors.
The Investment Agreement provides that prior to the Special Meeting, the
Qualified Directors may withdraw the Recommendation if there is an unsolicited
bona fide written proposal or offer with respect to the purchase of all or a
significant portion of the assets, or 15% or more of the capital stock, of the
Company (any of the foregoing an "Acquisition Transaction"), if and only to the
extent that (a) the Qualified Directors conclude in good faith (after
consultation with their financial advisor) that such Acquisition Transaction is
reasonably capable of being completed, taking into account all legal, financial
and other aspects of the proposal and the person making the proposal, and would,
if consummated, result in a transaction more favorable to Enstar's shareholders
from a financial point of view than the Transaction (any such proposal or offer,
an "Acquisition Proposal" and any such more favorable transaction, a "Superior
Proposal"); (b) the Qualified Directors conclude in good faith (after
consultation with their financial advisor and legal counsel) that the Superior
Proposal is not capable of being completed without termination of this
Agreement; and (c) the Qualified Directors determine in good faith, after
consultation with their legal counsel, that the fiduciary duties of the
Qualified Directors to the shareholders of Enstar under applicable law require
that the Qualified Directors withdraw such Recommendation. If the Qualified
Directors withdraw such Recommendation, the Company may be required to pay a
termination fee of $1,000,000 to Flowers. See "-- Termination; Termination Fee".
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<PAGE> 12
The Company has further agreed that, until the Closing Date, neither it nor
any of its executive officers or directors will, directly or indirectly,
initiate, solicit, knowingly encourage or otherwise facilitate any inquiries
with respect to or the making of any Acquisition Proposal.
Transfer Restrictions
The Shares will not be registered under federal or state securities laws
and will bear a legend to such effect. Under such laws, the Shares may not be
offered, sold or transferred except (i) pursuant to an exemption from
registration under the Securities Act and such other applicable laws, and then
only upon receipt by the Company of an opinion of counsel reasonably
satisfactory to the Company that such transaction does not require registration
under the Securities Act, or (ii) pursuant to an effective registration
statement under the Securities Act. Flowers will be granted certain rights to
require Enstar to register his shares in the future in accordance with the
Registration Rights Agreement between the Company and Flowers to be executed at
Closing. See "-- The Registration Rights Agreement".
In addition, the Company and Flowers have agreed that, without the prior
written consent of the Company, Flowers will not sell, transfer or otherwise,
directly or indirectly, dispose of any of the Shares prior to the second
anniversary of the Closing Date. Such transfer restriction shall terminate and
expire upon the earlier of (i) the repayment in full of the Note, (ii) Flowers
no longer being a member of the Board of Directors (other than as a result of
Flowers resigning from his directorship or being removed from his directorship
by an affirmative vote of the shareholders for cause), or (iii) the Continuing
Directors (defined herein) no longer constituting a majority of the Board of
Directors. The parties have agreed that the Shares will bear a legend to such
effect so long as such transfer restriction shall remain in effect.
Indemnification
The Company and Flowers have agreed that if any action or omission of
Flowers in connection with the matters contemplated by the Investment Agreement
is not subject to indemnification pursuant to the indemnification provisions of
the Company's Bylaws, then the Company will indemnify and hold harmless Flowers
and any of his direct or indirect Affiliates (as defined in Section 12b-2 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act")) from and
against all actions, suits, proceedings (including any investigations or
inquiries), claims, losses, damages, liabilities or expenses of any kind or
nature whatsoever ("Claims") which may be incurred by or asserted against or
involve Flowers or any of his direct or indirect Affiliates as a result of any
third-party claim arising out of the Transaction and, upon demand by Flowers or
any of his direct or indirect Affiliates, pay or reimburse Flowers or any of his
direct or indirect Affiliates for any reasonable out of-pocket legal or other
expenses, and other costs incurred by Flowers or any of his direct or indirect
Affiliates in connection with the investigation, defending or preparing to
defend any such Claim; provided that the indemnity will not apply to the extent
any Claim arises from the gross negligence or willful misconduct of Flowers or
any of his direct or indirect Affiliates.
The Company has also agreed that it will not amend, alter or otherwise
modify the indemnification provisions of the Company's Bylaws insofar as they
relate to Flowers and the Transaction for a period of six years from the Closing
Date without the prior written consent of Flowers.
Agreement to Nominate Flowers as a Director; Appointment as Vice Chairman
The Company has agreed, through its Board of Directors, to nominate Flowers
for election as a director of the Company so long as Flowers owns 5% or more of
the outstanding shares of Common Stock. This agreement will terminate on the
sixth anniversary of the Closing Date.
It is contemplated that Flowers will be appointed Vice Chairman of the
Board of Directors, an executive position, effective December 1, 1998. Such
appointment is independent of the consummation of the Transaction. Flowers will
serve in such capacity at the discretion of the Board of Directors, and in such
capacity he will assist the Company in the search for and acquisition of an
operating company. As Vice Chairman, Flowers will be entitled to reimbursement
of his out-of-pocket expenses incurred in connection with providing services to
the Company and such other compensation and remuneration as the Board of
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<PAGE> 13
Directors shall determine in its discretion. It is anticipated that Flowers will
receive a salary of $50,000 per year for serving in such capacity, and such
other remuneration as the Compensation Committee determines is appropriate. The
Company has acknowledged and agreed that Flowers is and will be engaged in other
business activities and that there shall be no specific time commitment
applicable to Flowers with respect to the performance of his services as Vice
Chairman. Once appointed to the position of Vice Chairman, Flowers will resign
from the Compensation Committee of the Board of Directors.
Registration Rights Agreement
The Company and Flowers have agreed to enter into a Registration Rights
Agreement at Closing. Pursuant to such agreement, Flowers will be granted
certain rights to require Enstar to register his Shares in the future. The
Company has also agreed that it will not enter into any agreement with respect
to its securities which is inconsistent with the rights to be granted to Flowers
in the Registration Rights Agreement. See "-- The Registration Rights
Agreement".
Standstill Obligations
Flowers has agreed that neither he nor his agents or representatives will,
without the prior written approval of a majority of the Continuing Directors,
directly or indirectly, acting alone or in concert with others (a) acquire,
offer to acquire, or agree to acquire, by purchase or otherwise, any capital
stock or direct or indirect rights to acquire any capital stock of the Company,
other than (i) any capital stock or rights offered generally to the other
shareholders of the Company (including, without limitation, in connection with a
tender or exchange offer, a merger, consolidation, share exchange or other
business combination involving the Company); (ii) any rights issued under the
Company's Rights Agreement (defined herein) and any shares of capital stock
acquired upon the exercise thereof; (iii) capital stock or rights acquired
pursuant to the terms and conditions of any agreement or arrangement approved by
a majority of the Continuing Directors in office at the time such agreement or
arrangement is or was approved by the Board of Directors (including, without
limitation, all stock options issued to Flowers); or (iv) capital stock or
rights acquired pursuant to a transaction approved by a majority of the
Continuing Directors in office at the time such transaction is or was approved
by the Board of Directors; (b) submit a proposal for, or offer to effect any
Significant Proposal (defined herein); (c) make, or in any way participate,
directly or indirectly, in any solicitation of proxies to vote, or seek to
advise or influence any person or entity with respect to the voting of capital
stock of the Company in connection with a Significant Proposal; or (d) form,
join or in any way participate in a "group" as defined in Rule 13d-5(b) under
the Exchange Act in connection with any of the foregoing. Flowers has also
agreed to promptly advise the Company of any inquiry or proposal made to him
with respect to any of the foregoing and describe, in reasonable detail, the
terms and conditions thereof.
The "Continuing Directors" are T. Whit Armstrong, T. Wayne Davis, Nimrod T.
Frazer and Jeffrey S. Halis and any new member added to the Board of Directors
by a majority vote of such Continuing Directors. "Significant Proposal" is
defined as any proposal for (a) a tender or exchange offer, a merger,
consolidation, share exchange or other business combination involving the
Company; (b) a recapitalization, liquidation, dissolution or similar transaction
involving the Company; (c) a sale of all or substantially all of the assets of
the Company; (d) the removal of a Continuing Director or the increase in the
number of directors constituting the Board of Directors; or (e) the acquisition
of 20% or more of the outstanding capital stock of the Company, other than in
connection with the Transaction.
The standstill obligations described above will terminate upon the earlier
to occur of (i) termination of the Investment Agreement in accordance with its
terms, (ii) the time at which Flowers ceases to beneficially own more than 5% of
the outstanding shares of Common Stock for a period of at least 90 consecutive
days, (iii) the time at which the Continuing Directors no longer constitute a
majority of the Board of Directors, (iv) Flowers no longer being a Director
(other than as a result of Flowers resigning from his directorship or Flowers
being removed from his directorship by an affirmative vote of the shareholders
of the Company for cause), or (v) the sixth anniversary of the Closing Date.
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<PAGE> 14
Conflicting Business Opportunities
The Company and Flowers have agreed that Flowers (including any entities in
which he may invest or which he may control) is or may be engaged in the future
in business activities that are in the same lines of business as the Company or
compete with the Company. The Company and Flowers agree that Flowers has the
right to, and shall have no duty not to, engage in the same or similar business
activities or lines of business as the Company and to do business with any
client or customer of the Company and will not be liable to the Company or to
its shareholders for breach of any fiduciary duty by reason of any such
activities. If Flowers acquires knowledge of a potential transaction or matter
which may be a corporate opportunity for both the Company and Flowers, Flowers
is not under any duty to present such corporate opportunity to the Company, nor
will Flowers be liable to the Company or its shareholders for breach of any
fiduciary duty as a shareholder of the Company by reason of the fact that
Flowers pursues or acquires such corporate opportunity for himself, directs such
corporate opportunity to another party or does not present the corporate
opportunity to the Company, and Flowers will be deemed not to have breached his
duty of loyalty to the Company or its shareholders and not to have derived an
improper personal benefit therefrom.
Conditions to Closing
The obligation of each party to consummate the Transaction is subject to
the satisfaction at or prior to the Closing of the following conditions: (a) no
statute, rule or regulation shall have been enacted, promulgated or enforced by
any court or governmental authority which prohibits or restricts the
consummation of the Transaction; (b) there shall not be in effect any judgment,
order, injunction or decree of any court of competent jurisdiction enjoining the
consummation of the Transaction; (c) there shall not be any suit, action,
investigation, inquiry or other proceeding commenced by any governmental or
other regulatory or administrative agency or commission which seeks to enjoin or
otherwise prevent consummation of the Transaction; and (d) the Transaction shall
have been approved at the Special Meeting by a majority of the total votes
entitled to be cast by the holders of all Qualified Shares at such Special
Meeting in accordance with Section 14-2-863 of the GBCC.
The obligation of the Company to consummate the Transaction is further
subject to the satisfaction (or waiver) at or prior to the Closing of the
following conditions: (a) the representations and warranties of Flowers
contained in the Investment Agreement shall be true and correct in all material
respects at the date of the execution of the Investment Agreement and as of the
Closing as if made at and as of such time, except for changes permitted or
contemplated therein and except for representations and warranties which are as
of a specific date; (b) Flowers shall have performed in all material respects
his obligations under the Investment Agreement required to be performed by him
at or prior to the closing; (c) Flowers shall have delivered to the Company an
executed Note and any other documents, instruments and writings required or
reasonably requested by the Company; and (d) Flowers shall have executed the
Registration Rights Agreement.
The obligation of Flowers to consummate the Transaction is further subject
to the satisfaction (or waiver) at or prior to the Closing of the following
conditions: (a) the representations and warranties of the Company contained in
the Investment Agreement shall be true and correct in all material respects at
the date of the execution of the Investment Agreement and as of the Closing as
if made at and as of such time, except for changes permitted or contemplated
therein and except for representations and warranties which are as of a specific
date; (b) the Company shall have performed in all material respects its
obligations under the Investment Agreement required to be performed by it at or
prior to the Closing pursuant to the terms of the Investment Agreement; (c) the
Company shall have delivered to Flowers stock certificates representing the
Shares and any other documents, instruments and writings required or reasonably
requested by Flowers, and the amendment to the Rights Agreement (defined herein)
shall be in full force and effect; and (d) the Company shall have executed the
Registration Rights Agreement.
Termination; Termination Fee
The Investment Agreement may be terminated and the Transaction may be
abandoned (a) at any time, by mutual written consent of the Company and Flowers;
(b) at any time on or after March 1, 1999 by either
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<PAGE> 15
party, if the Closing shall not have occurred on or prior to such date; (c) by
either party if, at the Special Meeting, the shareholders fail to approve the
Transaction in accordance with the requirements of Section 14-2-863 of the GBCC,
and such meeting is ended without any adjournment to another time; or (d) by
either party, if the Qualified Directors shall have withdrawn their
Recommendation.
If the Investment Agreement is terminated because the Qualified Directors
withdraw their Recommendation, then at the time of such termination the Company
must pay Flowers a fee of $1,000,000 (the "Termination Fee"). Additionally, if
the Investment Agreement is terminated because the shareholders fail to approve
the Transaction at the Special Meeting (or an adjournment thereof) and, if prior
to the Special Meeting an Acquisition Transaction was pending or consummated or
an Acquisition Proposal was made and within one year after the termination of
the Investment Agreement Enstar consummates or enters into an Acquisition
Transaction with any person (other than Flowers), then upon consummation of such
Acquisition Transaction Enstar must pay Flowers the Termination Fee. Any
termination by the Company because the Qualified Directors withdraw their
Recommendation in accordance with the Investment Agreement is not effective
unless the Termination Fee is paid.
Fees and Expenses
Each of the parties has agreed to bear its own fees, costs and expenses
incurred in connection with the Transaction. However, the Company has agreed to
reimburse Flowers for his reasonable out-of-pocket expenses incurred in
connection with the Transaction in an amount not to exceed $50,000. This
limitation on Flowers' out-of-pocket reimbursement does not affect Flowers'
rights in connection with the indemnification provisions under the Investment
Agreement, his out-of-pocket expenses incurred as a result of providing services
to the Company in his capacity as Vice Chairman of the Board of Directors, or
the Registration Rights Agreement.
Agreement to Vote Shares "FOR" the Transaction
Each of the directors (except for Flowers), in his capacity as an Enstar
shareholder, has agreed with Flowers to vote the shares of Common Stock owned by
them or any of their controlled affiliates at the Special Meeting "FOR" the
Transaction. In connection with such agreement, each director (except for
Flowers) has delivered to Flowers a letter confirming such agreement. The form
of shareholder letter signed by each director is attached as an exhibit to the
Investment Agreement.
Amendment to Rights Agreement
The Company entered into a Rights Agreement, dated as of January 20, 1997,
with American Stock Transfer & Trust Company, as rights agent (the "Rights
Agreement"), pursuant to which the Company's shareholders receive rights to
subscribe for additional shares if certain triggering events occur, including
the acquisition by a person of 15% or more of the total number of outstanding
shares of Common Stock. In connection with the Transaction, the Company executed
an amendment to the Rights Agreement (the "Amendment Agreement") on October 20,
1998 to exclude from the definition of "Acquiring Person" (as such term is
defined in the Rights Agreement) Flowers and certain permitted transferees and
to otherwise exempt the Transaction and certain transfers or pledges of the
Shares from the applicable provisions of the Rights Agreement. The Company has
agreed that the Amendment Agreement shall remain in full force and effect at all
times.
THE FAIRNESS OPINION
On October 20, 1998, Stephens delivered its written opinion to the Board of
Directors that, on the basis of and subject to the matters set forth therein, as
of the date thereof, the consideration to be received by the Company in the
Transaction was fair to the disinterested shareholders of the Company from a
financial point of view. For purposes of the opinion, the term "disinterested
shareholders" means holders of shares of Common Stock other than (i) directors,
officers and employees of the Company, and (ii) Flowers and his affiliates.
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<PAGE> 16
THE FULL TEXT OF THE FAIRNESS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW UNDERTAKEN, IS ATTACHED TO
THIS PROXY STATEMENT AS ANNEX B AND IS INCORPORATED HEREIN BY REFERENCE. THE
FAIRNESS OPINION IS NECESSARILY BASED ON ECONOMIC, MARKET AND OTHER CONDITIONS
IN EFFECT ON, AND THE INFORMATION MADE AVAILABLE TO IT AS OF, THE DATE THEREOF.
SUBSEQUENT DEVELOPMENTS MAY AFFECT SUCH OPINION. THE DISINTERESTED SHAREHOLDERS
OF THE COMPANY SHOULD READ THE FAIRNESS OPINION IN ITS ENTIRETY. THE FOLLOWING
SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH
OPINION. THE FAIRNESS OPINION WAS PROVIDED TO THE BOARD OF DIRECTORS FOR ITS
INFORMATION AND IS DIRECTED ONLY TO THE FAIRNESS TO THE DISINTERESTED
SHAREHOLDERS FROM A FINANCIAL POINT OF VIEW OF THE CONSIDERATION TO BE RECEIVED
BY THE COMPANY IN THE TRANSACTION AND DOES NOT ADDRESS THE MERITS OF THE
UNDERLYING DECISION BY THE COMPANY TO ENGAGE IN THE TRANSACTION AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY SHAREHOLDER OF THE COMPANY AS TO HOW SUCH
SHAREHOLDER SHOULD VOTE ON THE TRANSACTION OR ANY MATTER RELATED THERETO.
In connection with rendering its opinion, Stephens: (i) analyzed certain
publicly available financial statements and reports regarding the Company, (ii)
analyzed, on a pro forma basis, data relating to the effect of the Transaction
on the Company's balance sheet, capitalization ratios, earnings and book value
both in the aggregate and, where applicable, on a per share basis, which data
was provided to Stephens by, among others, management of the Company, (iii)
reviewed the reported prices and trading activity for the Company's Common
Stock, (iv) reviewed the Investment Agreement and related documents; (v)
discussed with management of the Company its prior efforts to acquire an
operating business and future prospects for the Company and the anticipated
financial consequences of the Transaction, discussed with the Company's outside
counsel and independent accountants the anticipated tax and accounting
consequences, respectively, of the Transaction to the Company, including the
effect of the proposed Transaction upon the Company's net operating loss
carryforwards ("NOLs"), and (vi) performed such other analyses and provided such
other services as Stephens deemed appropriate.
Stephens relied on the accuracy and completeness of the information and
financial data provided to it by the Company and its advisors, and Stephens'
opinion is based upon such information. Stephens inquired into the reliability
of such information and financial data only to the limited extent necessary to
provide a reasonable basis for its opinion, recognizing that Stephens rendered
only an informed opinion and not an appraisal or certification of value. In
arriving at its opinion, Stephens did not review any financial information of
Flowers and did not opine on his creditworthiness.
In arriving at its opinion, Stephens performed a variety of analyses, the
material portions of which are summarized below. The summary set forth below
does not purport to be a complete description of the analyses performed by
Stephens. In addition, Stephens believes that its analyses must be considered as
a whole and that selecting portions of its analyses and of the factors
considered by it, without considering all such factors and analyses, could
create a misleading view of the process underlying its analyses. Stephens did
not draw any specific conclusions from or with regard to any one method of
analysis. Arriving at a fairness opinion is a complex process not necessarily
susceptible to partial or summary description.
The opinion is necessarily based upon market, economic and other conditions
as they existed and could be evaluated on, and on the information made available
to Stephens as of, the date of such opinion. The Board of Directors did not
impose any limitations on the scope of Stephens' analyses. The Company and
Flowers determined the terms of the Transaction through their negotiations.
Stephens did not participate in the negotiation of the terms of the Transaction
and neither recommended such terms nor provided alternative terms.
The Board of Directors retained Stephens as an independent contractor to
act as financial advisor with respect to the Transaction. Stephens is a
nationally recognized investment banking and advisory firm. Stephens, as part of
its investment banking business, is continually engaged in the valuation of
companies and their securities in connection with business reorganizations,
private placements, negotiated underwritings, mergers and acquisitions and
valuations for estate, corporate and other purposes. In the ordinary course of
their businesses, Stephens and its affiliates may at any time hold long or short
positions, and may trade or otherwise effect transactions as principal or for
the accounts of customers, in debt or equity securities or options in securities
of the Company.
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<PAGE> 17
In consideration for Stephens' services as a financial advisor to the
Company, the Company has agreed to pay to Stephens a reasonable fee. The Company
has also agreed to reimburse Stephens for its reasonable out-of-pocket expenses,
including fees and disbursements of its legal counsel, incurred in connection
with its activities as financial advisor to Company; provided, however, that the
Company is not required to reimburse Stephens for certain out-of-pocket expenses
without the Company's prior written consent, which shall not be unreasonably
withheld. The Company has also agreed to indemnify Stephens and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws, except to the extent that
such liability results primarily from the gross negligence or willful misconduct
of Stephens and such related persons.
Historical Trading Price
Stephens reviewed data on the public trading price of the Common Stock over
the 52-week period ending October 16, 1998. Stephens noted that the purchase
price represented a 20% discount to the high price of $16.13 per share, and a
23% premium to the low price of $10.50 per share, as reported for the Common
Stock during the 52-week period. Additionally, the purchase price represented a
three percent (3%) discount to the average closing price of $13.34 for the 90
days prior to the date of the Stephens' opinion.
Stephens also determined the distribution of the daily volume by closing
price traded of the Common Stock during the period commencing April 1, 1997 and
ending October 16, 1998. Stephens noted that the purchase price of $12.94 per
share approximated the median of this trading volume distribution during the
subject period.
Book Value
Stephens noted that the purchase price of $12.94375 per share of Common
Stock and the closing price of $12.9375 per share of Common Stock on October 19,
1998 represented a 15.5% discount to the book value per share of the Company's
assets (assuming exercise of all outstanding options) of $15.32 at September 30,
1998. Stephens also noted that the Company had NOLs aggregating approximately
$50 million as of September 30, 1998, and Stephens concluded that such NOLs
could be available for use by the Company to reduce its future liability for
federal income taxes.
Past Acquisition Efforts
Stephens considered Company management's prior efforts to locate and
acquire an operating business. Stephens concluded that the Company's efforts
could be benefited by additional expertise and transaction sourcing.
Transaction Terms
Stephens reviewed the terms of the Investment Agreement and related
documents, including the terms of the Note that will be delivered by Flowers in
payment of the Purchase Price. Stephens noted that the interest rate payable on
the Note of 4.06% per annum (equal to the rate on a two-year U.S. Treasury note)
was below the "market" rate for a comparable loan from a commercial lending
institution. Assuming a hypothetical "market" interest rate of 8.0% per annum
and an actual interest rate on the Note of 4.06% per annum, Stephens calculated
the present value of such discount to be approximately $1,000,000. Stephens
determined that it would be reasonable for the Board of Directors to conclude
that this discount was necessary to induce Flowers' investment in the Shares and
that such investment would be necessary to secure the benefits that may accrue
to the Company as a result of the Transaction, including the enhanced incentive
which Flowers would have to apply his financial expertise, advice and potential
transaction sources to the Company's ongoing efforts to acquire an operating
business.
REASONS FOR SUBMITTING TRANSACTION TO A VOTE OF SHAREHOLDERS
Although the Transaction is not required under law to be submitted for
shareholder approval, the Board of Directors has determined that it is in the
best interests of the Company and its shareholders for such
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<PAGE> 18
approval to be sought. Pursuant to the terms of the Investment Agreement, the
consummation of the Transaction is conditioned upon shareholder approval at the
Special Meeting. If the Transaction is not approved, the Transaction as
described herein will not be completed, although the Board may at any time or
from time to time in the future determine to complete the same or a similar
transaction in the future, with or without seeking shareholder approval.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TRANSACTION IS IN THE BEST
INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND HAS APPROVED THE TRANSACTION
AND RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO APPROVE THE
TRANSACTION.
REASONS FOR THE TRANSACTION
The Company believes that it is in the best interests of the Company's
future business prospects to retain Flowers as a director and Vice Chairman of
the Board of Directors, an executive officer position, in order to capitalize on
Flowers' business and financial acumen and reputation.
Flowers, 41, has been an outside director of Enstar since October 1996 and
has been involved in working with Enstar's management in locating an acquisition
target. He graduated magna cum laude from Harvard College and joined Goldman,
Sachs & Co. in 1979. He was made a general partner in 1988 and a managing
director in 1996. At Goldman, Sachs & Co., Flowers founded and headed the
Financial Institutions Group. Flowers has announced his decision to resign from
Goldman, Sachs & Co. as of November 27, 1998 in order to pursue his own business
interests.
By consummating the Transaction with Flowers, the Company would secure
Flowers' continued services in an enhanced capacity as Vice Chairman of the
Board of Directors and would further align Flowers' interests with those of the
Company's shareholders. The Company believes that consummation of the
Transaction would provide further incentives to Flowers, as a 23% shareholder of
the Company, to devote his efforts to locate one or more operating companies to
acquire and to participate in the negotiation of such acquisition.
THE NOTE
In consideration for the sale of the Shares to Flowers, at Closing Flowers
will deliver to the Company the Note. The Note will be for an original aggregate
principal amount of $15,000,000. The Note is unsecured and is a full recourse
obligation of Flowers.
Interest Rate; Maturity
The Note will bear interest at an annual rate of 4.06%, equal to the
interest rate on the two-year United States Treasury note as of the close of
trading on October 19, 1998, the day immediately preceding the date on which the
Board of Directors approved the Transaction. Interest will be payable quarterly,
in arrears. The Note will mature and be payable on the second anniversary of the
Closing Date.
Events of Default; Remedies
The occurrence of any of the following events shall constitute an event of
default (each an "Event of Default") under the Note: (a) any default shall be
made in the payment when due of any of the obligations evidenced by the Note or
any part thereof and such default shall continue unremedied for five (5) days;
(b) the filing of any petition or the commencement of any proceeding against
Flowers for relief under bankruptcy or insolvency laws, or any law relating to
the relief of debtors, readjustment of indebtedness, debtor reorganization, or
composition or extension of debt; or (c) Flowers is no longer serving on the
Board of Directors as a result of Flowers resigning from his directorship or
being removed from his directorship by an affirmative vote of the shareholders
of Enstar for cause.
If an Event of Default exists, the Note will bear interest at 8.06% per
annum until such time as all amounts outstanding are paid in full or until no
such Event of Default exists.
13
<PAGE> 19
Upon the occurrence and during the continuation of an Event of Default
under items (a) and (c) above, the Company may, in its sole discretion,
terminate all obligations of the Company to Flowers and/or declare the Note
immediately due and payable. Upon the occurrence of an Event of Default under
item (b) above, all obligations of the Company to Flowers shall terminate
automatically and the Note shall become immediately due and payable.
THE REGISTRATION RIGHTS AGREEMENT
In connection with the Transaction, the Company and Flowers will enter into
the Registration Rights Agreement. Pursuant to the Registration Rights
Agreement, Flowers will be entitled to certain demand and piggyback registration
rights with respect to the Shares and any other shares of Common Stock owned or
acquired by Flowers, so long as they were not acquired in violation of his
standstill obligations contained in the Investment Agreement (the "Registration
Shares").
Demand Rights
At any time during the period beginning on the expiration of the transfer
restrictions set forth in the Investment Agreement, Flowers may request on not
more than three occasions that Enstar register the Registration Shares under the
Securities Act for public sale (the "Demand Rights"). Any such Demand Rights
request must be for a minimum of 500,000 Registration Shares. Enstar shall be
entitled in its sole discretion to delay the filing of the registration
statement covering such Registration Shares for a period of up to 90 days from
the date of receipt of the request for Demand Rights if its Board of Directors
determines in good faith that such a delay is in the best interests of Enstar
and its shareholders. However, Enstar shall not have the right to exercise such
discretion to delay such filing more than once in any 365-day period.
If Flowers exercises a Demand Right and subsequently informs Enstar in
writing that (i) he desires to withdraw such registration or (ii) he is unable
to sell in excess of 50% of the Registration Shares covered by such registration
statement due to a deterioration in market conditions or other bona fide reason,
and Flowers reimburses Enstar for all Registration Expenses (defined herein)
incurred by Enstar in connection with such terminated registration, then Flowers
shall be deemed not to have exercised the Demand Right and shall be permitted to
exercise such right again.
If a registration effected pursuant to Flowers' Demand Rights involves a
firm commitment underwritten public offering, Flowers shall have the sole right
to select the managing underwriters, subject to the approval of Enstar (such
approval not be unreasonably withheld or delayed).
Incidental or "Piggyback" Rights
If at any time following the Closing Date Enstar proposes to register any
Common Stock under the Securities Act (with certain exceptions) in connection
with the proposed offer and sale for cash either for its own account or on
behalf of any holder of Common Stock, Flowers will have the right to request
Enstar to use its reasonable best efforts to cause the Registration Shares as to
which registration has been requested to be included in the shares of Common
Stock to be covered by the registration statement proposed to be filed by
Enstar. If such a registration is effected and involves a firm commitment
underwritten public offering, Enstar shall have the sole right to select the
managing underwriters.
The managing underwriters for such offering shall have the authority to
reduce the number of Registration Shares to be included in such registration if
and to the extent they are of the opinion that inclusion of such Registration
Shares would materially adversely affect the marketing of the Common Stock to be
sold under such offering. Any such reduction or cutback in the shares included
in any such offering shall be effected in accordance with the following
priorities: (a) first, the managing underwriters shall exclude shares
("Piggyback Shares") of Common Stock included in such registration by
shareholders (including Flowers) by virtue of incidental or piggyback
registration rights (but not demand registration rights) granted to such
shareholders, which exclusion shall be effected on a pro rata basis based upon
the number of shares of Common Stock so requested to be registered in such
offering by all such shareholders proposing to sell Piggyback Shares; and (b)
second, and only to the extent necessary and after the exclusion of all
Piggyback
14
<PAGE> 20
Shares, the managing underwriters shall exclude shares of Common Stock included
in such registration by Enstar and any shareholder of Enstar who shall have
exercised a demand registration right in connection with such offering, which
exclusion shall be effected on a pro rata basis based upon the number of shares
of Common Stock proposed to be registered on behalf of Enstar and on behalf of
any such holder of demand registration rights.
If there is a firm commitment underwritten public offering of Common Stock
pursuant to which Flowers has incidental registration rights and Flowers elects
to sell Registration Shares in connection with such underwritten public
offering, Flowers shall enter into an agreement (the "Lockup Agreement"),
pursuant to which Flowers shall refrain from selling any Registration Shares
(other than Registration Shares included in such registration) then owned by
Flowers during the period of distribution of Common Stock by such underwriters
and for a period of ninety days following the effective date of such
registration; provided, however, that Flowers shall be required to enter into
the Lockup Agreement if, and only if, directors and executive officers of Enstar
enter into an agreement similar to the Lockup Agreement.
Expenses
All expenses incurred by Enstar in connection with the exercise of Flowers'
registration rights, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for Enstar, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars,
reasonable fees and expenses of Flowers' counsel and expenses applicable to the
sale of Registration Shares, but excluding any Selling Expenses, are called
"Registration Expenses". All underwriting discounts, selling commissions and
brokerage fees applicable to the sale of the Registration Securities are called
"Selling Expenses."
Enstar will pay all Registration Expenses in connection with each
registration statement filed in accordance with Flowers' demand and incidental
registration rights. All such Selling Expenses shall be borne by Flowers in
proportion to the number of Registration Shares sold or proposed to be sold by
Flowers in such registration in relation to the total number of shares sold or
proposed to be sold by all parties under such registration statement.
Effectiveness
Enstar shall not be required to effect any registration of the Registration
Shares hereunder during such time as all the Registration Shares acquired by
Flowers on the Closing Date pursuant to the Investment Agreement may be sold to
the public pursuant to Rule 144(k) (or any similar successor provision) under
the Securities Act. The foregoing shall not affect the parties' obligations
under the expenses and indemnification provisions of the Registration Rights
Agreement, which provisions shall continue to be effective.
ACCOUNTING TREATMENT
Because the Note bears interest at a rate less than the rate an independent
lender would charge Flowers, the Note will be recorded at a discount so as to
yield a "market rate" of interest over its two-year term. The difference between
the stated amount of the Note and the discounted loan amount will be recognized
by the Company as expense on the Closing Date. The discount will be accreted
into income over the two-year term of the Note using the effective interest
method. As a result of the initial discount, Enstar will record interest income
over the life of the Note as if the Note had been issued at a market rate of
interest. The Note, net of the discount, will be classified as a reduction of
Enstar's shareholders' equity. Book value per share will be reduced because of
this classification and because of the 1,158,860 newly issued shares.
In the event the price per share of Common Stock exceeds $12.94375 at the
date the shareholders approve the Transaction, the Company will recognize a
charge to earnings equal to the per share difference multiplied by the number of
such newly issued shares. This would result in an increase in accumulated
deficit and a corresponding increase in additional paid-in capital. See
"Capitalization and Book Value Per Share of Common Stock".
15
<PAGE> 21
EFFECT ON THE COMPANY'S NET OPERATING LOSS CARRYFORWARDS AND TAX CREDITS
Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended
(the "Code"), a corporation that undergoes an "ownership change" becomes subject
to an annual limitation on the use of NOLs and tax credits attributable to
taxable periods prior to the ownership change. In general, an "ownership change"
occurs if the percentage of the corporation's stock owned by one or more
shareholders who own at least 5% of the corporation's outstanding stock
increases by more than 50 percentage points over the lowest percentage of the
corporation's stock owned by those shareholders at any time during a three-year
testing period.
The consummation of the Transaction will not cause the Company to undergo
an "ownership change," and therefore the Company's ability to use its NOLs and
tax credits will not be limited under Sections 382 and 383 of the Code solely as
a result of the Transaction. Over the three-year period beginning on the Closing
Date, however, the Transaction will be taken into account, together with other
transactions involving the Common Stock, to determine whether the Company has
undergone an ownership change.
16
<PAGE> 22
CAPITALIZATION AND BOOK VALUE PER SHARE OF COMMON STOCK
The following table sets forth the capitalization and book value per share
of the outstanding shares of Common Stock as of September 30, 1998, and the pro
forma capitalization and book value per share of outstanding shares of Common
Stock after giving effect to the Transaction, assuming the Transaction occurred
as of September 30, 1998.
<TABLE>
<CAPTION>
AT SEPTEMBER 30, 1998
---------------------------------
ACTUAL PRO FORMA
-------------- --------------
(IN THOUSANDS,
EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Shareholders' equity:
Common Stock ($.01 par value; 55,000,000 shares
authorized, 4,549,060 and 5,707,920 (pro forma)
shares issued)......................................... $ 45 $ 57(2)
Additional paid-in capital................................ 167,878 182,866(2)
Note receivable, net of discount of $1,000(1)............. (14,000)
Accumulated deficit....................................... (98,024) (99,024)(2)
Treasury stock, at cost (442,351 shares).................. (5,810) (5,810)
---------- ----------
Total shareholders' equity........................ $ 64,089 $ 64,089
========== ==========
Outstanding shares.......................................... 4,106,709 5,265,569
Book value per share........................................ $ 15.61 $ 12.17
========== ==========
</TABLE>
- ---------------
(1) Because the Note bears an interest rate less than the rate an independent
lender would charge Flowers, the Note will be recorded at a discount so as
to yield a "market rate" of interest. Solely for purposes of calculating the
pro forma capitalization and book value per share, the hypothetical "market
rate" of interest is assumed to be 8.0% per annum, resulting in a discount
of approximately $1 million. See "The Transaction -- Accounting Treatment".
(2) Solely for purposes of calculating the pro forma capitalization and book
value per share, it is assumed that the market price per share of Common
Stock on the date the shareholders approve the Transaction is equal to the
purchase price per share of $12.94375. The issuance of 1,158,860 shares to
Flowers results in an increase in the par value of shares of Common Stock
issued of $11,589 and an increase in additional paid-in capital of $14.988
million. If the market price per share is greater than the purchase price
per share on the date the shareholders approve the Transaction, then the
Company would recognize an increase in accumulated deficit and a
corresponding increase in additional paid-in capital. See "The
Transaction -- Accounting Treatment".
DESCRIPTION OF THE COMPANY
The Company currently holds assets, aggregating approximately $67.7 million
at September 30, 1998, consisting primarily of cash, cash equivalent assets and
certificates of deposit.
HISTORY OF THE COMPANY
The Company filed for bankruptcy under Chapter 11 of the United States
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. 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 to qualified former shareholders
of record, or transferees of such former shareholders, of the common stock of
the Company that was canceled in the Company's bankruptcy proceeding. Under two
stock repurchase programs, one announced in July 1997 and one announced in April
1998, the Company repurchased a total of 442,351 shares of Common Stock.
Accordingly, there are currently 4,106,709 shares of Common Stock outstanding.
17
<PAGE> 23
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 definitive agreements with respect to the acquisition 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. Each of the Company's directors has been asked by management to
assist the Company actively in its pursuit of an acquisition, and upon Flowers'
appointment to Vice Chairman of the Board of Directors, it is anticipated that
he will play an enhanced role in the Company's search for an operating company.
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 an investment
banking firm, business broker or other similar consultant or adviser 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 its NOLs, the Company does not
currently intend to offer an interest in the Company in connection with the
acquisition of one or more operating businesses that would cause an "ownership
change" within the meaning of Section 382 of the Code. See "The
Transaction -- Effect on the Company's Net Operating Loss Carryforwards and Tax
Credits".
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.
18
<PAGE> 24
COMMON STOCK OWNERSHIP BY MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of October 20, 1998 and the pro forma beneficial
ownership of Common Stock after giving effect to the Transaction, assuming the
Transaction occurred as of October 20, 1998, by (i) each of the executive
officers named below (the "Named Executive Officers"), (ii) each of the
directors and nominees for director of the Company and (iii) all directors and
Named Executive Officers of the Company as a group.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
----------------------------------------- -----------------------------------------
SHARES OF COMMON STOCK PERCENT OF SHARES OF COMMON STOCK PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) CLASS(9) BENEFICIALLY OWNED(1) CLASS(10)
- ------------------------ ---------------------- ---------------- ---------------------- ----------------
<S> <C> <C> <C> <C>
NAMED EXECUTIVE OFFICERS
Nimrod T. Frazer......... 130,001(2) 3.17% 130,001(2) 2.47%
Cheryl D. Davis.......... 3 * 3 *
Amy M. Dunaway........... 87(3) * 87(3) *
DIRECTORS OF THE COMPANY
Nimrod T. Frazer......... 130,001(2) 3.17% 130,001(2) 2.47%
T. Whit Armstrong........ 20,176(4) * 20,176(4) *
T. Wayne Davis........... 110,367(5) 2.69% 110,367(5) 2.10%
J. Christopher Flowers... 88,043(6) 2.14% 1,246,903(6) 23.68%
Jeffrey S. Halis......... 305,562(7) 7.44% 305,562(7) 5.80%
All Named Executive
Officers and directors
of the Company as a
group (7 persons)...... 654,239(8) 15.93% 1,813,099(8) 34.43%
</TABLE>
- ---------------
* Less than 1%.
(1) Under the rules of the Securities and Exchange Commission, a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power", which includes the power to vote or to direct the voting of
such security, or "investment power", which includes the power to dispose of
or to direct disposition of such security. A person also is deemed to be a
beneficial owner of any securities which that person has the right to
acquire within 60 days. Under these rules, more than one person may be
deemed to be a beneficial owner of the same securities and a person may be
deemed to be a beneficial owner of securities as of which he or she has no
economic or pecuniary interest. Except as set forth in the footnotes below,
the persons named above have sole voting and investment power with respect
to all shares of Common Stock shown as being beneficially owned by them.
(2) Includes 75,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options under the CEO Plan (defined
herein).
(3) Includes 54 shares which Ms. Dunaway holds jointly and shares voting and
investment power with her spouse.
(4) Includes 1,595 shares owned by Mr. Armstrong's son and 3,409 stock units
granted under the Deferred Plan (defined herein). Also includes 10,000
shares that are not currently outstanding, but that may be acquired upon the
exercise of stock options under the Outside Directors' Plan (defined
herein).
(5) Includes 116 shares held by Mr. Davis' child, 2,352 shares held by Mr.
Davis' mother, 133 shares held by Mr. Davis' wife, 13,410 held in two
trusts, 81,025 shares held in a private foundation for which Mr. Davis has
voting and investment power but is not a beneficiary and 3,331 stock units
granted under the Deferred Plan. Also, includes 10,000 shares that are not
currently outstanding, but that may be acquired upon the exercise of stock
options under the Outside Directors' Plan.
(6) Includes 2,848 stock units granted under the Deferred Plan. Also, includes
10,000 shares that are not currently outstanding, but that may be acquired
upon the exercise of stock options under the Outside Directors' Plan.
(7) Includes 3,007 stock units granted under the Deferred Plan, and 256,845
shares which Mr. Halis shares voting and investment power with his wife.
Also, includes 10,000 shares that are not currently
19
<PAGE> 25
outstanding, but that may be acquired upon the exercise of stock options
under the Outside Directors' Plan.
(8) Includes 115,000 shares that are not currently outstanding, but that may be
acquired upon the exercise of stock options.
(9) Based on 4,106,709 shares of Common Stock outstanding as of October 20,
1998.
(10) Based on 5,265,569 shares of Common Stock outstanding after giving effect
to the Transaction, assuming the Transaction occurred on October 20, 1998.
PRINCIPAL SHAREHOLDERS
The table below sets forth certain information as of October 20, 1998
concerning persons known to the Board of Directors to be a "beneficial owner",
as such term is defined by the rules of the Securities and Exchange Commission,
and the pro forma beneficial ownership after giving effect to the Transaction,
assuming the Transaction occurred as of October 20, 1998, of more than 5% of the
outstanding shares of the Common Stock.
<TABLE>
<CAPTION>
ACTUAL PRO FORMA
-------------------------------------------- -----------------------------------------------
SHARES OF COMMON STOCK SHARES OF COMMON STOCK
NAME AND ADDRESS BENEFICIALLY OWNED(1) PERCENT OF CLASS(4) BENEFICIALLY OWNED(1) PERCENT OF CLASS(5)
- ---------------- ---------------------- ------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Jeffrey S. Halis..... 305,562(2) 7.44% 305,562(2) 5.80%
500 Park Avenue
Fifth Floor
New York, New York
10022
J. Christopher
Flowers............ 88,043(3) 2.14% 1,246,903(3) 23.68%
4 East 70th Street
New York, New York
10021
</TABLE>
- ---------------
(1) See Note (1) under "Common Stock Ownership by Management".
(2) Includes 3,007 stock units granted under the Deferred Plan, and 256,845
shares which Mr. Halis shares voting and investment power with his wife.
Also, includes 10,000 shares that are not currently outstanding, but that
may be acquired upon the exercise of stock options under the Outside
Directors' Plan. The information regarding Jeffrey S. Halis is given in
reliance upon a Form 5 filed by Halis on or about February 12, 1998 and
information supplied by Mr. Halis and the Company.
(3) Includes 2,848 stock units granted under the Deferred Plan. Also, includes
10,000 shares that are not currently outstanding, but that may be acquired
upon the exercise of stock options under the Outside Directors' Plan.
(4) Based on 4,106,709 shares of Common Stock outstanding as of October 20,
1998.
(5) Based on 5,265,569 shares of Common Stock outstanding after giving effect to
the Transaction, assuming the Transaction occurred on October 20, 1998.
20
<PAGE> 26
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a quarterly retainer
fee of $5,000 and per meeting fees as follows: (i) $2,500 for each Board meeting
attended other than a telephone Board meeting; (ii) $1,000 for each telephone
Board meeting attended; (iii) $1,000 for each Committee meeting attended; and
(iv) $1,500 for each Committee meeting attended by a Committee Chairperson. Such
outside directors' fees are payable at the election of the director either in
cash or in stock units under the Company's Deferred Compensation and Stock Plan
for Non-Employee Directors (the "Deferred Plan"). If the director elects to
receive stock units instead of cash, the stock units shall be payable only upon
the director's termination. The number of shares to be distributed in connection
with such termination would be equal to one share of Common Stock for each stock
unit and cash would be paid for any fractional units. The distribution of stock
units is also subject to acceleration upon certain events constituting a change
of control of the Company. 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 had been deferred under this plan. In addition, directors are
entitled to reimbursement for out-of-pocket expenses incurred in attending all
meetings.
During 1997, the outside directors were each granted options for 25,000
shares of Common Stock under the 1997 Amended Outside Directors' Stock Option
Plan (the "Outside Directors' Plan"), at an exercise price of $10.8125. During
1997, Nimrod T. Frazer, as Chief Executive Officer, was granted options for
150,000 shares of Common Stock under the 1997 Amended CEO Stock Option Plan (the
"CEO Plan"), at an exercise price of $10.50.
The address of each of the directors is The Enstar Group, Inc., 172
Commerce Street, Third Floor, Montgomery, Alabama 36014.
SUMMARY COMPENSATION TABLE FOR EXECUTIVE OFFICERS
The following table provides certain summary information concerning the
compensation paid for the years ended December 31, 1995, 1996 and 1997 for the
Company's Chief Executive Officer and each of the other Named Executive Officers
(determined as of December 31, 1997).
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL
------------------------------ UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS# COMPENSATION($)
--------------------------- ---- --------- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Nimrod T. Frazer................... 1997 250,000 0 150,000 3,931(2)
Chairman of the Board of 1996 250,000 0 0 1,784(2)
Directors, President and 1995 250,000 0 0 1,195,451(3)
Chief Executive Officer
Cheryl D. Davis.................... 1997 121,060 0 0 5,790(4)
Chief Financial Officer, 1996 116,405 121,060 0 5,065(4)
Vice President of Corporate 1995 106,213 0 0 4,390(4)
Taxes and Secretary
Amy M. Dunaway..................... 1997 80,327 0 0 5,664(4)
Treasurer and Controller 1996 80,327 80,327 0 4,854(4)
1995 77,524 0 0 4,310(4)
</TABLE>
- ---------------
(1) Amounts shown for Ms. Davis and Ms. Dunaway are for one-time bonuses paid
pursuant to a director and employee incentive bonus program.
21
<PAGE> 27
(2) Amount shown represents premiums paid by the Company for health and dental
insurance for Mr. Frazer.
(3) Amount shown represents $1,866 in premiums paid by the Company for health
and dental insurance for Mr. Frazer and $1,193,585 for a 1% commission paid
on the gross sales price of American Savings of Florida, F.S.B. in
accordance with a Commission Agreement dated March 4, 1993 between Mr.
Frazer and the Company.
(4) Amounts shown for Ms. Davis and Ms. Dunaway are for premiums paid by the
Company for term life insurance and health and dental insurance.
EXECUTIVE OFFICERS
Certain information concerning the executive officers of the Company is set
forth below:
<TABLE>
<CAPTION>
NAME AGE POSITION EXECUTIVE OFFICER SINCE
---- --- -------- -----------------------
<S> <C> <C> <C>
Nimrod T. Frazer.................. 68 Director, Chairman of the Board, 1990
President and Chief Executive
Officer
Cheryl D. Davis................... 38 Chief Financial Officer, Vice 1991
President of Corporate Taxes and
Secretary
Amy M. Dunaway.................... 41 Treasurer and Controller 1991
</TABLE>
Mr. Frazer was named Chairman of the Board, Acting President and Chief
Executive Officer on October 26, 1990. Mr. Frazer was Chairman of the Board of
the Frazer Lanier Company, a regional investment banking firm, from 1976 to 1996
and was a co-founder. Mr. Frazer is a director of Just Care, Inc. of Montgomery,
Alabama. He is also a past director of Columbus Mills of Columbus, Georgia,
Rockdale Industries of Decatur, Georgia, American Savings of Florida, F.S.B. of
Miami, Florida and Sterling Bank of Montgomery, Alabama. Sterling Bank is a
wholly owned subsidiary of Synovus Financial Corp of Columbus, Georgia. Mr.
Frazer is also past Chairman of the Water Works and Sanitary Sewer Board of
Montgomery, Alabama.
Ms. Davis was named Chief Financial Officer and Secretary in April of 1991
and Vice President of Corporate Taxes in 1989. Ms. Davis has been employed with
the Company since April of 1988.
Ms. Dunaway was named Treasurer and Controller in April of 1991. Ms.
Dunaway has been employed with the Company since September of 1990.
Flowers will become Vice Chairman of the Board of Directors, effective
December 1, 1998.
The address of each of the executive officers is The Enstar Group, Inc.,
172 Commerce Street, Third Floor, Montgomery, Alabama 36014.
22
<PAGE> 28
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted
under the CEO Plan to the Company's Chief Executive Officer. No options were
granted during 1997 under the 1997 Amended Omnibus Incentive Plan to any of the
Named Executive Officers.
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AND ASSUMED
PERCENT OF ANNUAL RATES OF
NUMBER OF TOTAL STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(2)
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED(#)(1) 1997 PER SHARE DATE 5% 10%
---- ------------- ------------ --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Nimrod T. Frazer........ 150,000(3) 100% $10.50 Jan. 2007 $960,000 $2,413,500
Cheryl D. Davis......... -- -- -- -- -- --
Amy M. Dunaway.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) Mr. Frazer's options were granted under the CEO Plan at an exercise price
equal to the fair market value of the Common Stock on the initial trading
day after the Common Stock was registered. Such options may not be exercised
later than the earlier of January 1, 2007, or 60 days after he ceases to be
an employee of the Company other than by reason of death, mandatory
retirement or disability. The options also subject to acceleration upon
certain events constituting a change of control of the Company.
(2) These amounts represent certain assumed rates of appreciation only. Actual
gains, if any, on stock option exercises are dependent as the future
performance of the Common Stock and overall market conditions. The amounts
set forth in this table may not necessarily be achieved.
(3) These options vested as to 37,500 shares on June 30, 1997 and 37,500 shares
on January 1, 1998. The remainder of these options will vest in two equal
installments of 37,500 shares each on January 1, 1999 and January 1, 2000.
STOCK OPTION EXERCISES
None of the Named Executive Officers exercised any stock options during
1997. The table below shows the number of shares of Common Stock covered by both
exercisable and unexercisable stock options held by the Named Executive Officers
as of December 31, 1997. The table also reflects the values for in-the-money
options based on the positive spread between the exercise price of such options
and the last reported sale price of the Common Stock on December 31, 1997, the
last trading date in 1997 for the Common Stock.
AGGREGATED OPTION EXERCISES
IN 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Nimrod T. Frazer................................ 37,500 112,500 $21,093.75 $63,281.25
Cheryl D. Davis................................. -- -- -- --
Amy M. Dunaway.................................. -- -- -- --
</TABLE>
23
<PAGE> 29
COMPENSATION COMMITTEE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
The Company has a Compensation Committee which, in 1996, 1997 and 1998 was
composed of T. Wayne Davis, Chairman, T. Whit Armstrong and J. Christopher
Flowers. The Compensation Committee is responsible for, among other things,
reviewing, determining and establishing salaries, bonuses and other compensation
for the Company's Chief Executive Officer and for administering the Company's
stock option plans. The Compensation Committee held four meetings in 1997. All
members of the Compensation Committee attended every meeting of the Compensation
Committee.
Upon Flowers appointment to Vice Chairman of the Board of Directors, which
will take place on December 1, 1998, Flowers will resign from the Compensation
Committee.
REPORT OF THE COMPENSATION COMMITTEE FOR 1997
The Compensation Committee of the Board of Directors was created in 1996
and consists of Messrs. Davis, Armstrong and Flowers. None of the members of the
Compensation Committee is an employee of the Company. The Compensation Committee
is responsible for (i) establishing the compensation of the Company's Named
Executive Officers and (ii) considering the issuance of stock options for
executive officers and directors. Mr. Frazer, the Company's Chief Executive
Officer, is responsible for recommending to the Compensation Committee the
compensation for the other executive officers of the Company. The Compensation
Committee has reviewed the applicability of Section 162(m) of the Code. Section
162(m) may in certain circumstances deny a federal income tax deduction for
compensation to an executive officer in excess of $1 million per year. It is not
anticipated that compensation to any executive officer of the Company during
1998 will exceed the $1 million threshold.
Compensation Policy and Overall Objections. The Company's executive
compensation policy is designed to attract, retain and motivate executive
officers needed to achieve its strategic objectives and to maximize the
Company's performance and shareholder value.
The Company supports these goals through a compensation strategy of
competitive salaries, annual incentives, and longer-term incentive
opportunities. Compensation consists of both fixed pay elements (base salary and
benefits) and performance variable pay elements (annual and long-term
incentives) to encourage and reward distinctive contributions to the success of
the organization. Salary and benefit levels reflect position responsibilities
and strategic importance and are targeted at market median base salary levels.
Annual incentive payments are designed to reward significant contributions to
annual financial and strategic non-financial performance, as defined by
management, and are targeted to deliver market median levels of total
compensation. Long-term incentive opportunities reward key executives for
financial and non-financial performance that enhances shareholder value.
Long-term incentive opportunities are above market median levels.
Position responsibilities are the key determinant of fixed pay and
individual performance is the key determinant of variable pay. Performance
includes consideration of Company results in varying degrees by position level.
In the future, performance standards will, to the extent possible, be defined
and communicated in advance through a clear system of measurable objectives.
Performance measures will be tailored to the specific responsibilities of each
position. Employees will be responsible for and rewarded on the basis of
accomplishment of defined results that contribute to the attainment of strategic
objectives and performance goals.
The Company retained an independent compensation consulting firm to assist
it in analyzing its executive compensation program for 1997 and thereafter. The
consulting firm recommended that the Company adopt a policy of providing a
significant percentage of certain executive officers' total compensation based
on the Company's performance. In addition, the consultant has provided the
Compensation Committee with an analysis of senior executive compensation using
published survey data for the financial services industry. The Compensation
Committee considered these recommendations and the compensation analysis in
establishing the base salaries for the Chief Executive Officer and the other
executive officers for 1997 and 1998.
24
<PAGE> 30
Base Salary. Each executive officer's base salary, including Mr. Frazer's
base salary, is determined based upon a number of factors including the
executive officer's responsibilities, contribution to the achievement of the
Company's business plan goals, demonstrated leadership skills and overall
effectiveness and length of service. Base salaries are also designed to be
competitive with those offered in the various markets in which the Company
competes for executive talent and are analyzed with a view towards desired base
salary levels over a three-year to five-year time period. Each executive
officer's salary is reviewed annually and although these and other factors are
considered in setting base salaries, no specific weight is given to any one
factor. The Named Executive Officers' base salaries were not increased during
1997 over their 1996 base salaries, and there is no increase for the Named
Executive Officers' base salaries for 1998.[Subsequent to this preparation of
this report and its publication in the Company's Proxy Statement for its 1998
Annual Meeting of shareholders, the base salary of Cheryl D. Davis, the Chief
Financial Officer, Vice President of Corporate Taxes and Secretary of the
Company was increased 11%, effective as of July 1, 1998.] The base salaries are
slightly below median competitive levels.
Cash Bonuses. The Compensation Committee adopted an annual incentive plan,
beginning in 1997. The annual incentive plan is designed to focus participants
on key performance criteria that are consistent with the Company's short-term
business plan and operating goals. Specific objectives of the plan are to
establish direct links between performance achievement and awards, provide
rewards commensurate with the achievement of specific operating results, and
encourage individual effort toward achievement of corporate performance goals.
Under the annual plan, existing officers are eligible to participate. Going
forward, any additional participants must be recommended by the CEO and approved
by the Compensation Committee. Eligibility for bonuses is based on performance
which will be measured at the corporate and individual levels. Maximum bonuses
will be set initially at 45% of base salary for Mr. Frazer and 20% of base
salary for the other executive officers. The Company did not pay any bonuses to
the Named Executive Officers during 1997.
Long Term Incentives. Long term incentives are provided pursuant to the
CEO Plan, the Outside Directors' Plan, the 1997 Amended Omnibus Incentive Plan
and the Deferred Plan. Stock option plans are designed to align executives' and
shareholders' interest in the enhancement of shareholder value. Stock options
are used by the Company to encourage long-term service by executives.
Severance Agreements. The Compensation Committee approved severance
agreements for the three Named Executive Officers in March 1998 (the "Severance
Agreements"). The Severance Agreements provide that the Named Executive Officers
will receive their base salary for a period of twelve months following a
termination of employment, other than for "cause", as defined in the Severance
Agreements, or a voluntary termination.
Chief Executive Officer Compensation. Mr. Frazer does not have an
employment agreement with the Company. The Compensation Committee is responsible
for determining Mr. Frazer's compensation annually. In fiscal 1997, Mr. Frazer
received base compensation of $250,000 and 150,000 options under the CEO Plan.
Mr. Frazer's base salary was based on, among other things, his responsibilities,
his length of service, his contributions to the business and his overall
leadership skills.
COMPENSATION COMMITTEE:
T. Wayne Davis, Chairman
T. Whit Armstrong
J. Christopher Flowers
The foregoing report shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Securities Act or under the Exchange Act (together, the
"Acts"), except to the extent that the Company specifically incorporates this
information by reference, and shall not otherwise be deemed filed under such
Acts.
25
<PAGE> 31
PERFORMANCE GRAPH
The graph below reflects the cumulative shareholder return (assuming the
reinvestment of dividends) on the Common Stock compared to the return on the
Center for Research in Security Prices ("CRSP") Total Return Index for the
Nasdaq Stock Market (U.S. Companies) (the "Nasdaq Index") and a return on an
index made up of companies with comparable market capitalization as of December
31, 1997. The Company does not currently have an operating business, and as a
result does not have a identifiable peer group index. The companies that
comprise the custom composite index outlined below include: Ancor
Communications, Incorporated, Biotransplant, Inc., Computron Software, Inc.,
Craftmade International, Inc., Featherlite MFG., Inc., Hungarian Tel & Cable
Corp., Intellicorp, Inc., Iridex Corporation, Mesabi Trust, MFB Corp., Moscom
Corporation, Network Event Theater, Inc., Norton Drilling Services, Inc. and
Sport-Haley, Inc.
CUMULATIVE TOTAL RETURN
BASED ON INITIAL INVESTMENT OF $100 ON APRIL 1, 1997
WITH DIVIDENDS REINVESTED
<TABLE>
<CAPTION>
MEASUREMENT PERIOD THE ENSTAR GROUP, CUSTOM COMPOSITE
(FISCAL YEAR COVERED) INC. NASDAQ US INDEX (14 STOCKS)
<S> <C> <C> <C>
01-APR-97 100 100 100
30-JUN-97 110 118 106
30-SEP-97 115 138 130
31-DEC-97 105 130 111
</TABLE>
Source: Georgeson & Company Inc.
The performance graph shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Acts, except to the extent that the Company specifically
incorporates this information by reference, and shall not otherwise be deemed
filed under such Acts.
OTHER MATTERS
The Board of Directors does not know of any other matters that are to be
presented for consideration at the Special Meeting. Should any other matters
properly come before the Special Meeting. It is the intention
26
<PAGE> 32
of the persons named in the accompanying proxy to vote such proxy on behalf of
the shareholders they represent in accordance with their best judgment.
1999 SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented at the Company's 1999
Annual Meeting of Shareholders must be received by the Company no later than
December 18, 1998 in order to be considered for inclusion in the Proxy Statement
and form of proxy to be distributed by the Board of Directors in connection with
such meeting.
INCORPORATION OF PROXY STATEMENT BY REFERENCE
This Proxy Statement shall not be deemed incorporated by reference by any
general statement incorporating by reference this Proxy Statement into any
filing under the Acts, except to the extent the Company specifically
incorporates information contained herein by reference.
By Order of the Board of Directors
/s/ Cheryl D. Davis
Cheryl D. Davis
Chief Financial Officer, Vice
President of
Corporate Taxes and Secretary
27
<PAGE> 33
ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
INVESTMENT AGREEMENT
BY AND BETWEEN
THE ENSTAR GROUP, INC.
AND
J. CHRISTOPHER FLOWERS
AS OF OCTOBER 20, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
<PAGE> 34
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
PURCHASE AND SALE OF SHARES................................................ A-7
Section 1.1 Purchase and Sale........................................... A-7
Section 1.2 Consideration............................................... A-7
Section 1.3 Closing..................................................... A-8
Section 1.4 Deliveries by Seller........................................ A-8
Section 1.5 Deliveries by Buyer......................................... A-8
Section 1.6 Transfer Restrictions....................................... A-8
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER................................... A-9
Section 2.1 Organization................................................ A-9
Section 2.2 Authorization............................................... A-9
Section 2.3 Capitalization.............................................. A-9
Section 2.4 Consents and Approvals; No Violations....................... A-9
Section 2.5 Financial Statements........................................ A-9
Section 2.6 Absence of Material Adverse Change.......................... A-10
Section 2.7 SEC Filings................................................. A-10
Section 2.8 Brokers, Finders and Investment Bankers Fees................ A-10
Section 2.9 Hart Scott Rodino Act....................................... A-10
Section 2.10 State Takeover Laws......................................... A-10
Section 2.11 Investment Company.......................................... A-10
Section 2.12 Litigation.................................................. A-10
Section 2.13 NOLs........................................................ A-10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER.................................... A-11
Section 3.1 Authority of Buyer.......................................... A-11
Section 3.2 Consents and Approvals; No Violations....................... A-11
Section 3.3 Net Worth................................................... A-11
Section 3.4 Brokers, Finders and Investment Bankers Fees................ A-11
Section 3.5 Investment Representations.................................. A-11
Section 3.6 Hart Scott Rodino Act....................................... A-12
Section 3.7 Litigation.................................................. A-12
ARTICLE IV
COVENANTS AND AGREEMENTS................................................... A-12
Section 4.1 Reasonable Best Efforts..................................... A-12
Section 4.2 Covenant to Satisfy Conditions.............................. A-12
Section 4.3 Public Announcements........................................ A-12
Section 4.4 Proxy Statement and Special Meeting......................... A-12
Section 4.5 Board of Directors Position................................. A-13
Section 4.6 Share Transfer Restrictions................................. A-13
Section 4.7 Indemnification............................................. A-13
Section 4.8 Adjustments................................................. A-14
Section 4.9 Rights Agreement............................................ A-14
Section 4.10 Vice-Chairman............................................... A-14
</TABLE>
A-2
<PAGE> 35
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 4.11 Registration Rights......................................... A-15
ARTICLE V
STANDSTILL OBLIGATIONS.................................................... A-15
Section 5.1 Definitions................................................. A-15
Section 5.2 Standstill Obligations...................................... A-15
Section 5.3 Termination of Standstill Obligations....................... A-16
Section 5.4 Fiduciary Duties............................................ A-16
ARTICLE VI
CONFLICTING TRANSACTIONS.................................................. A-16
Section 6.1 Conflicting Business Opportunities.......................... A-16
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PARTIES.................................. A-16
Section 7.1 Conditions to Each Party's Obligation....................... A-16
Section 7.2 Conditions to Obligations of Seller......................... A-17
Section 7.3 Conditions to Obligations of Buyer.......................... A-17
ARTICLE VIII
TERMINATION............................................................... A-17
Section 8.1 Termination................................................. A-17
Section 8.2 Procedure and Effect of Termination; Termination Fee........ A-18
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.................... A-18
Section 9.1 No Survival of Representations and Warranties............... A-18
Section 9.2 Survival of Covenants and Agreements........................ A-18
ARTICLE X
MISCELLANEOUS............................................................. A-18
Section 10.1 Fees and Expenses........................................... A-18
Section 10.2 Further Assurances.......................................... A-18
Section 10.3 Notices..................................................... A-19
Section 10.4 Severability................................................ A-19
Section 10.5 Binding Effect; Assignment.................................. A-19
Section 10.6 No Third Party Beneficiaries................................ A-20
Section 10.7 Interpretation.............................................. A-20
Section 10.8 Arbitration................................................. A-20
Section 10.9 Entire Agreement............................................ A-21
Section 10.10 Governing Law............................................... A-21
Section 10.11 Counterparts................................................ A-21
Section 10.12 Amendment, Modification and Waiver.......................... A-21
</TABLE>
A-3
<PAGE> 36
DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
- ---- -----------
<S> <C>
Affiliate................................................... 10.7(c)
Agreement................................................... Preamble
Acquisition Proposal........................................ 4.4(b)
Acquisition Transaction..................................... 4.4(b)
Amendment to the Rights Agreement........................... 2.10
Articles of Incorporation................................... 2.7
Board of Directors.......................................... Preamble
Buyer....................................................... Preamble
Buyer Disclosure Letter..................................... Article III
Buyer Material Adverse Effect............................... 3.2
Buyer Parties............................................... 6.1
Bylaws...................................................... 2.7
Claim....................................................... 4.7(b)
Closing..................................................... 1.1
Closing Date................................................ 1.3
Common Stock................................................ Preamble
Continuing Directors........................................ 5.1
Director.................................................... Preamble
Enstar...................................................... Preamble
Exchange Act................................................ 2.7
Financial Statements........................................ 2.5
GAAP........................................................ 2.5
GBCC........................................................ Preamble
Hart Scott Rodino Act....................................... 2.9
Indemnified Party........................................... 4.7(c)
NOLs........................................................ 2.12
Material Conflict........................................... 6.1(c)
Permitted Transferee........................................ 4.6(b)
Person...................................................... 10.7(b)
Promissory Note............................................. Preamble
Qualified Directors......................................... Preamble
Recommendation.............................................. 4.4(a)
Registration Rights Agreement............................... 7.2(d)
Rights Agreement............................................ 2.7
Rules for Arbitration....................................... 10.8
SEC......................................................... 2.7
Seller Material Adverse Effect.............................. 2.4
Share Price................................................. Preamble
Shares...................................................... Preamble
Securities Act.............................................. 1.6
Seller...................................................... Preamble
Seller Disclosure Letter.................................... Article II
Share Price................................................. Preamble
Significant Proposal........................................ 5.1
Special Meeting............................................. Preamble
Superior Proposal........................................... 4.4(b)
Termination Fee............................................. 8.2(b)
Transaction................................................. Preamble
</TABLE>
A-4
<PAGE> 37
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER
------- ------
<S> <C>
Form of Promissory Note..................................... A-22
Form of Shareholder Letter.................................. A-28
Form of Registration Rights Agreement....................... A-29
</TABLE>
A-5
<PAGE> 38
INVESTMENT AGREEMENT
THIS INVESTMENT AGREEMENT, dated as of October 20, 1998 (the "Agreement"),
by and between THE ENSTAR GROUP, INC., a Georgia corporation ("Seller" or
"Enstar") and J. CHRISTOPHER FLOWERS, an individual resident of the State of New
York ("Buyer").
WITNESSETH:
WHEREAS, Buyer has been an outside director of Seller (a "Director") since
October of 1996;
WHEREAS, Seller desires to secure the services of Buyer in an enhanced
capacity as Vice Chairman of the Board of Directors of Seller (the "Board of
Directors") and to utilize the services of Buyer to assist in the search for and
acquisition of an operating company;
WHEREAS, Buyer desires to assume an enhanced role with Seller as the Vice
Chairman of the Board of Directors and in connection therewith desires to make a
significant investment in Seller on the terms described in this Agreement;
WHEREAS, Seller desires to sell to Buyer 1,158,860 newly issued shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock") of
Seller at a price per share of $12.94375 (the "Share Price"), which represents
the average of the closing prices for shares of Common Stock for the 10 trading
days immediately preceding October 20, 1998, the date the Board of Directors
approved the proposed sale of the Shares to Buyer;
WHEREAS, Seller desires to sell the Shares to Buyer in exchange for a full
recourse promissory note of Buyer in the form attached hereto as Exhibit 1 (the
"Promissory Note" and the purchase and sale of the Shares in exchange for the
Promissory Note is hereinafter referred to as the "Transaction");
WHEREAS, the Seller has received an opinion from Stephens Inc. to the
effect that the consideration to be received by Seller in the Transaction is
fair to the disinterested shareholders of Seller from a financial point of view;
WHEREAS, the qualified directors (the "Qualified Directors"), within the
meaning of Section 14-2-862(d) of the Georgia Business Corporations Code (the
"GBCC"), have approved the Transaction and recommend that the Transaction be
approved by the holders of a majority of the qualified shares, within the
meaning of Section 14-2-863(b) of the GBCC, in accordance with the requirements
of Section 14-2-863 of the GBCC at a special meeting of the shareholders of
Seller (the "Special Meeting"); and
WHEREAS, each of the Qualified Directors, in their capacity as shareholders
of Seller, have agreed to vote the shares of Common Stock owned by them at the
Special Meeting in favor of the Transaction, and has heretofore delivered to
Buyer for his benefit a letter in the form attached hereto as Exhibit 2
confirming such agreement.
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants, agreements and conditions hereinafter
set forth, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
Section 1.1 Purchase and Sale. Subject to the terms and conditions set
forth in this Agreement, at the closing provided for in Section 1.3 hereof (the
"Closing"), Seller agrees to sell, transfer and deliver to Buyer, and Buyer
agrees to purchase, acquire and accept from Seller, the Shares.
Section 1.2 Consideration. Subject to the terms and conditions of this
Agreement, in consideration of the aforesaid sale, transfer and delivery of the
Shares, Buyer will execute and deliver to Seller at the Closing the Promissory
Note.
A-6
<PAGE> 39
Section 1.3 Closing. The Closing of the Transaction shall take place as
promptly as practicable, but in any event no earlier than December 1, 1998 and
no later than the fifth business day following the satisfaction or waiver of all
of the conditions to Closing set forth in Article VII hereof, at 10:00 a.m.,
local time, at the offices of King & Spalding, 191 Peachtree Street, Atlanta,
Georgia, or on such other date and at such other time or place as the parties
may agree. The date of the Closing is sometimes referred to herein as the
"Closing Date."
Section 1.4 Deliveries by Seller. At the Closing, Seller will deliver or
cause to be delivered to Buyer (unless delivered previously) the following:
(a) The stock certificate or certificates representing the Shares
registered in such names and denominations as Buyer shall instruct Seller
in writing prior to the Closing; and
(b) All other documents, instruments and writings required or
reasonably requested by Buyer to be delivered by Seller at or prior to the
Closing pursuant to this Agreement or otherwise reasonably required in
connection herewith.
Section 1.5 Deliveries by Buyer. At the Closing, Buyer will deliver or
cause to be delivered to Seller (unless previously delivered) the following:
(a) The Promissory Note in accordance with Section 1.2 hereof; and
(b) All other documents, instruments and writings required or
reasonably requested by Seller to be delivered by Buyer at or prior to the
Closing pursuant to this Agreement or otherwise reasonably required in
connection herewith.
Section 1.6 Transfer Restrictions. Buyer acknowledges and agrees that the
Shares will be sold to Buyer in a sale not involving any public offering, and
that the subsequent resale or transfer of the Shares will be restricted under
federal and state securities laws. Each certificate representing the Shares will
be stamped or otherwise imprinted with a legend substantially in the following
form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SHARES MAY NOT BE
OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR (2) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS, AND IN THE CASE OF A TRANSACTION EXEMPT FROM REGISTRATION,
UNLESS ENSTAR HAS RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
IT THAT SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION UNDER THE SECURITIES
ACT AND SUCH OTHER APPLICABLE LAWS.
Each certificate issued upon exchange or transfer of any such Shares will
bear the legend set forth above, except that such certificate will not bear such
legend (and Seller will cause any such legend to be removed) if (i) such
transfer is made pursuant to an effective registration statement under the
Securities Act of 1933, as amended (the "Securities Act"), or (ii) Seller is
provided with an opinion of counsel reasonably satisfactory to Seller to the
effect that such transfer of the Shares may be effected without registration
under the Securities Act or applicable state securities laws and other
jurisdictions and that the transferee (other than an affiliate of Seller) would
be entitled to transfer such securities in a public sale without registration
under the Securities Act.
Buyer acknowledges that there are additional restrictions on the transfer
of the Shares contained in Section 4.6 of this Agreement, and that the
certificate(s) evidencing the Shares will bear an appropriate legend relating to
such additional transfer restrictions. The foregoing provisions of this Section
1.6 shall not be deemed to affect the obligations of Seller under the
Registration Rights Agreement.
A-7
<PAGE> 40
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
With such exceptions as are set forth in a letter (the "Seller Disclosure
Letter") delivered by Seller to Buyer prior to the execution of this Agreement,
Seller hereby represents and warrants to Buyer as follows:
Section 2.1 Organization. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia and has all
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
Section 2.2 Authorization. Seller has the corporate power and authority
to execute and deliver this Agreement and perform its obligations hereunder. The
execution and delivery of this Agreement and the performance by Seller of its
covenants and agreements hereunder have been duly and validly authorized by the
Board of Directors. This Agreement has been duly executed and delivered by
Seller and constitutes a valid and binding agreement of Seller, enforceable
against Seller in accordance with its terms, except that (a) such enforcement
may be subject to any bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other laws, now or hereafter in effect, relating to or
limiting creditors' rights generally and (b) the remedy of specific performance
and injunctive and other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
Section 2.3 Capitalization. The authorized capital stock of Seller
consists of 55,000,000 shares of Common Stock. As of the date hereof, there are
4,106,709 shares of Common Stock issued and outstanding. Each share of Common
Stock which is outstanding as of the date hereof is duly authorized, validly
issued, fully paid and nonassessable and free of preemptive rights. There are no
outstanding securities convertible into, exchangeable for, or carrying the right
to acquire, Common Stock of Seller, nor are there any subscriptions, warrants,
options, rights or other arrangements or commitments (other than this Agreement)
which could obligate Seller to issue any shares of its Common Stock. The Shares
have been duly authorized, and on the Closing Date the Shares will be duly
issued and delivered, and upon payment therefor in accordance with the terms and
conditions hereof, the Shares will constitute validly issued, fully paid and
nonassessable shares of Common Stock, free of preemptive rights.
Section 2.4 Consents and Approvals; No Violations. Neither the execution
and delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (a) conflict with or result in any breach of any
provision of the articles of incorporation or bylaws of Seller; (b) require any
filing with, or the obtaining of any permit, authorization, consent or approval
of, any governmental or regulatory authority; (c) violate, conflict with or
result in a default (or any event which, with notice or lapse of time or both,
would constitute a default) under, or give rise to any right of termination,
cancellation or acceleration under, any of the terms, conditions or provisions
of any material agreement or obligation to which Seller is a party or by which
Seller or any of its assets may be bound; or (d) violate any order, injunction,
decree, statute, rule or regulation applicable to Seller, excluding from the
foregoing clauses (b), (c) and (d) such requirements, violations, conflicts,
defaults or rights which would not have a material adverse effect upon the
assets, liabilities, results of operations, financial condition, business or
prospects of Seller and its subsidiary, taken as a whole (a "Seller Material
Adverse Effect").
Section 2.5 Financial Statements. Seller has made available to Buyer: (a)
the audited balance sheets of Seller and its subsidiary as of December 31, 1996
and 1997 and the audited statements of income and cash flows thereof for the
respective fiscal years then ended, including the notes thereto; and (b) the
unaudited balance sheet of Seller and its subsidiary as of June 30, 1998 and the
unaudited statements of income and cash flows thereof for the six month period
then ended. All of the foregoing financial statements are hereinafter
collectively referred to as the "Financial Statements". Except as disclosed in
the Financial Statements, the Financial Statements have been prepared from, and
are in accordance with, the books and records of Seller and present fairly, in
all material respects, the consolidated financial position and consolidated
results of operations of Seller and its subsidiary as of the dates and for the
applicable periods indicated, in each case in conformity with generally accepted
accounting principles ("GAAP"), consistently applied.
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Section 2.6 Absence of Material Adverse Change. Except as otherwise
contemplated by this Agreement, since June 30, 1998, (i) the business of Seller
and its subsidiary has been carried on only in the ordinary and usual course and
(ii) there has not been any Seller Material Adverse Effect.
Section 2.7 SEC Filings. Since March 27, 1997, Seller has filed all
forms, reports and documents, including any amendments thereof, with the
Securities and Exchange Commission (the "SEC") required to be filed by it
pursuant to the Securities Act and the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and the rules and regulations promulgated
thereunder, each of which complied as to form, at the time such form, report or
document was filed, including any amendments thereto, in all material respects
with the applicable requirements of the Securities Act and Exchange Act and the
applicable rules and regulations promulgated thereunder. As of their respective
dates, the forms, reports and documents, including any amendments thereto, filed
by Seller with the SEC did not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The filings with the SEC made by Seller prior to the date
hereof contain a true, complete and correct copy of each of the articles of
incorporation of Seller (the "Articles of Incorporation"), the Bylaws of Seller
(the "Bylaws") and the rights agreement dated as of January 20, 1997 between
Seller and American Stock Transfer & Trust Company, as rights agent (the "Rights
Agreement).
Section 2.8 Brokers, Finders and Investment Bankers Fees. Except for the
engagement of Stephens Inc. to deliver an opinion as to the fairness of the
consideration to be received by Seller in the Transaction, Seller has not
employed any financial advisor or finder or incurred any liability for any
broker, investment banker or other financial advisor in connection with this
Agreement or the transactions contemplated hereby.
Section 2.9 Hart Scott Rodino Act. For purposes of the Hart-Scott-Rodino
Antitrust Improvement Act of 1976 (the "Hart Scott Rodino Act"), neither Seller
nor any Person that includes Seller has total assets or annual net sales of
$100,000,000 or more.
Section 2.10 State Takeover Laws. The Board of Directors of the Seller
has taken all actions necessary so that the Buyer is not an "interested
stockholder" for purposes of Sections 14-2-1131 through 14-2-1133 of the GBCC.
Seller is not subject to any other takeover statute applicable under the GBCC.
On the date hereof and on the Closing Date, the Rights Agreement has been
amended (the "Amendment to the Rights Agreement") to exclude from the definition
of "Acquiring Person" (as such term is defined in the Rights Agreement) Buyer
and his Permitted Transferees and to otherwise exempt the Transaction and
certain related matters and any transfer of the Shares or the pledge thereof in
accordance with the provisions of Section 4.6(b)(i), (ii) or (iii) from the
applicable provisions of the Rights Agreement.
Section 2.11 Investment Company. Seller is not, and as a result of and
after giving effect to the consummation of the Transaction will not be, an
"investment company" as defined in the Investment Company Act of 1940, as
amended. To the knowledge of Seller, Seller is not a company controlled by such
an investment company.
Section 2.12 Litigation. As of the date hereof, there is no action, suit,
proceeding or investigation pending or, to the knowledge of Seller, currently
threatened against Seller that questions the validity of this Agreement, the
Registration Rights Agreement or the Promissory Note or the right of Seller to
enter into, or to consummate, the transactions contemplated hereby or thereby,
or that is reasonably likely, either individually or in the aggregate, to have a
Seller Material Adverse Effect, nor does Seller have knowledge that there is any
basis for any of the foregoing. Seller is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality that specifically names Seller or its
subsidiary and as to which either compliance or noncompliance is reasonably
likely to have a Seller Material Adverse Effect. There is no action, suit,
proceeding or investigation by Seller currently pending or which Seller intends
to initiate that is material to the operations of Seller.
Section 2.13 NOLs. None of the net operating loss carryforwards or tax
credits of the Seller or its subsidiary ("NOLs") are subject to any current
limitation resulting from an ownership change under Section 382 or 383 of the
Internal Revenue Code of 1986 and neither the entering into of this Agreement
nor
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the consummation of the Transaction will result in the occurrence of an
ownership change upon the date hereof or the Closing Date.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BUYER
With such exceptions as are set forth in a letter (the "Buyer Disclosure
Letter") delivered by Buyer to Seller prior to the execution of this Agreement,
Buyer hereby represents and warrants to Seller as follows:
Section 3.1 Authority of Buyer. Buyer is an individual resident of the
State of New York and Buyer has the capacity to execute and deliver this
Agreement and perform his obligations hereunder. No other actions on the part of
Buyer are necessary to permit the execution, delivery and performance of this
Agreement by Buyer or the consummation of the transactions so contemplated by
Buyer. This Agreement has been duly executed and delivered by Buyer and
constitutes a valid and binding agreement of Buyer, enforceable against Buyer in
accordance with its terms, except that (a) such enforcement may be subject to
any bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer or
other laws, now or hereafter in effect, relating to or limiting creditors'
rights generally, and (b) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.2 Consents and Approvals; No Violations. Neither the execution
and delivery of this Agreement by Buyer nor the consummation of the transactions
contemplated hereby by Buyer will (a) require any filing with, or the obtaining
of any permit, authorization, consent or approval of, any governmental or
regulatory authority; (b) violate, conflict with or result in a default (or any
event which, with notice or lapse of time or both, would constitute a default)
under, or give rise to any right of termination, cancellation or acceleration
under, any of the terms, conditions or provisions of any material agreement or
obligation to which Buyer is a party or by which Buyer or any of his assets may
be bound; or (c) violate any order, injunction, decree, statute, rule or
regulation applicable to Buyer, excluding from the foregoing clauses (a), (b)
and (c) such requirements, violations, conflicts, defaults or rights which would
not have a material adverse effect upon the assets, liabilities, financial
condition or prospects of Buyer (a "Buyer Material Adverse Effect").
Section 3.3 Net Worth. As of the date hereof and as of the Closing Date,
Buyer has and will have the minimum net worth, calculated in accordance with
GAAP, as set forth in the Buyer Disclosure Letter.
Section 3.4 Brokers, Finders and Investment Bankers Fees. Buyer has not
employed any financial advisor or finder or incurred any liability for any
broker, investment banker or other financial advisor in connection with this
Agreement or the transactions contemplated hereby.
Section 3.5 Investment Representations.
(a) Buyer is acquiring the Shares for his own account, for investment,
and not with a view toward the resale or distribution thereof in violation
of the Securities Act or any applicable state securities laws.
(b) Buyer understands that he must bear the economic risk of his
investment in the Shares for an indefinite period of time because the
Shares are not and will not be registered under the Securities Act or any
applicable state securities laws, and except as provided in the
Registration Rights Agreement (defined herein) may not be resold unless
subsequently registered under the Securities Act and such other laws or
unless an exemption from such registration is available.
(c) Buyer represents that he has the ability to bear the economic
risks of his investment in the Shares for an indefinite period of time.
Buyer further acknowledges that he has retained counsel to represent him in
connection with the matters contemplated hereby and that Buyer has had the
opportunity to ask questions of, and receive answers from, Seller with
respect to the business and financial condition of Seller and the terms and
conditions of the Shares and to obtain any additional information which
Seller possesses or can acquire without unreasonable effort or expense that
is necessary to verify such information.
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(d) Buyer represents that he has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits
and risks of his investment in the Shares. Buyer further represents that he
is an "accredited investor" as such term is defined in Rule 501 of
Regulation D under the Securities Act with respect to his purchase of the
Shares.
Section 3.6 Hart Scott Rodino Act. For purposes of the Hart Scott Rodino
Act, Buyer and all entities directly or indirectly controlled by Buyer do not
have total assets or annual sales of $100,000,000 or more.
Section 3.7 Litigation. As of the date hereof, there is no action, suit,
proceeding or investigation pending or, to the knowledge of Buyer, currently
threatened against Buyer that questions the validity of this Agreement, the
Registration Rights Agreement or the Promissory Note or the right of Buyer to
enter into, or to consummate, the transactions contemplated hereby or thereby,
or that is reasonably likely, either individually or in the aggregate, to have a
Buyer Material Adverse Effect, nor does Buyer have knowledge that there is any
basis for any of the foregoing. Buyer is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality that specifically names Buyer as to which
either compliance or noncompliance is reasonably likely to have a Buyer Material
Adverse Effect. There is no action, suit, proceeding or investigation by Buyer
currently pending or which Buyer intends to initiate that is material to the
assets, liabilities or financial condition of Buyer.
ARTICLE IV
COVENANTS AND AGREEMENTS
Section 4.1 Reasonable Best Efforts. Each of Seller and Buyer shall
cooperate and use reasonable best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate the Transaction by December
31, 1998.
Section 4.2 Covenant to Satisfy Conditions. Seller will use its
reasonable best efforts to ensure that the conditions set forth in Article VII
hereof are satisfied, insofar as such matters are within the control of Seller,
and Buyer will use his reasonable best efforts to ensure that the conditions set
forth in Article VII hereof are satisfied, insofar as such matters are within
the control of Buyer.
Section 4.3 Public Announcements. Upon the execution of this Agreement,
Seller and Buyer will consult with each other with respect to the issuance of a
joint press release with respect to this Agreement and the transactions
contemplated hereby. Prior to the Closing, except as otherwise agreed to by the
parties, the parties shall not issue any report, statement or press release or
otherwise make any public statements with respect to this Agreement and the
transactions contemplated hereby, except as in the reasonable judgment of the
party may be required by law or in connection with the obligations of a
publicly-held company. Upon the Closing, Seller and Buyer will consult with each
other with respect to the issuance of a joint press release with respect to the
consummation of the transactions contemplated hereby.
Section 4.4 Proxy Statement and Special Meeting.
(a) Seller shall prepare and file with the SEC as soon as is
reasonably practicable a proxy statement relating to the Transaction.
Seller shall call the Special Meeting to be held as soon as practicable
after the date hereof for the purpose of voting upon the Transaction.
Seller will use its reasonable best efforts to hold the Special Meeting as
promptly as practicable and will, through its Qualified Directors,
recommend that its shareholders approve the Transaction in accordance with
the requirements of Section 14-2-863 of the GBCC (the "Recommendation")
except as set forth in, and subject to the terms and conditions contained
in, Section 4.4(b) hereof.
(b) Prior to the Special Meeting, the Qualified Directors may withdraw
the Recommendation if there is an unsolicited bona fide written proposal or
offer with respect to the purchase of all or a significant portion of the
assets, or fifteen percent (15%) or more of the capital stock of, Seller
(any of the foregoing being hereinafter referred as an "Acquisition
Transaction"), if and only to the extent that: (i) the Qualified Directors
conclude in good faith (after consultation with their financial advisor)
that such Acquisition Transaction is reasonably capable of being completed,
taking into account all legal,
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financial and other aspects of the proposal and the Person making the
proposal, and would, if consummated, result in a transaction more favorable
to Seller's shareholders from a financial point of view than the
Transaction (any such proposal or offer, an "Acquisition Proposal" and any
such more favorable transaction, a "Superior Proposal"), (ii) the Qualified
Directors conclude in good faith (after consultation with their financial
advisor and legal counsel) that the Superior Proposal is not capable of
being completed without termination of this Agreement; and (iii) the
Qualified Directors determine in good faith, after consultation with their
legal counsel, that the fiduciary duties of the Qualified Directors to the
shareholders of Seller under applicable law requires that the Qualified
Directors withdraw such recommendation. Until the Closing Date, the Seller
agrees that neither it nor its subsidiary nor any of its executive officers
or directors shall, directly or indirectly, initiate, solicit, knowingly
encourage or otherwise facilitate any inquiries with respect to or the
making of any Acquisition Proposal.
Section 4.5 Board of Directors Position. Seller agrees, through its
Board of Directors, to nominate Buyer for election to the Board of
Directors as a Class I Director by the shareholders of Seller for so long
as Buyer owns five percent (5%) or more of the outstanding capital stock of
Seller; provided, however, that Seller's obligations under this Section 4.5
shall terminate and expire on the sixth anniversary of the Closing Date.
Section 4.6 Share Transfer Restrictions.
(a) Buyer and Seller agree that, without the prior written consent of
Seller, Buyer will not sell, transfer or otherwise, directly or indirectly,
dispose of any of the Shares prior to the second anniversary of the Closing
Date; provided, however, that the restrictions on transfer set forth in
this Section 4.6 shall terminate and expire upon the earlier of: (i) the
repayment in full of the Promissory Note; (ii) Buyer no longer being a
Director (other than as a result of Buyer resigning from his directorship
or being removed from his directorship by an affirmative vote of the
shareholders of Seller for cause); or (iii) the Continuing Directors (as
defined herein) shall no longer constitute a majority of the Board of
Directors of Seller.
(b) Notwithstanding anything to the contrary contained herein or in
any other document executed in connection with the matters contemplated
hereby, the restriction contained in Section 4.6(a) hereof shall not: (i)
prohibit Buyer from, and Buyer shall be entitled to participate in, (1) any
offer made by Seller to its shareholders generally (including, without
limitation, any tender or exchange offer or share repurchase program) and
(2) any merger, tender offer, reorganization, share exchange, consolidation
or similar transaction approved by the Board of Directors; (ii) apply to
any bona fide pledge of the Shares by Buyer (it being understood that the
pledgee thereunder shall remain subject to the restrictions set forth in
Section 4.6(a) hereof); and (iii) apply to any transfer of the Shares to
Buyer's immediate family members (including grandchildren), to any entity
in which Buyer or members of his immediate family own all of the capital
stock or equity interests or to or among Buyer's estate (including, without
limitation, any transfer by Buyer to or among any trust, custodial or other
similar accounts or funds for the benefit of Buyer or any other member of
his immediate family), in each instance with such transferee (each, a
"Permitted Transferee"), remaining subject to the restrictions set forth in
Section 4.6(a) hereof.
(c) Buyer and Seller further acknowledge and agree that the
certificate or certificates evidencing the Shares shall bear a legend
reflecting the transfer restrictions set forth in this Section 4.6 for so
long as such transfer restrictions shall remain in effect in accordance
with the terms of this Section 4.6.
Section 4.7 Indemnification.
(a) Buyer and Seller acknowledge and agree that if any action or
omission of Buyer in connection with the matters contemplated by this
Agreement is not subject to indemnification pursuant to the provisions set
forth in Article VI of Seller's Bylaws (which indemnification provisions
insofar as they relate to Buyer and the transactions contemplated hereby or
any other document executed in connection herewith shall not be amended,
altered or otherwise modified without the prior written consent of Buyer
for a period of six years after the Closing Date), then such action or
omission shall be indemnifiable pursuant to the terms and conditions set
forth in Section 4.7(b) and (c) hereof.
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(b) Seller agrees to indemnify and hold harmless Buyer and any of his
Affiliates (direct or indirect) from and against all actions, suits,
proceedings (including any investigations or inquiries), claims, losses,
damages, liabilities or expenses of any kind or nature whatsoever
("Claims") which may be incurred by or asserted against or involve Buyer,
or any of his Affiliates (direct or indirect) as a result of any third-
party claim arising out of the transactions contemplated hereby and, upon
demand by Buyer or any such Affiliate, pay or reimburse any of Buyer or his
Affiliates for any reasonable out-of-pocket legal or other expenses, and
other costs incurred by Buyer or its Affiliates (direct or indirect) in
connection with the investigation, defending or preparing to defend any
such Claim, provided that the foregoing indemnity shall not apply to the
extent any Claim arises from the gross negligence or willful misconduct of
an Indemnified Party (as defined herein).
(c) Each person entitled to indemnification under Section 4.7(b)
hereof (each an "Indemnified Party") shall give notice to Seller promptly
after such Indemnified Party has actual knowledge of any Claim as to which
indemnity may be sought, and shall permit Seller to assume the defense of
any such Claim; provided, that counsel for Seller, who shall conduct the
defense of such Claim, shall be approved by the Indemnified Party (which
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at such party's expense (unless the Indemnified
Party shall have reasonably concluded that there is a conflict of interest
between the Indemnified Party and Seller in such action, in which case the
reasonable fees and expenses for one such counsel for all Indemnified
Parties (and one local counsel) shall be at the expense of Seller), and
provided, further, that the failure of any Indemnified Party to give notice
as provided herein shall not relieve Seller of its obligations under
Section 4.7(b) or this Section 4.7(c) except, and only to the extent that,
such failure to give notice as provided herein results in the forfeiture of
material rights or material defenses otherwise available to Seller or the
Indemnified Party with respect to such Claim. Seller may not, in the
defense of any such Claim, except with the consent of each Indemnified
Party (which consent shall not be unreasonably withheld or delayed),
consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect of such Claim. Each Indemnified Party shall furnish such
information regarding itself or the Claim in question as Seller may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such Claim.
Section 4.8 Adjustments.
(a) If the number of shares of Common Stock outstanding at any time
after the date hereof and prior to the Closing is increased by a stock
dividend payable in shares of Common Stock or by a subdivision or split-up
of shares of Common Stock, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, subdivision or split up, the Share Price shall be appropriately
decreased so that the number of Shares to be acquired by Buyer shall be
increased in proportion to such increase in outstanding shares.
(b) If the number of shares of Common Stock outstanding at any time
after the date hereof and prior to the Closing is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date fixed for such combination, the Share Price shall be
appropriately increased so that the number of Shares to be acquired by
Buyer shall be decreased in proportion to such decrease in outstanding
shares.
Section 4.9 Rights Agreement. The Amendment to the Rights Agreement shall
remain in full force and effect at all times.
Section 4.10 Vice-Chairman. On or prior to the Closing Date, Seller shall
appoint Buyer Vice Chairman of the Board of Directors to serve in such capacity
at the discretion of the Board of Directors, which position shall be an
executive position, and in such capacity Buyer shall assist Seller in the search
for and acquisition of an operating company. In his capacity as Vice Chairman of
the Board of Directors, Buyer shall be entitled to reimbursement of his
out-of-pocket expenses incurred in connection with providing services to Seller
and such other compensation and remuneration as the Board of Directors of Seller
shall determine in its discretion. Seller acknowledges and agrees that Buyer is
and will be engaged in other business activities and
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that there shall be no specific time commitment applicable to Buyer with respect
to the performance of his services as Vice Chairman of the Board.
Section 4.11 Registration Rights. Seller covenants that it will not
hereinafter enter into any agreement with respect to its securities which is
inconsistent with the rights granted to Buyer in the Registration Rights
Agreement.
ARTICLE V
STANDSTILL OBLIGATIONS
Section 5.1 Definitions. For purposes of this Article V
"Significant Proposal" means any proposal for: (a) a tender or exchange
offer, a merger, consolidation, share exchange or other business combination
involving Seller; (b) a recapitalization, liquidation, dissolution or similar
transaction involving Seller; (c) a sale of all or substantially all of the
assets of Seller; (d) the removal of a Continuing Director or the increase in
the number of directors constituting the Board of Directors; or (e) the
acquisition of twenty percent (20%) or more of the outstanding capital stock of
Seller, other than in connection with the Transaction.
"Continuing Directors" means T. Whit Armstrong, T. Wayne Davis, Nimrod T.
Frazer and Jeffrey S. Halis and any new member hereinafter added to the Board of
Directors by a majority vote of such Continuing Directors.
Section 5.2 Standstill Obligations. Subject to the provisions of Sections
5.3 and 5.4 of this Agreement, Buyer will not and will not authorize any of its
agents or representatives to, without prior written approval of a majority of
the Continuing Directors, directly or indirectly, acting alone or in concert
with others:
(a) acquire, offer to acquire, or agree to acquire, by purchase or
otherwise, any capital stock or direct or indirect rights to acquire any
capital stock of Seller, other than (i) any capital stock or rights offered
generally to the other shareholders of Seller (including, without
limitation, in connection with a tender or exchange offer, a merger,
consolidation, share exchange or other business combination involving
Seller); (ii) any rights issued under the Rights Agreement and any shares
of capital stock acquired upon the exercise thereof; (iii) capital stock or
rights acquired pursuant to the terms and conditions of any agreement or
arrangement approved by a majority of the Continuing Directors in office at
the time such agreement or arrangement is or was approved by the Board of
Directors (including, without limitation, all stock options issued to
Buyer); or (iv) capital stock or rights acquired pursuant to a transaction
approved by a majority of the Continuing Directors in office at the time
such transaction is or was approved by the Board of Directors;
(b) submit a proposal for, or offer to effect any Significant
Proposal;
(c) make, or in any way participate, directly or indirectly, in any
solicitation of proxies to vote, or seek to advise or influence any person
or entity with respect to the voting of capital stock of Seller in
connection with a Significant Proposal; or
(d) form, join or in any way participate in a "group" as defined in
Rule 13d-5(b) under the Exchange Act in connection with any of the
foregoing.
Buyer will promptly advise Seller of any inquiry or proposal made to Buyer
with respect to any of the foregoing and describe, in reasonable detail, the
terms and conditions thereof.
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Section 5.3 Termination of Standstill Obligations. The standstill
obligations of Buyer described in Section 5.2 of this Article shall commence
upon execution hereof and shall terminate upon the earlier to occur of the
following events:
(a) termination of this Agreement pursuant to Article VIII hereof;
(b) Buyer shall beneficially own five percent (5%) or fewer of the
outstanding shares of capital stock of Seller for a period of at least
ninety (90) consecutive days;
(c) the Continuing Directors no longer constitute a majority of the
Board of Directors;
(d) Buyer no longer being a Director (other than as a result of Buyer
resigning from his directorship or Buyer being removed from his
directorship by an affirmative vote of the shareholders of Seller for
cause); or
(e) the sixth anniversary of the Closing Date.
Section 5.4 Fiduciary Duties. Notwithstanding anything to the contrary
contained in this Article V (including, without limitation, Section 5.2(b)),
this Agreement or any other agreement contemplated hereby, Buyer shall have the
right to take action or omit to take action in his capacity as a Director of
Seller for so long as he serves in such capacity.
ARTICLE VI
CONFLICTING TRANSACTIONS
Section 6.1 Conflicting Business Opportunities.
(a) Seller acknowledges and agrees that Buyer and any entities in
which Buyer may invest or which Buyer may control (collectively, the "Buyer
Parties") are or may be engaged in the future in business activities that
compete with Seller or are in the same lines of business as Seller. The
Buyer Parties shall have the right to, and shall have no duty not to, (i)
engage in the same or similar business activities or lines of business as
Seller, or (ii) do business with any client or customer of Seller.
Accordingly, Buyer will not be liable to Seller or to its shareholders for
breach of any fiduciary duty by reason of any such activities.
(b) In the event that Buyer acquires knowledge of a potential
transaction or matter which may be a corporate opportunity for both Buyer
and Seller, Buyer is not under any duty to present such corporate
opportunity to Seller, and Buyer (i) will not be liable to Seller or its
shareholders for breach of any fiduciary duty as a shareholder of Seller by
reason of the fact that Buyer or any other Buyer Party pursues or acquires
such corporate opportunity for itself, directs such corporate opportunity
to another Person or does not present the corporate opportunity to Seller
and (ii) shall be deemed not to have breached Buyer's duty of loyalty to
Seller or its shareholders and not to have derived an improper personal
benefit therefrom.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PARTIES
Section 7.1 Conditions to Each Party's Obligation. The respective
obligation of each party to consummate the transactions contemplated hereby is
subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) No statute, rule or regulation shall have been enacted,
promulgated or enforced by any court or governmental authority which
prohibits or restricts the consummation of the transactions contemplated
hereby;
(b) There shall not be in effect any judgment, order, injunction or
decree of any court of competent jurisdiction enjoining the consummation of
the transactions contemplated hereby;
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(c) There shall not be any suit, action, investigation, inquiry or
other proceeding commenced by any governmental or other regulatory or
administrative agency or commission which seeks to enjoin or otherwise
prevent consummation of the transactions contemplated hereby; and
(d) The Transaction shall have been approved at the Special Meeting by
a majority of the total votes entitled to be cast by the holders of all
qualified shares of Common Stock at such Special Meeting in accordance with
Section 14-2-863 of the GBCC.
Section 7.2 Conditions to Obligations of Seller. The obligations of
Seller to consummate the transactions contemplated hereby are further subject to
the satisfaction (or waiver) at or prior to the Closing of the following
conditions:
(a) The representations and warranties of Buyer contained in Article
IV of this Agreement shall be true and correct in all material respects at
the date hereof and as of the Closing as if made at and as of such time,
except for changes permitted or contemplated hereby and except for
representations and warranties which are as of a specific date;
(b) Buyer shall have performed in all material respects his
obligations under this Agreement required to be performed by him at or
prior to the Closing pursuant to the terms hereof;
(c) Buyer shall have delivered to Seller those items set forth in
Section 1.5 hereof; and
(d) Buyer shall have duly executed and delivered the Registration
Rights Agreement in the form attached as Exhibit 7.2 to this Agreement (the
"Registration Rights Agreement").
Section 7.3 Conditions to Obligations of Buyer. The obligations of Buyer
to consummate the transactions contemplated hereby are further subject to the
satisfaction (or waiver) at or prior to the Closing of the following conditions:
(a) The representations and warranties of Seller contained in Article
II of this Agreement shall be true and correct in all material respects at
the date hereof and as of the Closing as if made at and as of such time,
except for changes permitted or contemplated hereby and except for
representations and warranties which are as of a specific date;
(b) Seller shall have performed in all material respects its
obligations under this Agreement required to be performed by it at or prior
to the Closing pursuant to the terms hereof;
(c) Seller shall have delivered to Buyer those items set forth in
Section 1.4 hereof and the Amendment to the Rights Agreement shall be in
full force and effect; and
(d) Seller shall have duly executed and delivered the Registration
Rights Agreement.
ARTICLE VIII
TERMINATION
Section 8.1 Termination. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned:
(a) at any time, by mutual written consent of Seller and Buyer;
(b) at any time on or after March 1, 1999 by either party, if the
Closing shall not have occurred on or prior to such date;
(c) by either party if, at the Special Meeting, the shareholders fail
to approve the Transaction in accordance with the requirements of Section
14-2-863 of the GBCC, and such meeting is ended without any adjournment to
another time; and
(d) by either party, if the Qualified Directors shall have withdrawn
their recommendation of the Transaction in accordance with Section 4.4(b)
hereof.
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Section 8.2 Procedure and Effect of Termination; Termination Fee.
(a) In the event of the termination of this Agreement and the
abandonment of the transactions contemplated hereby pursuant to Section 8.1
hereof, written notice thereof shall forthwith be given by Seller, on the
one hand, or Buyer, on the other hand, so terminating to the other party
and this Agreement shall terminate and the transactions contemplated hereby
shall be abandoned, without further action by Seller, on the one hand, or
Buyer, on the other hand. If this Agreement is terminated pursuant to
Section 8.1 hereof and other than as set forth in Section 8.2(b) herein,
there shall be no liability or obligation hereunder on the part of Seller
or Buyer or any of their respective directors, officers, employees,
Affiliates, controlling persons, agents or representatives, except that
Seller or Buyer, as the case may be, shall have liability to the other
party if the basis of termination is a willful, material breach by Seller
or Buyer, as the case may be, of one or more of the provisions of this
Agreement, and except that the obligations provided for in this Section 8.2
and Sections 4.7 and 10.1 hereof shall survive any such termination.
(b) If this Agreement is terminated (i) pursuant to Section 8.1(d) or
(ii) pursuant to Section 8.1(c), and, in the case of clause (ii), if prior
to the Special Meeting (or an adjournment thereof) an Acquisition
Transaction was pending or consummated or an Acquisition Proposal was made
and within one year after the termination of this Agreement Seller
consummates or enters into an Acquisition Transaction with any Person
(other than Buyer), Seller shall (A) at the time of such termination in the
case of a termination under clause (i) above or (B) upon consummation of
such Acquisition Transaction in the case of a termination under clause (ii)
above, pay Buyer a fee of $1,000,000 (the "Termination Fee"). Any
termination by Seller under Section 8.1(d) shall not be effective unless
the Termination Fee is paid.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS
Section 9.1 No Survival of Representations and Warranties. The
representations and warranties of Seller and Buyer made in Articles II and III
hereof, respectively, shall not survive the Closing and, except as provided in
Section 8.2 hereof, shall not survive any termination of this Agreement.
Section 9.2 Survival of Covenants and Agreements. The various covenants
and agreements of the parties contained herein shall survive until fully
performed and satisfied (or waived) in accordance with the terms hereof.
ARTICLE X
MISCELLANEOUS
Section 10.1 Fees and Expenses. Each of Seller and Buyer shall bear its
own fees, costs and expenses incurred in connection with the matters
contemplated hereby; provided, however, that Seller shall reimburse Buyer for
his reasonable out-of-pocket expenses incurred in connection with the
Transaction in an amount not to exceed $50,000. This limitation on Buyer's
out-of-pocket reimbursement shall not affect Buyer's rights under Section 4.7
hereof and Section 4.10 hereof or under the Registration Rights Agreement.
Section 10.2 Further Assurances. From time to time after the Closing
Date, at the reasonable request of the other party hereto and at the expense of
the party so requesting, each of the parties hereto shall execute and deliver to
such requesting party such documents and take such other action as such
requesting party may reasonably request in order to consummate more effectively
the matters contemplated hereby.
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Section 10.3 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and may be given by any of the following methods: (a) personal
delivery; (b) facsimile transmission; (c) registered or certified mail, postage
prepaid, return receipt requested; or (d) overnight delivery service. Notices
shall be sent to the appropriate party at its address or facsimile number given
below (or at such other address or facsimile number for such party as shall be
specified by notice given hereunder):
If to Buyer, to:
J. Christopher Flowers
4 East 70th Street
New York, New York 10021
Facsimile: (212) 517-3933
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Facsimile: (212) 728-8111
Attention: Thomas M. Cerabino, Esq.
If to Seller, to:
The Enstar Group, Inc.
172 Commerce Street, 3rd Floor
Montgomery, AL 36104
Facsimile: (334) 834-2530
Attention: Mr. Nimrod T. Frazer
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Facsimile: (404) 572-5145
Attention: William R. Spalding, Esq.
All such notices, requests, demands, waivers and communications shall be
deemed received upon (i) actual receipt thereof by the addressee, (ii) actual
delivery thereof to the appropriate address or (iii) in the case of a facsimile
transmissions upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed received.
Section 10.4 Severability. Should any provision of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect the
validity or enforceability of any of the other provisions of this Agreement,
which remaining provisions shall remain in full force and effect and the
application of such invalid or unenforceable provision to Persons or
circumstances other than those as to which it is held invalid or unenforceable
shall be valid and enforced to the fullest extent permitted by law.
Section 10.5 Binding Effect; Assignment. This Agreement and all of the
provisions hereof shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Neither
this Agreement nor any of the rights, interests or obligations hereunder shall
be assigned,
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directly or indirectly, including, without limitation, by operation of law, by
any party hereto without the prior written consent of the other party hereto.
Section 10.6 No Third Party Beneficiaries. This Agreement is solely for
the benefit of Seller, and its successors and permitted assigns, with respect to
the obligations of Buyer under this Agreement, and for the benefit of Buyer, and
his permitted assigns, with respect to the obligations of Seller, under this
Agreement, and this Agreement shall not be deemed to confer upon or give to any
other third party any remedy, claim, liability, reimbursement, cause of action
or other right.
Section 10.7 Interpretation.
(a) The Article and Section headings contained in this Agreement are
solely for the purpose of reference, are not part of the agreement of the
parties and shall not in any way affect the meaning or interpretation of
this Agreement.
(b) As used in this Agreement, the term "Person" shall mean and
include an individual, a partnership, a joint venture, a corporation, a
limited liability company, a trust, an unincorporated organization and a
government or any department or agency thereof.
(c) As used in this Agreement, the term "Affiliate" shall have the
meaning set forth in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act.
Section 10.8 Arbitration. Each of Seller and Buyer agrees as follows:
(a) Seller and Buyer shall attempt in good faith to resolve promptly
any dispute, controversy or claim under or in connection with this
Agreement by negotiations. If any such dispute, controversy or claim should
arise, the parties or representatives of each such party shall meet at
least once to attempt to resolve the matter. Any such representative may
request the other representatives to meet within 14 days after delivery of
written notice to the others of any such dispute, controversy, or claim, at
a mutually agreed time and place.
(b) If the matter has not been resolved pursuant to negotiations
within 60 days after the first meeting of the representatives (which period
may be extended by mutual agreement), the matter shall be settled
exclusively by arbitration (except as provided in Section 10.8(f))
conducted by three arbitrators in accordance with the provisions of the
Federal Arbitration Act (9 U.S.C. Sections 1-16), and in accordance with
the Center for Public Resources, Inc.'s Rules (the "Rules for Arbitration")
for Non-Administered Arbitration of Business Disputes. The three
arbitrators shall be selected as follows: one arbitrator shall be selected
by Seller, one arbitrator shall be selected by Buyer and one arbitrator
shall be selected by the other two arbitrators. All arbitrators shall be
individuals: (i) who meet the qualifications set forth in Rule 7 of the
Rules of Arbitration, (ii) who are attorneys or retired judges and (iii)
who have past experience in settling complex litigation involving claims
relating to securities and mergers and acquisitions. The arbitration of
such matters in controversy, including the determination of any amount of
damages, shall be final and binding upon Seller and Buyer to the maximum
extent permitted by law. No such Person shall seek, and no arbitrator shall
be authorized to award, any punitive damages relating to any matter
arbitrated. This Agreement to arbitrate is irrevocable.
(c) Any arbitration proceedings shall be conducted in Atlanta, Georgia
or at such other location as Seller and Buyer may agree.
(d) Any arbitration award under this Section 10.8 shall be final and
binding, and judgment may be entered on such award by any court having
jurisdictions upon application of Seller or Buyer.
(e) Any party to an arbitration proceeding under this Section 10.8
shall be entitled to be reimbursed by the other party for its costs and
expenses incurred in connection with the arbitration proceeding, including
reasonable attorneys' fees, to the extent determined by the arbitrators.
The arbitrators shall assess the costs of the arbitration proceeding,
including their fees, to the parties to the proceeding in such proportions
as the arbitrators consider reasonable under the circumstances.
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(f) Notwithstanding anything else in this Section 10.8 to the
contrary, Seller and Buyer shall be entitled to seek any equitable remedies
available under the governing law from any court of competent jurisdiction,
and the order or judgment of any such court shall be binding in any
arbitration proceeding pursuant to this Section 10.8.
Section 10.9 Entire Agreement. This Agreement and other documents
referred to herein or delivered pursuant hereto which form a part hereof
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties or any of them with respect to the subject
matter hereof.
Section 10.10 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia (regardless of the
laws that might otherwise govern under applicable principles of conflicts of
laws thereof) as to all matters, including but not limited to matters of
validity, construction, effect, performance and remedies.
Section 10.11 Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
Section 10.12 Amendment, Modification and Waiver. This Agreement may be
amended, modified or supplemented at any time by written agreement of Seller and
Buyer. Any failure of Seller or Buyer to comply with any term or provision of
this Agreement may be waived, with respect to Buyer, by Seller and, with respect
to Seller, by Buyer, by an instrument in writing signed by or on behalf of the
appropriate party, but such waiver or failure to insist upon strict compliance
with such term or provision shall not operate as a waiver of, or estoppel with
respect to, any subsequent or other failure to comply.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
THE ENSTAR GROUP, INC.
By: /s/ NIMROD T. FRAZER
------------------------------------
Name: Nimrod T. Frazer
Title: Chairman, President and Chief
Executive Officer
J. CHRISTOPHER FLOWERS
/s/ J. CHRISTOPHER FLOWERS
-------------------------------------
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EXHIBIT 1
FORM OF PROMISSORY NOTE
$15,000,000.00 Atlanta, Georgia
, 1998((1))
FOR VALUE RECEIVED, without grace, J. CHRISTOPHER FLOWERS, an individual
resident of the State of New York (the "Borrower"), promises to pay to the order
of THE ENSTAR GROUP, INC., a Georgia corporation (herein called the "Lender",
and together with any subsequent holder of this Note, called the "Holder"), in
the manner set forth below, the principal sum of FIFTEEN MILLION AND NO/100
DOLLARS ($15,000,000.00) or, if less, the unpaid principal amount.
This Promissory Note is repayable in full on , 2000((2)) (the
"Maturity Date") when the entire principal balance of this Note, together with
all accrued and unpaid interest, shall mature and be then due and payable,
unless sooner accelerated in accordance with the terms hereof.
In addition to principal, the Borrower agrees to pay interest, and this
Note shall bear interest on the unpaid principal balance hereof, on an
Actual/360 Day Basis, from the date hereof until payment in full at an annual
fixed rate of interest equal to 4.06% (the "Note Rate").
In addition to principal and interest, the Borrower also agrees to pay all
costs of collection, including, without limitation, actual attorneys' fees and
disbursements incurred if the indebtedness evidenced hereby is collected by or
through an attorney-at-law.
The Borrower further agrees with the Holder as follows:
SECTION 1. DEFINITIONS.
As used in this Note, the following capitalized terms are defined as
follows:
(a) "ACTUAL/360 DAY BASIS" means a method of computing interest on the
basis of an assumed year of 360 days for the actual number of days elapsed,
meaning that the interest accrued for each day will be computed by
multiplying the interest rate applicable on that day by the unpaid
principal balance on that day and dividing the result by 360.
(b) "BOARD OF DIRECTORS" means the Board of Directors of Lender.
(c) "BORROWER" has the meaning set forth in the first paragraph of
this Note.
(d) "BUSINESS DAY" means any day other than a Saturday, a Sunday or a
day on which the Lender is closed for business.
(e) "CONTINUING DIRECTORS" means T. Whit Armstrong, T. Wayne Davis,
Nimrod T. Frazer and Jeffrey S. Halis and any new member hereinafter added
to the Board of Directors by a majority of the Continuing Directors.
(f) "DEFAULT RATE" means a rate of interest four percentage (4.00%)
points per annum higher than the rate of interest otherwise in effect.
(g) "EVENT OF DEFAULT" is defined in Section 4. An Event of
Default "exists" if an Event of Default has occurred, is continuing and has
not been cured.
(h) "HOLDER" has the meaning set forth in the first paragraph hereof.
- ---------------
(1)Insert Closing Date.
(2)Insert second anniversary of Closing Date.
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<PAGE> 54
(i) "LENDER" has the meaning set forth in the first paragraph hereof.
(j) "LOAN DOCUMENTS" means this Promissory Note and all other
documents executed in connection with this transaction, in each case as
amended, modified or supplemented from time to time.
(k) "MATURITY DATE" has the meaning set forth in the second paragraph
hereof.
(l) "NOTE" means this Promissory Note, either as originally executed
or as the same may be amended, supplemented or otherwise modified from time
to time.
(m) "NOTE RATE" has the meaning set forth in the third paragraph
hereof.
(n) "QUARTERLY INTEREST PAYMENT" has the meaning set forth in Section
2 of this Note.
(o) "QUARTERLY INTEREST PAYMENT DATE" has the meaning set forth in
Section 2 of this Note.
(p) "RULES OF ARBITRATION" has the meaning set forth in Section 14 of
this Note.
SECTION 2. PLACE AND TIME OF PAYMENTS.
(a) Interest on the outstanding principal balance hereof shall be due
and payable quarterly, in arrears (each such payment, a "Quarterly Interest
Payment"), with the first installment being payable on the day of
1999((3)), and subsequent installments being payable on the
day of each succeeding [June], [September], [December] and
[March] thereafter (each such payment date, a "Quarterly Interest Payment
Date") until the Maturity Date, at which time the entire outstanding
principal balance, together with all accrued and unpaid interest, shall be
immediately due and payable in full.
(b) The Borrower may at any time prepay all or any part of the
outstanding principal indebtedness evidenced by this Note, without premium
or penalty. Any prepayment shall be accompanied by the payment of accrued
interest to the date of prepayment on the principal amount prepaid.
(c) All payments by the Borrower to the Holder under this Note shall
be made in lawful currency of the United States and in immediately
available funds to the Lender at such address as shall be specified by the
Holder by notice to the Borrower. Any payment received by the Holder after
2:00 p.m. (Atlanta, Georgia time) on a Business Day (or at any time on a
day that is not a Business Day) shall be deemed made by the Borrower and
received by the Holder on the following Business Day.
(d) All amounts payable by the Borrower to the Holder under this Note
for which a payment date is expressly set forth herein or therein shall be
payable on the specified due date without notice or demand by the Holder.
All amounts payable by the Borrower to the Holder under this Note for which
no payment date is expressly set forth herein or therein shall be payable
ten (10) days after written demand by the Holder to the Borrower. The
Holder may, at its option, send written notice or demand to the Borrower of
amounts payable on a specified due date pursuant to this Note, but the
failure to send such notice shall not affect or excuse the Borrower's
obligation to make payment of the amounts due on the specified due date.
(e) To the extent that a Quarterly Interest Payment Date falls on a
day that is not a Business Day, the corresponding Quarterly Interest
Payment shall be payable on the next succeeding Business Day, and no
interest shall be payable thereon for the number of elapsed days from the
date that such payment was due to the date that such payment was made on
the next succeeding Business Day. Any other payments that are due on a day
that is not a Business Day, including but not limited to payment of the
entire principal balance outstanding on the Maturity Date to the extent
that the Maturity Date falls on a day that is not a Business Day, shall be
payable on the next succeeding Business Day, and no interest shall be
- ---------------
(3)Insert date which is 3 months after the Closing Date.
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<PAGE> 55
payable thereon for the number of elapsed days from the date that such
payment was due to the date that such payment was made on the next
succeeding Business Day.
SECTION 3. DEFAULT RATE.
If an Event of Default exists, this Note shall bear interest at the Default
Rate, until the earlier of (a) such time as all amounts due hereunder are paid
in full or (b) no such Event of Default exists.
SECTION 4. EVENTS OF DEFAULT.
The occurrence of any of the following events shall constitute an event of
default (each an "Event of Default") under this Note (whatever the reason for
such event and whether or not it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree, order, rule or
regulation of any governmental authority): (a) any default shall be made in the
payment when due of any of the obligations evidenced by this Note or any part
thereof and such default shall continue unremedied for five (5) days; or (b) the
filing of any petition or the commencement of any proceeding against the
Borrower for relief under bankruptcy or insolvency laws, or any law relating to
the relief of debtors, readjustment of indebtedness, debtor reorganization, or
composition or extension of debt; or (c) the Borrower is no longer serving on
the Board of Directors of the Lender as a result of the Borrower resigning from
his directorship or being removed from his directorship by an affirmative vote
of the shareholders of Lender for cause.
SECTION 5. REMEDIES.
(a) Upon the occurrence and during the continuation of an Event of
Default (other than an Event of Default described in Section 4(b)), the
Lender may, in its sole discretion, (i) terminate all obligations of the
Lender to the Borrower, (ii) declare this Note, including, without
limitation, principal, accrued interest and costs of collection (including,
without limitation, actual attorneys' fees and disbursements if collected
by or through an attorney at law or in bankruptcy, receivership or other
judicial proceedings) immediately due and payable, without presentment,
demand, protest or any other notice of any kind, all of which are expressly
waived.
(b) Upon the occurrence of an Event of Default under Section 4(b) all
obligations of the Lender to the Borrower, shall (i) terminate
automatically and (ii) this Note, including, without limitation, principal,
accrued interest and costs of collection (including, without limitation,
reasonable attorneys' fees if collected by or through an attorney at law or
in bankruptcy, receivership or other judicial proceedings) shall become
immediately due and payable, without presentment, demand, protest, or any
other notice of any kind, all of which are expressly waived.
(c) Upon the occurrence of an Event of Default and acceleration of
this Note as provided in (a) or (b) above, the Lender may pursue any remedy
available under this Note or available at law or in equity, all of which
shall be cumulative. The order and manner in which the rights and remedies
of the Lender under the Note and otherwise may be exercised shall be
determined by the Lender in its sole discretion.
(d) All payments with respect to this Note received by the Lender
after the occurrence of an Event of Default and acceleration of this Note
(regardless of how the Lender may treat the payments for the purpose of its
own accounting) shall be applied first, to the costs and expenses
(including actual attorneys' fees and disbursements) incurred by the Lender
as a result of the Event of Default, as set forth above, second, to the
payment of accrued and unpaid fees of the Lender, if any, third, to the
payment of accrued and unpaid interest on this Note, to and including the
date of such application, fourth, to the payment of the unpaid principal of
this Note, and fifth, to the payment of all other amounts then owing to the
Lender under the Note. No application of the payments will cure any Event
of Default or prevent acceleration, or continued acceleration, of amounts
payable under the Note or prevent the exercise, or continued exercise, of
rights or remedies of the Lender hereunder or under applicable law.
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<PAGE> 56
SECTION 6. CERTAIN WAIVERS AND OTHER AGREEMENTS BY THE BORROWER.
(a) AS TO THE OBLIGATIONS EVIDENCED BY THIS NOTE, THE BORROWER (i)
WAIVES DEMAND, PRESENTMENT FOR PAYMENT, PROTEST, NOTICE OF PROTEST, SUIT
AND ALL OTHER REQUIREMENTS NECESSARY TO HOLD THE BORROWER LIABLE; AND (ii)
AGREES TO PAY ALL COSTS OF COLLECTION, INCLUDING REASONABLE ATTORNEYS' FEES
AND DISBURSEMENTS, IN THE EVENT DEFAULT SHOULD BE MADE IN THE PAYMENT OF
ANY OF THE OBLIGATIONS EVIDENCED BY THIS NOTE.
(b) The Borrower (i) agrees that any obligations of the Borrower may,
from time to time, in whole or in part, be renewed, extended, modified,
accelerated, compromised, discharged or released by the Holder, and any
collateral, lien, right of set-off or other security for the obligations
evidenced by this Note or any other obligations of the Borrower to the
Holder may, from time to time, in whole or in part, be exchanged, sold,
released, satisfied, or terminated, all without notice to, or in any way
affecting or releasing any of the obligations of the Borrower; and (ii)
agrees that the Holder will not be required first to resort to any guaranty
or any other security pledged or granted to the Holder, but upon a default
under this Note, the Holder may forthwith look to the Borrower for payment
hereunder or may look to and realize upon any other security held by the
Holder, in any order the Holder chooses, until the entire debt evidenced by
this Note is paid.
SECTION 7. SUCCESSORS AND ASSIGNS.
Whenever in this Note any party hereto is referred to, such reference shall
be deemed to include the successors and assigns of such party, including,
without limitation, the estate of the Borrower, except that the Borrower may not
assign or transfer its obligations under this Note without the prior written
consent of the Holder; and all obligations of the Borrower under this Note shall
bind the Borrower's successors and assigns and shall inure to the benefit of the
successors and assigns of the Holder. For the avoidance of doubt, if the Lender
transfers this Note, the Lender shall remain obligated to perform its covenants
and agreements set forth in the Investment Agreement.
SECTION 8. GOVERNING LAW.
This Note shall be construed in accordance with and governed by the
internal laws of the State of Georgia (without regard to conflict of law
principles) except as otherwise required by mandatory provisions of law.
SECTION 9. SEPARABILITY CLAUSE.
If any provision of this Note shall be invalid, illegal or unenforceable,
the validity, legality and enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
SECTION 10. NO ORAL AGREEMENTS AND SECTION HEADINGS.
This Note is the final expression of the agreement between the parties
hereto, and this Note may not be contradicted by evidence of any prior oral
agreement between such parties. All previous oral agreements between the parties
hereto have been incorporated into this Note and there is no unwritten oral
agreement between the parties hereto in existence. The section headings of this
Note are inserted for convenience only and do not constitute a part of this
Note.
SECTION 11. WAIVER AND ELECTION.
The exercise by the Holder of any option given under this Note shall not
constitute a waiver of the right to exercise any other option. No failure or
delay on the part of the Holder in exercising any right, power or remedy under
this Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any further exercise
thereof or the exercise of any other right, power or
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<PAGE> 57
remedy. No modification, termination or waiver of any provisions of this Note,
nor consent to any departure by the Borrower therefrom, shall be effective
unless in writing and signed by an authorized officer of the Holder, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice to or demand on the Borrower in
any case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
SECTION 12. USURY LAWS.
If any of the provisions of this Note are susceptible of being construed as
binding or obligating the Borrower, under any circumstances or contingencies
whatsoever, to pay interest in excess of that authorized by law, it is agreed
that such provisions are a mistake in calculation or wording, and
notwithstanding the same it is expressly agreed that the Borrower shall not ever
be required or obligated under the terms hereof to pay interest in excess of
that authorized by law. It is the intention of the parties hereto to conform
strictly to the existing usury laws of the United States and of the State of
Georgia, or of any state which applies its own usury laws to the exclusion of
such usury laws; and any of the aforesaid contracts for interest shall be held
to be subject to reduction to the amount allowed under said usury laws. If any
excess of interest over the maximum lawful rate is contracted for or charged or
collected the excess shall be applied to the outstanding principal due
hereunder.
SECTION 13. TIME OF ESSENCE.
Time is of the essence of this Note.
SECTION 14. ARBITRATION.
Each of Lender and Borrower agrees as follows:
(a) Lender and Borrower shall attempt in good faith to resolve
promptly any dispute, controversy or claim under or in connection with this
Note by negotiations. If any such dispute, controversy or claim should
arise, the parties or representatives of each such party shall meet at
least once to attempt to resolve the matter. Any such representative may
request the other representatives to meet within 14 days after delivery of
written notice to the others of any such dispute, controversy, or claim, at
a mutually agreed time and place.
(b) If the matter has not been resolved pursuant to negotiations
within 60 days after the first meeting of the representatives (which period
may be extended by mutual agreement), the matter shall be settled
exclusively by arbitration (except as provided in Section 14(f) conducted
by three arbitrators in accordance with the provisions of the Federal
Arbitration Act (9 U.S.C. Sections 1-16), and in accordance with the Center
for Public Resources, Inc.'s Rules (the "Rules for Arbitration") for Non-
Administered Arbitration of Business Disputes. The three arbitrators shall
be selected as follows: one arbitrator shall be selected by Lender, one
arbitrator shall be selected by Borrower and one arbitrator shall be
selected by the other two arbitrators. All arbitrators shall be
individuals: (i) who meet the qualifications set forth in Rule 7 of the
Rules of Arbitration, (ii) who are attorneys or retired judges and (iii)
who have past experience in settling complex litigation involving claims
relating to securities and mergers and acquisitions. The arbitration of
such matters in controversy, including the determination of any amount of
damages, shall be final and binding upon Lender and Borrower to the maximum
extent permitted by law. No such Person shall seek, and no arbitrator shall
be authorized to award, any punitive damages relating to any matter
arbitrated. This agreement to arbitrate is irrevocable.
(c) Any arbitration proceedings shall be conducted in Atlanta, Georgia
or at such other location as Lender and Borrower may agree.
(d) Any arbitration award under this Section 14 shall be final and
binding, and judgment may be entered on such award by any court having
jurisdictions upon application of Lender or Borrower.
(e) Any party to an arbitration proceeding under this Section 14 shall
be entitled to be reimbursed by the other parties for its costs and
expenses incurred in connection with the arbitration proceeding,
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including reasonable attorneys' fees, to the extent determined by the
arbitrators. The arbitrators shall assess the costs of the arbitration
proceeding, including their fees, to the parties to the proceeding in such
proportions as the arbitrators consider reasonable under the circumstances.
(f) Notwithstanding anything else in this Section 14 to the contrary,
Lender and Borrower shall be entitled to seek any equitable remedies
available under the governing law from any court of competent jurisdiction,
and the order or judgment of any such court shall be binding in any
arbitration proceeding pursuant to this Section 14.
BORROWER: (SEAL)
By:
-----------------------------------
J. Christopher Flowers
Address of Borrower:
4 East 70th Street
New York, New York 10021
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EXHIBIT 2
FORM OF SHAREHOLDER LETTER
October 20, 1998
J. Christopher Flowers
4 East 70th Street
New York, New York 10021
Dear Mr. Flowers:
This letter will confirm that in order to induce you to consummate the
purchase and sale of shares of common stock, par value $.01 per share, of The
Enstar Group, Inc. ("Seller") in exchange for a promissory note made by you
(collectively, the "Transaction") as contemplated under that certain Investment
Agreement dated as of October 20, 1998, by and between Seller and you, and for
other good and valuable consideration, the receipt and sufficiency of which are
acknowledged and confirmed, the undersigned, in his capacity as a shareholder of
Seller, covenants and unconditionally and irrevocably agrees with you that at
the special shareholders' meeting being called by the Board of Directors of
Seller to approve the Transaction, the undersigned will vote, and/or cause to be
voted, any and all shares owned by the undersigned or any of the undersigned's
controlled affiliates in favor of the Transaction.
Very truly yours,
--------------------------------------
[Name of Director]
AGREED TO AND ACCEPTED
AS OF THE ABOVE DATE.
--------------------------------------
J. Christopher Flowers
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EXHIBIT 7.2
FORM OF REGISTRATION RIGHTS AGREEMENT
December , 1998
J. Christopher Flowers
4 East 70th Street
New York, New York 10021
Dear Sir:
This will confirm that in order to induce J. Christopher Flowers, an
individual resident of the State of New York ("Flowers"), to consummate the
transactions contemplated under that certain Investment Agreement, dated as of
October 20, 1998, by and between The Enstar Group, Inc., a Georgia corporation
("Enstar"), and Flowers (the "Investment Agreement"), and for other good and
valuable consideration, the receipt and sufficiency of which are acknowledged
and confirmed, Enstar covenants and agrees with Flowers as follows:
1. Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
"Registration Expenses" means the expenses so described in Section
8(a) of this Agreement.
"Registration Shares" means the shares of Common Stock issued to
Flowers as contemplated in the Investment Agreement (as adjusted in
accordance with Section 10 of this Agreement) for so long as the
certificates representing such shares bear the legend set forth in Section
2(a) of this Agreement or any other shares of Common Stock owned or
acquired by Flowers, except for any such shares acquired in violation of
the covenants and agreements contained in Section 5.2 of the Investment
Agreement.
"Selling Expenses" means the expenses so described in Section 8(a) of
this Agreement.
In addition to the foregoing defined terms, any capitalized terms used
herein without definition shall have the meanings ascribed to such terms in the
Investment Agreement.
2. Legend.
(a) Each certificate representing the Registration Shares will be
stamped or otherwise imprinted with a legend substantially in the following
form:
THE SHARES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION. THE SHARES MAY
NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1)
PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
(2) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF
THE STATES AND OTHER JURISDICTIONS, AND IN THE CASE OF A TRANSACTION
EXEMPT FROM REGISTRATION, UNLESS ENSTAR HAS RECEIVED AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO IT THAT SUCH TRANSACTION DOES NOT
REQUIRE REGISTRATION UNDER THE SECURITIES ACT AND SUCH OTHER APPLICABLE
LAWS.
Each certificate issued upon exchange or transfer of any such
Registration Shares will bear the legend set forth in this Section 2(a),
except that such certificate will not bear such legend (and Enstar will
cause such legend to be removed) if (i) such transfer is made pursuant to
an effective registration statement under the Securities Act, or (ii)
Enstar is provided with an opinion of counsel reasonably
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satisfactory to Enstar to the effect that such transfer of the Registration
Shares may be effected without registration under the Securities Act or
applicable state securities laws and other jurisdictions and that the
transferee (other than an affiliate of Enstar) would be entitled to
transfer such securities in a public sale without registration under the
Securities Act.
(b) In addition, each certificate issued upon exchange or transfer of
such Registration Shares will bear the legend set forth in this Section
2(b) for so long the transfer restrictions in Section 4.6 of the Investment
Agreement shall be in effect with respect to such shares:
IN ADDITION, THE TRANSFER OF THE SHARES IS RESTRICTED UNDER SECTION
4.6 OF AN INVESTMENT AGREEMENT, DATED AS OF OCTOBER 20, 1998, BETWEEN
ENSTAR AND BUYER. A COPY OF THIS AGREEMENT IS ON FILE AT ENSTAR'S
PRINCIPAL OFFICE.
3. Demand Registration.
(a) At any time during the period beginning on the expiration of the
transfer restrictions set forth in Section 4.6 of the Investment Agreement,
Flowers may request on not more than three (3) occasions that Enstar
register the Registration Shares under the Securities Act for public sale
(the "Demand Rights"). Any such Demand Rights request must be in writing
signed by Flowers and must designate the specific number of Registration
Shares proposed to be sold by Flowers in such public offering and the
proposed plan of distribution for the Registration Shares.
(b) Notwithstanding anything to the contrary set forth in this Section
3, Enstar shall have no obligation hereunder to: (i) register Registration
Shares if such registration involves 500,000 or fewer Registration Shares
or (ii) maintain the effectiveness of any registration statement filed
pursuant to this Section 3 for a period of time exceeding the Distribution
Period (as defined in Section 5(g) below).
(c) Enstar shall be entitled in its sole discretion to delay the
filing of the registration statement covering such Registration Shares for
a period of up to 90 days from the date of receipt of the request for
Demand Rights if its Board of Directors determines in good faith that such
a delay is in the best interests of Enstar and its shareholders; provided
that Enstar shall not have the right to exercise such discretion to delay
such filing more than once in any 365-day period.
(d) Notwithstanding anything to the contrary set forth in this Section
3, if Flowers exercises a Demand Right and subsequently informs Enstar in
writing that (i) he desires to withdraw such registration or (ii) he is
unable to sell in excess of 50% of the Registration Shares covered by such
registration statement due to a deterioration in market conditions or other
bona fide reason, and Flowers reimburses Enstar for all Registration
Expenses incurred by Enstar in connection with such terminated
registration, then Flowers shall be deemed not to have exercised the Demand
Right under this Agreement and shall be permitted to exercise such right
again in accordance with the terms of Section 3(a) of this Agreement.
(e) If a registration effected pursuant to this Section 3 involves a
firm commitment underwritten public offering, Flowers shall have the sole
right to select the managing underwriters, subject to the approval of
Enstar (such approval not be unreasonably withheld or delayed).
4. Incidental Registration. If at any time following the Closing Date
Enstar proposes to register any Common Stock under the Securities Act (other
than on Forms S-4, S-8 or any other form which does not permit registration of
securities by Flowers for sale to the public for cash) in connection with the
proposed offer and sale for cash either for its own account or on behalf of any
holder of Common Stock, it will give written notice to Flowers of its intention
to do so. Upon the written request of Flowers, given within five business days
after receipt of any such notice, to register any of the Registration Shares,
Enstar will use its reasonable best efforts to cause the Registration Shares as
to which registration has been so requested to be included in the shares of
Common Stock to be covered by the registration statement proposed to be filed by
Enstar, all to the extent required to permit the sale or other disposition by
Flowers (in accordance with its written request) of such Registration Shares so
registered. If a registration effected pursuant to this Section 4
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involves a firm commitment underwritten public offering, Enstar shall have the
sole right to select the managing underwriters. The managing underwriters for
such offering shall have the authority to reduce the number of Registration
Shares to be included in such registration if and to the extent they are of the
opinion (a copy of which shall be delivered to Flowers), that inclusion of such
Registration Shares would materially adversely affect the marketing of the
Common Stock to be sold under such offering. Any such reduction or cutback in
the shares included in any such offering shall be effected in accordance with
the following priorities:
(a) First, the managing underwriters shall exclude shares ("Piggyback
Shares") of Common Stock included in such registration by shareholders
(including Flowers) by virtue of incidental or piggyback registration
rights (but not demand registration rights) granted to such shareholders,
which exclusion shall be effected on a pro rata basis based upon the number
of shares of Common Stock so requested to be registered in such offering by
all such shareholders proposing to sell Piggyback Shares; and
(b) Second, and only to the extent necessary and after the exclusion
of all Piggyback Shares, the managing underwriters shall exclude shares of
Common Stock included in such registration by Enstar and any shareholder of
Enstar who shall have exercised a demand registration right in connection
with such offering, which exclusion shall be effected on a pro rata basis
based upon the number of shares of Common Stock proposed to be registered
on behalf of Enstar and on behalf of any such holder of demand registration
rights.
Notwithstanding anything to the contrary contained in this Section 4, if
there is a firm commitment underwritten public offering of Common Stock pursuant
to which Flowers has incidental registration rights under this Section 4 and
Flowers elects to sell Registration Shares in connection with such underwritten
public offering, Flowers shall enter into an agreement (the "Lockup Agreement"),
pursuant to which Flowers shall refrain from selling any Registration Shares
(other than Registration Shares included in such Registration) then owned by
Flowers during the period of distribution of Common Stock by such underwriters
and for a period of ninety days following the effective date of such
registration; provided, however, that Flowers shall be required to enter into
the Lockup Agreement if, and only if, directors and executive officers of Enstar
enter into an agreement similar to the Lockup Agreement.
5. Registration Procedures. If and whenever Enstar is required by the
provisions of Section 3 or 4 of this Agreement to effect the registration of any
of the Registration Shares under the Securities Act, Enstar shall, as
expeditiously as practical:
(a) prepare and file with the SEC a registration statement on the
applicable form with respect to such Registration Shares and use its
reasonable best efforts to cause such registration statement to become and
remain effective for the Distribution Period, but no longer, and to
promptly notify Flowers of when such registration statement and any
amendment to such registration statement becomes effective, and to provide
Flowers with reasonable access to any written comments received from the
SEC in connection with such registration and any written responses to such
registration statement and any stop order received from the SEC in
connection with such registration statement;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to keep such registration
statement effective for the Distribution Period, but no longer, and to
comply with the provisions of the Securities Act with respect to the
disposition of all Registration Shares covered by such registration
statement;
(c) furnish to Flowers such number of copies of the registration
statement and the prospectus included in such registration statement
(including each preliminary prospectus) as he may reasonably request in
order to facilitate the public sale or other disposition of the
Registration Shares covered by such registration statement;
(d) use its reasonable best efforts to register or qualify the
Registration Shares covered by such registration statement under the
securities or blue sky laws of such jurisdictions as Flowers or, in the
case of an underwritten public offering, the managing underwriters, shall
reasonably request; provided,
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however, that Enstar shall not for any purpose be required to qualify to do
business as a foreign corporation in any jurisdiction where it is not so
qualified;
(e) immediately notify Flowers (if selling Registration Shares under
such registration statement) and each underwriter, at any time when a
prospectus relating to such registration statement is required to be
delivered under the Securities Act, of the happening of any event as a
result of which the prospectus contained in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to make
the statements in such registration statement not misleading in the light
of the circumstances then existing and prepare a supplement to or an
amendment to such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registration Shares, such prospectus
shall not include an untrue statement of a material fact or omit to state a
material fact required to be stated in such registration statement or
necessary to make the statements in such registration statement not
misleading in the light of the circumstances then existing;
(f) use its reasonable best efforts to furnish, at the request of
Flowers, on the date that Registration Shares are delivered to the
underwriters for sale pursuant to such registration: (i) an opinion dated
such date of counsel representing Enstar in connection with such
registration, addressed to the underwriters or broker(s) and to Flowers,
stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop
order suspending the effectiveness of such registration statement has been
issued and no proceedings for that purpose have been instituted or are
pending or contemplated under the Securities Act, (B) the registration
statement, the related prospectus, and each amendment or supplement of such
registration statement or prospectus, comply as to form in all material
respects with the requirements of the Securities Act and the applicable
rules and regulations of the SEC under the Securities Act (except that such
counsel need express no opinion as to the financial statements and the
other financial and statistical data contained or incorporated by reference
in such registration statement or prospectus) and (C) to such other effects
as may reasonably be requested by counsel for the underwriters or
broker(s), and (ii) a letter dated such date from the independent public
accountants retained by Enstar, addressed to the underwriters or broker(s)
and to Flowers, stating that they are independent public accountants within
the meaning of the Securities Act and that, in the opinion of such
accountants, the financial statements of Enstar included or incorporated by
reference in the registration statement or the prospectus, or any amendment
or supplement of such registration statement or prospectus, comply as to
form in all material respects with the applicable accounting requirements
of the Securities Act, and such letter shall additionally cover such other
financial matters (including information as to the period ending no more
than five business days prior to the date of such letter) with respect to
the registration in respect of which such letter is being given as such
underwriters may reasonably request, or if not an underwritten public
offering, such matters as are customarily covered in such a letter; and
(g) make available for inspection by Flowers, any underwriter
participating in any distribution pursuant to such registration statement,
and any attorney, accountant or other agent retained by Flowers or an
underwriter, all financial and other records, pertinent corporate documents
and properties of Enstar, and cause Enstar's officers, directors and
employees to supply all information reasonably requested by Flowers, an
underwriter, attorney, accountant or agent in connection with such
registration statement.
The period of distribution (the "Distribution Period") of Registration
Shares in a firm commitment underwritten public offering shall be deemed to
extend until, but not beyond, such time as each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Registration Shares in any other registration shall extend until, but not
beyond, the earlier of the sale of all Registration Shares covered by such
registration or forty-five (45) days following the effective date of the
registration statement utilized in connection with such registration under the
Securities Act. Enstar shall have the right to deregister with the SEC any
Registration Shares which remain unsold at the conclusion of any Distribution
Period.
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6. Flowers' Cooperation. In connection with each registration pursuant to
Sections 3 and 4 of this Agreement, Flowers shall furnish in writing to Enstar
and any underwriter participating in such offering such information with respect
to itself and the proposed distribution by it as is reasonably necessary in
order to assure compliance with federal and applicable state securities laws.
7. Underwriting Agreement. In connection with each registration pursuant
to Section 3 or 4 of this Agreement covering an underwritten public offering,
Enstar and Flowers agree to enter into a written agreement with the managing
underwriters in such form and containing such provisions as are customary in the
securities business for such an arrangement between major underwriters and
companies of Enstar's size and investment stature; provided, however, that such
agreement shall not contain any such provision applicable to Enstar or Flowers
which is inconsistent with the provisions of this Agreement.
8. Expenses.
(a) All expenses incurred by Enstar in connection with the
registration contemplated by Sections 3 and 4 of this Agreement, including,
without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for
Enstar, fees of the National Association of Securities Dealers, Inc.,
transfer taxes, fees of transfer agents and registrars, reasonable fees and
expenses of Flowers' counsel and expenses applicable to the sale of
Registration Shares, but excluding any Selling Expenses, are called
"Registration Expenses" in this Agreement. All underwriting discounts,
selling commissions and brokerage fees applicable to the sale of the
Registration Securities, are in this Agreement called "Selling Expenses."
(b) Enstar will pay all Registration Expenses in connection with each
registration statement filed pursuant to Section 3 or 4 of this Agreement.
All Selling Expenses in connection with any registration statement filed
pursuant to Section 3 or 4 of this Agreement shall be borne by Flowers in
proportion to the number of Registration Shares sold or proposed to be sold
by Flowers in such registration in relation to the total number of shares
sold or proposed to be sold by all parties under such registration
statement.
9. Indemnification.
(a) In the event of a registration of any of the Registration Shares
under the Securities Act pursuant to Section 3 or 4 of this Agreement,
Enstar will indemnify and hold harmless Flowers, each underwriter of
Registration Shares under such registration, if any, each broker, dealer or
any other similar person acting on behalf of Flowers and each other person,
if any, who controls any of the foregoing persons within the meaning of the
Securities Act, against any losses, claims, damages or liabilities, joint
or several, to which any of the foregoing persons may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect of this Agreement) arise out of or are
based upon any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such Registration
Shares were registered under the Securities Act pursuant to Section 3 or 4
of this Agreement, any preliminary prospectus or final prospectus contained
in such registration statement, or any amendment or supplement of this
Agreement, or arise out of or are based upon the omission or alleged
omission to state in such registration statement a material fact required
to be stated in such registration statement or necessary to make the
statements in such registration statement not misleading, and will
reimburse Flowers, each such underwriter, broker, dealer or other person
acting on behalf of Flowers and each such controlling person for any legal
or other expenses reasonably incurred by any of them in connection with
investigating or defending any such loss, claim, damage, liability or
action; provided, however, that Enstar will not be liable in any such case
if and to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission so made in conformity with information
furnished by Flowers, such underwriter, broker, dealer or other person
acting on behalf of Flowers or such controlling person in writing
specifically for use in such registration statement or prospectus.
(b) In the event of a registration of any of the Registration Shares
under the Securities Act pursuant to Section 3 or 4 of this Agreement,
Flowers will indemnify and hold harmless Enstar and each
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person, if any, who controls Enstar within the meaning of the Securities
Act, each officer of Enstar who signs the registration statement, each
director of Enstar, each underwriter and each person who controls any
underwriter within the meaning of the Securities Act, against all losses,
claims, damages or liabilities, joint or several, to which Enstar or such
officer or director or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect of such losses, claims,
damages or liabilities) arise out of or are based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in
conformity with information pertaining to Flowers, furnished in writing to
Enstar by Flowers specifically for use in such registration statement or
prospectus; provided, however, that the liability of Flowers under this
Agreement shall be limited to the proportion of any such loss, claim,
damage, liability or expense which is equal to the proportion that the
public offering price of shares sold by Flowers under such registration
statement bears to the total public offering price of all securities sold
under such registration statement, but not to exceed the net proceeds
received by Flowers from the sale of Registration Shares covered by such
registration statement.
(c) Promptly after receipt by an indemnified party under this
Agreement of notice of the commencement of any action, such indemnified
party shall, if a claim in respect of such action is to be made against the
indemnifying party under this Agreement, notify the indemnifying party in
writing of such claim, but the omission so to notify the indemnifying party
as provided in this Agreement shall not relieve the indemnifying party of
its obligations under this Section 9 except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give
notice. In case any such action shall be brought against any indemnified
party and it shall notify the indemnifying party of the commencement of
such action, the indemnifying party shall be entitled to participate in
and, to the extent it shall wish, to assume and undertake the defense of
such action with counsel satisfactory to such indemnified party, and, after
notice from the indemnifying party to such indemnified party of its
election so to assume and undertake the defense of such action, the
indemnifying party shall not be liable to such indemnified party under this
Section 9 for any legal expenses subsequently incurred by such indemnified
party in connection with the defense of such action other than reasonable
costs of investigation and of liaison with counsel so selected; provided,
however, that if the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded based upon advice of counsel that there may
be reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the interests
of the indemnified party reasonably may be deemed to conflict with the
interests of the indemnifying party, then the indemnified party shall have
the right to select a separate counsel and to assume such legal defenses
and otherwise to participate in the defense of such action, with the
reasonable expenses and fees of such separate counsel and other reasonable
expenses related to such participation to be reimbursed by the indemnifying
party as incurred.
(d) Notwithstanding the foregoing, in any such action, any indemnified
party shall have the right to retain its own counsel, but the fees and
disbursements of such counsel shall be at the expense of such indemnified
party unless (i) the indemnifying party shall have failed to retain counsel
for the indemnified person as aforesaid or (ii) the indemnifying party and
such indemnified party shall have mutually agreed to the retention of such
counsel. It is understood that the indemnifying party shall not, in
connection with any action or related actions in the same jurisdiction, be
liable for the fees and disbursements of more than one separate firm
qualified in such jurisdiction to act as counsel for the indemnified party.
The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss
or liability by reason of such settlement or judgment.
(e) If the indemnification provided for in paragraphs (a) and (b) of
this Section 9 is unavailable or insufficient to hold harmless an
indemnified party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions referred to in such paragraphs, then each
indemnifying party shall, in lieu of indemnifying such indemnified party,
contribute to the amount paid or payable by such indemnified
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party, as a result of such losses, claims, damages, liabilities or actions
in such proportion as appropriate to reflect the relative fault of Enstar,
on the one hand, and Flowers, on the other, in connection with the
statements or omissions which resulted in such losses, claims, damages,
liabilities or actions as well as any other relevant equitable
considerations, including the failure to give the notice required under
such paragraphs. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact relates to information supplied by Enstar, on the one hand,
or Flowers, on the other hand, and to the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. Enstar and Flowers agree that it would not be just
and equitable if contributions pursuant to this paragraph were determined
by pro rata allocation (even if Flowers were treated as one entity for such
purpose) or by any other method of allocation which did not take account of
the equitable considerations referred to above in this paragraph. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or actions referred to above in this
paragraph, shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this paragraph, Flowers shall not be required to contribute
any amount in excess of the amount, if any, by which the total price at
which the Registration Shares sold by Flowers was offered to the public
exceeds the amount of any damages which they have otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11 (f) of the Securities Act) is entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
(f) The indemnification of underwriters provided for in this Section 9
shall be on such other terms and conditions as are at the time customary
and reasonably required by such underwriters. To the extent Enstar agrees
to provide such underwriters with indemnification rights which differ in
substance from the rights offered Flowers in this Section 9, then the
indemnification of Flowers in such underwriting shall at Flowers' request
be modified to conform to such terms and conditions.
10. Changes in Common Stock. To the extent that there are any changes in
Common Stock by way of stock split, stock dividend, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions of this Agreement, as may be required, so that the rights and
privileges granted to Flowers under this Agreement shall continue with respect
to the Registration Shares as so changed.
11. Rule 144 Matters. For so long as Flowers holds Registration Shares
and this Agreement has not terminated pursuant to Section 12 of this Agreement
and Enstar remains a public company under applicable securities laws, Enstar
agrees to exercise reasonable good faith efforts to:
(a) Make and keep public information generally available, as those
terms are defined in Rule 144 under the Securities Act, at all times
subsequent to the Closing Date;
(b) File with the SEC in a timely manner reports and other documents
required of Enstar under the Securities Act and the Exchange Act to be so
filed; and
(c) Furnish to Flowers, so long as Flowers owns any Registration
Shares, promptly upon a written request for the same:
(i) A written statement by Enstar that it has complied with the
reporting requirements of Rule 144 under the Securities Act; and
(ii) Such other information as may be reasonably requested by
Flowers to enable Flowers to avail himself of any rule or regulation of
the SEC which permits the sale of securities without registration under
the Securities Act.
12. Effectiveness. Notwithstanding anything to the contrary set forth in
this Agreement, Enstar shall not be required to effect any registration of the
Registration Shares hereunder during such time as all the Registration Shares
acquired by Flowers on the Closing Date pursuant to the Investment Agreement may
be
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sold to the public pursuant to Rule 144(k) (or any similar successor provision)
under the Securities Act; provided, however, that the foregoing shall not affect
the parties obligations under Sections 8 and 9 of this Agreement, which Sections
shall continue to be effective.
13. Representations and Warranties of Enstar and Flowers.
(a) Enstar represents and warrants to Flowers as follows:
(i) Enstar has the corporate power and authority to execute and
deliver this Agreement and perform its obligations hereunder. The
execution and delivery of this Agreement and the performance by Enstar
of its covenants and agreements hereunder have been duly and validly
authorized by the Board of Directors; and neither the execution and
delivery of this Agreement nor the consummation of the transactions
contemplated hereby will (A) conflict with or result in any breach of
any provision of the articles of incorporation or bylaws of Enstar or
(B) violate, conflict with or result in a default (or any event which,
with notice or lapse of time or both, would constitute a default) under,
or give rise to any right of termination, cancellation or acceleration
under, any of the terms, conditions or provisions of any material
agreement or obligation to which Enstar is a party or by which Enstar or
any of its assets may be bound.
(ii) This Agreement has been duly executed and delivered by Enstar
and constitutes a valid and binding agreement of Enstar, enforceable
against Enstar in accordance with its terms, except that (A) such
enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or
hereafter in effect, relating to or limiting creditors' rights generally
and (B) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to
the discretion of the court before which any proceeding therefor may be
brought.
(b) Flowers represents and warrants to Enstar as follows:
(i) Flowers is an individual resident of the State of New York and
Flowers has the capacity to execute and deliver this Agreement and
perform his obligations hereunder, and no other actions on the part of
Flowers are necessary to permit the execution, delivery and performance
of this Agreement by Flowers or the consummation of the transactions so
contemplated by Flowers; and neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will violate, conflict with or result in a default (or any event which,
with notice or lapse of time or both, would constitute a default) under,
or give rise to any right of termination, cancellation or acceleration
under, any of the terms, conditions or provisions of any material
agreement or obligation to which Flowers is a party or by which Flowers
or any of his assets may be bound.
(ii) This Agreement has been duly executed and delivered by Flowers
and constitutes a valid and binding agreement of Flowers, enforceable
against Flowers in accordance with its terms, except that (A) such
enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other laws, now or
hereafter in effect, relating to or limiting creditors' rights
generally, and (B) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable defenses and
to the discretion of the court before which any proceeding therefor may
be brought.
14. Miscellaneous.
(a) From time to time after the Closing Date, at the reasonable
request of the other party hereto and at the expense of the party so
requesting, each of the parties hereto shall execute and deliver to such
requesting party such documents and take such other action as such
requesting party may reasonably request in order to consummate more
effectively the transactions contemplated hereby.
A-35
<PAGE> 68
(b) All notices, requests, demands, waivers and other communications
required or permitted to be given under this Agreement shall be in writing and
may be given by any of the following methods: (i) personal delivery; (ii)
facsimile transmission; (iii) registered or certified mail, postage prepaid,
return receipt requested; or (iv) overnight delivery service. Notices shall be
sent to the appropriate party at its address or facsimile number given below (or
at such other address or facsimile number for such party as shall be specified
by notice given hereunder):
If to Flowers, to:
J. Christopher Flowers
4 East 70th Street
New York, New York 10021
Facsimile: (212) 517-3933
with a copy to:
Willkie Farr & Gallagher
787 Seventh Avenue
New York, NY 10019-6099
Facsimile: (212) 728-8111
Attention: Thomas M. Cerabino, Esq.
If to Enstar, to:
The Enstar Group, Inc.
172 Commerce Street, 3rd Floor
Montgomery, AL 36104
Facsimile: (334) 834-2530
Attention: Mr. Nimrod T. Frazer
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303-1763
Fax No. (404) 572-5145
Attention: William R. Spalding, Esq.
All such notices, requests, demands, waivers and communications shall be deemed
received upon (i) actual receipt thereof by the addressee, (ii) actual delivery
thereof to the appropriate address or (iii) in the case of a facsimile
transmissions upon transmission thereof by the sender and issuance by the
transmitting machine of a confirmation slip that the number of pages
constituting the notice have been transmitted without error. In the case of
notices sent by facsimile transmission, the sender shall contemporaneously mail
a copy of the notice to the addressee at the address provided for above.
However, such mailing shall in no way alter the time at which the facsimile
notice is deemed received.
(c) Should any provision of this Agreement for any reason be declared
invalid or unenforceable, such decision shall not affect the validity or
enforceability of any of the other provisions of this Agreement, which
remaining provisions shall remain in full force and effect and the
application of such invalid or unenforceable provision to Persons or
circumstances other than those as to which it is held invalid or
unenforceable shall be valid and enforced to the fullest extent permitted
by law.
(d) This Agreement and all of the provisions hereof shall be binding
upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned,
directly or indirectly, including, without limitation, by operation of law,
by any party hereto without the prior written consent of the other parties
hereto.
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<PAGE> 69
(e) This Agreement is solely for the benefit of Enstar, and its
successors and permitted assigns, with respect to the obligations of
Flowers under this Agreement, and for the benefit of Flowers, and his
successors and permitted assigns, with respect to the obligations of
Enstar, under this Agreement. Except as set forth in the next sentence,
this Agreement shall not be deemed to confer upon or give to any other
third party any remedy, claim, liability, reimbursement, cause of action or
other right. In addition, and whether or not any express assignment shall
have been made, the provisions of this Agreement which are for the benefit
of Flowers shall also be for the benefit of and be enforceable by any
subsequent holder of any Registration Shares, subject to all the provisions
herein.
(f) Each of Enstar and Flowers agrees as follows:
(i) Enstar and Flowers shall attempt in good faith to resolve
promptly any dispute, controversy or claim under or in connection with
this Agreement by negotiations. If any such dispute, controversy or
claim should arise, the parties or representatives of each such party
shall meet at least once to attempt to resolve the matter. Any such
representative may request the other representatives to meet within 14
days after delivery of written notice to the others of any such dispute,
controversy, or claim, at a mutually agreed time and place.
(ii) If the matter has not been resolved pursuant to negotiations
within 60 days after the first meeting of the representatives (which
period may be extended by mutual agreement), the matter shall be settled
exclusively by arbitration (except as provided in Section 14(f)(v))
conducted by three arbitrators in accordance with the provisions of the
Federal Arbitration Act (9 U.S.C. Sections 1-16), and in accordance with
the Center for Public Resources, Inc.'s Rules (the "Rules for
Arbitration") for Non-Administered Arbitration of Business Disputes. The
three arbitrators shall be selected as follows: one arbitrator shall be
selected by Enstar, one arbitrator shall be selected by Flowers and one
arbitrator shall be selected by the other two arbitrators. All
arbitrators shall be individuals: (A) who meet the qualifications set
forth in Rule 7 of the Rules of Arbitration, (B) who are attorneys or
retired judges and (C) who have past experience in settling complex
litigation involving claims relating to securities and mergers and
acquisitions. The arbitration of such matters in controversy, including
the determination of any amount of damages, shall be final and binding
upon Enstar and Flowers to the maximum extent permitted by law. No such
Person shall seek, and no arbitrator shall be authorized to award, any
punitive damages relating to any matter arbitrated. This Agreement to
arbitrate is irrevocable.
(iii) Any arbitration proceedings shall be conducted in Atlanta,
Georgia or at such other location as Enstar and Flowers may agree.
(iv) Any arbitration award under this Section 14(f) shall be final
and binding, and judgment may be entered on such award by any court
having jurisdictions upon application of Enstar or Flowers.
(v) Any party to an arbitration proceeding under this Section 14(f)
shall be entitled to be reimbursed by the other parties for its costs
and expenses incurred in connection with the arbitration proceeding,
including reasonable attorneys' fees, to the extent determined by the
arbitrators. The arbitrators shall assess the costs of the arbitration
proceeding, including their fees, to the parties to the proceeding in
such proportions as the arbitrators consider reasonable under the
circumstances.
(vi) Notwithstanding anything else in this Section 14(f) to the
contrary, Enstar and Flowers shall be entitled to seek any equitable
remedies available under the governing law from any court of competent
jurisdiction, and the order or judgment of any such court shall be
binding in any arbitration proceeding pursuant to this Section 14(f).
(g) This Agreement and other documents referred to herein or delivered
pursuant hereto which form a part hereof constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede
all other prior agreements and understandings, both written and oral,
between the parties or any of them with respect to the subject matter
hereof.
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<PAGE> 70
(h) This Agreement shall be governed by and construed in accordance
with the laws of the State of Georgia (regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof)
as to all matters, including but not limited to matters of validity,
construction, effect, performance and remedies.
(i) This Agreement may be executed in counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one
and the same agreement.
(j) This Agreement may be amended, modified or supplemented at any
time by written agreement of Enstar and Flowers. Any failure of Enstar or
Flowers to comply with any term or provision of this Agreement may be
waived, with respect to Flowers, by Enstar and, with respect to Enstar, by
Flowers, by an instrument in writing signed by or on behalf of the
appropriate party, but such waiver or failure to insist upon strict
compliance with such term or provision shall not operate as a waiver of, or
estoppel with respect to, any subsequent or other failure to comply.
Please indicate your acceptance of the foregoing by signing and returning
the enclosed counterpart of this letter, whereupon this Agreement shall be
binding between Enstar and Flowers.
Very truly yours,
THE ENSTAR GROUP, INC.
By:
------------------------------------
Name:
Title:
AGREED TO AND ACCEPTED
AS OF THE DATE FIRST
ABOVE WRITTEN.
J. CHRISTOPHER FLOWERS
--------------------------------------
A-38
<PAGE> 71
ANNEX B
[Letterhead of Stephens Inc.]
October 20, 1998
Board of Directors of
The Enstar Group, Inc.
172 Commerce Street, 3rd Floor
Montgomery, AL 36104
Gentlemen:
We have acted as your financial advisor in connection with the proposed
sale of 1,158,860 of newly issued shares of common stock of The Enstar Group,
Inc. ("Company") to J. Christopher Flowers ("Mr. Flowers") in return for a
recourse promissory note (the "Transaction"). The terms and conditions of the
Transaction are more fully set forth in the Investment Agreement and related
documents, between the Company and Mr. Flowers (collectively, the "Purchase
Agreement").
You have requested our opinion as to the fairness to the disinterested
shareholders of the Company from a financial point of view of the consideration
to be received by the Company in the Transaction. For purposes of this opinion,
the term "disinterested shareholders" means holders of the Company's one class
of publicly traded common stock (the "Common Stock") other than (1) directors,
officers and employees of the Company, and (2) Mr. Flowers and his affiliates.
In connection with rendering our opinion we have:
(i) analyzed certain publicly available financial statements and
reports regarding the Company;
(ii) analyzed certain internal financial statements and other
financial and operating data concerning the Company provided to us by
management of the Company;
(iii) analyzed, on a pro forma basis, data relating to the effect of
the Transaction on the Company's balance sheet, capitalization ratios,
earnings and book value both in the aggregate and, where applicable, on a
per share basis, which data was provided to us by management of the Company
or its independent accountants;
(iv) reviewed the reported prices and trading activity for the Common
Stock;
(v) reviewed the Investment Agreement and related documents;
(vi) discussed with management of the Company the operations of and
future business prospects for the Company and discussed with management of
the Company and its outside counsel and accountants the anticipated
financial, accounting and tax consequences of the Transaction to the
Company, including the effect of the Transaction upon the Company's net
operating loss carry forward ("NOL"); and
(vii) performed such other analyses and provided such other services
as we have deemed appropriate.
We have relied on the accuracy and completeness of the information and
financial data provided to us by the Company, and our opinion is based upon such
information. We did not participate in the negotiation of the terms of the
Transaction. We have inquired into the reliability of such information and
financial data only to the limited extent necessary to provide a reasonable
basis for our opinion, recognizing that we are rendering only an informed
opinion and not an appraisal or certification of value. We have not, however,
independently verified the impact of the Transaction upon the Company's NOL. In
arriving at our opinion, we did not review any financial information of Mr.
Flowers and do not opine on creditworthiness.
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<PAGE> 72
As part of our investment banking business, we regularly issue fairness
opinions and are continually engaged in the valuation of companies and their
securities in connection with business reorganizations, private placements,
negotiated underwritings, mergers and acquisitions and valuations for estate,
corporate and other purposes. We are familiar with the Company. In the ordinary
course of business, Stephens Inc. and its affiliates at any time may hold long
or short positions, and may trade or otherwise effect transactions as principal
or for the accounts of customers, in debt or equity securities or options on
securities of the Company. Stephens is receiving a fee, and reimbursement of its
expenses, in connection with the issuance of this fairness opinion.
Based on the foregoing and our general experience as investment bankers,
and subject to the qualifications stated herein, we are of the opinion on the
date hereof that the consideration to be received by the Company in the
Transaction is fair to its disinterested shareholders from a financial point of
view.
This opinion and a summary discussion of our underlying analyses and role
as your financial advisor may be included in communications to the Company's
shareholders provided that we approve of such disclosures prior to publication.
Very truly yours,
/s/ STEPHENS INC.
B-2
<PAGE> 73
APPENDIX
THE ENSTAR GROUP, INC.
PROXY SOLICITED BY THE BOARD FOR THE
SPECIAL MEETING OF SHAREHOLDERS ON DECEMBER 17, 1998
The undersigned hereby appoints Nimrod T. Frazer and Cheryl D. Davis and
each of them, proxies, with full power of substitution and resubstitution, for
and in the name of the undersigned, to vote all shares of Common Stock of The
Enstar Group, Inc. which the undersigned would be entitled to vote if personally
present at the Special Meeting of Shareholders to be held on Thursday, December
17, beginning at 9:00 a.m., local time, in the Blue Gray Room at the Montgomery
Civic Center, located at 300 Bibb Street, Montgomery, Alabama 36104, or at any
adjournment thereof, upon the matters described in the accompanying Notice of
Special Meeting of Shareholders and Proxy Statement, receipt of which is hereby
acknowledged, and upon any other business that may properly come before the
Special Meeting or any adjournment thereof. Said proxies are directed to vote on
the matter described in the Notice of Special Meeting of Shareholders and Proxy
Statement as follows, and otherwise in their discretion upon such other business
as may properly come before the meeting or any adjournment thereof.
(1) To approve the Transaction as described in the Proxy Statement.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
(2) In their discretion, such other business as may properly come before the
Special Meeting and any adjournment thereof.
THIS PROXY WILL BE VOTED AS INDICATED, BUT IF NO DIRECTION IS INDICATED, THIS
PROXY WILL BE VOTED FOR THE ABOVE PROPOSALS.
Date: , 1998
---------------------
--------------------------------
--------------------------------
Please sign exactly as your name
or names appear hereon. For more
than one owner as shown above,
each should sign. When signing
in a fiduciary or representative
capacity, please give full
title. If this proxy is
submitted by a corporation, it
should be executed in the full
corporate name by a duly
authorized officer, if a
partnership, please sign in
partnership name by authorized
person.
[ ] Please check this box if the
shares represented by this proxy
are beneficially owned by J.
Christopher Flowers or a member
of his family, or if Mr. Flowers
or a member of his family
controls the voting of such
shares.
PLEASE COMPLETE, DATE AND SIGN THIS PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING . IF YOU ATTEND
THE SPECIAL MEETING, YOU MAY VOTE IN PERSON IF YOU WISH, EVEN IF YOU HAVE
PREVIOUSLY RETURNED YOUR PROXY.
