<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 15, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________
COMMISSION FILE NUMBER 0-07477
THE ENSTAR GROUP, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
GEORGIA 63-0590560
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
</TABLE>
401 MADISON AVENUE
MONTGOMERY, ALABAMA 36104
(Address of principal executive offices)
(334) 834-5483
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES [X] NO [ ]
The number of shares of Registrant's Common Stock, $.01 par value per
share, outstanding at May 15, 2000 was 5,265,753.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE
ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM 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 ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT
TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE
INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT
GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT
ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-
LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING
STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR
FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THIS FORM 10-Q, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.
i
<PAGE> 3
PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE ENSTAR GROUP, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 79,390 $ 64,265
Certificates of deposit..................................... 3,695 3,615
Other....................................................... 544 564
Investment in B-Line LLC.................................... 1,014 911
Property and equipment, net................................. 59 58
-------- --------
Total assets...................................... $ 84,702 $ 69,413
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 316 $ 176
Deferred liabilities........................................ 289 260
Other....................................................... 386 383
-------- --------
Total liabilities................................. 991 819
-------- --------
Shareholders' equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 5,708,104 shares issued at March 31, 2000
and December 31, 1999)................................. 57 57
Additional paid-in capital................................ 183,191 183,191
Note receivable, net of discount of $496 at December 31,
1999................................................... -- (14,504)
Accumulated deficit....................................... (93,727) (94,340)
Treasury stock, at cost (442,351 shares).................. (5,810) (5,810)
-------- --------
Total shareholders' equity........................ 83,711 68,594
-------- --------
Total liabilities and shareholders' equity........ $ 84,702 $ 69,413
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
1
<PAGE> 4
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
(DOLLARS IN THOUSANDS,
EXCEPT SHARE AND
PER SHARE DATA)
(UNAUDITED)
<S> <C> <C>
Investment income........................................... $ 1,280 $ 1,070
Litigation expense, net..................................... (4) (2)
General and administrative expenses......................... (646) (806)
Interest expense............................................ (3) (3)
---------- ----------
Income before income taxes.................................. 627 259
Income taxes................................................ (14) (11)
---------- ----------
Net income.................................................. $ 613 $ 248
========== ==========
Weighted average shares outstanding......................... 5,265,753 5,265,690
========== ==========
Weighted average shares outstanding -- assuming dilution.... 5,317,350 5,323,076
========== ==========
Net income per common share................................. $ 0.12 $ 0.05
========== ==========
Net income per common share -- assuming dilution............ $ 0.12 $ 0.05
========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
2
<PAGE> 5
THE ENSTAR GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(DOLLARS IN
THOUSANDS)
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 613 $ 248
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation........................................... 4 4
Amortization of goodwill............................... 20 30
Accretion of discount on note receivable............... (85) (115)
Reversal of discount on note receivable................ (411) --
Equity in earnings of B-Line LLC....................... (123) 1
Changes in assets and liabilities:
Accounts payable and accrued liabilities............... 140 (365)
Other.................................................. 52 132
------- -------
Net cash provided by (used in) operating
activities....................................... 210 (65)
------- -------
Cash flows from investing activities:
Purchases of certificates of deposit...................... (2,911) (367)
Maturities of certificates of deposit..................... 2,831 50,350
Purchase of property and equipment........................ (5) --
------- -------
Net cash (used in) provided by investing
activities....................................... (85) 49,983
------- -------
Cash flows from financing activities:
Repayment of note receivable.............................. 15,000 --
Common stock issuance costs............................... -- (10)
------- -------
Net cash provided by (used in) financing
activities....................................... 15,000 (10)
------- -------
Increase in cash and cash equivalents....................... 15,125 49,908
Cash and cash equivalents at the beginning of the period.... 64,265 12,826
------- -------
Cash and cash equivalents at the end of the period.......... $79,390 $62,734
======= =======
Supplemental disclosures of cash flow information:
Interest paid............................................. $ -- $ --
======= =======
Income taxes paid......................................... $ 80 $ 31
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE> 6
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1: GENERAL
The consolidated financial statements of The Enstar Group, Inc. (the
"Company") are unaudited and, in the opinion of management, include all
adjustments consisting solely of normal recurring adjustments necessary to
fairly state the Company's financial condition and results of operations for the
interim period. The results of operations for the three months ended March 31,
2000 are not necessarily indicative of the results to be expected for the full
year. These statements should be read in conjunction with the financial
statements and notes thereto for the year ended December 31, 1999 included in
the Company's Form 10-K as filed with the Securities and Exchange Commission on
March 22, 2000 under the Securities Exchange Act of 1934, as amended. Certain
prior year amounts have been reclassified in the financial statements to conform
with the current year presentation.
NOTE 2: B-LINE
In November 1998, the Company purchased $950,000 in membership units of
B-Line LLC ("B-Line"). B-Line is a privately owned company based in Seattle,
Washington, that provides services to credit card issuers and other holders of
similar receivables. B-Line also purchases credit card receivables and recovers
payments on these accounts.
At the time of the purchase, the Company's membership units represented
approximately 8.77% of the outstanding units of B-Line. The Company also
purchased a one-year warrant to acquire additional B-Line units, with an
aggregate exercise price of $950,000. Other investors also purchased membership
units and warrants in B-Line. The Company's warrants expired unexercised in
November 1999. As a result of the expiration of the warrants, the Company's
ownership percentage decreased to approximately 7.99%.
The Company's B-Line membership units are accounted for under the equity
method. In addition, legal and professional fees of approximately $15,000
incurred in the purchase of the Company's investment were capitalized as a part
of the original cost. Approximately $803,000 of the original $950,000 investment
was recorded as goodwill and is being amortized over a period of 10 years.
NOTE 3: SHAREHOLDERS' EQUITY
(a) Common Stock -- In January 1999, the Company issued 160 shares of its
common stock to qualified former shareholders in accordance with the terms of
its reorganization plan. It was determined by the Company that these former
shareholders had submitted a complete Certification of Ownership in a timely
manner.
(b) Additional Paid-in Capital -- In February 1999, additional legal fees
of $10,000 were incurred by the Company in relation to the sale of 1,158,860
newly issued shares of the Company's common stock to J. Christopher Flowers in
December 1998. In accordance with generally accepted accounting principles,
these fees were charged to equity in the first quarter of 1999.
(c) Note Receivable -- In March 2000, Mr. J. Christopher Flowers, Vice
Chairman of the Board of Directors of the Company, repaid his $15 million note
with accrued interest to the Company. This note receivable, net of discount, was
classified as a reduction to equity. The note had a due date of December 18,
2000, and resulted from the Company's sale of 1,158,860 newly issued shares of
common stock to Mr. Flowers on December 18, 1998. In connection with the early
repayment of the note receivable, the Company reversed the unamortized portion
of the discount recorded on the note receivable. This reversal resulted in a
decrease of approximately $411,000 to general and administrative expenses in
March 2000.
4
<PAGE> 7
THE ENSTAR GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4: LEGAL PROCEEDINGS
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company. The complaint, which deals with actions occurring
prior to the Company's filing for bankruptcy in 1991, alleges that the Company
along with its then principal officers and others defrauded the plaintiffs in
violation of the Alabama Securities Act and other Alabama statutory provisions.
The plaintiffs seek compensatory damages in the amount of their alleged losses
of approximately $2.0 million and unspecified punitive damages. The Company
filed a motion to dismiss and/or for summary judgement on March 17, 1997. The
motion filed by the Company contends that the claims asserted are barred by the
applicable statutes of limitations. The motion is still pending before the
court. In the event the plaintiffs' claims are not dismissed pursuant to the
Company's motion, the Company intends to contest the plaintiffs' claims
vigorously. The Company cannot, however, reasonably predict the outcome of this
lawsuit.
NOTE 5: INVESTMENT INCOME
Investment income for the three months ended March 31, 2000 and 1999 is
made up of the following components:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------
2000 1999
---------- ----------
<S> <C> <C>
Interest income............................................. $1,157,000 $1,071,000
Equity in earnings of B-Line LLC............................ 123,000 (1,000)
---------- ----------
Total investment income........................... $1,280,000 $1,070,000
========== ==========
</TABLE>
NOTE 6: SUBSEQUENT EVENTS
On April 12, 2000, the Company announced that it had signed a definitive
agreement to join with co-investors to acquire two reinsurance subsidiaries of
Petrofina S.A. Petrofina S.A. is a subsidiary of TotalFina Elf S.A. The
subsidiaries, Brittany Insurance Company, Ltd. ("Brittany"), incorporated under
the laws of Bermuda, and Compagnie Europeenne d'Assurances Industrielles S.A.
("CEAI"), a Belgian corporation, have been restructured to exclude risks related
to Petrofina S.A. and its other subsidiaries. The Company, along with a private
Bermuda based firm which is in the business of acquiring and managing captive
reinsurance operations, and an entity controlled by Trident II, L.P. have formed
BH Acquisition Limited in Bermuda to acquire Brittany and CEAI. Trident II,
L.P., which is managed by Marsh & McLennan Capital, Inc., makes private equity
and equity related investments in the global insurance, reinsurance and related
industries. In exchange for approximately $9.4 million, the Company will receive
50% of the voting stock and a 33% economic interest in BH Acquisition Limited.
The acquisitions are subject to regulatory approval in Bermuda and Belgium.
5
<PAGE> 8
INDEPENDENT ACCOUNTANTS' REPORT
Board of Directors and Shareholders of
The Enstar Group, Inc.
Montgomery, Alabama
We have reviewed the accompanying consolidated balance sheet of The Enstar
Group, Inc. and subsidiary as of March 31, 2000, and the related consolidated
statements of income and cash flows for the three-month periods ended March 31,
2000 and 1999. These financial statements are the responsibility of The Enstar
Group, Inc. and subsidiary's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and of making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with auditing standards generally accepted in the United States of
America, the objective of which is the expression of an opinion regarding the
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our review, we are not aware of any material modifications that
should be made to such consolidated financial statements for them to be in
conformity with accounting principles generally accepted in the United States of
America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet of The
Enstar Group, Inc. and subsidiary as of December 31, 1999 and the related
consolidated statements of income, comprehensive income, shareholders' equity
and cash flows for the year then ended (not presented herein), and in our report
dated February 4, 2000 (March 7, 2000 as to Note 12), we expressed an
unqualified opinion on those consolidated financial statements. In our opinion,
the information set forth in the accompanying consolidated balance sheet as of
December 31, 1999 is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
May 5, 2000
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity and Capital Resources
The Company's assets, aggregating approximately $84.7 million at March 31,
2000, consisted primarily of cash, cash equivalents and certificates of deposit.
The Company is currently engaged in the active search for one or more
operating businesses. This search occupies substantially all of the time of the
Company's senior officers. The Company's officers and directors have identified
one such suitable acquisition and the Company has entered into a definitive
agreement to join with co-investors to acquire two reinsurance subsidiaries of
Petrofina S.A. See "Recent Developments".
Financial Condition
The Company had total assets of $84.7 million at March 31, 2000 compared to
$69.4 million at December 31, 1999. The increase in total assets was due to the
early repayment of a $15 million note by J. Christopher Flowers, Vice Chairman
of the Board of Directors of the Company.
Mr. Flowers repaid his $15 million note with accrued interest to the
Company on March 3, 2000. The note had a due date of December 18, 2000, and
resulted from the Company's sale of 1,158,860 newly issued shares of common
stock to Mr. Flowers on December 18, 1998 (the "Flowers Transaction"). In
connection with the repayment, the Company reversed the unamortized discount on
the note of approximately $411,000.
Results of Operations
The Company reported net income of $613,000 for the three months ended
March 31, 2000, compared to net income of $248,000 for the same period in the
prior year.
Investment income was approximately $1.3 million for the three months ended
March 31, 2000 compared to approximately $1.1 million for the three months ended
March 31, 1999. Investment income was comprised of interest income and equity in
earnings from the Company's interest in B-Line LLC. Interest income increased
approximately $86,000 for the three months ended March 31, 2000 compared to the
same period in 1999. Equity in earnings from B-Line LLC increased approximately
$124,000 in the first quarter of 2000 compared to the first quarter of 1999.
General and administrative expenses were approximately $646,000 for the
three months ended March 31, 2000 compared to $806,000 for the same period in
1999. In connection with the early repayment of the note in the Flowers
transaction, the Company reversed the unamortized portion of the discount
recorded on the note. This reversal resulted in a decrease of approximately
$411,000 to general and administrative expenses in March 2000. This decrease was
partially offset by additional expense resulting from a new shares tax imposed
by the State of Alabama. In addition to these and other normal operating
expenses, general and administrative expenses include legal and professional
fees as well as travel expenses incurred in connection with the Company's search
for an operating company. Most variances to general and administrative expenses
can be attributed to the number of potential acquisition candidates the Company
locates as well as the degree of interest the Company may have in such
candidates. The stronger the interest in a candidate, the more rigorous
financial and legal due diligence the Company will incur with respect to that
candidate.
Other Material Item
On March 2, 2000, the Company announced that its Board of Directors named
John J. Oros to the position of Executive Vice President and elected him as a
director to fill a newly created position on the Board of Directors. Mr. Oros'
responsibilities will involve working with the Company's management and other
directors to locate an acquisition target. Mr. Oros also was granted options to
purchase 100,000 shares of the Company's common stock under the Omnibus Plan
with an exercise price of 12 3/4, the average of the high and low bid price on
March 2, 2000. The options granted under the Omnibus Plan vest in three
installments; 50,000 on March 2, 2001 and 25,000 each on March 2, 2002 and 2003.
7
<PAGE> 10
Recent Developments
On April 12, 2000, the Company announced that it signed a definitive
agreement to join with co-investors to acquire two reinsurance subsidiaries of
Petrofina S.A. Petrofina S.A. is a subsidiary of TotalFina Elf S.A. The
subsidiaries, Brittany Insurance Company, Ltd. ("Brittany"), incorporated under
the laws of Bermuda, and Compagnie Europeenne d'Assurances Industrielles S.A.
("CEAI"), a Belgian corporation, have been restructured to exclude risks related
to Petrofina S.A. and its other subsidiaries. The Company, along with a private
Bermuda based firm which is in the business of acquiring and managing captive
reinsurance operations, and an entity controlled by Trident II, L.P. have formed
BH Acquisition Limited in Bermuda to acquire Brittany and CEAI. Trident II,
L.P., which is managed by Marsh & McLennan Capital, Inc., makes private equity
and equity related investments in the global insurance, reinsurance and related
industries. In exchange for approximately $9.4 million, the Company will receive
50% of the voting stock and a 33% economic interest in BH Acquisition Limited.
The acquisitions are subject to regulatory approval in Bermuda and Belgium.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to some market risk from changes in interest rates,
but the Company does not believe the risk is material. The Company had cash and
cash equivalents of approximately $79.4 million in interest bearing accounts
(interest at floating rates) and approximately $3.7 million of short-term
certificates of deposit (interest at fixed rates) at March 31, 2000. Although
interest rate changes would affect the fair value of the Company's certificates
of deposits, the weighted average original term of certificates held by the
Company at March 31, 2000 was approximately eight months. The short-term nature
of these certificates limits the Company's risk of changes in the fair value of
these certificates.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with its
then principal officers and others defrauded the plaintiffs in violation of the
Alabama Securities Act and other Alabama statutory provisions. The plaintiffs
seek compensatory damages in the amount of their alleged losses of approximately
$2 million and unspecified punitive damages. The complaint is virtually
identical to a complaint brought by these plaintiffs against the Company's
former chairman, former president and others in December 1991, during the
pendency of the Company's bankruptcy case and prior to the confirmation of the
Company's Second Amended Plan of Reorganization, as modified (the
"Reorganization Plan"). The plaintiffs allege that the United States Bankruptcy
Court for the Middle District of Alabama (the "Bankruptcy Court") issued an
order on January 15, 1997, allowing them to litigate their claims against the
Company. The Bankruptcy Court's order actually held that the plaintiffs could
not bring a late claim against the Company in its bankruptcy case and then went
on to state that because of facts relating to these particular plaintiffs, they
were not bound by the provisions of the Reorganization Plan and their claims
were not subject to discharge under the Bankruptcy Code. On March 17, 1997, the
Company filed a motion to dismiss and/or for summary judgment in response to the
complaint on the basis that the claims asserted are barred by the applicable
statute of limitations. The motion is still pending before the court. In the
event the plaintiffs' claims are not dismissed pursuant to the Company's motion,
the Company intends to contest the plaintiffs' claims vigorously. The Company
cannot, however, reasonably predict the outcome of this litigation.
8
<PAGE> 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <C> <S>
2.1 -- Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992 (incorporated by reference to
Exhibit 2.1 to the Amendment No. 2 to the Registration
Statement on Form 10, dated March 27, 1997).
2.2 -- Amended Modification to Second Amended Plan of
Reorganization of the Company, confirmed on August 24, 1993
(incorporated by reference to Exhibit 2.2 to the Amendment
No. 2 to the Registration Statement on Form 10, dated March
27, 1997).
2.3 -- Agreement and Plan of Merger, dated as of December 31, 1996
(incorporated by reference to Exhibit 2.3 to the Amendment
No. 2 to the Registration Statement on Form 10, dated March
27, 1997).
3.1 -- Articles of Incorporation of the Company, as amended on June
10, 1998 (incorporated by reference to Exhibit 3.1 to the
Quarterly Report on Form 10-Q, dated August 4, 1998).
3.2 -- Bylaws of the Company, as amended (incorporated by reference
to Exhibit 3.2 to the Quarterly Report on Form 10-Q, dated
August 6, 1999).
4.1 -- Rights Agreement between the Company and American Stock
Transfer & Trust Company, as Rights Agent, dated as of
January 20, 1997 (incorporated by reference to Exhibit 4.1
to the Amendment No. 2 to the Registration Statement on Form
10, dated March 27, 1997).
4.2 -- Amendment Agreement dated as of October 20, 1998, to the
Rights Agreement dated as of January 20, 1997 between the
Company and American Stock Transfer & Trust Company
(incorporated by reference to Exhibit 10.2 to the Current
Report on Form 8-K dated October 20, 1998).
10.1 -- Amended and Restated Employment Agreement between the
Company and John Oros dated March 2, 2000 (incorporated by
reference to Exhibit 10.9 to the Annual Report on Form 10-K,
dated March 22, 2000).
27.1 -- Financial Data Schedule. (For SEC Use Only)
99.1 -- The Enstar Group, Inc. Private Securities Litigation Reform
Act of 1995 Safe Harbor Compliance Statement For
Forward-Looking Statements.
99.2 -- Notice of Pending Distribution of New Common Stock in The
Enstar Group, Inc. (incorporated by reference to Exhibit
99.1 to the Amendment No. 2 to the Registration Statement on
Form 10, dated March 27, 1997).
99.3 -- Modified Order on Proposed Distribution to Equity Security
Holders by the United States Bankruptcy Court for the Middle
District of Alabama (incorporated by reference to Exhibit
99.2 to the Amendment No. 2 to the Registration Statement on
Form 10, dated March 27, 1997).
99.4 -- Application for an Order Pursuant to Sections 6(c) and 6(e)
of the Investment Company Act of 1940 (incorporated by
reference to Application for an Order Pursuant to Sections
6(c) and 6(e) of the Investment Company Act of 1940, dated
March 19, 1998).
99.5 -- Amendment No. 1 to the Application for an Order Pursuant to
Sections 6(c) and 6(e) of the Investment Company Act of 1940
(incorporated by reference to Amendment No. 1 to the
Application for an Order Pursuant to Sections 6(c) and 6(e)
of the Investment Company Act of 1940, dated May 22, 1998).
</TABLE>
(b) Reports on Form 8-K
There were no reports filed on Form 8-K for the quarter ended March 31,
2000.
9
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE ENSTAR GROUP, INC.
By: /s/ CHERYL D. DAVIS
------------------------------------
Cheryl D. Davis
Chief Financial Officer, Vice
President of Corporate Taxes,
Secretary (Authorized Officer)
(Principal Financial Officer)
Date: May 15, 2000
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE ENSTAR
GROUP, INC.'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS REPORT ON FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 79,390
<SECURITIES> 3,695
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 138
<DEPRECIATION> 79
<TOTAL-ASSETS> 84,702
<CURRENT-LIABILITIES> 316
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 83,654
<TOTAL-LIABILITY-AND-EQUITY> 84,702
<SALES> 0
<TOTAL-REVENUES> 1,280
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 650
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3
<INCOME-PRETAX> 627
<INCOME-TAX> 14
<INCOME-CONTINUING> 613
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 613
<EPS-BASIC> 0.12
<EPS-DILUTED> 0.12
</TABLE>
<PAGE> 1
EXHIBIT 99.1
THE ENSTAR GROUP, INC.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
SAFE HARBOR COMPLIANCE STATEMENT
FOR FORWARD-LOOKING STATEMENTS
In passing the Private Securities Litigation Reform Act of 1995 (the
"Reform Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress
encouraged public companies to make "forward-looking statements" by creating a
safe harbor to protect companies from securities law liability in connection
with forward-looking statements. The Enstar Group, Inc. ("Enstar" or the
"Company") intends to qualify both its written and oral forward-looking
statements for protection under the Reform Act and any other similar safe harbor
provisions.
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Enstar. The Company
undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements (the "Safe Harbor Statement") to
reflect future developments. In addition, Enstar undertakes no obligation to
update or revise forward-looking statements to reflect changed assumptions, the
occurrence of unanticipated events or changes to future operating results over
time.
Enstar provides the following risk factor disclosure in connection with its
continuing effort to qualify its written and oral forward-looking statements for
the safe harbor protection of the Reform Act and any other similar safe harbor
provisions. Important factors currently known to management that could cause
actual results to differ materially from those in forward-looking statements
include the following:
NO RECENT OPERATING HISTORY; BLIND POOL INVESTMENT
The Company filed for protection 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 until July 17, 1997 when
the United States Bankruptcy Court for the Middle District of Alabama closed the
Company's Chapter 11 proceedings by final order.
Because the Company has yet to acquire an operating business, the Company
does not have any significant operating history on which to base its performance
or its prospects. The executive officers and Board of Directors will select
acquisitions for the Company. For certain acquisitions no shareholder approval
will be necessary. Thus, the Company's prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
their beginning stages of development.
RECENT ACQUISITION AGREEMENT; UNCERTAINTY OF ACQUISITION TARGET; COMPETITION FOR
SUITABLE ACQUISITIONS
In April 2000, the Company signed a definitive agreement to join with
co-investors and acquire two reinsurance subsidiaries of Petrofina S.A.,
Brittany Insurance Company, Ltd. ("Brittany"), incorporated under the laws of
Bermuda, and Compagnie Europeenne d'Assurances Industrielles S.A. ("CEAI"), a
Belgian corporation. There can be no assurance that the acquisition of Brittany
and CEAI will be consummated on the terms negotiated to date or at all.
Furthermore, there can be no assurance that Brittany and CEAI or any other
operating business that the Company may acquire in the future will bring value
to the Company's shareholders.
In terms of the Company's on-going search for one or more suitable
operating businesses, the business of any future acquisition target may be
subject to numerous, unpredictable risks. By way of example only, the
acquisition target may be subject to government regulation, or dependent upon
new technology or new product
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development. In sum, there can be no assurance that the Company will make any
acquisition that will prove financially advantageous to the Company's
shareholders. In the event the Company fails to acquire an operating business
within a reasonable period of time, the Company will consider other
alternatives, including, but not limited to, liquidation of the Company.
The Company faces intense competition in its search for one or more
operating businesses. The Company competes with strategic and financial buyers
and others looking to acquire suitable operating businesses, who have greater
financial resources and greater flexibility in structuring acquisition
transactions or strategic relationships than the Company.
SUBSTANTIAL CHANGE IN THE NATURE OF THE COMPANY'S BUSINESS
The Company's long term viability, profitability and growth depend on its
ability to successfully realize the plans of the Company's management and Board
of Directors. The magnitude of the changes in the Company that have occurred
since its emergence from bankruptcy make it difficult to evaluate its future
prospects on the basis of historical information relating to the Company. In
addition, significant challenges are often encountered in attempting to build a
business upon emerging from bankruptcy.
DEPENDENCE ON EXECUTIVE OFFICERS AND DIRECTORS
The success of the Company is highly dependent on the ability of Nimrod T.
Frazer, the Company's Chairman, President and Chief Executive Officer, and the
other executive officers and directors of the Company to identify and consummate
an acquisition on favorable terms. Effective December 1, 1998, J. Christopher
Flowers became Vice Chairman of the Board of Directors. Additionally, on March
2, 2000, John J. Oros was named Executive Vice President and elected as a
director of the Company. The Company believes Mr. Flowers and Mr. Oros'
extensive business and financial talent and experience greatly enhance the
Company's ability to locate an operating business.
The identification of attractive business opportunities is difficult and
involves a high degree of uncertainty. There can be no assurance that the
Company's Board of Directors or management will be successful in identifying an
attractive business opportunity or successfully consummating a transaction.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price for the Company's common stock may fluctuate substantially
due to the following factors:
- announcements with respect to an acquisition;
- changes in the value of the Company's assets;
- quarterly operating results of the Company;
- changes in general conditions in the economy;
- the financial markets; and
- adverse press or news announcements.
In addition, from time to time the stock market experiences significant
price and volume fluctuations. This volatility affects the market prices of
securities issued by many companies for reasons unrelated to their operating
performance.
INVESTMENT COMPANY ACT OF 1940
As a result of the Company's Second Amended Plan of Reorganization, as
modified, the Company held shares of First Union common stock as its primary
asset for a period of time longer than the twelve months ending March 27, 1998,
and may have been required to register as an investment company under the
Investment Company Act of 1940 (the "1940 Act"). Registration under the 1940 Act
would subject the Company to many constraints not incurred by most operating
companies. On March 19, 1998, the Company filed an application with the
Securities and Exchange Commission (the "SEC") requesting a two year exemption
from registration under the 1940 Act. In April 1998, the Company received
initial comments on
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the original application from the staff of the SEC and filed an amended
application on May 22, 1998. While the amended application was still pending,
the Company liquidated all of its First Union common stock and is generally
holding the proceeds in cash, cash equivalents and short-term certificates of
deposit. Accordingly, the Company believes that its status as an inadvertent
investment company has been effectively resolved. In the event the Company fails
to acquire one or more operating businesses and again holds securities as its
primary asset, then it may be required to register under the 1940 Act. If the
Company were required to register under the 1940 Act, registration could have
material adverse consequences on the Company's operations. The 1940 Act imposes,
among other things, significant restrictions and requirements on an investment
company's capital structure, the composition and duties of its board of
directors, the custody of its assets, the declaration of dividends, and
transactions with its affiliated persons.
GENERAL ECONOMIC RISKS AND BUSINESS CYCLES
Acquisitions are affected by the current economic conditions and the
business cycle. There can be no assurance that the economic conditions or status
of the business cycle will be favorable.
RISK OF NO DIVERSIFICATION
The Company does not plan to diversify across several industries. In fact,
the Company may decide to acquire one or more businesses operating in a single
industry.
FINANCING LIMITATIONS
The Company may be outbid by another company with respect to any given
acquisition and there may be certain financing contingencies that will restrict
the ability of the Company to make a given acquisition.
ANTITAKEOVER PROVISIONS
The Company's Articles of Incorporation and Bylaws contain provisions that
may discourage other persons from attempting to acquire control of the Company.
One such provision involves procedural requirements in connection with
shareholder nominations for election of directors. The Company has also elected
to be subject to certain provisions of the Georgia Business Corporation Code and
has adopted a share purchase rights plan. The market price of the Company's
common stock may be affected by the forgoing provisions and agreements which
inhibit or discourage take-over attempts.
TAX CONSIDERATIONS
The Company has claimed deductions for net operating loss carryforwards
("NOLs") of approximately $8.4 million and approximately $37.4 million on its
federal income tax returns for its taxable years ended August 31, 1997 and 1998,
respectively, and anticipates claiming deductions for NOLs of approximately $1.6
million on its federal income tax return for the taxable year ended August 31,
1999. The Company anticipates that after the use of its NOLs on its federal
income tax return for the taxable year ended August 31, 1999, it will have
remaining NOLs of approximately $47.2 million that may be deductible in future
taxable years (subject to applicable limitations under the Internal Revenue
Code). Although the Company believes that it is entitled to the deductions for
NOLs that it has claimed or intends to claim on its federal income tax returns
for the taxable years ended August 31, 1997, 1998 and 1999, there can be no
assurance that the Internal Revenue Service will not challenge the Company's
position or as to the result of any such challenge. Further, there can be no
assurance that the Company will be able to deduct the remainder of its NOLs for
federal income tax purposes in future taxable years.
INVESTMENTS
In November 1998, the Company purchased $950,000 of membership units of
B-Line LLC ("B-Line"), a privately owned company that provides services to
credit card issuers and other holders of similar receivables. B-Line also
purchases credit card receivables and recovers payments on these accounts. There
can be no assurance that this acquisition will be financially advantageous for
the Company.
This Safe Harbor Statement supersedes the Safe Harbor Statement filed as
Exhibit 99.1 to the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
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