ENSTAR GROUP INC, 10-K405, 2000-03-22

ENSTAR GROUP INC
10-K405, 2000-03-22
INVESTORS, NEC

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 22, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-K

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

<TABLE>
<C> <S>
(MARK ONE)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________TO ____________
</TABLE>

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 of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>

<TABLE>
<S> <C>
401 MADISON AVENUE 36104
MONTGOMERY, ALABAMA (Zip Code)
(Address of principal executive offices)
</TABLE>

(334) 834-5483
(Registrant's telephone number, including area code)

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

<TABLE>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
Not applicable Not applicable
</TABLE>

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

Title of Class
COMMON STOCK, $.01 PAR VALUE
(including rights attached thereto)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

Indicate by check mark whether the Registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes [X] No [ ]

The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant as of March 14, 2000, was $47,639,050 (Based on
the closing price on such date on the OTC Bulletin Board maintained by the
National Association of Securities Dealers, Inc.).

The number of shares of the Registrant's Common Stock, $.01 par value per
share, outstanding at March 14, 2000 was 5,265,753.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to
be held on May 18, 2000 are incorporated herein by reference in Part III.
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TABLE OF CONTENTS

<TABLE>
<CAPTION>
ITEM PAGE
- ---- ----
<S> <C> <C>
PART I
1. Business.................................................... 1
2. Properties.................................................. 3
3. Legal Proceedings........................................... 3
4. Submission of Matters to a Vote of Security Holders......... 3
Supplementary Item. Certain Risk Factors.................... 3
PART II
5. Market for the Registrant's Common Equity and Related
Stockholder Matters......................................... 4
6. Selected Financial Data..................................... 5
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 5
7A. Quantitative and Qualitative Disclosures About Market
Risks....................................................... 9
8. Financial Statements and Supplementary Data................. 9
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 24
PART III
10. Directors and Executive Officers of the Registrant.......... 24
11. Executive Compensation...................................... 24
12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 24
13. Certain Relationships and Related Transactions.............. 24
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 24
</TABLE>

THIS FORM 10-K 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-K, AND ARE
HEREBY INCORPORATED BY REFERENCE. THE ENSTAR GROUP, INC. UNDERTAKES NO
OBLIGATION TO UPDATE OR REVISE FORWARD-LOOKING STATEMENTS TO REFLECT CHANGED
ASSUMPTIONS, THE OCCURRENCE OF UNANTICIPATED EVENTS OR CHANGES TO FUTURE
OPERATING RESULTS OVER TIME.

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PART I

ITEM 1. BUSINESS

GENERAL

The Enstar Group, Inc., a Georgia corporation (the "Company"), currently
holds assets, aggregating approximately $69.4 million at December 31, 1999,
consisting primarily of cash, cash equivalents and short-term certificates of
deposit. The Company filed for bankruptcy under Chapter 11 of the United States
Bankruptcy Code (the "Bankruptcy Code") on May 31, 1991 and operated as a
reorganized debtor pursuant to its Second Amended Plan of Reorganization, as
modified (the "Reorganization Plan"), until July 17, 1997 when the United States
Bankruptcy Court for the Middle District of Alabama (the "Bankruptcy Court")
closed the Company's Chapter 11 proceedings by final order. In accordance with
the terms of the Reorganization Plan and orders of the Bankruptcy Court, the
Company issued 4,549,244 shares of common stock, par value $.01 per share (the
"Common Stock" or "Shares") to qualified former shareholders of record, or
transferees of such former shareholders, of the common stock of the Company
which had been cancelled in the Company's bankruptcy proceeding (the "Cancelled
Stock"). See "History." The Company currently is engaged actively in the search
for one or more operating businesses which meet the Company's acquisition
criteria. The Company does not operate in multiple segments. See "Strategy for
Business Acquisitions."

ORGANIZATIONAL STRUCTURE

The Company's executive offices are located at 401 Madison Avenue,
Montgomery, Alabama 36104, and its telephone number is (334) 834-5483. The
Company has seven employees whose principal duties currently include managing
the assets of the Company, evaluating potential acquisition candidates,
fulfilling reporting requirements associated with being a publicly traded
company and various other accounting and tax matters. The Company is a Georgia
corporation and successor by a 1996 merger to a Delaware corporation of the same
name.

SUBSIDIARIES

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

HISTORY

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

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

The Company's Reorganization Plan was confirmed in February 1992, and
became effective on June 1, 1992 (the "Effective Date"). The Reorganization Plan
provided that creditors would receive all distributions under the Reorganization
Plan until paid in full and that the Company's stock would be cancelled on the
Effective Date. The Bankruptcy Court authorized a modification of the Company's
Reorganization Plan in August of 1993. Among other things, the modification
clarified that any property remaining after creditors had been paid in full
would be held for the benefit of the Company's former shareholders.

On July 1, 1995, the Company disposed of its stock in American through a
merger with a wholly-owned subsidiary of First Union Corporation ("First
Union"). On the date of the merger, the Company owned

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5,689,391 shares of American, in exchange for which it received $82.5 million in
cash which it used to pay certain creditor claims and 815,549 shares of First
Union common stock (the "First Union Common Stock") with a market value on the
exchange date of $45.25 per share. In addition to the shares of First Union
Common Stock received pursuant to the merger, the Company acquired 16,191 shares
through settlements with parties in the litigation against the Company's former
Chairman and Chief Executive Officer, Richard Grassgreen, and 21,683 shares
purchased through First Union's dividend reinvestment program. During 1997, the
Company sold 186,300 shares of First Union Common Stock, the proceeds of which
were used to repay an $18.1 million loan which had been used to pay the
remaining allowed claims of creditors under the Reorganization Plan.
Subsequently, First Union paid a 2-for-1 stock dividend. During 1998, the
Company sold its remaining 1,334,246 shares of First Union Common Stock.

In addition to the proceeds received from the disposition of the American
stock, the Company received recoveries from litigation pursued under the terms
of its Reorganization Plan. The total amount of these recoveries, net of
expenses, was approximately $25.7 million.

In total, the Company paid approximately $116.8 million under its
Reorganization Plan to satisfy the allowed claims of creditors, including
interest. In 1997, the Company completed its reorganization and since that time
has distributed 4,549,244 Shares to its qualified former shareholders in
accordance with the terms of its Reorganization Plan.

STRATEGY FOR BUSINESS ACQUISITIONS

The Company currently is 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 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
executive officers and directors. Each of the Company's directors has been asked
by management to assist the Company actively in its pursuit of an acquisition.
Management follows up on the leads and 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 does not presently focus solely 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 net operating loss carryforwards
("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
Internal Revenue Code of 1986, as amended.

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.

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COMPETITION

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

ITEM 2. PROPERTIES

The Company does not currently own any real property. In June 1999, the
Company signed a three year lease on an office building at 401 Madison Avenue,
Montgomery, Alabama which serves as the corporate headquarters. Additionally,
pursuant to an oral agreement, the Company leases space in a warehouse at 703
Howe Street, Montgomery, Alabama on a month-to-month basis. The Company leases
the office building and warehouse space from unaffiliated third parties for
$2,500 and $350 per month, respectively. The Company believes the rental amounts
are competitive with market rates. The cancellation or termination of either of
these leases would not have a material adverse effect on the Company's results
of operations.

ITEM 3. LEGAL PROCEEDINGS

Beginning in 1991, the Company was involved in extensive litigation
relating to its bankruptcy case. The Company's bankruptcy case was closed by
final decree dated July 17, 1997. Except as described below, the Company is not
aware of any pending litigation matters that could have a material adverse
effect on the Company.

On February 11, 1997, fifteen former shareholders of the Company filed a
lawsuit against the Company in the Circuit Court of Montgomery County, Alabama
styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No.
CV-97-257-Gr. The complaint, which deals with actions occurring prior to the
Company's filing for bankruptcy in 1991, alleges that the Company along with its
then principal officers and others defrauded the plaintiffs in violation of the
Alabama Securities Act and other Alabama statutory provisions. The plaintiffs
seek compensatory damages in the amount of their alleged losses of approximately
$2 million and unspecified punitive damages. The complaint is virtually
identical to a complaint brought by these plaintiffs against the Company's
former chairman, former president and others in December 1991, during the
pendency of the Company's bankruptcy case and prior to the confirmation of the
Reorganization Plan. The plaintiffs allege that the Bankruptcy Court issued an
order on January 15, 1997, allowing them to litigate their claims against the
Company. The Bankruptcy Court's order actually held that the plaintiffs could
not bring a late claim against the Company in its bankruptcy case and then went
on to state that because of facts relating to these particular plaintiffs, they
were not bound by the provisions of the Reorganization Plan and their claims
were not subject to discharge under the Bankruptcy Code. On March 17, 1997, the
Company filed a motion to dismiss and/or for summary judgment in response to the
complaint on the basis that the claims asserted are barred by the applicable
statute of limitations. The motion is still pending before the court. In the
event the plaintiffs' claims are not dismissed pursuant to the Company's motion,
the Company intends to contest the plaintiffs' claims vigorously.

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

No matters were submitted to a vote of shareholders of the Company during
the quarter ended December 31, 1999.

SUPPLEMENTARY ITEM. CERTAIN RISK FACTORS

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

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PART II

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

The Company's Common Stock is traded in the over-the-counter market on the
OTC Bulletin Board maintained by the National Association of Securities Dealers,
Inc. The following table reflects the range of high and low selling prices of
the Company's Common Stock by quarter for 1999 and 1998, as reflected in the OTC
Bulletin Board Daily Trade and Quote Summary Report:

<TABLE>
<CAPTION>
1999 1998
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
First Quarter............................................ 14 11/16 13 1/8 14 1/2 10 1/2
Second Quarter........................................... 16 3/4 13 5/16 15 7/16 13 7/8
Third Quarter............................................ 16 3/8 14 1/4 16 1/2 10 3/4
Fourth Quarter........................................... 15 7/8 12 3/4 15 3/16 12 3/4
</TABLE>

At March 14, 2000, there were approximately 3,375 holders of record of the
Company's Common Stock.

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

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ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected financial information with respect
to the Company for each of the five years in the period ended December 31, 1999
and is derived in part from the audited Consolidated Financial Statements of the
Company. The data set forth below should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the historical consolidated financial statements and related
notes thereto, and other financial data included elsewhere herein.

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
---------- ---------- ---------- ------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Income from continuing operations........ $ 2,137 $ 38,348 $ 8,917 $ 740 $ 14,122
Income from discontinued operations(1)... 54,482
---------- ---------- ---------- ------- --------
Net income............................... $ 2,137 $ 38,348 $ 8,917 $ 740 $ 68,604
========== ========== ========== ======= ========
Income per common share:
Continuing operations.................. $ .41 $ 9.08 $ 2.61 $ 7,400 $141,220
Discontinued operations................ 544,820
---------- ---------- ---------- ------- --------
Net income............................. $ .41 $ 9.08 $ 2.61 $ 7,400 $686,040
========== ========== ========== ======= ========
Weighted average shares outstanding(2)... 5,265,724 4,221,555 3,413,351 100 100
========== ========== ========== ======= ========
Income per common share --
assuming dilution:
Continuing operations.................. $ .40 $ 8.97 $ 2.61 $ 7,400 $141,220
Discontinued operations................ 544,820
---------- ---------- ---------- ------- --------
Net income............................. $ .40 $ 8.97 $ 2.61 $ 7,400 $686,040
========== ========== ========== ======= ========
Weighted average shares outstanding --
assuming dilution(2)................... 5,332,251 4,275,500 3,421,738 100 100
========== ========== ========== ======= ========
Pro forma income per common share(3):
Continuing operations.................. $ 1.96 $ .16 $ 3.10
Discontinued operations................ 11.98
---------- ------- --------
Net income............................. $ 1.96 $ .16 $ 15.08
========== ======= ========
Balance Sheet data:
Total assets........................... $ 69,413 $ 68,017 $ 72,932 $69,572 $ 59,602
Note payable........................... 513 18,100
Liabilities subject to compromise...... 383 370 358 588 26,540
Total liabilities...................... 819 1,073 3,268 21,430 27,702
Shareholders' equity................... 68,594 66,944 69,664 48,142 31,900
</TABLE>

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(1) Represents the equity in earnings of American Savings of Florida, F.S.B.
("American"), accounted for under the equity method of accounting, through
July 1, 1995. On July 1, 1995, the Company sold its investment in American
to First Union Corporation and recognized a gain of approximately $52.7
million. As a result of the disposition, the Company ceased to have banking
operations and, accordingly, has accounted for its investment in American as
a discontinued operation.
(2) Upon confirmation of its Reorganization Plan on June 1, 1992, the Company
issued 100 shares of common stock to the Company's Chief Executive Officer
as trustee.
(3) Pro forma amounts per common share assuming that all shares issued
(4,549,060) as of December 31, 1997 had been outstanding for all years
presented before 1998.

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

The following discussion should be read in conjunction with the Selected
Financial Data (Item 6) and the Consolidated Financial Statements including the
related footnotes thereto and is qualified in its entirety by

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the foregoing and other more detailed financial information appearing elsewhere
herein. Historical results of operations and the percentage relationships among
any amounts included in the Consolidated Statements of Income, and any trends
which might appear to be inferable therefrom, should not be taken as being
necessarily indicative of trends in operations or the results of operations for
any future period. See "Business" for a description of the business of the
Company.

LIQUIDITY AND CAPITAL RESOURCES

The Company's assets, aggregating approximately $69.4 million at December
31, 1999, consist 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 made
efforts to identify suitable acquisition targets, however, such efforts have not
resulted to date in any definitive agreements with respect to the acquisition of
any business or company. With the exception of various expenses incurred in
connection with the Company's search for a suitable acquisition, its only needs
are to fund normal operating expenses. In the event the Company fails to acquire
an operating business within a reasonable period of time, the Company will
consider other alternatives, including, but not limited to, liquidation of the
Company.

FINANCIAL CONDITION

The Company had total assets of $69.4 million at December 31, 1999 compared
to $68.0 million at December 31, 1998. The change in total assets was primarily
due to the increase in the Company's cash, cash equivalents and certificates of
deposit.

The Company's total liabilities at December 31, 1999 were $819,000 compared
to $1.1 million at December 31, 1998. The decrease in liabilities is primarily
due to the reduction of certain accounts payable and accrued liabilities.

OTHER MATERIAL TRANSACTION

Flowers Transaction. On October 20, 1998, the Company and J. Christopher
Flowers ("Flowers") entered into an Investment Agreement (the "Investment
Agreement"), whereby the Company agreed to sell to Flowers 1,158,860 newly
issued shares of the Company's Common Stock at a price of $12.94375 per share,
for a total purchase price of $15.0 million, in exchange for a full recourse
promissory note from Flowers (the "Transaction"). The price per share
represented the average of the reported closing prices for the Company's 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 agreed to certain restrictions on his ability to transfer the Shares and
agreed not to acquire any additional Shares of the Company or participate in any
capacity in certain other significant transactions involving the Company without
the approval of the Board of Directors. The Investment Agreement also contains
certain provisions relating to conflicting business opportunities and competing
transactions involving Flowers and related entities. In addition, Flowers was
appointed to the executive officer position of Vice Chairman of the Board of
Directors effective December 1, 1998.

On December 17, 1998, the Transaction was approved by the shareholders of
the Company at a special meeting held for such purpose. On December 18, 1998,
the Company consummated the sale of the shares to Flowers, resulting in Flowers
owning approximately 23% of the outstanding Common Stock of the Company at such
date. Since the price per share on the date of the shareholders' approval
($13 5/8) exceeded the per share sales price to Flowers, a charge to earnings of
approximately $789,000 was recognized. In addition, legal, professional and
other fees aggregating approximately $464,000 incurred in relation to the
Transaction were charged to equity in 1998 and 1999.

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required quarterly interest payments and had a maturity date of December 18,
2000. Since the interest rate on the note was less than the rate an independent
lender would charge Flowers, the note was recorded at a discount so as to yield
a then current "market rate" of interest over its term, and a charge to earnings
of approximately $990,000 was incurred to reflect such discount. This discount
was being accreted over the term of the note. The promissory note, net of
discount, was classified as a reduction of equity at December 31, 1999 and 1998.

The Company and Flowers entered into a Registration Rights Agreement
pursuant to which Flowers was granted certain rights to require the Company to
register his shares.

RESULTS OF OPERATIONS

1999 Compared to 1998

Investment income was approximately $4.4 million in 1999 compared to
approximately $40.5 million in 1998. Investment income for 1999 consisted almost
entirely of interest income from cash, cash equivalents, certificates of deposit
and the note receivable from Flowers. Investment income for 1998 included
interest and dividend income of approximately $2.6 million and a gain of
approximately $40.4 million on the sale of 1,334,246 shares of First Union
Common Stock, offset by losses on call option transactions of approximately $2.5
million.

In 1999, the Company recorded net litigation income of approximately
$244,000 compared to approximately $3.0 million in 1998. The 1999 litigation
income resulted from the receipt of additional proceeds from the earlier
settlement of the Company's claim against a former officer of the Company. In
1998, the Company received approximately $1.1 million in net litigation proceeds
as its share of the final distribution resulting from its legal action
originally brought against Michael Milken and others in 1991. In addition, the
1998 income included the reversal of a $1.9 million reserve for litigation
settlements previously recorded in connection with litigation involving a former
officer of the Company.

General and administrative expenses were approximately $2.4 million in 1999
and approximately $3.7 million in 1998. The reduction in these expenses was
primarily due to the absence in 1999 of approximately $1.8 million of expenses
recorded in 1998 resulting from the Flowers Transaction. In addition to normal
operating expenses, the Company's general and administrative expenses include
legal and professional fees as well as travel expenses incurred in connection
with the Company's search for a suitable acquisition. Most variances in 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. During 1999, the Company experienced an increase in
certain general and administrative expenses as a direct result of intensive
evaluation of several potential acquisition candidates.

Income tax expense was $124,000 in 1999 and approximately $1.4 million in
1998. The Company's effective tax rate remains substantially less than statutory
rates primarily due to the availability of NOLs for federal tax purposes.

Consolidated net income was approximately $2.1 million in 1999 compared to
approximately $38.3 million in 1998. The decrease in 1999 from 1998 is primarily
due to the absence in 1999 of transactions comparable to the 1998 gain on the
sale of shares of First Union Common Stock.

1998 Compared to 1997

Investment income was approximately $40.5 million in 1998 compared to
approximately $11.9 million in 1997. This substantial increase was a result of
the increase in the gain on the sale of the Company's shares of First Union
Common Stock, partially offset by losses incurred on call option transactions
involving the First Union Common Stock and an increase in interest income
resulting from depositing the proceeds from the sale of the First Union shares
in interest bearing accounts.

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<PAGE> 10

The Company had net litigation income of approximately $3.0 million in 1998
compared to net litigation expense of $43,000 in 1997. In 1998, the Company
received approximately $1.1 million in proceeds from the Milken litigation and
reversed a $1.9 million reserve for litigation settlements previously recorded
in connection with litigation involving a former officer of the Company.

General and administrative expenses were approximately $3.7 million in 1998
and approximately $1.4 million in 1997. The increase in 1998 was primarily a
result of the Flowers Transaction and includes compensation expense of
approximately $789,000 relating to the difference between the market value of
the shares of Common Stock on the date of shareholder approval over the price at
which the shares were sold to Flowers. In addition, approximately $973,000 was
recognized as expense relating to the discount on the note issued by Flowers to
the Company. The Company also incurred additional franchise taxes of
approximately $210,000 in 1998.

Interest expense was $28,000 in 1998 compared to $761,000 in 1997. Interest
expense decreased in 1998 primarily because of the repayment of a $18.1 million
loan in 1997 and the reversal of accrued interest on the reserve for litigation
settlements in 1998.

Income tax expense was approximately $1.4 million in 1998 and $221,000 in
1997. The increase in 1998 compared to 1997 was principally due to state tax
expense, which increased as a result of the absence of NOLs in amounts
sufficient to fully offset state taxable income. The Company's effective tax
rate remains substantially less than statutory rates primarily due to the
availability of NOLs for federal tax purposes.

Consolidated net income was approximately $38.3 million in 1998 compared to
approximately $8.9 million in 1997. The increase in 1998 from 1997 is primarily
due to the increase in the gain on the sale of shares of First Union Common
Stock.

RECENT DEVELOPMENTS

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 prices on
March 2, 2000. The options granted under the 1997 Amended Omnibus Incentive Plan
vest in three installments; 50,000 on March 2, 2001 and 25,000 each on March 2,
2002 and 2003. In addition, Mr. Oros has purchased a total of 75,000 shares of
the Company's common stock from J. Christopher Flowers and Jeffrey S. Halis, two
directors of the Company. The purchase, when added to the Company common stock
he already owns, results in Mr. Oros owning approximately 1.8% of the
outstanding shares of the Company.

The Company also announced that J. Christopher Flowers repaid his $15.0
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.

8
<PAGE> 11

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

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 $64.3 million in interest bearing accounts
(interest at floating rates) and approximately $3.6 million of short-term
certificates of deposit (interest at fixed rates) at December 31, 1999. Although
interest rate changes would affect the fair value of the Company's certificates
of deposits, the weighted average term of certificates held by the Company at
December 31, 1999 is approximately nine months. The short-term nature of these
certificates limits the Company's risk of changes in the fair value of these
certificates. The Company also had a full recourse note receivable at December
31, 1999, classified as a reduction of equity.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

9
<PAGE> 12

INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders of
The Enstar Group, Inc.:

We have audited the accompanying consolidated balance sheets of The Enstar
Group, Inc. and Subsidiary (the "Company") as of December 31, 1999 and 1998, and
the related consolidated statements of income, comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company at
December 31, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles.

/s/ Deloitte & Touche LLP

Atlanta, Georgia
February 4, 2000
(March 7, 2000 as to Note 12)

10
<PAGE> 13

THE ENSTAR GROUP, INC.

CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Cash and cash equivalents................................... $ 64,265 $ 12,826
Certificates of deposit..................................... 3,615 53,424
Other....................................................... 564 724
Investment in B-Line LLC.................................... 911 1,007
Property and equipment, net................................. 58 36
-------- --------
Total assets...................................... $ 69,413 $ 68,017
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and accrued liabilities.................... $ 176 $ 529
Deferred liabilities........................................ 260 174
Other....................................................... 383 370
-------- --------
Total liabilities................................. 819 1,073
-------- --------
Shareholders' equity:
Common stock ($.01 par value; 55,000,000 shares
authorized, 5,708,104 and 5,707,920 shares issued at
December 31, 1999 and 1998, respectively).............. 57 57
Additional paid-in capital................................ 183,191 183,201
Note receivable, net of discount of $496 and $973 at
December 31, 1999 and 1998, respectively............... (14,504) (14,027)
Accumulated deficit....................................... (94,340) (96,477)
Treasury stock, at cost (442,351 shares).................. (5,810) (5,810)
-------- --------
Total shareholders' equity........................ 68,594 66,944
-------- --------
Total liabilities and shareholders' equity........ $ 69,413 $ 68,017
======== ========
</TABLE>

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

11
<PAGE> 14

THE ENSTAR GROUP, INC.

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

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Investment income.......................................... $ 4,428 $ 40,525 $ 11,875
Litigation income (expense), net........................... 244 3,024 (43)
General and administrative expenses........................ (2,399) (3,733) (1,449)
Reorganization items, net.................................. -- -- (484)
Interest expense........................................... (12) (28) (761)
---------- ---------- ----------
Income before income taxes................................. 2,261 39,788 9,138
Income taxes............................................... (124) (1,440) (221)
---------- ---------- ----------
Net income................................................. $ 2,137 $ 38,348 $ 8,917
========== ========== ==========
Weighted average shares outstanding........................ 5,265,724 4,221,555 3,413,351
========== ========== ==========
Weighted average shares outstanding -- assuming dilution... 5,332,251 4,275,500 3,421,738
========== ========== ==========
Net income per common share................................ $ .41 $ 9.08 $ 2.61
========== ========== ==========
Net income per common share -- assuming dilution........... $ .40 $ 8.97 $ 2.61
========== ========== ==========
</TABLE>

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

12
<PAGE> 15

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1999 1998 1997
------ -------- -------
<S> <C> <C> <C>
Net income.................................................. $2,137 $ 38,348 $ 8,917
Other comprehensive income:
Unrealized gains on investment in First Union............. 2,846 23,368
Less: reclassification adjustment for gains included in
net income............................................. (40,452) (9,711)
------ -------- -------
Other comprehensive income.................................. (37,606) 13,657
------ -------- -------
Comprehensive income........................................ $2,137 $ 742 $22,574
====== ======== =======
</TABLE>

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

13
<PAGE> 16

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE NOTE
ADDITIONAL INCOME -- RECEIVABLE,
COMMON PAID IN UNREALIZED NET OF ACCUMULATED TREASURY
STOCK CAPITAL GAIN DISCOUNT DEFICIT STOCK
------ ---------- ------------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996..... $ -- $167,935 $ 23,949 $ -- $(143,742) $ --
Net income..................... 8,917
Unrealized gain on investment
in First Union.............. 23,368
----- -------- -------- -------- --------- -------
Reclassification adjustment for
gains included in net
income...................... (9,711)
Common stock issued............ 45 (45)
Cost of fractional shares...... (12)
Purchase of treasury stock..... (1,040)
----- -------- -------- -------- --------- -------
Balance at December 31, 1997..... 45 167,878 37,606 -- (134,825) (1,040)
Net income..................... 38,348
Unrealized gain on investment
in First Union.............. 2,846
Reclassification adjustment for
gains included in net
income...................... (40,452)
Common stock issued............ 12 15,323 (14,027)
Purchase of treasury stock..... (4,770)
----- -------- -------- -------- --------- -------
Balance at December 31, 1998..... 57 183,201 -- (14,027) (96,477) (5,810)
Net income..................... 2,137
Common stock issued............ (10)
Accretion of discount on note
receivable.................. (477)
----- -------- -------- -------- --------- -------
Balance at December 31, 1999..... $ 57 $183,191 $ -- $(14,504) $ (94,340) $(5,810)
===== ======== ======== ======== ========= =======
</TABLE>

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

14
<PAGE> 17

THE ENSTAR GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1999 1998 1997
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................ $ 2,137 $ 38,348 $ 8,917
Adjustments to reconcile net income to net cash provided
by (used in) operating activities:
Depreciation............................................ 14 15 11
Amortization of goodwill................................ 90 -- --
Accretion of discount on note receivable................ (477) -- --
Equity in earnings of B-Line LLC........................ (37) -- --
Loss on expiration of B-Line warrants................... 42 -- --
Gain on sale of First Union common stock................ -- (40,452) (9,711)
Loss (gain) on call option transactions................. -- 2,498 (137)
Noncash compensation expense............................ -- 1,762 --
Changes in assets and liabilities:
Accounts payable and accrued expenses................... (352) (1,395) (818)
Other, net.............................................. 259 (84) (282)
------- -------- --------
Net cash provided by (used in) operating
activities....................................... 1,676 692 (2,020)
------- -------- --------
Cash flows from investing activities:
Proceeds from sale of First Union common stock............ -- 68,824 18,141
Proceeds from sale of call options........................ -- 363 580
Repurchases of call options sold.......................... -- (902) --
Investment in B-Line LLC.................................. -- (1,007) --
Purchase of certificates of deposit....................... (4,379) (56,876) (8,978)
Maturities of certificates of deposit..................... 54,188 6,774 6,894
Other, net................................................ (36) (5) (27)
------- -------- --------
Net cash provided by investing activities.......... 49,773 17,171 16,610
------- -------- --------
Cash flows from financing activities:
Common stock issuance costs............................... (10) (454) --
Proceeds from note payable................................ -- 1,311 513
Repayment of note payable................................. -- (1,824) (18,100)
Purchase of treasury stock................................ -- (4,770) (1,040)
Cost of fractional shares................................. -- -- (12)
------- -------- --------
Net cash used in financing activities.............. (10) (5,737) (18,639)
------- -------- --------
Increase (decrease) in cash and cash equivalents............ 51,439 12,126 (4,049)
Cash and cash equivalents at the beginning of the year...... 12,826 700 4,749
------- -------- --------
Cash and cash equivalents at the end of the year............ $64,265 $ 12,826 $ 700
======= ======== ========
Supplemental disclosures of cash flow information:
Interest paid............................................. $ -- $ 18 $ 751
======= ======== ========
Income taxes paid......................................... $ 80 $ 1,440 $ 185
======= ======== ========
Supplemental disclosures of noncash investing and financing
activities:
During 1998 the Company sold 1,158,860 shares of newly
issued common stock to J. Christopher Flowers, a
director of the Company, for a $15 million full recourse
promissory note.
Supplemental disclosure of cash receipts (payments)
resulting from the reorganization:
Liabilities subject to compromise......................... $ -- $ -- $ (244)
======= ======== ========
Interest income........................................... $ -- $ -- $ 102
======= ======== ========
Professional fees......................................... $ -- $ -- $ (323)
======= ======== ========
</TABLE>

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

15
<PAGE> 18

THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: NATURE OF BUSINESS AND HISTORY OF BANKRUPTCY PROCEEDINGS

(a) Nature of Business -- The Enstar Group, Inc. (the "Company") is a
publicly traded company engaged in the active search for one or more operating
businesses which meet its acquisition criteria. As a result of holding shares of
First Union common stock as its primary asset for a period of time longer than
the twelve months ending March 27, 1998, the Company may have been required to
register as an investment company under the Investment Company Act of 1940 (the
"1940 Act"). 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 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
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 an operating business and again holds securities as its primary
asset, then it may be required to register under the 1940 Act.

(b) History of Bankruptcy Proceedings -- The Company filed for protection
under Chapter 11 of the United States Bankruptcy Code on May 31, 1991 in the
United States Bankruptcy Court for the Middle District of Alabama (the
"Bankruptcy Court"). The Company was successful in negotiating a settlement
among its creditors which was incorporated into the Company's Second Amended
Plan of Reorganization (the "Reorganization Plan"). The Reorganization Plan was
confirmed in February 1992, and became effective on June 1, 1992 (the "Effective
Date"). The Reorganization Plan provided that creditors would receive all
distributions under the Reorganization Plan until paid in full and that the
Company's stock would be canceled on the Effective Date.

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

On July 1, 1995, the Company sold its ownership interest in American
Savings of Florida, F.S.B. ("American") to First Union Corporation ("First
Union") for approximately $82.5 million in cash and 815,549 shares of First
Union common stock valued at approximately $36.9 million, representing less than
0.5% ownership interest in First Union at that date. As a result of this
transaction, the Company realized a gain of approximately $52.7 million, net of
expenses of $2.1 million. The cash proceeds from this transaction were used to
pay the claims of certain creditors of the Company in accordance with the
Reorganization Plan.

In addition to the proceeds received from the disposition of the American
stock, the Company received recoveries from litigation pursued under the terms
of its Reorganization Plan. As of December 31, 1999, the total amount of these
recoveries, net of expenses, was approximately $25.7 million.

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

As of December 31, 1999, the Company has issued 4,549,244 shares of its
common stock to its qualified former shareholders in accordance with the terms
of its Reorganization Plan. Shareholders received one share for every ten shares
of stock formerly held and cash in lieu of any fractional shares.

16
<PAGE> 19
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 2: SIGNIFICANT ACCOUNTING POLICIES

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

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

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

(d) Investments -- The Company classified its investment in First Union as
available-for-sale in accordance with Statement of Financial Accounting Standard
("SFAS") 115, "Accounting for Certain Investments in Debt and Equity
Securities." Accordingly, unrealized gains and losses were excluded from net
income and reported as a separate component of comprehensive income and
shareholders' equity until the sale of all remaining shares of First Union in
1998. During 1998, the Company purchased membership units of B-Line LLC. This
investment is accounted for under the equity method.

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

(f) Financial Instruments -- The Company invests in certificates of deposit
("CDs") offered by commercial banks. These certificates, which have a weighted
average maturity of approximately nine months, are classified by the Company as
"held to maturity" securities. The estimated fair value of CDs at December 31,
1999 and 1998, based on interest rates available on CDs of comparable amounts,
maturities, and credit quality, was approximately equal to their carrying
values.

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

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

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

(j) Earnings per Share -- Effective January 1, 1997 the Company adopted
SFAS 128, "Earnings per Share" ("EPS"). This statement establishes standards for
computing and presenting EPS and applies to entities with publicly held stock.

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

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

17
<PAGE> 20
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 3: INVESTMENT IN 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, a loss of
approximately $42,000 was incurred and 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 paid was
recorded as goodwill and is being amortized over a period of 10 years.

NOTE 4: TREASURY STOCK

In July 1997, the Company announced a stock repurchase program under which
the Company could repurchase up to $5.0 million of its common stock in the open
market at prices per share deemed favorable from time to time by the Company.
During 1997 and the first quarter of 1998, the Company repurchased a total of
387,826 shares for approximately $5.0 million. On April 21, 1998, the Company
announced a second stock repurchase program under the same terms as the July
1997 program. The Company has repurchased 54,525 shares of its common stock for
approximately $815,000 as part of this plan. Under the two stock repurchase
programs, the Company has repurchased a total of 442,351 shares for
approximately $5.8 million.

NOTE 5: 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 6: LEASES

In June 1999, the Company signed a three year lease on an office building
at 401 Madison Avenue, Montgomery, Alabama which serves as the corporate
headquarters. Additionally, pursuant to an oral agreement, the Company leases
space in a warehouse at 703 Howe Street, Montgomery, Alabama on a month-to-month
basis. The Company also leases certain office equipment on a month-to-month
basis. Rent expense was approximately $36,000, $34,000 and $34,000 in 1999, 1998
and 1997, respectively.

18
<PAGE> 21
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 7: INCOME TAXES

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

<TABLE>
<CAPTION>
1999 1998 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Federal income taxes at statutory rate................... $ 769 $ 13,528 $ 3,198
State income taxes, net of federal benefit............... 62 2,134 297
Utilization of net operating loss carryforwards.......... -- (14,544) --
Expiration of tax credit carryforwards................... 720 -- --
Dividends received deduction............................. -- (267) (494)
Capitalized reorganization costs......................... -- -- 251
Non-deductible expenses related to Flowers Transaction
(See Note 8)............................................. (162) 605 --
Change in valuation allowance............................ (1,282) (72) (3,174)
Other.................................................... 17 56 143
------- -------- -------
$ 124 $ 1,440 $ 221
======= ======== =======
</TABLE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts reported for income tax purposes. The following items
comprise the Company's deferred taxes at December 31, 1999 and 1998:

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Deferred income tax assets:
Operating loss carryforwards.............................. $ 15,791 $ 16,444
Tax credit carryforwards.................................. 3,285 4,004
Other..................................................... 268 208
Alternative minimum tax credit carryforwards.............. 1,032 1,002
-------- --------
Deferred tax assets....................................... 20,376 21,658
Valuation allowance....................................... (20,376) (21,658)
-------- --------
Net deferred taxes..................................... $ -- $ --
======== ========
</TABLE>

The Company has established a valuation allowance equal to deferred tax
assets as realization of such deferred tax assets is dependent on future taxable
income of sufficient amounts to utilize the net operating loss carryforwards
("NOLs"), tax credit carryforwards and other deferred tax assets. In addition,
because there are possible applications of certain provisions of the Internal
Revenue Code of 1986, as amended that may limit the Company's use of the NOLs in
future tax returns, there can be no assurance that the Company will be able to
utilize its NOLs fully.

At December 31, 1999, the Company had federal NOLs of approximately $46.4
million, which, if not utilized, expire in various years from 2004 through 2011.
The Company also had general business tax credit carryforwards of approximately
$3.3 million at December 31, 1999. If not utilized, these credit carryforwards
expire in 2000 and 2001.

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

(a) Distribution of Common Stock -- As of December 31, 1999, the Company
had issued 4,549,244 shares of its common stock to its qualified former
shareholders in accordance with the terms of its Reorganization Plan.
Shareholders received one share for every ten shares of stock formerly held and
cash in lieu of any fractional shares. To qualify for this distribution, former
shareholders had to submit a signed

19
<PAGE> 22
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certification of ownership form on or before December 31, 1997. Approximately
200,000 shares were unclaimed and therefore will not be issued.

(b) Note Receivable -- On October 20, 1998, the Company and J. Christopher
Flowers ("Flowers") entered into an Investment Agreement (the "Investment
Agreement"), whereby the Company agreed to sell to Flowers 1,158,860 newly
issued shares of the Company's common stock at a price of $12.94375 per share,
for a total purchase price of $15.0 million, in exchange for a full recourse
promissory note from Flowers (the "Transaction"). The price per share
represented the average of the reported closing prices for the Company's 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 agreed to certain restrictions on his ability to transfer the shares and
agreed not to acquire any additional shares of the Company or participate in any
capacity in certain other significant transactions involving the Company without
the approval of the Board of Directors. The Investment Agreement also contains
certain provisions relating to conflicting business opportunities and competing
transactions involving Flowers and related entities. In addition, Flowers was
appointed to the executive officer position of Vice Chairman of the Board of
Directors effective December 1, 1998.

On December 17, 1998, the Transaction was approved by the shareholders of
the Company at a special meeting held for such purpose. On December 18, 1998,
the Company consummated the sale of the shares to Flowers, resulting in Flowers
owning approximately 23% of the outstanding common stock of the Company at such
date. Since the price per share on the date of the shareholders' approval
($13 5/8) exceeded the per share sales price to Flowers, a charge to earnings of
approximately $789,000 was recognized. In addition, legal, professional and
other fees of approximately $464,000 incurred in relation to the Transaction
were charged to equity in 1998 and 1999.

The full recourse promissory note in the amount of $15.0 million for the
purchase price of the shares was repaid in full with accrued interest on March
3, 2000. The note bore interest at the rate of 4.06% per annum, required
quarterly interest payments and had a maturity date of December 18, 2000. Since
the interest rate on the note was less than the rate an independent lender would
charge Flowers, the note was recorded at a discount so as to yield a then
current "market rate" of interest over its term, and a charge to earnings of
approximately $990,000 was incurred to reflect such discount. This discount was
being accreted over the term of the note. The promissory note, net of discount,
was classified as a reduction of equity at December 31, 1999 and 1998. See Note
12.

The Company and Flowers entered into a Registration Rights Agreement
pursuant to which Flowers was granted certain rights to require the Company to
register his shares.

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

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

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

20
<PAGE> 23
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

In connection with the Transaction described above, the Board of Directors
approved an amendment to the Rights Plan for the sole purpose of exempting the
Transaction from being a Distribution Triggering Event.

NOTE 9: INVESTMENT INCOME

Investment income for the three years ended December 31, 1999, 1998 and
1997, respectively, is made up of the following components:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1999 1998 1997
------ ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Gain on sale of First Union common stock................... $ -- $40,452 $ 9,711
Gain (loss) on call option transactions.................... -- (2,498) 137
Dividend and interest income and other..................... 4,428 2,571 2,027
------ ------- -------
Total investment income.......................... $4,428 $40,525 $11,875
====== ======= =======
</TABLE>

NOTE 10: STOCK COMPENSATION

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

All non-employee directors have elected to receive 100% of their
compensation in stock units in lieu of cash payments for the retainer and
meeting fees. Approximately $260,000 and $174,000 in stock compensation has been
deferred under this plan as of December 31, 1999, and 1998, respectively.

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

Under the CEO Plan, the CEO was granted options for 150,000 shares of
common stock with an exercise price of $10.50 in 1997. The options granted under
the CEO Plan vest in four equal installments of 37,500 options through January
1, 2000. Under the Directors' Plan, each Outside Director was granted options
for 25,000 shares of common stock in 1997. The options have an exercise price of
$10.8125 and vest in five equal installments of 5,000 options through January 1,
2001. The Omnibus Plan was established for the benefit of key employees and
directors which provides generally for stock appreciation awards, incentive
stock options

21
<PAGE> 24
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and nonqualified stock options. As of December 31, 1999, no awards have been
created and no options have been granted under the Omnibus Plan. See Note 12.

As of December 31, 1999, 150,000 stock options have been granted under the
CEO Plan and 100,000 stock options have been granted under the Directors' Plan.
Additionally, 112,500 and 60,000 of such options were vested at December 31,
1999 under the CEO Plan and Directors' Plan, respectively, none of which have
been exercised (on January 1, 2000, an additional 37,500 and 20,000 options
became vested under the CEO Plan and Directors' Plan, respectively).

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

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

Had compensation cost for grants under the Company's stock option plans in
1997 been determined based on the fair value at the date of grant consistent
with the method of SFAS 123, "Accounting for Stock-Based Compensation," the
Company's pro forma net income and net income per share for 1999, 1998 and 1997
would have been as follows:

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Pro forma net income.............................. $2,003,600 $38,214,600 $8,783,600
Pro forma net income per common share............. $ .38 $ 9.05 $ 2.57
Pro forma net income per common share --
assuming dilution............................... $ .38 $ 8.94 $ 2.57
</TABLE>

NOTE 11: INCOME PER SHARE

In 1997, the Company implemented SFAS 128, "Earnings per Share." The table
below illustrates the reconciliation between net income per common share and net
income per common share -- assuming dilution for the years ended December 31,
1999, 1998 and 1997. Net income per common share is computed by dividing net
income by the weighted average shares outstanding. Net income per common
share -- assuming dilution is computed by dividing net income by the sum of the
weighted average shares outstanding and the number of shares that would have
been outstanding if potentially dilutive shares had been issued.

<TABLE>
<CAPTION>
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income................................................ $2,137,000 $38,348,000 $8,917,000
========== =========== ==========
Net income per common share............................... $ 0.41 $ 9.08 $ 2.61
========== =========== ==========
Net income per common share -- assuming dilution.......... $ 0.40 $ 8.97 $ 2.61
========== =========== ==========
Weighted average shares outstanding....................... 5,265,724 4,221,555 3,413,351
Stock options............................................. 66,527 53,945 8,387
---------- ----------- ----------
Weighted average shares outstanding -- assuming
dilution............................................. 5,332,251 4,275,500 3,421,738
========== =========== ==========
</TABLE>

NOTE 12: SUBSEQUENT EVENTS

22
<PAGE> 25
THE ENSTAR GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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 prices 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. In addition, Mr. Oros has purchased a total of 75,000 shares of
the Company's common stock from J. Christopher Flowers and Jeffrey S. Halis, two
directors of the Company. The purchase, when added to the Company common stock
he already owns, results in Mr. Oros owning approximately 1.8% of the
outstanding shares of the Company. See Note 10.

The Company also announced that J. Christopher Flowers repaid his
$15,000,000 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. See Note 8.

23
<PAGE> 26

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The information required by this Item with respect to directors and
executive officers of the Registrant, is included under the sections entitled,
"Election of Directors", "Executive Officers" and "Other Matters -- Section
16(a) Beneficial Ownership Reporting Compliance" of the Proxy Statement for the
Annual Meeting of Shareholders to be held on May 18, 2000 and such sections are
deemed incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is included under the sections
entitled, "Severance Agreements", "Executive Compensation", "Report of
Compensation Committee", "Option Grants in Last Fiscal Year", "Aggregated Option
Exercises in 1999 and Year-End Option Values", "Performance Graph" and
"Compensation Committee Interlocks and Insider Participation" of the Proxy
Statement for the Annual Meeting of Shareholders to be held on May 18, 2000 and
such sections are deemed incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this Item is included under the sections
entitled, "Common Stock Ownership by Management" and "Principal Shareholders"
appearing in the Proxy Statement for the Annual Meeting of Shareholders to be
held on May 18, 2000 and such sections are deemed incorporated herein by
reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is included under the section
entitled, "Certain Transactions" appearing in the Proxy Statement for the Annual
Meeting of Shareholders to be held on May 18, 2000 and such section is deemed
incorporated herein by reference.

PART IV

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

(a) 1. Financial Statements

The following financial statements included in this Annual Report are
for the fiscal period ended December 31, 1999.

Independent Auditors' Report.
Consolidated Balance Sheets as of December 31, 1999 and 1998.
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997.
Consolidated Statements of Comprehensive Income for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997.
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997.
Notes to Consolidated Financial Statements.

24
<PAGE> 27

2. Financial Statement Schedules

All financial statement schedules are omitted because the information
is not required or because the information required is in the financial
statements or notes thereto.

3. Exhibits

<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
2.1 Second Amended Plan of Reorganization of the Company,
effective as of June 1, 1992 (incorporated by reference to
Exhibit 2.1 to the Amendment No. 2 to 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 1997 Amended CEO Stock Option Plan (incorporated by
reference to Appendix A to the Proxy Statement for the
Annual Meeting of Shareholders, dated May 23, 1997).
10.2 1997 Amended Outside Directors' Stock Option Plan
(incorporated by reference to Appendix B to the Proxy
Statement for the Annual Meeting of Shareholders, dated May
23, 1997).
10.3 1997 Amended Omnibus Incentive Plan (incorporated by
reference to Appendix C to the Proxy Statement for the
Annual Meeting of Shareholders, dated May 23, 1997).
10.4 Revolving Credit Note dated July 31, 1997 made by the
Company in favor of First Union National Bank (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form
10-Q, dated August 14, 1997).
10.5 Stock Pledge Agreement between the Company and First Union
National Bank, dated July 31, 1997 (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form
10-Q, dated August 14, 1997).
10.6 Deferred Compensation and Stock Plan for Non-Employee
Directors (incorporated by reference to Exhibit 99.1 to the
Quarterly Report on Form 10-Q, dated October 30, 1997).
10.7 Investment Agreement dated October 20, 1998, between the
Company and J. Christopher Flowers, together with certain
exhibits thereto (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K dated October 20, 1998).
10.8 Form of Severance Benefits Agreement between the Company and
each of Nimrod T. Frazer, Cheryl D. Davis and Amy M.
Dunaway, each dated May 21, 1998 (incorporated by reference
to Exhibit 10.8 to the Annual Report on Form 10-K, dated
March 29, 1999).
</TABLE>

25
<PAGE> 28

<TABLE>
<CAPTION>
REFERENCE
NUMBER DESCRIPTION OF EXHIBITS
- --------- -----------------------
<C> <S>
10.9 Amended and Restated Employment Agreement between the
Company and John Oros dated March 2, 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 December 31,
1999.

26
<PAGE> 29

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

THE ENSTAR GROUP, INC.

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

March 22, 2000

27
<PAGE> 30

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

/s/ NIMROD T. FRAZER Chairman of the Board of March 22, 2000
- ----------------------------------------------------- Directors, President and
Nimrod T. Frazer Chief Executive Officer

/s/ CHERYL D. DAVIS Chief Financial Officer, Vice March 22, 2000
- ----------------------------------------------------- President and Secretary
Cheryl D. Davis (Principal Accounting
Officer)

/s/ J. CHRISTOPHER FLOWERS Vice Chairman of the Board of March 22, 2000
- ----------------------------------------------------- Directors
J. Christopher Flowers

/s/ T. WHIT ARMSTRONG Director March 22, 2000
- -----------------------------------------------------
T. Whit Armstrong

/s/ T. WAYNE DAVIS Director March 22, 2000
- -----------------------------------------------------
T. Wayne Davis

/s/ JEFFREY S. HALIS Director March 22, 2000
- -----------------------------------------------------
Jeffrey S. Halis

Director March , 2000
- -----------------------------------------------------
John J. Oros
</TABLE>

<PAGE> 1
EXHIBIT 10.9

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT (this
"Agreement") is dated as of the day of March, 2000 by and between The
Enstar Group, Inc., a Georgia corporation (the "Company"), and John Oros
("Employee").

W I T N E S S E T H:

WHEREAS, the parties previously entered into that certain Employment
Agreement dated as of March , 2000 (the "Prior Employment Agreement");

WHEREAS, the parties desire to amend and restate the Prior Employment
Agreement and to replace the Prior Employment Agreement with this Agreement;

WHEREAS, this Agreement supercedes and replaces the Prior Employment
Agreement in its entirety and upon the parties entering into this Agreement,
the Prior Employment Agreement shall terminate and shall have no further force
or effect;

NOW, THEREFORE, for good and valuable consideration, the parties
hereto agree as follows:

Section 1. Engagement; Initial Term; Renewal. Subject to the terms
hereof, the Company hereby employs Employee on its behalf on and after the
"Commencement Date" (as hereinafter defined), and Employee hereby accepts such
employment. The initial term of the Agreement shall commence on , 2000
(the "Commencement Date") and continue until one (1) year therefrom ("Initial
Term"), subject to earlier termination as provided herein. Upon the expiration
of the Initial Term, this Agreement shall automatically renew for successive one
(1) year terms (each, a "Renewal Term"), subject to earlier termination as
provided herein, unless the parties mutually agree not to renew the Agreement.

Section 2. Duties. During the term of this Agreement, Employee shall
serve as Executive Vice President of the Company, with such responsibilities as
shall be specified from time to time by the Chief Executive Officer, and
subject at all times to the bylaws of the Company and the right of the Board of
Directors of the Company (the "Board") to determine the officers of the
Company, respectively. Employee shall, during the term of this Agreement, serve
the Company on a full-time basis, faithfully, diligently and competently and to
the best of Employee's ability, and will hold, in addition to the position set
forth above, such other positions in the Company and its subsidiaries and
affiliates, if any, to which Employee may be elected, appointed or assigned by
the Chief Executive Officer, from time to time, and will discharge such duties
in connection therewith as may from time to time be assigned to Employee.
During the term of this Agreement, Employee shall not engage in any other
employment without the prior consent of the Board of Directors of the Company
or the Chief Executive Officer.

<PAGE> 2

Section 3. Compensation; Benefits; Office Related Expenses;
Reimbursement of Travel Expenses. During the term of this Agreement, the
Company shall pay Employee for the services rendered to the Company an annual
salary ("Salary") of $50,000 payable in accordance with the Company's standard
payroll policies. At the end of each year during the term of this Agreement or
at such other time as deemed appropriate by the Board, the Board shall review
the Salary and the Board, in its sole discretion, may adjust the Salary (up or
down) by an amount determined by the Board. The Board may award such bonuses,
if any, at such times and in such amounts as the Board shall determine in its
sole discretion. Employee shall be entitled to such paid holidays, vacation and
other benefits customarily received by senior officers in accordance with
company policy. The Company shall not provide an office for the Employee and
the parties understand and agree that Employee shall be responsible for the
payment of any office related expenses (including, without limitation, expenses
related to office space, office personnel and office supplies) incurred by the
Employee during the term of this Agreement; provided, however, the Company
shall reimburse Employee up to $50,000 annually for office related expenses
incurred by Employee in connection with the performance of Employee's duties
and obligations under this Agreement upon receipt by the Company of itemized
written statements describing such expenses, together with such back-up
documentation as may be required by the Company under its business
reimbursement policies and procedures. The Company shall reimburse Employee for
reasonable travel and other direct out-of-pocket expenses that relate to the
Company which are incurred by Employee in connection with the performance of
Employee's duties and obligations under this Agreement upon receipt by the
Company of itemized written statements describing such expenses, together with
such back-up documentation as may be required by the Company under its business
reimbursement policies and procedures.

Section 4. Confidentiality. Employee shall not at any time after the
date of this Agreement divulge, furnish or make accessible to anyone (who has
not been authorized by the Company to have access to such information) any
"Confidential Information" (as herein defined) of the Company. "Confidential
Information" means any confidential or secret or internal data or information
concerning the Company which is not generally known to its competitors or which
is not generally available to the public and shall include, but not be limited
to (i) confidential or secret processes, inventions, discoveries, improvements,
formulas, research and development techniques, computer programs, software,
electronic codes, strategies, plans, material, devices, ideas, know-how, data,
whether patentable or not, with respect to any operations of the Company; (ii)
information about costs, profits, markets, sales, contracts and lists of
customers and suppliers of the Company; (iii) business, marketing and strategic
plans of the Company; (iv) forecasts, unpublished financial information,
budgets, projections, pricing arrangements with customers and suppliers, and
customer identities, characteristics and agreements of the Company; (v) Company
employee personnel files and compensation information; and (vi) any information
related to confidential or secret aspects of the Company's business.
Confidential Information includes all information that has or could have
commercial value or other utility in the business in which the Company is
engaged or contemplates engaging, and all information the unauthorized
disclosure of which could be detrimental to the interests of the Company,
whether or not such information is identified as Confidential Information of
the Company. Confidential Information includes not only information disclosed
by the Company to the Employee, but also information developed or learned by
the Employee during the term of this Agreement and Employee's

<PAGE> 3

employment with the Company. The covenant herein contained shall extend for so
long as any such information constitutes a "trade secret" as defined by Georgia
law and shall extend for two (2) years after termination or expiration of this
Agreement and Employee's employment hereunder for any reason with respect to
matters that are confidential to the business of the Company but do not
constitute "trade secrets" as defined by Georgia law.

Section 5. Remedies. Employee acknowledges that irreparable damage
would result to the Company if the provisions of Section 4 of this Agreement
were not specifically enforced, and agrees that the Company shall be entitled
to all appropriate legal, equitable and other remedies, including injunctive
relief, in respect of any failure to comply with the provisions of such
Section. The covenants contained in Section 4 hereof may be enforced separate
and apart from any other agreement among the parties hereto, and Employee
agrees that no breach by the Company of any of its obligations to Employee
shall constitute a defense to the enforcement by Company of the covenants and
agreements of Employee contained in Section 4 hereof.

Section 6. Termination.

(a) Either party may, without cause, terminate this Agreement
and Employee's employment hereunder by providing thirty (30) days' prior
written notice to the other party.

(b) The Company shall have the right to terminate this
Agreement and Employee's employment by the Company immediately upon written
notice to the Employee (i) if Employee dies (in which case termination will
occur automatically on the date of death); (ii) upon the "disability" of
Employee (as defined herein); (iii) habitual absenteeism, chronic alcoholism or
any other form of addiction to illegal substances on the part of Employee; (iv)
if Employee breaches Section 4 of this Agreement; (v) if Employee is convicted
of, or pleads nolo contendere with respect to a charge of, a felony or a crime
involving moral turpitude; (vi) if Employee commits an act of personal
dishonesty or breach of fiduciary duty involving personal profit in connection
with Employee's employment by the Company; or (vii) if Employee fails to
perform duties under this Agreement, which failure continues for, or is not
remedied within, a period of five (5) days after Employee has received written
notice thereof from Company. For purposes of this Agreement, "disability" shall
have the meaning set forth in Internal Revenue Code Section 22(e)(3).

(c) In the event of termination or expiration of this
Agreement and Employee's employment with the Company for any reason whatsoever,
the Company shall pay Employee the full Salary provided herein through the
effective date of termination or expiration (or if Employee shall cease
performing services prior to the effective date of termination or expiration,
through the date Employee ceases performing services for the Company), and the
Company shall have no further obligations to Employee except as otherwise
required by law, provided, however, that if this Agreement is terminated by the
Company without cause during the first year of this Agreement, Employee shall
be entitled to the remainder of his salary for the first year. Notwithstanding
any termination or expiration of this Agreement and Employee's employment
hereunder, in consideration of Employee's employment hereunder to the date of
such termination or expiration, Employee shall remain bound by the provisions
of Section 4 hereof. Upon termination or expiration of the Agreement, whether
pursuant to Section 1 or this Section 6,

<PAGE> 4

Employee or Employee's personal representative shall promptly, and in any event
within ten (10) days after such termination or expiration, deliver to the
Company all documents, books, memoranda, plans, records, reports, notes, lists,
computer disks (and other computer-generated files and data) and any other data
and records of every kind and copies thereof relating to the Confidential
Information, or the business and affairs of the Company which are then in
Employee's possession.

(d) Upon the termination or expiration of this Agreement and
Employee's employment with the Company for any reason, Employee agrees to
resign as Director of the Company if requested by the Board of Directors
(excluding Employee) as evidenced by a majority vote.

Section 7. Insurance. The Company shall have the right at its own cost
and expense to apply for and to secure in its own name or otherwise life,
health and/or accident insurance covering Employee. Employee agrees to submit
to usual and customary medical examinations and otherwise to cooperate with the
Company in connection with the procurement of any such insurance and the
assertion of any claims thereunder.

Section 8. Notices. All notices, requests and other communications
pursuant to this Agreement shall be in writing and shall be deemed to have been
duly given if delivered in person or by courier, telegraphed, telexed,
transmitted by facsimile or mailed by registered or certified mail, postage
prepaid, addressed as follows:

If to Employee:
------------------------

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

If to the Company:
The Enstar Group, Inc.
401 Madison Avenue
Montgomery, Alabama 36104
Attn: Chief Executive Officer

Either party may, by written notice to the other, change the address to which
notices to such party are to be delivered or mailed.

Section 9. General. Any waiver of any breach of this Agreement shall
not be construed to be a continuing waiver or consent to any subsequent breach
on the part of either party hereto. Employee may not assign Employee's rights
or delegate Employee's duties under this Agreement without the prior written
consent of the Company. The terms and provisions of this Agreement shall be
governed by and construed and enforced in accordance with the laws of the State
of Georgia, shall constitute the entire agreement between the Company and
Employee with respect to the subject matter hereof, and shall supersede,
replace and terminate any and all prior agreements or understandings between
Employee and the Company, whether written or oral, including, without
limitation the Prior Employment Agreement. This Agreement may be amended or
modified only by a written instrument executed by Employee and the Company. To
the extent

<PAGE> 5

any provision of this Agreement shall be invalid or unenforceable, it shall be
considered deleted and the remainder of such provision and this Agreement shall
be unaffected and shall continue in full force and effect. The prevailing party
in any action arising out of this Agreement shall be entitled to recover
reasonable attorneys' and witness fees and expenses including, without
limitation, those incurred at trial and all appellate court levels.

Section 10. Rules of Construction. Time is of the essence of this
Agreement. The titles of sections and subsections herein have been inserted as
a matter of convenience of reference only and shall not control or affect the
meaning or construction of any of the terms or provisions herein. All
references herein to the singular shall include the plural, and vice versa. All
pronouns shall be deemed to refer to the masculine, feminine or neuter as the
context may require. When general words or terms are used herein followed by
the word "including" (or another form of the word "include") and words of
particular and specific meaning, the general words shall be construed in their
widest extent, and shall not be limited to persons or things of the same
general kind or class as those specifically mentioned in the words of
particular and specific meaning. No provision of this Agreement shall be
construed against or interpreted to the disadvantage of a party by reason of
such party having (or being deemed to have) drafted, structured or dictated any
such provision.

Section 11. Certain Representations. Employee hereby represents and
warrants to the Company that neither the execution and delivery of this
Agreement nor the performance by Employee of his obligations hereunder violates
or constitutes a breach of any agreement or undertaking to which Employee is a
party or by which he is bound.

Section 12. Survival. All obligations of the parties which have
accrued at termination or expiration of this Agreement shall survive any
termination of this Agreement. In addition, the provisions of Sections 4, 5,
6(c), 6(d), 8, 9 and 10 shall survive any termination or expiration of this
Agreement.

<PAGE> 6

IN WITNESS WHEREOF, the parties have executed this Agreement on the
day and year first above written.

COMPANY:

THE ENSTAR GROUP, INC.

By:
Title:

EMPLOYEE:
John Oros

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
THE ENSTAR GROUP, INC.'S AUDITED FINANCIAL STATEMENTS CONTAINED IN ITS
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 64,265
<SECURITIES> 3,615
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 132
<DEPRECIATION> 74
<TOTAL-ASSETS> 69,413
<CURRENT-LIABILITIES> 176
<BONDS> 0
0
0
<COMMON> 57
<OTHER-SE> 68,537
<TOTAL-LIABILITY-AND-EQUITY> 69,413
<SALES> 0
<TOTAL-REVENUES> 4,672
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,399
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12
<INCOME-PRETAX> 2,261
<INCOME-TAX> 124
<INCOME-CONTINUING> 2,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> 2,137
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.40

</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.

UNCERTAINTY OF ACQUISITION TARGET; COMPETITION FOR SUITABLE ACQUISITIONS

The Company has not entered into a definitive agreement with respect to a
specific acquisition target or focused on a particular industry or geographical
market. There can be no assurance that the Company will be successful in
acquiring an operating business that will bring value to the Company's
shareholders. The business of the 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 development. In sum, there can be no assurance that the Company will
make an acquisition that will prove financially advantageous to the Company's
shareholders. In the event the Company fails to acquire an operating business
within a reasonable period of time, the Company will consider other
alternatives, including, but not limited to, liquidation of the Company.
<PAGE> 2

The Company faces intense competition in its search for one or more
operating businesses. 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 enhances 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 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
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
2
<PAGE> 3

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 only one business operating in one 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 $48.0 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, 1998.