10-Q

As filed with the Securities and Exchange Commission on August 14, 2001

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

             For the quarterly period ended June 30, 2001

OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

             For the transition period from            to           

Commission File Number 0-07477

THE ENSTAR GROUP, INC.

(Exact name of registrant as specified in its charter)

Georgia
(State or other jurisdiction
of incorporation or organization) 63-0590560
(I.R.S. Employer
Identification No.)

401 Madison Avenue

Montgomery, Alabama 36104

(Address of principal executive offices)

(334) 834-5483

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  YES x   NO o

      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 o

      The number of shares of Registrant’s Common Stock, $.01 par value per share, outstanding at August 13, 2001 was 5,265,753.

      THIS FORM 10-Q AND OTHER STATEMENTS ISSUED OR MADE FROM TIME TO TIME BY THE ENSTAR GROUP, INC. OR MEMBERS OF ITS MANAGEMENT TEAM CONTAIN STATEMENTS WHICH MAY CONSTITUTE “FORWARD-LOOKING STATEMENTS” WITHIN THE MEANING OF THE SECURITIES ACT OF 1933, AND THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED BY THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, 15 U.S.C.A. SECTIONS 77Z-2 AND 78U-5 (SUPP. 1996). THOSE STATEMENTS INCLUDE STATEMENTS REGARDING THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE ENSTAR GROUP, INC. AND MEMBERS OF ITS MANAGEMENT TEAM, AS WELL AS THE ASSUMPTIONS ON WHICH SUCH STATEMENTS ARE BASED. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD-LOOKING STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH FORWARD-LOOKING STATEMENTS. IMPORTANT FACTORS CURRENTLY KNOWN TO MANAGEMENT THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN FORWARD-LOOKING STATEMENTS ARE SET FORTH IN THE SAFE HARBOR COMPLIANCE STATEMENT FOR FORWARD-LOOKING STATEMENTS INCLUDED AS EXHIBIT 99.1 TO THE ENSTAR GROUP, INC. ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000, 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.

PART I

FINANCIAL INFORMATION

Item  1.     Financial Statements

THE ENSTAR GROUP, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

			June 30,			December 31,
			2001			2000
			(Dollars in thousands)
			(Unaudited)
ASSETS
Cash and cash equivalents			$	82,137		$	75,252
Certificates of deposit				3,923			3,798
Other				1,061			892
Partially owned equity affiliates				8,012			13,309
Property and equipment, net				64			68
		Total assets	$	95,197		$	93,319
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable and accrued liabilities			$	1,102		$	741
Income taxes payable				29			190
Deferred income taxes				238			238
Deferred liabilities				421			352
Other				401			395
		Total liabilities		2,191			1,916
Commitments and Contingencies (Note 4)
Shareholders’ equity:
	Common stock ($.01 par value; 55,000,000 shares authorized, 5,708,104 issued at June 30, 2001 and December 31, 2000)			57			57
	Additional paid-in capital			183,191			183,191
	Accumulated deficit			(84,432	)		(86,035	)
	Treasury stock, at cost (442,351 shares)			(5,810	)		(5,810	)
		Total shareholders’ equity		93,006			91,403
		Total liabilities and shareholders’ equity	$	95,197		$	93,319

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

1

THE ENSTAR GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2001			2000			2001			2000
	(Dollars in thousands, except per share data)
	(Unaudited)
Interest income	$	899		$	1,157		$	1,938		$	2,314
Earnings of partially owned equity affiliates		439			93			1,054			216
Litigation expense, net		(9	)		—			(24	)		(4	)
General and administrative expenses		(670	)		(583	)		(1,238	)		(1,232	)
Income before income taxes		659			667			1,730			1,294
Income taxes		(50	)		(50	)		(127	)		(64	)
Net income	$	609		$	617		$	1,603		$	1,230
Weighted average shares outstanding — basic		5,265,753			5,265,753			5,265,753			5,265,753
Weighted average shares outstanding — assuming dilution		5,413,306			5,346,804			5,403,512			5,332,077
Net income per common share — basic	$	0.12		$	0.12		$	0.30		$	0.23
Net income per common share — assuming dilution	$	0.11		$	0.12		$	0.30		$	0.23

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

2

THE ENSTAR GROUP, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

				Six Months Ended
				June 30,			June 30,
				2001			2000
				(Dollars in thousands)
				(Unaudited)
Cash flows from operating activities:
	Net income			$	1,603		$	1,230
	Adjustments to reconcile net income to net cash provided by operating activities:
		Depreciation			11			9
		Amortization of goodwill			40			39
		Accretion of discount on note receivable			—			(85	)
		Reversal of discount on note receivable			—			(411	)
		Earnings of partially owned equity affiliates, net of dividends received			5,257			(216	)
	Changes in assets and liabilities:
		Accounts payable and accrued expenses			200			248
		Other			(94	)		(13	)
			Net cash provided by operating activities		7,017			801
Cash flows from investing activities:
	Purchases of certificates of deposit				(3,923	)		(3,031	)
	Maturities of certificates of deposit				3,798			2,950
	Purchase of property and equipment				(7	)		(13	)
			Net cash used in investing activities		(132	)		(94	)
Cash flows from financing activities:
	Repayment of note receivable				—			15,000
			Net cash provided by financing activities		—			15,000
Increase in cash and cash equivalents					6,885			15,707
Cash and cash equivalents at the beginning of the period					75,252			64,265
Cash and cash equivalents at the end of the period				$	82,137		$	79,972
Supplemental disclosures of cash flow information:
	Income taxes paid			$	288		$	100

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

3

THE ENSTAR GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note  1:     General

      The consolidated financial statements of The Enstar Group, Inc. and Subsidiary (the “Company”) are unaudited and, in the opinion of management, include all adjustments consisting solely of normal recurring adjustments necessary to fairly state the Company’s financial condition and results of operations for the interim period. The results of operations for the three and six months ended June 30, 2001 are not necessarily indicative of the results to be expected for the full year. These statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2000 included in the Company’s Form 10-K as filed with the Securities and Exchange Commission on March 30, 2001 under the Securities Exchange Act of 1934, as amended. Certain prior year amounts have been reclassified in the consolidated financial statements to conform with the current year presentation.

Note  2:     Partially Owned Equity Affiliates

B-Line

      In November 1998, the Company purchased membership units of B-Line LLC (“B-Line”) for $965,000 including expenses. Based in Seattle, Washington, B-Line 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 June 30, 2001, the Company’s ownership percentage was approximately 8.34%. During 2000, the Company’s ownership percentage was approximately 7.99%.

      The Company’s B-Line membership units are accounted for under the equity method. Approximately $803,000 of the original $950,000 paid was recorded as goodwill and is being amortized over a period of 10 years. The equity in earnings of B-Line are reported by the Company three months in arrears.

B.H. Acquisition

      In July 2000, the Company, through B.H. Acquisition Limited (“B.H. Acquisition”), a joint venture, acquired as an operating business, two reinsurance companies of Petrofina S.A., a subsidiary of TotalFina Elf S.A. The reinsurance companies, Brittany Insurance Company Ltd. (“Brittany”) and Compagnie Europeenne d’Assurances Industrielles S.A. (“CEAI”) were purchased by B.H. Acquisition, a newly formed company, for $28.5 million. Brittany and CEAI are principally engaged in the active management of books of reinsurance business from international markets. In exchange for a capital contribution of approximately $9.6 million, the Company received 50% of the voting stock and a 33% economic interest in B.H. Acquisition. In October 2000, the Company received $3.9 million representing the Company’s proportionate share of a capital distribution from B.H. Acquisition. In March 2001, the Company received approximately $6.3 million from B.H. Acquisition representing the Company’s proportionate share of a dividend from B.H. Acquisition. The Company’s ownership in B.H. Acquisition is accounted for using the equity method of accounting.

Summarized Financial Information

      Summarized information for B-Line and B.H. Acquisition is as follows:

	June 30,		December 31,
	2001		2000
	(Dollars in thousands)
	(Unaudited)
Total assets	$	163,619	$	188,342
Total liabilities		133,035		144,173
Total equity		30,584		44,169

4

THE ENSTAR GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2001		2000		2001		2000
	(Dollars in thousands)
	(Unaudited)
Revenue	$	4,211	$	3,177	$	9,299	$	6,583
Operating income		1,764		1,170		3,945		2,646
Net income		2,693		1,170		6,313		2,646

      This summarized financial information reflects the results of B-Line and B.H. Acquisition from their respective dates of ownership and also reflects, for B.H. Acquisition, its purchase of Brittany and CEAI in accordance with Accounting Principles Board Opinion No. 16, “Business Combinations.”

Note  3:     Shareholders’ Equity

      In March 2000, J. Christopher Flowers, Vice Chairman of the Board of Directors of the Company, repaid his $15 million note with accrued interest to the Company. This note receivable, net of discount, had been classified as a reduction of equity. The note had a due date of December 18, 2000, and resulted from the Company’s sale of 1,158,860 newly issued shares of common stock to Mr. Flowers on December 18, 1998. In connection with the early repayment of the note receivable, the Company reversed the unamortized portion of the discount recorded on the note receivable. This reversal resulted in a decrease of approximately $411,000 to general and administrative expenses in March 2000.

Note  4:     Commitments and Contingencies

      In February 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 judgment in March 1997. The motion filed by the Company contends that the claims asserted are barred by the applicable statutes of limitations. In November 2000, the Circuit Court granted the Company’s motion and dismissed the plaintiffs’ claims. In December 2000, the plaintiffs appealed the Circuit Court’s judgment to the Alabama Supreme Court. Management believes that the impact of this lawsuit, if any, will not have a material effect on the Company’s financial position or results of operations.

      In June 2001, the Company, through Revir Limited (“Revir”), a newly formed Bermuda holding company, announced its intent to acquire two reinsurance companies, River Thames Insurance Company Limited, based in London, England, and Overseas Reinsurance Corporation Limited, based in Bermuda, as operating businesses from Rivers Group Limited and Sedgwick Group Limited, respectively (the “River Thames Transaction”), which are UK-based subsidiaries of Marsh & McLennan Companies, Inc. Revir is a 50/50 joint venture with Castlewood Limited (“Castlewood”), a private Bermuda-based firm which is experienced in managing and acquiring insurance and reinsurance operations. In order to consummate the River Thames Transaction, Enstar has agreed to guarantee the performance of its interest in Revir up to a maximum of approximately $11 million. Consummation of the River Thames Transaction is subject to certain regulatory approvals and other contingencies. The Company’s ownership in Revir is expected to be accounted for using the equity method of accounting.

5

THE ENSTAR GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note  5:     Segment Information

      The Company evaluates the performance of B.H. Acquisition, the Company’s only operating segment, based on 100% of B.H. Acquisition’s financial results. A reconciliation of B.H. Acquisition’s consolidated financial information to the Company’s consolidated financial statements as of and for the three and six months ended June 30, 2001 is as follows:

		Three Months Ended			Six Months Ended
		June 30, 2001			June 30, 2001
		(Dollars in thousands)
		(Unaudited)
B.H. Acquisition Consolidated Statement of Income for the periods ended June 30, 2001
	Net premiums earned	$	11		$	19
	Losses and loss adjustment expenses		(722	)		(704	)
	Reinsurance recoveries		655			568
	Net losses and loss adjustment expenses		(67	)		(136	)
	Underwriting expenses		(1	)		(5	)
			(68	)		(141	)
	Net underwriting loss		(57	)		(122	)
	Net investment income		1,124			2,799
	General and administrative expenses		(807	)		(1,659	)
	Amortization of negative goodwill		212			424
	Amortization of run-off provision		563			1,125
	Foreign exchange loss		(163	)		(396	)
	B.H. Acquisition net income	$	872		$	2,171
Company’s ownership %			33	%		33	%
Company’s earnings of B.H. Acquisition		$	288		$	716
Company’s earnings of B-Line			151			338
Earnings of partially owned equity affiliates		$	439		$	1,054
B.H. Acquisition Consolidated Shareholders’ Equity as of June 30, 2001.					$	19,425
	Company’s ownership %					33	%
Company’s equity in B.H. Acquisition						6,410
Capitalized acquisition costs of B.H. Acquisition						81
Company’s equity in B-Line						1,521
Partially owned equity affiliates					$	8,012

Note  6:     Stock Compensation

      In May 2001, the Company’s Board of Directors approved certain additions to the Company’s long-term incentive program. These additions were approved by the Company’s shareholders at the Annual Meeting of Shareholders held in June 2001. The additions consist of a new stock option plan and an amendment to an existing plan. The long-term incentive program is designed to promote the success and enhance the value of the Company by providing flexibility in the Company’s ability to attract, motivate and retain the services of key employees and directors. As part of that program, the Company has adopted the 2001 Outside Directors’ Stock Option Plan (the “2001 Outside Directors’ Plan”) and amended certain provisions of the 1997 Amended Omnibus Incentive Plan (the “Incentive Plan”). A total of 45,000 shares of common stock were

6

THE ENSTAR GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

reserved for issuance under the 2001 Outside Directors’ Plan. The amendments to the Incentive Plan increased the total number of shares of common stock available to be granted under the plan from 112,500 to 322,500, and increased the aggregate number of shares of common stock that may be granted to any individual participant from 100,000 to 200,000.

      Under the Incentive Plan, on June 27, 2001 the Company entered into agreements with Nimrod T. Frazer, the Company’s Chairman and Chief Executive Officer, and John J. Oros, the Company’s President and Chief Operating Officer, to (a) sell a total of 100,000 shares (50,000 per individual) of the Company’s common stock at $18.00 per share, the closing trading price on that date and (b) grant options to purchase a total of 100,000 additional shares (50,000 per individual) at $18.00 per share to Messrs. Frazer and Oros, subject to the consummation of the River Thames Transaction described in Note 4. These options vest on various dates from the date of consummation of the River Thames Transaction through July 2004 and may not be exercised prior to June 2002. In the event the price per share of the Company’s common stock exceeds $18.00 on the date of consummation of the River Thames Transaction, the Company will recognize a charge to earnings equal to the per share difference multiplied by the number of shares. As of June 30, 2001, a total of 200,000 options have been granted under the Incentive Plan.

      Under the 2001 Outside Directors’ Plan, the Company’s three current outside (non-employee) directors were granted options in June 2001 for 15,000 shares of common stock with an exercise price of $18.90 per share. Options granted to each of the three outside directors under the plan will vest in three equal installments of 5,000 shares in each of January 2002, January 2003 and January 2004; provided, however, that such shares will vest only so long as the recipient remains a director of the Company. The options granted under this plan must be exercised no later than January 2011, or 60 days after the director ceases to be a director of the Company other than by reason of death, mandatory retirement or disability.

Note  7:     Newly Issued Accounting Standards

      In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. (“SFAS”) 141, “Business Combinations”, which eliminates the pooling-of-interests method of accounting effective for transactions initiated after June 30, 2001. Additionally, goodwill and intangibles that arise as a result of purchase transactions initiated during the period July 1, 2001 to December 31, 2001 would follow the guidance prescribed by SFAS No. 142, described below.

      In July 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement prescribes that goodwill should no longer be amortized upon adoption of the standard. Instead, goodwill will be tested annually for impairment, and on an interim basis if certain impairment indicators are present. Additionally, intangible assets with an indefinite, economic useful life may not be amortized. The Company will adopt SFAS No. 142 on January 1, 2002.

      In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by SFAS Nos. 137 and 138, became effective January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet measured at fair value. The Company’s January 1, 2001 adoption of SFAS No. 133 had no impact on the Company’s consolidated financial position or results of operations as the Company has no derivative instruments.

7

THE ENSTAR GROUP, INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Note  8:     Income per Share

      The table below illustrates the reconciliation between net income per common share — basic and net income per common share — assuming dilution for the three and six month periods ending June 30, 2001 and 2000. Net income per common share — basic 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 common share equivalents.

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2001		2000		2001		2000
	(Dollars in thousands, except per share data)
	(Unaudited)
Net income	$	609	$	617	$	1,603	$	1,230
Net income per common share — basic	$	0.12	$	0.12	$	0.30	$	0.23
Net income per common share — assuming dilution	$	0.11	$	0.12	$	0.30	$	0.23
Weighted average shares outstanding — basic		5,265,753		5,265,753		5,265,753		5,265,753
Common share equivalents		147,553		81,051		137,759		66,324
Weighted average shares outstanding — assuming dilution		5,413,306		5,346,804		5,403,512		5,332,077

8

INDEPENDENT ACCOUNTANTS’ REPORT

Board of Directors and Shareholders of

The Enstar Group, Inc.

Montgomery, Alabama

      We have reviewed the accompanying consolidated balance sheet of The Enstar Group, Inc. and Subsidiary (“Enstar”) as of June 30, 2001, and the related consolidated statements of income and cash flows for the three-month and six-month periods ended June 30, 2001 and 2000. These financial statements are the responsibility of Enstar’s management.

      We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and of making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States of America, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

      Based on our review, we are not aware of any material modifications that should be made to such consolidated financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

      We have previously audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated balance sheet of Enstar as of December 31, 2000 and the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the year then ended (not presented herein), and in our report dated March 28, 2001, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 2000 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.

/s/ DELOITTE & TOUCHE LLP

Atlanta, Georgia

August 9, 2001

9

Item  2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations

Liquidity and Capital Resources

      The Company’s assets, aggregating approximately $95.2 million at June 30, 2001, consist primarily of approximately $82.1 million in cash and cash equivalents, approximately $3.9 million in certificates of deposit and approximately $8.0 million in partially owned equity affiliates.

      The Company’s net increase in cash and cash equivalents for the six months ended June 30, 2001 was approximately $6.9 million. This increase can primarily be attributed to the receipt of a dividend of approximately $6.3 million from B.H. Acquisition on March 27, 2001.

      The Company is currently engaged in the active search for one or more additional operating businesses. This search occupies a significant amount of the time of the Company’s senior officers. During 2000, the Company acquired one operating business, together with co-investors, consisting of two reinsurance companies. 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.

Financial Condition

      The Company had total assets of $95.2 million at June 30, 2001 compared to $93.3 million at December 31, 2000.

      Mr. J. Christopher Flowers, Vice Chairman of the Board of Directors of the Company, repaid his $15 million note with accrued interest to the Company on March 3, 2000. The note had a due date of December 18, 2000, and resulted from the Company’s sale of 1,158,860 newly issued shares of Common Stock to Mr. Flowers on December 18, 1998 (the “Flowers Transaction”). In connection with the repayment, the Company reversed the unamortized discount on the note of approximately $411,000.

Other Transaction

      In June 2001, the Company, through Revir Limited (“Revir”), a newly formed Bermuda holding company, announced its intent to acquire two reinsurance companies, River Thames Insurance Company Limited, based in London, England, and Overseas Reinsurance Corporation Limited, based in Bermuda, as operating businesses from Rivers Group Limited and Sedgwick Group Limited, respectively (the “River Thames Transaction”), which are UK-based subsidiaries of Marsh & McLennan Companies, Inc. Revir is a 50/50 joint venture with Castlewood Limited (“Castlewood”), a private Bermuda-based firm which is experienced in managing and acquiring insurance and reinsurance operations. In order to consummate the River Thames Transaction, Enstar has agreed to guarantee the performance of its interest in Revir up to a maximum of approximately $11 million. Consummation of the River Thames Transaction is subject to certain regulatory approvals and other contingencies. The Company’s ownership in Revir is expected to be accounted for using the equity method of accounting.

Results of Operations

      The Company reported net income of $609,000 and approximately $1.6 million for the three and six month periods ended June 30, 2001, respectively, compared to net income of $617,000 and approximately $1.2 million for the same periods in the prior year. The changes in net income from the three and six month periods ended June 30, 2001 compared to the same periods in the prior year are primarily a result of an increase in earnings from partially owned equity affiliates, offset by a decrease in interest income.

      Interest income was $899,000 and approximately $1.9 million for the three and six months periods ended June 30, 2001, respectively, compared to approximately $1.2 million and $2.3 million for the same periods in the prior year. Interest income was earned from cash, cash equivalents, certificates of deposit and in 2000, the note receivable from Mr. J. Christopher Flowers. Interest income decreased during the three and six month periods ended June 30, 2001, respectively, compared to the same periods in 2000 due to a reduction in 2001 of interest rates earned on the Company’s cash, cash equivalents and certificates of deposit.

10

      Earnings of partially owned equity affiliates was $439,000 and approximately $1.1 million for the three and six month periods ended June 30, 2001, respectively, compared to $93,000 and $216,000 for the same periods in the prior year. These increases can primarily be attributed to the Company’s investment in B.H. Acquisition in July 2000 and an increase in earnings of B-Line LLC (“B-Line”). The Company recorded earnings of $287,000 and $716,000 from B.H. Acquisition for the three and six months periods ended June 30, 2001. The Company’s earnings from B-Line were $152,000 and $338,000 for the three and six months periods ended June 30, 2001 compared to $93,000 and $216,000 for the same periods in 2000.

      General and administrative expenses were $670,000 and approximately $1.2 million for the three and six month periods ended June 30, 2001, respectively, compared to $583,000 and approximately $1.2 million for the same periods in 2000. Although general and administrative expenses were approximately the same for the six month periods ending June 30, 2001 and 2000, the expense for Alabama shares tax for 2001 was substantially less than in 2000 due to a change in Alabama tax law. The six month period in 2000 reflected a $411,000 decrease in general and administrative expenses resulting from the reversal of the unamortized portion of the discount recorded on the note receivable in the Flowers Transaction. In addition to these and other normal operating expenses, general and administrative expenses include legal and professional fees as well as travel expenses incurred in connection with the Company’s search for one or more additional operating businesses. Most variances to general and administrative expenses can be attributed to the number of potential acquisition candidates the Company locates as well as the degree of interest the Company may have in such candidates. The stronger the interest in a candidate, the more rigorous financial and legal due diligence the Company will incur with respect to that candidate.

      Income tax expense was $50,000 and $127,000 for the three and six months ended June 30, 2001, respectively, compared to $50,000 and $64,000 for the same periods in the prior year.

Newly Issued Accounting Standards

      In July 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No. (“SFAS”) 141, “Business Combinations”, which eliminates the pooling-of-interests method of accounting effective for transactions initiated after June 30, 2001. Additionally, goodwill and intangibles that arise as a result of purchase transactions initiated during the period July 1, 2001 to December 31, 2001 would follow the guidance prescribed by SFAS No. 142, described below.

      In July 2001, the FASB also issued SFAS No. 142, “Goodwill and Other Intangible Assets.” This statement prescribes that goodwill should no longer be amortized upon adoption of the standard. Instead, goodwill will be tested annually for impairment, and on an interim basis if certain impairment indicators are present. Additionally, intangible assets with an indefinite, economic useful life may not be amortized. The Company will adopt SFAS No. 142 on January 1, 2002.

      In June 1998, the FASB issued SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.” SFAS No. 133, as amended by SFAS Nos. 137 and 138, became effective January 1, 2001. SFAS No. 133 establishes accounting and reporting standards for derivative instruments including certain derivative instruments embedded in other contracts, and for hedging activities. SFAS No. 133 requires the Company to recognize all derivatives as either assets or liabilities in the balance sheet measured at fair value. The Company’s January 1, 2001 adoption of SFAS No. 133 had no impact on the Company’s consolidated financial position or results of operations as the Company has no derivative instruments.

  Other Matter

      In June 2001, the Company’s Board of Directors elected John J. Oros as President and Chief Operating Officer. Mr. Oros had been Executive Vice President of the Company since March 2000, and has also been a director of the Company since that time. Nimrod T. Frazer, the Company’s former President, remains actively involved with the Company as Chairman of the Board and Chief Executive Officer.

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Item  3.     Quantitative and Qualitative Disclosures About Market Risk

      The Company is exposed to some market risk from changes in interest rates. The Company had cash and cash equivalents of approximately $82.1 million in interest bearing accounts (interest at floating rates) and approximately $3.9 million of short-term certificates of deposit (interest at fixed rates) at June 30, 2001. Accordingly, each one percent change in market interest rates would change interest income by approximately $860,000 per annum. However, any future transactions affecting the Company’s cash and cash equivalents and certificates of deposit will change this estimate. Additionally, although interest rate changes would affect the fair value of the Company’s certificates of deposits, the weighted average original term of certificates held by the Company at June 30, 2001 was approximately six months. The short-term nature of these certificates limits the Company’s risk of changes in the fair value of these certificates.

PART II

OTHER INFORMATION

Item  1.     Legal Proceedings

      In February 1997, fifteen former shareholders of the Company filed a lawsuit against the Company in the Circuit Court of Montgomery County, Alabama styled Peter N. Zachary, et al. v. The Enstar Group, Inc., Case No. CV-97-257-Gr. The complaint, which deals with actions occurring prior to the Company’s filing for bankruptcy in 1991, alleges that the Company along with its then principal officers and others defrauded the plaintiffs in violation of the Alabama Securities Act and other Alabama statutory provisions. The plaintiffs seek compensatory damages in the amount of their alleged losses of approximately $2 million and unspecified punitive damages. The complaint is virtually identical to a complaint brought by these plaintiffs against the Company’s former chairman, former president and others in December 1991, during the pendency of the Company’s bankruptcy case and prior to the confirmation of the Company’s Second Amended Plan of Reorganization, as modified (the “Reorganization Plan”). The plaintiffs allege that the United States Bankruptcy Court for the Middle District of Alabama (the “Bankruptcy Court”) issued an order in January 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. In March 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. In November 2000, the Circuit Court granted the Company’s motion and dismissed the plaintiffs’ claims. In December 2000, the plaintiffs appealed the Circuit Court’s judgment to the Alabama Supreme Court.

Item 4.     Submission of Matters to a Vote of Security Holders

      The Company held its Annual Meeting of Shareholders on June 6, 2001. Matters voted upon at the meeting and the number of votes cast for, against or withheld, are as follows:

      (1)  To consider and act upon a proposal to elect the following nominees to be Directors for three year terms until the 2004 annual meeting of shareholders:

Nominee	Votes For		Votes Withheld
J. Christopher Flowers		4,969,169		35,946
Jeffrey S. Halis		4,948,649		56,466

      In addition to Messrs. Flowers and Halis, the continuing directors are Nimrod T. Frazer, John J. Oros, T. Whit Armstrong and T. Wayne Davis. Messrs. Frazer and Oros’ terms expire in the year 2002 while Messrs. Armstrong and Davis’ terms expire in the year 2003.

      (2)  To ratify the appointment of Deloitte & Touche LLP as independent auditors for the year ended December 31, 2001. Votes cast were: 4,991,563 for, 9,045 against and 4,507 abstentions.

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      (3)  To approve the adoption of the 2001 Outside Directors’ Stock Option Plan. Votes cast were: 4,820,247 for, 177,342 against and 7,526 abstentions.

      (4)  To approve the amendment of the 1997 Amended Omnibus Incentive Plan (the “Incentive Plan”) to increase the total number of shares of common stock available to be granted under the Incentive Plan from 112,500 to 322,500, and to increase the aggregate number of shares of common stock that may be granted to any individual participant in the Incentive Plan from 100,000 to 200,000. Votes cast were: 4,795,606 for, 202,943 against and 6,566 abstentions.

Item  6.     Exhibits and Reports on Form 8-K

      (a)  Exhibits

Reference
Number			Description of Exhibits
	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).
	2.4	—	Shareholders Agreement, dated as of July 3, 2000, among B.H. Acquisition Limited, the Company and the other parties thereto (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K, dated July 18, 2000).
	2.5	—	Investment Agreement, dated as of July 3, 2000, among B.H. Acquisition Limited, the Company and the other parties thereto (incorporated by reference to Exhibit 2.2 to the Current Report on Form 8-K, dated July 18, 2000).
	2.6	—	Share Sale and Purchase Agreement, dated as of March 31, 2000 between PetroFina S.A. and B.H. Acquisition Limited (incorporated by reference to Exhibit 2.3 to the Current Report on Form 8-K, dated July 18, 2000).
	2.7	—	Share Sale and Purchase Agreement, dated as of March 31, 2000 between PetroFina S.A., and Brittany Holdings Limited and B.H. Acquisition Limited (incorporated by reference to Exhibit 2.4 to the Current Report on Form 8-K, dated July 18, 2000).
	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 Omnibus Incentive Plan.
	10.2	—	2001 Outside Directors’ Stock Option Plan (incorporated by reference to Annex B to the Proxy Statement for the Annual Meeting of Shareholders, dated May 8, 2001).

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Reference
Number			Description of Exhibits
	99.1	—	The Enstar Group, Inc. Private Securities Litigation Reform Act of 1995 Safe Harbor Compliance Statement For Forward-Looking Statements (incorporated by reference to Exhibit 99.1 to the Annual Report on Form 10-K, dated March 30, 2001).

      (b)  Reports on Form 8-K

      There were no reports filed on Form 8-K for the quarter ended June 30, 2001.

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SIGNATURES

      Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

THE ENSTAR GROUP, INC.

By:  /s/ CHERYL D. DAVIS

Cheryl D. Davis

Chief Financial Officer, Vice President

of Corporate Taxes, Secretary

(Authorized Officer)

(Principal Financial Officer)

Date: August 14, 2001

15 EX-10.1 3 g70815ex10-1.txt 1997 AMENDED OMNIBUS INCENTIVE PLAN 1 EXHIBIT 10.1 THE ENSTAR GROUP, INC. 1997 AMENDED OMNIBUS INCENTIVE PLAN This is the 1997 Amended Omnibus Incentive Plan of The Enstar Group, Inc., a Georgia corporation (the "Company"). SECTION 1. Name, Purpose and Definitions. 1.1 Name and Purpose. The Company is adopting The Enstar Group, Inc. 1997 Omnibus Incentive Plan (the "Plan") to secure and retain the services of officers, key employees, and directors of the Company by giving them an opportunity to invest in the future success of the Company. The Board of Directors of the Company (the "Board of Directors") believes the Plan will promote personal interest in the welfare of the Company by, and provide an incentive to, the individuals who are primarily responsible for the regular operations of the Company and for shaping and carrying out the long term plans of the Company, thus facilitating the continued growth and financial success of the Company. 1.2 Definition. Whenever used in the Plan, the following terms shall have the meaning set forth below: (a) "Affiliate" shall mean any affiliate or subsidiary (direct or indirect) of the Company, which the Board of Directors may from time to time determine to bring under the Plan and which shall adopt the Plan, and any successor of any of them. (b) "Award" shall mean, individually and collectively, any Option, Stock Appreciation Rights, or Restricted Stock granted under the Plan. (c) "Base Value" shall mean the Fair Market Value of a Stock Appreciation Right on the date of its grant. (d) "Board of Directors" shall mean the Board of Directors of the Company. (e) "Committee" shall mean a committee composed of not fewer than two (2) members of the Board of Directors, all of which shall be "disinterested" persons as defined in Section 2 hereof. (f) "Common Stock" shall mean the Common Stock of The Enstar Group, Inc. (g) "Code" shall mean the Internal Revenue Code of 1986, as amended from time to time. (h) "Company" shall mean The Enstar Group, Inc. (i) "Disability" shall have the meaning set forth in Section 22(e)(3) of the Code. (j) "Employee" shall mean any person who is currently employed by the Company or an Affiliate. (k) "Effective Date" shall mean May 20, 1997, provided, however, that the Plan's adoption is subject to ratification by the shareholders of the Company at the Company's first annual meeting after the Company's Common Stock is distributed to its former shareholders. 2 (l) "Fair Market Value" shall mean the fair market value of Common Stock on the date of a grant or exercise of an Award, as the case may be, as determined by a methodology adopted by the Board of Directors or the Committee. (m) "Incentive Stock Option" shall mean a stock option within the meaning of Section 422 of the Code granted pursuant to Section 4.1(a). (n) "Nonqualified Stock Option" shall mean an Option, other than an Incentive Stock Option, granted pursuant to Section 4.1(b). (o) "Option" shall mean, individually and collectively, an Incentive Stock Option and a Nonqualified Stock Option to purchase Common Stock. (p) "Option Price" shall mean the price per share of Common Stock set by the grant of an Option, but in no event less than the Fair Market Value of the Option. (q) "Participant" shall mean those officers, key employees and directors of the Company, and its Affiliates to whom Awards may be granted. (r) "Restricted Stock" shall mean an Award granted pursuant to Section 4.1(d). (s) "Separation Date" shall mean, as determined by the Committee, the date on which a Participant's employment with the Company or an Affiliate terminates for reasons other than his transfer of employment to another Employing Company; and in the case of a Participant who is solely a director shall mean the date of such Participant is no longer a director of the Company. Whether any leave of absence shall constitute termination of employment for the purposes of the Plan shall be determined in each case by the Committee at its sole discretion. (t) "Stock Appreciation Rights" or "SAR's" shall mean a right to any appreciation in shares of Common Stock granted pursuant to Section 4.1(c). SECTION 2. Administration. The Board of Directors shall appoint at least two of its members to a committee (the "Committee") that will administer the Plan on behalf of the Company. Except as may otherwise be provided in Rule 16b-3 of the Securities Exchange Act of 1934 (if applicable), no person shall be appointed as a member of the Committee who is, or within one year prior to his becoming a member of the Committee was, granted or awarded equity securities pursuant to the Plan or any other plan of the Company or an affiliate, if such grant or award would cause that person not to be "disinterested" for purposes of Rule 16b-3 as promulgated pursuant to the Securities Exchange Act of 1934. Each member of the Committee shall serve at the pleasure of the Board of Directors, which may fill any vacancy, however caused, in the Committee. The Committee shall select one of its members as a chairman and shall hold meetings at the times and in the places as it shall deem advisable. All actions the Committee takes shall be made by majority decision. Any action evidenced by a written instrument signed by all of the members of the Committee shall be as fully effective as if the Committee had taken the action by majority vote at a meeting duly called and held. The Committee shall also have complete and conclusive authority to (1) interpret the Plan, (2) prescribe, amend, and rescind rules and regulations relating to it, (3) determine the terms and provisions of the agreements the Company makes with Participants (the "Agreement"), the terms of which need not be identical, and (4) make all other determinations necessary or advisable for the administration of the Plan. With respect to each Award granted hereunder, the Agreement evidencing the grant shall specifically state whether the Option is an Incentive Stock Option, a Nonqualified Stock Option, an Award of Restricted Stock or an Award of SAR's. In addition to any other rights of indemnification that they may have as 3 directors of the Company or as members of the Committee, the directors of the Company and members of the Committee shall be indemnified by the Company against the reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of action taken or failure to act under or in connection with the Plan or any Award granted thereunder, and against all amounts paid by them in settlement thereof (provided the settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any action, suit or proceeding, except in relation to matters as to which it shall be adjudged in the action, suit or proceeding that the Committee member is liable for negligence or misconduct in the performance of his duties; provided that within sixty (60) days after institution of any action, suit or proceeding, a Committee member shall in writing offer the Company the opportunity, at its own expense, to handle and defend the same. SECTION 3. Eligibility. The Committee shall grant Awards only to officers, key employees, and directors of the Company or its Affiliates; provided, however, that an Incentive Stock Option may only be granted if such individual is an employee of the Company or an Affiliate. Subject to the limits set forth in this Plan, the Committee at any time may grant additional Awards to directors, officers or key employees to whom the Committee had previously granted Awards, so that a Participant may hold more than one Award at the same time. Notwithstanding anything in the Plan to the contrary, neither J. Christopher Flowers, nor Jeffrey S. Halis, nor T. Whit Armstrong, nor T. Wayne Davis shall be eligible to receive any Award under the Plan or eligible to be a Participant under the Plan. SECTION 4. 4.1 Awards. The Committee shall determine the forms and amounts of Awards for Participants; provided that in no event shall any Award be effective until the shareholders of the Company have ratified the Plan. All Awards shall be subject to the terms and conditions of the Plan and to such other terms and conditions consistent with the Plan as the Committee deems appropriate. Awards under the Plan need not be uniform and Awards under two (2) or more paragraphs may be combined in one agreement. Any combination of Awards may be granted at one time and on more than one occasion to the same Participant. Such Awards may take the following forms, in the Committee's sole discretion: (a) Incentive Stock Options -- These shall be stock options within the meaning of Section 422 of the Code to purchase Common Stock. In addition to other restrictions contained in the Plan, an Incentive Stock Option (1) shall not be exercised more than ten (10) years after the date it is granted, (2) shall not have an Option Price less than the Fair Market Value of Common Stock on the date the Incentive Stock Option is granted, (3) shall otherwise comply with Section 422 of the Code, and (4) shall be designated as an "Incentive Stock Option" by the Committee. The aggregate Fair Market Value of Common Stock determined at the time of each grant for which any Participant may exercise Incentive Stock Options under this Plan for any calendar year shall not exceed $100,000. Subject to the provisions of Section 5.1 hereof, no Incentive Stock Option may be exercised during the first twelve (12) months following its grant. (b) Nonqualified Stock Options -- These shall be stock options to purchase Common Stock which are not designated by the Committee as "Incentive Stock Options." At the time of the grant, the Committee shall determine the Option exercise period, the Option Price, and such other conditions or restrictions on the exercise of the Nonqualified Stock Option as the Committee deems appropriate. In addition to other restrictions contained in the Plan, a Nonqualified Stock Option (1) shall not be exercised more than ten (10) years after the date it is granted, and (2) shall not have an Option Price less than 100% of the Fair Market Value of Common Stock on the date the Nonqualified Stock Option is granted. Subject to the provisions of Section 5.1 hereof, no Nonqualified Stock Options granted under this Plan may be exercised during the first twelve (12) months following its grant. 4 (c) Stock Appreciation Rights -- These shall be rights that on exercise entitle the holder to receive the excess of (1) the Fair Market Value of Common Stock on the date of exercise over (2) its Base Value multiplied by (3) the number of SAR's exercised. Such rights shall be satisfied in cash, stock, or a combination thereof, as determined by the Committee. Stock Appreciation Rights granted under the Plan may be granted in the sole discretion of the Committee in conjunction with an Incentive Stock Option or Nonqualified Stock Option under the Plan. The Committee may impose such conditions or restrictions on the exercise of SAR's as it deems appropriate and may terminate, amend, or suspend such SAR's at any time. Subject to the provisions of Section 5.1 hereof, no SAR's granted under this Plan shall be exercised less than one (1) year or more than ten (10) years after the date it is granted. (d) Restricted Stock -- Restricted Stock shall be shares of Common Stock held by the Company for the benefit of a Participant without payment of consideration, with restrictions or conditions upon the Participant's right to transfer or sell such shares. The following provisions shall be applicable to Restricted Stock Awards: (1) Each certificate for Restricted Stock shall be registered in the name of the Participant and shall be deposited by him with the Company, together with a stock power endorsed in blank. (2) At the time of making a Restricted Stock Award, the Committee shall establish the "Restriction Period" applicable thereto. Such Restriction Period shall range from three (3) to ten (10) years as determined by the Committee. The Committee may provide for the annual lapse of restrictions with respect to a specified percentage of the Restricted Stock, provided the Participant satisfies all eligibility requirements at such time. (3) The Participant shall be entitled to receive dividends during the Restriction Period and shall have the right to vote such Common Stock and exercise all other shareholder's rights except the following: (i) the Participant shall not be entitled to delivery of the stock certificate during the Restriction Period, (ii) the Company shall retain custody of the Restricted Stock during the Restriction Period, and (iii) a breach of a restriction or a breach of the terms and conditions established by the Committee with respect to the Restricted Stock shall cause a forfeiture of the Restricted Stock. (4) The Committee may, in its sole discretion, prescribe such additional restrictions, terms, or conditions upon or to the Restricted Stock Awards as it may deem necessary or appropriate. 4.2 Individual Agreements. After the Committee determines a form and amount of a Participant's Award, it shall cause the Company to enter into such written agreement or agreements with the Participant setting forth the form and amount of the Award and any conditions and restrictions on the Award imposed by the Plan and the Committee. 4.3 Exercise and Payment. Options may be exercised from time to time by giving notice to the Committee, specifying the number of shares to be purchased. Notice of exercise shall be accompanied by payment in full of the Option Price in cash. The Committee, in its discretion, may permit the Option Price to be paid in whole or in part through the transfer to the Company of shares of Common Stock previously acquired by the Participant; provided, however, that the shares so transferred shall have been held by the Participant for a period of more than six (6) months and no Restricted Stock may be transferred as payment of the Option Price. In the event the Option Price is paid, in whole or in part, with shares of Common Stock, such shares shall be valued at their Fair Market Value, as of the date of exercise of the Option. Such shares shall be delivered, along 5 with any portion to be paid in cash, within five (5) days after the date of exercise. If the Participant fails to pay the Option Price within such five (5) day period, the Committee shall have the right to take whatever action it deems appropriate, including voiding the exercise of the Option. The Company shall not issue or transfer Common Stock upon the exercise of an Option until the Option Price is fully paid. 4.4 Transfer of Awards. The Committee may, in its discretion, provide that any Award may be transferred by a Participant to or among his spouse, children and grandchildren or to one or more trusts or partnerships in which one or more of such persons hold the primary beneficial interests, or the Committee may allow transferability in other appropriate circumstances. SECTION 5. 5.1 Termination of Employment. A Participant whose employment terminates for reasons other than retirement, Disability, or death shall, in the discretion of the Committee, have no right to receive any benefit or payment for existing Awards under the Plan. Any outstanding Award shall terminate on the Participant's Separation Date; provided, however, that the Committee, in its sole discretion, may permit the exercise of any outstanding Award after the Participant's Separation Date, but in no event beyond the earlier of (a) three (3) months from the Participant's Separation Date or (b) the expiration date of the Award, to the extent exercisable on such Participant's Separation Date. 5.2 Death of a Participant. In the event of the death of a Participant prior to the exercise of all Incentive Stock Options, Nonqualified Stock Options, and Stock Appreciation Rights granted to such Participant, the administrator of the deceased Participant's estate, the executor under his will, or the person or persons to whom the Options or SAR's shall have been validly transferred by such executor or administrator pursuant to the will or laws of interstate succession shall have the right, within one year from the date of such Participant's death, but not beyond the expiration date of the Options or SAR's, to exercise such Options or SAR's to the extent exercisable on such Participant's Separation Date. 5.3 Retirement. (a) In the event of the termination of a Participant's employment due to his retirement prior to the exercise of all Incentive Stock Options granted to the Participant, such Participant shall have the right, within three (3) months of his Separation Date, but not beyond the expiration of such Options, to exercise such Incentive Stock Options to the extent exercisable on his Separation Date. (b) In the event of the termination of a Participant's employment due to his retirement prior to the exercise of all Nonqualified Stock Options or Stock Appreciation Rights granted to the Participant, such Participant shall have the right, within thirty-six (36) months of his Separation Date, but not beyond the expiration date of such Nonqualified Stock Options or SAR's, to exercise such Nonqualified Stock Options or SAR's to the extent exercisable on his Separation Date. 5.4 Disability. (a) In the event of the termination of a Participant's employment due to Disability prior to the exercise of all Incentive Stock Options granted to the Participant, such Participant or his legal representative shall have the right, within twelve (12) months of his Separation Date, but not beyond the expiration date of such Incentive Stock Options, to exercise such Incentive Stock Options to the extent exercisable on his Separation Date. (b) In the event of the termination of a Participant's employment due to Disability prior to the exercise of all Nonqualified Stock Options and Stock Appreciation Rights granted to the Participant, such Participant or his legal representative shall have the right, within thirty-six (36) months of his Separation Date, but not beyond the expiration date of such Nonqualified Stock Options or SAR's, to exercise such Nonqualified Stock Options or SAR's to the extent exercisable on his Separation Date. 6 SECTION 6. 6.1 Limitation of Shares of Common Stock Available Under the Plan. (a) The total number of shares of Common Stock available to be granted by the Committee as Awards to the Participants under the Plan shall not exceed 322,500 shares. The aggregate number of shares of Common Stock to be granted as Awards to any individual Participant shall not exceed 200,000 shares. (b) The total number of shares available under Section 6.1(a) shall be reduced from time to time in the manner specified: (1) Incentive Stock Options and Nonqualified Stock Options -- The grant of an Incentive Stock Option and Nonqualified Stock Option shall reduce the available shares by the number of shares subject to such Option. (2) Stock Appreciation Rights -- The grant of Stock Appreciation Rights shall reduce the available shares by the number of SAR's granted; provided, however, if SAR's are granted in conjunction with an Option and the exercise of such Option would cancel the SAR's and vice versa, then the grant of the SAR's will only reduce the amount available by the excess, if any, of the number of SAR's granted over the number of shares subjected to the related Option. (3) Restricted Stock -- The grant of Restricted Stock shall reduce the available shares by the number of shares of Restricted Stock granted. (c) The total number of shares available under Section 6.1(a) shall be increased from time to time in the manner specified: (1) Incentive Stock Options and Nonqualified Stock Options -- The lapse or cancellation of an Incentive Stock Option or Nonqualified Stock Option shall increase the available shares by the number of shares released from such Option; provided, however, in the event the cancellation of an Option is due to the exercise of SAR's related to such Option, the cancellation of such Option shall only increase the amount available by the excess, if any, of the number of shares released from such Option over the number of SAR's exercised. (2) Stock Appreciation Rights -- The lapse or cancellation of Stock Appreciation Rights shall increase the available shares by the number of SAR's which lapse or are cancelled; provided, however, in the event the cancellation of such SAR's is due to the exercise of an Option related to such SAR's, the cancellation of such SAR's shall only increase the available shares by the excess, if any, of the number of SAR's cancelled over the number of shares delivered on the exercise of such Option. (3) Restricted Shares -- The reversion of Restricted Stock to the Company due to the breach or occurrence of a restriction or condition on such shares shall increase the available shares by the number of shares of Restricted Stock reverted. SECTION 7. Adjustment Upon Changes in Capitalization. The total number of shares of Common Stock available for Awards under the Plan or allocable to any individual Participant, the number of shares of Common Stock subject to outstanding Options, the exercise price for such Options, the number of outstanding SAR's, and the Base Value of such SAR's shall be appropriately adjusted by the Committee for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock dividend, subdivision or combination of shares, or reclassification. In the event of a merger or consolidation of the Company or a tender offer for shares of Common Stock, the Committee may make such adjustments with respect to Awards under the Plan and take such other action as it deems necessary or appropriate to reflect, or in anticipation of, such merger, consolidation, or tender offer, including without limitation the substitution of new Awards, the termination or adjustment of 7 outstanding Awards, the acceleration of Awards, or the removal of limitations or restrictions on outstanding Awards. SECTION 8. Terms and Conditions of All Awards. The Committee may include in any Award it grants a condition that the Participant shall agree to remain an employee of and/or to render services to the Company or any of its Affiliates for a specified period of time following the date it grants the Award. This condition shall not impose on the Company or any Affiliate any obligation to employ the Participant or retain the Participant as a director for any period of time. The Committee may require any person to whom an Award is granted, as a condition of exercising such Award, to give written assurances in substance and form satisfactory to the Company to the effect that such person is acquiring the Common Stock subject to the Award for his or her own account for investment and not with any present intention of selling or otherwise distributing the same, and to such other effects as the Company deems necessary or appropriate in order to comply with federal and applicable state securities laws, or with covenants or representations made by the Company in connection with any public offering of its Common Stock. Each Award shall be subject to the requirement that if, at any time, counsel to the Company shall determine that the listing, registration or qualification of the Common Stock subject to such Award upon any securities exchange or under any state or federal law, or the consent or approval of any governmental or regulatory body, or that the disclosure of non-public information or the satisfaction of any other condition is necessary as a condition of, or in connection with the issuance or purchase of Common Stock thereunder, such Award may not be exercised, in whole or in part, unless such listing, registration, qualification, consent or approval, or satisfaction of such condition shall have been effected or obtained on conditions acceptable to the Board of Directors. Nothing herein shall be deemed to require the Company to apply for or to obtain such listing, registration or qualification, or to satisfy such condition. SECTION 9. Compliance with Code for Incentive Stock Options. All Incentive Stock Options are intended to comply with Code Section 422, and all provisions of the Plan and all Incentive Stock Options granted hereunder shall be construed in such manner as to effectuate that intent. SECTION 10. Term of Plan. The effective date of the Plan shall be May 20, 1997, subject to subsequent shareholder ratification of the Plan. The Plan shall terminate ten (10) years after that date. The Committee may grant Awards pursuant to the Plan at any time on or between that effective date and that termination date. SECTION 11. Withholding Taxes. Whenever the Company proposes or is required to issue Common Stock to an Participant who is or was an employee of the Company or an Affiliate, or his legatee or legal representative under the Plan, the Company shall have the right to require the recipient to remit in cash to the Company an amount sufficient to satisfy any federal, state, and local withholding tax requirements prior to the delivery of any certificate or certificates for such Common Stock. SECTION 12. Assignability. Except as Section 4.4 or Section 5.2 of the Plan permits, no Award or any of the rights and privileges thereof accruing to a Participant shall be transferred, assigned, pledged or hypothecated in any way whether by operation of law or otherwise, and no Award, right or privilege shall be subject to execution, attachment or similar process. Except as permitted pursuant to Section 4.4 of the Plan, no election as to benefits or exercise of Options, SAR's, or other rights, may be made during a Participant's lifetime by anyone other than the Participant. 8 SECTION 13. The Right of the Company to Terminate Employment. No provision in the Plan or any Award shall confer upon any Participant any right to continue in the employment of the Company or any subsidiary of the Company or to continue performing services for or to interfere in any way with the right of the Company or any subsidiary of the Company to terminate his employment or discontinue his directorship at any time for any reason. SECTION 14. Amendment and Termination. The Board of Directors at any time may amend or terminate the Plan without shareholder approval; provided, however, that the Board of Directors may condition any amendment on the approval of the shareholders of the Company if such approval is necessary or advisable with respect to tax, securities (which require such approval for a material increase of the number of shares of Common Stock subject to the Plan, and for material modifications to the eligibility requirements of the Plan, among others) or other applicable laws to which the Company, the Plan, optionees or eligible employees are subject. No amendment or termination of the Plan shall affect the rights of a Participant with regard to his Awards without his consent. SECTION 15. Choice of Law. The laws of the State of Georgia shall govern the Plan. SECTION 16. Approval of Shareholders. The Company shall submit the Plan to its shareholders for ratification within twelve (12) months of the adoption of the Plan by the Board of Directors; failure to receive their approval shall render all outstanding Awards immediately void and of no effect. -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.1

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                                                                    EXHIBIT 10.1

                             THE ENSTAR GROUP, INC.

                       1997 AMENDED OMNIBUS INCENTIVE PLAN



     This is the 1997 Amended Omnibus Incentive Plan of The Enstar Group, Inc.,
a Georgia corporation (the "Company").


     SECTION 1.  Name, Purpose and Definitions.

     1.1 Name and Purpose. The Company is adopting The Enstar Group, Inc. 1997
Omnibus Incentive Plan (the "Plan") to secure and retain the services of
officers, key employees, and directors of the Company by giving them an
opportunity to invest in the future success of the Company. The Board of
Directors of the Company (the "Board of Directors") believes the Plan will
promote personal interest in the welfare of the Company by, and provide an
incentive to, the individuals who are primarily responsible for the regular
operations of the Company and for shaping and carrying out the long term plans
of the Company, thus facilitating the continued growth and financial success of
the Company.

     1.2 Definition.  Whenever used in the Plan, the following terms shall have
the meaning set forth below:

          (a) "Affiliate" shall mean any affiliate or subsidiary (direct or
     indirect) of the Company, which the Board of Directors may from time to
     time determine to bring under the Plan and which shall adopt the Plan, and
     any successor of any of them.

          (b) "Award" shall mean, individually and collectively, any Option,
     Stock Appreciation Rights, or Restricted Stock granted under the Plan.

          (c) "Base Value" shall mean the Fair Market Value of a Stock
     Appreciation Right on the date of its grant.

          (d) "Board of Directors" shall mean the Board of Directors of the
     Company.

          (e) "Committee" shall mean a committee composed of not fewer than two
     (2) members of the Board of Directors, all of which shall be
     "disinterested" persons as defined in Section 2 hereof.

          (f) "Common Stock" shall mean the Common Stock of The Enstar Group,
     Inc.

          (g) "Code" shall mean the Internal Revenue Code of 1986, as amended
     from time to time.

          (h) "Company" shall mean The Enstar Group, Inc.

          (i) "Disability" shall have the meaning set forth in Section 22(e)(3)
     of the Code.

          (j) "Employee" shall mean any person who is currently employed by the
     Company or an Affiliate.


          (k) "Effective Date" shall mean May 20, 1997, provided, however, that
     the Plan's adoption is subject to ratification by the shareholders of the
     Company at the Company's first annual meeting after the Company's Common
     Stock is distributed to its former shareholders.


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          (l) "Fair Market Value" shall mean the fair market value of Common
     Stock on the date of a grant or exercise of an Award, as the case may be,
     as determined by a methodology adopted by the Board of Directors or the
     Committee.

          (m) "Incentive Stock Option" shall mean a stock option within the
     meaning of Section 422 of the Code granted pursuant to Section 4.1(a).

          (n) "Nonqualified Stock Option" shall mean an Option, other than an
     Incentive Stock Option, granted pursuant to Section 4.1(b).

          (o) "Option" shall mean, individually and collectively, an Incentive
     Stock Option and a Nonqualified Stock Option to purchase Common Stock.

          (p) "Option Price" shall mean the price per share of Common Stock set
     by the grant of an Option, but in no event less than the Fair Market Value
     of the Option.

          (q) "Participant" shall mean those officers, key employees and
     directors of the Company, and its Affiliates to whom Awards may be granted.

          (r) "Restricted Stock" shall mean an Award granted pursuant to Section
     4.1(d).

          (s) "Separation Date" shall mean, as determined by the Committee, the
     date on which a Participant's employment with the Company or an Affiliate
     terminates for reasons other than his transfer of employment to another
     Employing Company; and in the case of a Participant who is solely a
     director shall mean the date of such Participant is no longer a director of
     the Company. Whether any leave of absence shall constitute termination of
     employment for the purposes of the Plan shall be determined in each case by
     the Committee at its sole discretion.

          (t) "Stock Appreciation Rights" or "SAR's" shall mean a right to any
     appreciation in shares of Common Stock granted pursuant to Section 4.1(c).


         SECTION 2. Administration. The Board of Directors shall appoint at
least two of its members to a committee (the "Committee") that will administer
the Plan on behalf of the Company. Except as may otherwise be provided in Rule
16b-3 of the Securities Exchange Act of 1934 (if applicable), no person shall be
appointed as a member of the Committee who is, or within one year prior to his
becoming a member of the Committee was, granted or awarded equity securities
pursuant to the Plan or any other plan of the Company or an affiliate, if such
grant or award would cause that person not to be "disinterested" for purposes of
Rule 16b-3 as promulgated pursuant to the Securities Exchange Act of 1934.

     Each member of the Committee shall serve at the pleasure of the Board of
Directors, which may fill any vacancy, however caused, in the Committee. The
Committee shall select one of its members as a chairman and shall hold meetings
at the times and in the places as it shall deem advisable. All actions the
Committee takes shall be made by majority decision. Any action evidenced by a
written instrument signed by all of the members of the Committee shall be as
fully effective as if the Committee had taken the action by majority vote at a
meeting duly called and held.

     The Committee shall also have complete and conclusive authority to (1)
interpret the Plan, (2) prescribe, amend, and rescind rules and regulations
relating to it, (3) determine the terms and provisions of the agreements the
Company makes with Participants (the "Agreement"), the terms of which need not
be identical, and (4) make all other determinations necessary or advisable for
the administration of the Plan. With respect to each Award granted hereunder,
the Agreement evidencing the grant shall specifically state whether the Option
is an Incentive Stock Option, a Nonqualified Stock Option, an Award of
Restricted Stock or an Award of SAR's.

     In addition to any other rights of indemnification that they may have as


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directors of the Company or as members of the Committee, the directors of the
Company and members of the Committee shall be indemnified by the Company against
the reasonable expenses, including attorneys' fees, actually and necessarily
incurred in connection with the defense of any action, suit or proceeding, or in
connection with any appeal therein, to which they or any of them may be a party
by reason of action taken or failure to act under or in connection with the Plan
or any Award granted thereunder, and against all amounts paid by them in
settlement thereof (provided the settlement is approved by independent legal
counsel selected by the Company) or paid by them in satisfaction of a judgment
in any action, suit or proceeding, except in relation to matters as to which it
shall be adjudged in the action, suit or proceeding that the Committee member is
liable for negligence or misconduct in the performance of his duties; provided
that within sixty (60) days after institution of any action, suit or proceeding,
a Committee member shall in writing offer the Company the opportunity, at its
own expense, to handle and defend the same.


         SECTION 3.  Eligibility.  The Committee shall grant Awards only to
officers, key employees, and directors of the Company or its Affiliates;
provided, however, that an Incentive Stock Option may only be granted if such
individual is an employee of the Company or an Affiliate. Subject to the limits
set forth in this Plan, the Committee at any time may grant additional Awards to
directors, officers or key employees to whom the Committee had previously
granted Awards, so that a Participant may hold more than one Award at the same
time. Notwithstanding anything in the Plan to the contrary, neither J.
Christopher Flowers, nor Jeffrey S. Halis, nor T. Whit Armstrong, nor T. Wayne
Davis shall be eligible to receive any Award under the Plan or eligible to be a
Participant under the Plan.


         SECTION 4.

        4.1 Awards. The Committee shall determine the forms and amounts of
Awards for Participants; provided that in no event shall any Award be effective
until the shareholders of the Company have ratified the Plan. All Awards shall
be subject to the terms and conditions of the Plan and to such other terms and
conditions consistent with the Plan as the Committee deems appropriate. Awards
under the Plan need not be uniform and Awards under two (2) or more paragraphs
may be combined in one agreement. Any combination of Awards may be granted at
one time and on more than one occasion to the same Participant. Such Awards may
take the following forms, in the Committee's sole discretion:


          (a) Incentive Stock Options -- These shall be stock options within the
     meaning of Section 422 of the Code to purchase Common Stock. In addition to
     other restrictions contained in the Plan, an Incentive Stock Option (1)
     shall not be exercised more than ten (10) years after the date it is
     granted, (2) shall not have an Option Price less than the Fair Market Value
     of Common Stock on the date the Incentive Stock Option is granted, (3)
     shall otherwise comply with Section 422 of the Code, and (4) shall be
     designated as an "Incentive Stock Option" by the Committee. The aggregate
     Fair Market Value of Common Stock determined at the time of each grant for
     which any Participant may exercise Incentive Stock Options under this Plan
     for any calendar year shall not exceed $100,000. Subject to the provisions
     of Section 5.1 hereof, no Incentive Stock Option may be exercised during
     the first twelve (12) months following its grant.

          (b) Nonqualified Stock Options -- These shall be stock options to
     purchase Common Stock which are not designated by the Committee as
     "Incentive Stock Options." At the time of the grant, the Committee shall
     determine the Option exercise period, the Option Price, and such other
     conditions or restrictions on the exercise of the Nonqualified Stock Option
     as the Committee deems appropriate. In addition to other restrictions
     contained in the Plan, a Nonqualified Stock Option (1) shall not be
     exercised more than ten (10) years after the date it is granted, and (2)
     shall not have an Option Price less than 100% of the Fair Market Value of
     Common Stock on the date the Nonqualified Stock Option is granted. Subject
     to the provisions of Section 5.1 hereof, no Nonqualified Stock Options
     granted under this Plan may be exercised during the first twelve (12)
     months following its grant.


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          (c) Stock Appreciation Rights -- These shall be rights that on
     exercise entitle the holder to receive the excess of (1) the Fair Market
     Value of Common Stock on the date of exercise over (2) its Base Value
     multiplied by (3) the number of SAR's exercised. Such rights shall be
     satisfied in cash, stock, or a combination thereof, as determined by the
     Committee. Stock Appreciation Rights granted under the Plan may be granted
     in the sole discretion of the Committee in conjunction with an Incentive
     Stock Option or Nonqualified Stock Option under the Plan. The Committee may
     impose such conditions or restrictions on the exercise of SAR's as it deems
     appropriate and may terminate, amend, or suspend such SAR's at any time.
     Subject to the provisions of Section 5.1 hereof, no SAR's granted under
     this Plan shall be exercised less than one (1) year or more than ten (10)
     years after the date it is granted.

          (d) Restricted Stock -- Restricted Stock shall be shares of Common
     Stock held by the Company for the benefit of a Participant without payment
     of consideration, with restrictions or conditions upon the Participant's
     right to transfer or sell such shares. The following provisions shall be
     applicable to Restricted Stock Awards:

             (1) Each certificate for Restricted Stock shall be registered in
        the name of the Participant and shall be deposited by him with the
        Company, together with a stock power endorsed in blank.

             (2) At the time of making a Restricted Stock Award, the Committee
        shall establish the "Restriction Period" applicable thereto. Such
        Restriction Period shall range from three (3) to ten (10) years as
        determined by the Committee. The Committee may provide for the annual
        lapse of restrictions with respect to a specified percentage of the
        Restricted Stock, provided the Participant satisfies all eligibility
        requirements at such time.

             (3) The Participant shall be entitled to receive dividends during
        the Restriction Period and shall have the right to vote such Common
        Stock and exercise all other shareholder's rights except the following:

                (i) the Participant shall not be entitled to delivery of the
           stock certificate during the Restriction Period,

                (ii) the Company shall retain custody of the Restricted Stock
           during the Restriction Period, and

                (iii) a breach of a restriction or a breach of the terms and
           conditions established by the Committee with respect to the
           Restricted Stock shall cause a forfeiture of the Restricted Stock.

             (4) The Committee may, in its sole discretion, prescribe such
        additional restrictions, terms, or conditions upon or to the Restricted
        Stock Awards as it may deem necessary or appropriate.

     4.2 Individual Agreements. After the Committee determines a form and amount
of a Participant's Award, it shall cause the Company to enter into such written
agreement or agreements with the Participant setting forth the form and amount
of the Award and any conditions and restrictions on the Award imposed by the
Plan and the Committee.

     4.3 Exercise and Payment. Options may be exercised from time to time by
giving notice to the Committee, specifying the number of shares to be purchased.
Notice of exercise shall be accompanied by payment in full of the Option Price
in cash. The Committee, in its discretion, may permit the Option Price to be
paid in whole or in part through the transfer to the Company of shares of Common
Stock previously acquired by the Participant; provided, however, that the shares
so transferred shall have been held by the Participant for a period of more than
six (6) months and no Restricted Stock may be transferred as payment of the
Option Price. In the event the Option Price is paid, in whole or in part, with
shares of Common Stock, such shares shall be valued at their Fair Market Value,
as of the date of exercise of the Option. Such shares shall be delivered, along


   5

with any portion to be paid in cash, within five (5) days after the date of
exercise. If the Participant fails to pay the Option Price within such five (5)
day period, the Committee shall have the right to take whatever action it deems
appropriate, including voiding the exercise of the Option. The Company shall not
issue or transfer Common Stock upon the exercise of an Option until the Option
Price is fully paid.

     4.4 Transfer of Awards. The Committee may, in its discretion, provide that
any Award may be transferred by a Participant to or among his spouse, children
and grandchildren or to one or more trusts or partnerships in which one or more
of such persons hold the primary beneficial interests, or the Committee may
allow transferability in other appropriate circumstances.


     SECTION 5.

     5.1 Termination of Employment. A Participant whose employment terminates
for reasons other than retirement, Disability, or death shall, in the discretion
of the Committee, have no right to receive any benefit or payment for existing
Awards under the Plan. Any outstanding Award shall terminate on the
Participant's Separation Date; provided, however, that the Committee, in its
sole discretion, may permit the exercise of any outstanding Award after the
Participant's Separation Date, but in no event beyond the earlier of (a) three
(3) months from the Participant's Separation Date or (b) the expiration date of
the Award, to the extent exercisable on such Participant's Separation Date.

     5.2 Death of a Participant. In the event of the death of a Participant
prior to the exercise of all Incentive Stock Options, Nonqualified Stock
Options, and Stock Appreciation Rights granted to such Participant, the
administrator of the deceased Participant's estate, the executor under his will,
or the person or persons to whom the Options or SAR's shall have been validly
transferred by such executor or administrator pursuant to the will or laws of
interstate succession shall have the right, within one year from the date of
such Participant's death, but not beyond the expiration date of the Options or
SAR's, to exercise such Options or SAR's to the extent exercisable on such
Participant's Separation Date.

     5.3 Retirement. (a) In the event of the termination of a Participant's
employment due to his retirement prior to the exercise of all Incentive Stock
Options granted to the Participant, such Participant shall have the right,
within three (3) months of his Separation Date, but not beyond the expiration of
such Options, to exercise such Incentive Stock Options to the extent exercisable
on his Separation Date.

     (b) In the event of the termination of a Participant's employment due to
his retirement prior to the exercise of all Nonqualified Stock Options or Stock
Appreciation Rights granted to the Participant, such Participant shall have the
right, within thirty-six (36) months of his Separation Date, but not beyond the
expiration date of such Nonqualified Stock Options or SAR's, to exercise such
Nonqualified Stock Options or SAR's to the extent exercisable on his Separation
Date.

     5.4 Disability. (a) In the event of the termination of a Participant's
employment due to Disability prior to the exercise of all Incentive Stock
Options granted to the Participant, such Participant or his legal representative
shall have the right, within twelve (12) months of his Separation Date, but not
beyond the expiration date of such Incentive Stock Options, to exercise such
Incentive Stock Options to the extent exercisable on his Separation Date.

     (b) In the event of the termination of a Participant's employment due to
Disability prior to the exercise of all Nonqualified Stock Options and Stock
Appreciation Rights granted to the Participant, such Participant or his legal
representative shall have the right, within thirty-six (36) months of his
Separation Date, but not beyond the expiration date of such Nonqualified Stock
Options or SAR's, to exercise such Nonqualified Stock Options or SAR's to the
extent exercisable on his Separation Date.


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     SECTION 6.


     6.1 Limitation of Shares of Common Stock Available Under the Plan. (a) The
total number of shares of Common Stock available to be granted by the Committee
as Awards to the Participants under the Plan shall not exceed 322,500 shares.
The aggregate number of shares of Common Stock to be granted as Awards to any
individual Participant shall not exceed 200,000 shares.


     (b) The total number of shares available under Section 6.1(a) shall be
reduced from time to time in the manner specified:

          (1) Incentive Stock Options and Nonqualified Stock Options -- The
     grant of an Incentive Stock Option and Nonqualified Stock Option shall
     reduce the available shares by the number of shares subject to such Option.

          (2) Stock Appreciation Rights -- The grant of Stock Appreciation
     Rights shall reduce the available shares by the number of SAR's granted;
     provided, however, if SAR's are granted in conjunction with an Option and
     the exercise of such Option would cancel the SAR's and vice versa, then the
     grant of the SAR's will only reduce the amount available by the excess, if
     any, of the number of SAR's granted over the number of shares subjected to
     the related Option.

          (3) Restricted Stock -- The grant of Restricted Stock shall reduce the
     available shares by the number of shares of Restricted Stock granted.

(c) The total number of shares available under Section 6.1(a) shall be increased
from time to time in the manner specified:

          (1) Incentive Stock Options and Nonqualified Stock Options -- The
     lapse or cancellation of an Incentive Stock Option or Nonqualified Stock
     Option shall increase the available shares by the number of shares released
     from such Option; provided, however, in the event the cancellation of an
     Option is due to the exercise of SAR's related to such Option, the
     cancellation of such Option shall only increase the amount available by the
     excess, if any, of the number of shares released from such Option over the
     number of SAR's exercised.

          (2) Stock Appreciation Rights -- The lapse or cancellation of Stock
     Appreciation Rights shall increase the available shares by the number of
     SAR's which lapse or are cancelled; provided, however, in the event the
     cancellation of such SAR's is due to the exercise of an Option related to
     such SAR's, the cancellation of such SAR's shall only increase the
     available shares by the excess, if any, of the number of SAR's cancelled
     over the number of shares delivered on the exercise of such Option.

          (3) Restricted Shares -- The reversion of Restricted Stock to the
     Company due to the breach or occurrence of a restriction or condition on
     such shares shall increase the available shares by the number of shares of
     Restricted Stock reverted.


         SECTION 7. Adjustment Upon Changes in Capitalization. The total number
of shares of Common Stock available for Awards under the Plan or allocable to
any individual Participant, the number of shares of Common Stock subject to
outstanding Options, the exercise price for such Options, the number of
outstanding SAR's, and the Base Value of such SAR's shall be appropriately
adjusted by the Committee for any increase or decrease in the number of
outstanding shares of Common Stock resulting from a stock dividend, subdivision
or combination of shares, or reclassification. In the event of a merger or
consolidation of the Company or a tender offer for shares of Common Stock, the
Committee may make such adjustments with respect to Awards under the Plan and
take such other action as it deems necessary or appropriate to reflect, or in
anticipation of, such merger, consolidation, or tender offer, including without
limitation the substitution of new Awards, the termination or adjustment of


   7

outstanding Awards, the acceleration of Awards, or the removal of limitations or
restrictions on outstanding Awards.

     SECTION 8. Terms and Conditions of All Awards. The Committee may include in
any Award it grants a condition that the Participant shall agree to remain an
employee of and/or to render services to the Company or any of its Affiliates
for a specified period of time following the date it grants the Award. This
condition shall not impose on the Company or any Affiliate any obligation to
employ the Participant or retain the Participant as a director for any period of
time.

     The Committee may require any person to whom an Award is granted, as a
condition of exercising such Award, to give written assurances in substance and
form satisfactory to the Company to the effect that such person is acquiring the
Common Stock subject to the Award for his or her own account for investment and
not with any present intention of selling or otherwise distributing the same,
and to such other effects as the Company deems necessary or appropriate in order
to comply with federal and applicable state securities laws, or with covenants
or representations made by the Company in connection with any public offering of
its Common Stock.

     Each Award shall be subject to the requirement that if, at any time,
counsel to the Company shall determine that the listing, registration or
qualification of the Common Stock subject to such Award upon any securities
exchange or under any state or federal law, or the consent or approval of any
governmental or regulatory body, or that the disclosure of non-public
information or the satisfaction of any other condition is necessary as a
condition of, or in connection with the issuance or purchase of Common Stock
thereunder, such Award may not be exercised, in whole or in part, unless such
listing, registration, qualification, consent or approval, or satisfaction of
such condition shall have been effected or obtained on conditions acceptable to
the Board of Directors. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification, or to
satisfy such condition.

     SECTION 9. Compliance with Code for Incentive Stock Options. All Incentive
Stock Options are intended to comply with Code Section 422, and all provisions
of the Plan and all Incentive Stock Options granted hereunder shall be construed
in such manner as to effectuate that intent.


     SECTION 10. Term of Plan. The effective date of the Plan shall be May 20,
1997, subject to subsequent shareholder ratification of the Plan. The Plan shall
terminate ten (10) years after that date. The Committee may grant Awards
pursuant to the Plan at any time on or between that effective date and that
termination date.


     SECTION 11.  Withholding Taxes.  Whenever the Company proposes or is
required to issue Common Stock to an Participant who is or was an employee of
the Company or an Affiliate, or his legatee or legal representative under the
Plan, the Company shall have the right to require the recipient to remit in cash
to the Company an amount sufficient to satisfy any federal, state, and local
withholding tax requirements prior to the delivery of any certificate or
certificates for such Common Stock.


     SECTION 12. Assignability. Except as Section 4.4 or Section 5.2 of the Plan
permits, no Award or any of the rights and privileges thereof accruing to a
Participant shall be transferred, assigned, pledged or hypothecated in any way
whether by operation of law or otherwise, and no Award, right or privilege shall
be subject to execution, attachment or similar process. Except as permitted
pursuant to Section 4.4 of the Plan, no election as to benefits or exercise of
Options, SAR's, or other rights, may be made during a Participant's lifetime by
anyone other than the Participant.


   8

     SECTION 13. The Right of the Company to Terminate Employment. No provision
in the Plan or any Award shall confer upon any Participant any right to continue
in the employment of the Company or any subsidiary of the Company or to continue
performing services for or to interfere in any way with the right of the Company
or any subsidiary of the Company to terminate his employment or discontinue his
directorship at any time for any reason.

     SECTION 14. Amendment and Termination. The Board of Directors at any time
may amend or terminate the Plan without shareholder approval; provided, however,
that the Board of Directors may condition any amendment on the approval of the
shareholders of the Company if such approval is necessary or advisable with
respect to tax, securities (which require such approval for a material increase
of the number of shares of Common Stock subject to the Plan, and for material
modifications to the eligibility requirements of the Plan, among others) or
other applicable laws to which the Company, the Plan, optionees or eligible
employees are subject. No amendment or termination of the Plan shall affect the
rights of a Participant with regard to his Awards without his consent.

     SECTION 15. Choice of Law.  The laws of the State of Georgia shall govern
the Plan.


     SECTION 16. Approval of Shareholders. The Company shall submit the Plan to
its shareholders for ratification within twelve (12) months of the adoption of
the Plan by the Board of Directors; failure to receive their approval shall
render all outstanding Awards immediately void and of no effect.