<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 19, 1996
Registration No. 333-4159
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
SETAB ALPHA, INC.
(Exact Name of Registrant as Specified in its Charter)
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<S> <C> <C>
MISSOURI 6770 43-1717111
(State or jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or organization) Classification Code Number) identification number)
</TABLE>
244 B GREENYARD DRIVE
BALLWIN, MISSOURI 63011
(314) 394-6349
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
DOUGLAS J. BATES
244 B GREENYARD DRIVE
BALLWIN, MISSOURI 63011
(314) 394-6349
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
----------------------
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND ALL OTHER
CONDITIONS TO CONSUMMATION OF THE TRANSACTIONS DESCRIBED IN THAT CERTAIN
AGREEMENT AND PLAN OF MERGER DATED AS OF MAY 1, 1996 BETWEEN THE REGISTRANT AND
AMERICAN ARTISTS FILM CORPORATION HAVE BEEN SATISFIED OR WAIVED.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
----------------------
CALCULATION OF REGISTRATION FEE
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===============================================================================================================================
Amount Proposed maximum Proposed maximum Amount of
Title of each class of to be offering price aggregate offering registration fee
securities to be registered registered per Share price
_______________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C>
Class A Common Stock, $0.001 par value per share 11,900 Shares $ - $895,023 $308.63(a)(b)
Class B Common Stock, $0.001 par value per share 6,250,379 Shares $ -
============================================================================================================================
</TABLE>
----------------------
(a) The number of shares being registered is based on (i) the maximum
number of shares of American Artists Film Corporation Common Stock which may be
outstanding when the Merger is consummated, determined on the basis of the sum
of (A) the number of shares of American Artists Film Corporation Common Stock
currently outstanding and (B) the number of such shares which are subject to
currently exercisable options or warrants, multiplied by (ii) the conversion
ratio to be applied in the merger described herein. Because there is no market
for the securities being registered or the securities to be cancelled in the
merger, the filing fee has been calculated in accordance with Rule 457(f)(2)
under the Securities Act of 1933.
(b) A filing fee of $301.23 was paid by the registrant with its original
filing on May 21, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
1244 FOWLER STREET, N.W.
ATLANTA, GEORGIA 30318
July __, 1996
Dear Shareholder:
The Board of Directors cordially invites you to attend a special
meeting of the shareholders of American Artists Film Corporation
("American Artists") to be held at ____________________ on August __,
1996, at 10:00 a.m., local time.
At this important meeting, you will be asked to vote on a proposal
to approve and adopt an agreement and plan of merger dated as of May 1,
1996 (the "Merger Agreement"), providing for the merger (the "Merger") of
American Artists with and into Setab Alpha, Inc., a Missouri corporation
("Setab Alpha"). Approval of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares
of American Artists common stock.
In view of the importance of the action to be taken at this
important special meeting of shareholders, we urge you to carefully
review the accompanying notice of special meeting of shareholders and the
Proxy Statement/Prospectus, including the annexes thereto, which also
include information on American Artists and Setab Alpha. Whether or not
you expect to attend the special meeting, please complete, sign and date
the enclosed proxy and return it as promptly as possible.
Sincerely,
Steven D. Brown, Co-Chairman of the
Board and Chief Executive Officer
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
1244 FOWLER STREET, N.W.
ATLANTA, GEORGIA 30318
--------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST ___, 1996
To the Shareholders of
American Artists Film Corporation:
Notice is hereby given that a special meeting of the shareholders of
American Artists Film Corporation, a Georgia corporation ("American
Artists"), will be held on August ___, 1996 at 10:00 a.m., Atlanta,
Georgia Time, at _______________ for the purpose of considering and
voting on a proposal to approve and adopt the Agreement and Plan of
Merger dated as of May 1, 1996 (the "Merger Agreement"), by and between
American Artists and Setab Alpha, Inc,. a Missouri corporation ("Setab
Alpha"), pursuant to which (i) American Artists will be merged with and
into Setab Alpha with Setab Alpha as the surviving corporation under the
name "American Artists Film Corporation" and (ii) each outstanding share
(other than shares held in the treasury of American Artists, if any,
which will be cancelled) of American Artists common stock will be
converted into 0.5862 share of the surviving company's capital stock, of
which the first 100 shares issued to each American Artists Shareholder
will be issued as Class A Common Stock and the remainder as Class B
Common Stock. A copy of the Merger Agreement is attached as Annex A to
the accompanying Proxy Statement/Prospectus. The consummation of the
Merger is subject to the fulfillment or waiver of various conditions
specified in the Merger Agreement.
The Board of Directors has fixed the close of business on
_____________, 1996 as the record date for the determination of holders
of American Artists Common Stock entitled to notice of, and to vote at,
the meeting and adjournment or postponements thereof. THE BOARD OF
DIRECTORS RECOMMENDS THE MERGER AGREEMENT TO THE SHAREHOLDERS OF AMERICAN
ARTISTS AND REQUESTS THAT THEY VOTE IN FAVOR OF ITS ADOPTION AND
APPROVAL. The approval and adoption of the Merger Agreement requires the
affirmative vote of the holders of a majority of the outstanding shares
of American Artists Common Stock entitled to vote at the meeting. The
executive officers and directors of American Artists have expressed an
intention to vote in favor of the foregoing proposal.
Shareholders are or may be entitled to assert dissenters' rights
under Article 13 of the Georgia Business Corporation Code (OCG (S)(S)14-
2-1301 et. seq.), a copy of which is attached as Exhibit B to the
accompanying Proxy Statement/Prospectus.
WHETHER OR NOT YOU PLAN TO ATTEND THIS IMPORTANT MEETING, PLEASE
SIGN AND DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED
ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE
MEETING.
By order of the Board of Directors
J. Eric Van Atta
Vice President and Secretary
Atlanta, Georgia
July ___, 1996
<PAGE>
PROSPECTUS PROXY STATEMENT
SETAB ALPHA, INC. AMERICAN ARTISTS FILM CORPORATION
11,900 SHARES OF CLASS A COMMON STOCK FOR SPECIAL MEETING OF SHAREHOLDERS
6,250,379 SHARES OF CLASS B COMMON STOCK TO BE HELD AUGUST __, 1996
This Proxy Statement/Prospectus is being furnished to the
shareholders of American Artists Film Corporation ("American Artists") in
connection with the solicitation of proxies by the Board of Directors of
American Artists from holders of issued and outstanding shares of common
stock of American Artists, par value $0.05 per share (the "American
Artists Common Stock"), for use at a Special Meeting of shareholders of
American Artists to be held on August __, 1996, at _________________, and
at any and all adjournments or postponements thereof (the "Special
Meeting"). The Special Meeting has been called for the purpose of voting
on a proposed merger (the "Merger") of American Artists with and into
Setab Alpha, Inc., a Missouri corporation ("Setab Alpha"), with Setab
Alpha as the surviving corporation of the Merger (the "Surviving
Corporation"). If the Merger is consummated, each outstanding share of
American Artists Common Stock (except shares held by holders who have
validly perfected their dissenters' rights under applicable law and
shares held in treasury) will be converted into 0.5862 share of the
capital stock of the Surviving Corporation, of which the first 100 shares
of such capital stock issued to each shareholder will be issued as Class
A Common Stock, par value $.001 per share (the "Class A Common Stock")
and the remainder as Class B Common Stock, par value $.001 per share (the
"Class B Common Stock"), rounded to the nearest whole share. Following
the consummation of the Merger, assuming no options or warrants to
purchase American Artists Common Stock are exercised between the date of
this Proxy Statement/Prospectus and the effective time of the Merger (the
"Effective Time"), the pre-Merger shareholders of American Artists (the
"American Artists Shareholders") will hold 88.7% of the outstanding
Common Stock of the Surviving Corporation (including all of the
outstanding shares of Class B Common Stock), and the pre-Merger
shareholders of Setab Alpha will hold the remaining 11.3% of the Common
Stock of the Surviving Corporation. The Surviving Corporation will be
re-named American Artists Film Corporation.
Setab Alpha has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Securities and Exchange Commission
(the "Commission") pursuant to the Securities Act of 1933, as amended
(the "Securities Act"), covering the shares of Class A and Class B Common
Stock to be issued in connection with the Merger (including shares
issuable in respect of shares of American Artists Common Stock which may
be issued prior to the Merger upon the exercise of currently exercisable
options and warrants). This Proxy Statement also constitutes the
Prospectus of Setab Alpha, with respect to such shares of Class A and
Class B Common Stock.
In _________ 1996, Setab Alpha commenced an all-or-none public
offering (the "Public Offering") of 700,000 shares of its Class A Common
Stock. Setab Alpha has filed a registration statement on Form SB-2 with
the Commission with respect to the Public Offering. The amount of
proceeds expected to be received by Setab Alpha from the sale of the
shares of Class A Common Stock in the Public Offering after payment of
offering expenses, payment of loans and consulting fees owed to
shareholders and expenses relating to the Merger are anticipated to be
approximately $8,000. The consummation of the Merger is conditioned on,
among other things, the receipt by Setab Alpha of valid subscriptions for
the sale of the shares of Class A Common Stock offered in the Public
Offering from not less than 200 persons and consummation of the Public
Offering; however, such condition may be waived by American Artists. If
(i) valid subscriptions for all the shares offered in the Public Offering
are not received on or before December 31, 1996, or (ii) the Merger
Agreement is terminated prior to consummation of the Merger, the Public
Offering will be terminated.
All information contained herein with respect to American Artists
and its subsidiaries has been provided by American Artists and all
information contained herein with respect to Setab Alpha has been
provided by Setab Alpha.
FOR A DISCUSSION OF CERTAIN FACTORS WHICH SHOULD BE CONSIDERED WHEN
EVALUATING THE TRANSACTIONS CONTEMPLATED BY THIS PROXY
STATEMENT/PROSPECTUS, SEE "RISK FACTORS," BEGINNING ON PAGE 10.
This Proxy Statement/Prospectus, the Letter to American Artists
Shareholders, the Notice of Meeting and the form of proxy for use at the
Special Meeting are being first mailed to American Artists Shareholders
on or about ___________, 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
______________________
The date of this Proxy Statement/Prospectus is _____________, 1996.
<PAGE>
AVAILABLE INFORMATION
Setab Alpha has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form SB-2 (the "SB-2
Registration Statement"), with respect to 700,000 shares of Class A
Common Stock and a registration statement on Form S-4 (the "S-4
Registration Statement") with respect to those shares of Class A and
Class B Common Stock to be issued in the Merger. Each such Registration
Statement has been declared effective by the Commission. Prior to the
effectiveness of such Registration Statements, Setab Alpha has not been
subject to the periodic reporting requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). This Prospectus is part of
the S-4 Registration Statement, but does not contain all of the
information set forth in the S-4 Registration Statement and the exhibits
filed therewith or incorporated by reference therein. For further
information with respect to Setab Alpha and the shares of Class A and
Class B Common Stock offered hereby, reference is hereby made to such S-4
Registration Statement and to the financial statements and exhibits filed
therewith. Statements contained in this Prospectus regarding the contents
of any contract or other document referred to are not necessarily
complete and, in each instance, reference is made to the copy of such
contract or the document filed as an exhibit to the S-4 Registration
Statement, each such statement being qualified in all respects by such
reference. The S-4 Registration Statement, including the exhibits
thereto, may be inspected and copied at the principal office of the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and at the regional offices of the Commission at Room 1400, 7 World Trade
Center, New York, New York 10048 and at Suite 1400, Northwestern Atrium
Center, 500 West Madison Street, Chicago, Illinois 60661-2511. Copies of
such material can be obtained at prescribed rates from the Public
Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Copies of the S-4 Registration Statement also can
be obtained through the Commission's World Wide Web site at
http://www.sec.gov/.
No person is authorized to give any information or to make any
representation with respect to this Proxy Statement/Prospectus other than
information and representations contained herein and, if given or made,
such information or representation must not be relied upon as having been
authorized by Setab Alpha, American Artists or any other person. This
Proxy Statement/Prospectus does not constitute an offer to sell, or a
solicitation of an offer to purchase, any securities, or a solicitation
of a proxy, in any jurisdiction which, or to or from any person to or
from whom, it is unlawful to make such an offer or solicitation. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities hereunder shall under any circumstances be deemed to imply
that there has been no change in the assets, properties or affairs of
Setab Alpha or American Artists since the date hereof or that the
information set forth herein is correct as of any time subsequent to the
date hereof.
REPORTS TO SECURITY HOLDERS
Setab Alpha intends to distribute to its shareholders annual reports
containing financial statements which have been certified by Setab
Alpha's independent accountants and may, in its discretion, distribute
quarterly reports containing unaudited financial information for each of
the first three quarters of each year.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
----
<S> <C>
AVAILABLE INFORMATION............................................... 2
REPORTS TO SECURITY HOLDERS......................................... 2
SUMMARY............................................................. 4
RISK FACTORS........................................................ 10
THE MERGER AGREEMENT................................................ 14
CAPITALIZATION OF SETAB ALPHA....................................... 20
SELECTED FINANCIAL INFORMATION...................................... 21
INFORMATION REGARDING SETAB ALPHA, INC.............................. 21
INFORMATION REGARDING AMERICAN ARTISTS.............................. 25
DESCRIPTION OF CAPITAL STOCK........................................ 41
CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BYLAWS OF SETAB ALPHA........................... 48
RIGHTS OF DISSENTING SHAREHOLDERS................................... 50
SHARES ELIGIBLE FOR FUTURE SALE..................................... 51
LEGAL MATTERS....................................................... 52
EXPERTS............................................................. 52
INDEX TO FINANCIAL STATEMENTS....................................... F-1
AGREEMENT AND PLAN OF MERGER........................................ A-1
GEORGIA DISSENTERS' RIGHTS STATUTES................................. B-1
</TABLE>
3
<PAGE>
SUMMARY
The following is a summary of certain information contained
elsewhere in this Proxy Statement/Prospectus. Reference is made to, and
this summary is qualified in its entirety by, the more detailed
information and financial statements, including the notes thereto,
appearing elsewhere in this Proxy Statement/Prospectus and appendices or
attachments hereto.
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE
DISCUSSION IN THIS PROXY STATEMENT/PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WITH RESPECT TO SETAB ALPHA AND AMERICAN ARTISTS AND ITS
SUBSIDIARIES THAT INVOLVE RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS OF
SETAB ALPHA AND AMERICAN ARTISTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH
DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK
FACTORS," BEGINNING ON PAGE 10, AS WELL AS THOSE DISCUSSED ELSEWHERE IN
THIS PROXY STATEMENT/PROSPECTUS.
AMERICAN ARTISTS
American Artists Film Corporation ("American Artists"), a Georgia
corporation, was formed in July 1991. American Artists and its
subsidiaries are engaged in the production of television commercials, the
development and production of television specials and related properties,
and the development of feature-length motion picture screenplays and
other media products for possible future production or license.
American Artists' executive office is located at 1245 Fowler Street,
N.W., Atlanta, Georgia, and its telephone number is (404) 876-7373.
SETAB ALPHA
Setab Alpha, Inc. ("Setab Alpha") was formed in July, 1995, under
the laws of the State of Missouri for the purpose of engaging in a merger
or other business combination with a then unidentified operating company.
In May 1996, Setab Alpha entered an Agreement and Plan of Merger (the
"Merger Agreement") with American Artists. Setab Alpha has no
predecessors and has never engaged in any business activity, other than
with respect to organizational matters, the Public Offering and the
Merger Agreement. The Merger, if consummated, will result in the
transfer of control over Setab Alpha's affairs to the shareholders of
American Artists (the "American Artists Shareholders"), and the business
and management of American Artists will thereafter be the business and
management of the Surviving Corporation. See "INFORMATION REGARDING
AMERICAN ARTISTS - Business of American Artists" and "- Management."
Concurrent with the first mailing of this Proxy Statement/Prospectus
to the American Artists Shareholders, Setab Alpha commenced an all-or-
none public offering (the "Public Offering") of 700,000 shares of its
Class A common stock, par value $.001 per share (the "Class A Common
Stock"). The amount of proceeds expected to be received by Setab Alpha
from the sale of the shares of Class A Common Stock in the Public
Offering after payment of offering expenses, payment of loans and
consulting fees owed to shareholders and expenses relating to the Merger
are anticipated to be approximately $8,000. The consummation of the
Merger is conditioned on, among other things, the receipt by Setab Alpha
of valid subscriptions for the sale of the shares of Class A Common Stock
offered in the Public Offering from not less than 200 persons and the
consummation of the Public Offering; however such condition may be waived
by American Artists. If (i) valid subscriptions for all the shares
offered in the Public Offering are not received on or before December 31,
1996, or (ii) the Merger Agreement is terminated prior to consummation of
the Merger, the Public Offering will be terminated. See "THE MERGER
AGREEMENT -Conditions".
Setab Alpha's executive office is located at 244 B Greenyard Drive,
Ballwin, Missouri 63011, and its telephone number is (314) 394-6349.
4
<PAGE>
THE MERGER AGREEMENT
Under the terms of the Merger Agreement, American Artists will merge
with and into Setab Alpha, with the Surviving Corporation to be re-named
American Artists Film Corporation. By reason of the Merger, the American
Artists Shareholders will become shareholders of the Surviving
Corporation, the separate existence of American Artists will cease, and
the business and management of American Artists will thereafter be the
business and management of the Surviving Corporation. See "INFORMATION
REGARDING AMERICAN ARTISTS -Business of American Artists" and "-
Management." Each of the 9,407,837 outstanding shares of American
Artists Common Stock will become 0.5862 share of the capital stock of the
Surviving Corporation, of which the first 100 shares issued to each
American Artists Shareholder will be issued as Class A Common Stock and
the remainder in Class B common stock, $0.001 par value per share (the
"Class B Common Stock"), and outstanding options and warrants to purchase
an aggregate of 3,815,328 shares of Common Stock of American Artists will
become options and warrants to purchase an aggregate of 2,236,545 shares
of Class B Common Stock, in each case assuming no options or warrants to
purchase American Artists Common Stock are exercised between the date of
this Proxy Statement/Prospectus and the Effective Time. Consummation of
the Merger is subject to certain conditions which may have been
incorporated into the Merger Agreement for the benefit of one or both of
the parties. Each party is entitled to waive any condition included for
its benefit so that the Merger can be consummated even if the condition
has not been satisfied. See "THE MERGER AGREEMENT - Conditions".
Following the consummation of the Merger, assuming no options or
warrants to purchase American Artists Common Stock are exercised between
the date of this Proxy Statement/Prospectus and the Effective Time, the
American Artists Shareholders will hold 88.7% of the outstanding capital
stock of the Surviving Corporation (including all of the outstanding
shares of Class B Common Stock), and the pre-Merger shareholders of Setab
Alpha will hold the remaining 11.3% of the capital stock of the Surviving
Corporation. Each share of Class B Common Stock is convertible at any
time at the election of the holder into one share of Class A Common
Stock. The Class A Common Stock and the Class B Common Stock are
identical in all respects and the holders thereof will have equal rights
and privileges, except with respect to the election of directors. With
respect to the election of directors, holders of Class B Common Stock
voting as a separate class will be entitled to elect a number of
directors equal to the greater of (i) the number (rounded to the nearest
whole number) that bears to the total number of directors of the
Surviving Corporation the same ratio that the number of outstanding
shares of Class B Common Stock bears to the aggregate number of
outstanding shares of Class A and Class B Common Stock, or (ii) the
smallest number of directors that constitutes a majority of the Board of
Directors. Holders of Class A Common Stock voting as a separate class
will be entitled to elect all of the other members of the Board of
Directors.
Pursuant to the Merger Agreement, for a period of 365 days after the
Effective Time, none of the shares of Class A or Class B Common Stock
received in the Merger, the shares of Class B Common Stock issued upon
exercise of outstanding options and warrants or shares of Class A Common
Stock issued upon conversion of Class B Common Stock issued in the Merger
may be sold, transferred or otherwise disposed of without the prior
written consent of the Company.
THE SPECIAL MEETING OF SHAREHOLDERS; VOTE REQUIRED
The Special Meeting of Shareholders of American Artists will be held
on August __, 1996, commencing at 10:00 a.m., local time, at
____________________________, for the purpose of voting on a proposal to
approve and adopt the Merger Agreement. The Board of Directors of
American Artists has fixed the close of business on __________, 1996, as
the record date for the Special Meeting (the "Record Date"), and only
holders of American Artists Common Stock at the close of business on the
Record Date will be entitled to notice of, and to vote at, the Special
Meeting or any adjournments thereof.
The affirmative vote of the holders of a majority of the issued and
outstanding American Artists Common Stock entitled to vote at the Special
Meeting is required to adopt and approve the Merger Agreement and the
transactions contemplated thereby. The holders of a majority of the
outstanding shares of American Artists
5
<PAGE>
Common Stock, present either in person or by properly executed proxy,
will constitute a quorum at the Special Meeting. On the Record Date,
there were 9,407,837 shares of American Artists Common Stock outstanding
(which number of shares does not include shares of American Artists
Common Stock issuable on the exercise of outstanding options prior to the
Effective Time), held by approximately 119 holders of record.
As of April 30, 1996, the executive officers and directors of
American Artists beneficially owned, in the aggregate, approximately
7,700,223 shares of American Artists Common Stock, representing
approximately 73.5% of the issued and outstanding American Artists Common
Stock. Each such person has advised American Artists that he or she
intends to vote in favor of the Merger.
Any Proxy given pursuant to this solicitation may be revoked by (i)
filing with the Secretary of American Artists before the taking of the
vote at the Special Meeting, a written notice of revocation bearing a
later date than the date of the Proxy or any later dated Proxy relating
to the same shares, or (ii) attending the Special Meeting and voting in
person.
SOLICITATION OF PROXY
The expenses of the solicitation for the Special Meeting, including
the cost of printing and distributing this Proxy Statement/Prospectus and
form of Proxy, will be borne by American Artists. In addition to
solicitation by mail, proxies may be solicited by directors, officers and
employees of American Artists in person or by telephone, telegram or
other means of communication. These persons will receive no additional
compensation for solicitation of proxies, but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangement will also be made by American Artists with custodians,
nominees and fiduciaries for forwarding of proxy solicitation materials
to beneficial owners of shares held of record by such custodians,
nominees and fiduciaries, and American Artists will reimburse such
custodians, nominees and fiduciaries for reasonable expenses incurred
therewith.
RIGHTS OF DISSENTING SHAREHOLDERS
The consummation of the Merger is subject to the fulfillment or
waiver of, among others, a condition that no American Artists Shareholder
perfect any applicable statutory right to dissent from the Merger.
However, if such condition is waived by American Artists and the Merger
is consummated, American Artists Shareholders who fully comply with
applicable statutory provisions regarding the rights of dissenting
shareholders will be entitled to be paid the "fair value" of their shares
in cash. In order to dissent from the Merger, a shareholder must (i)
deliver written notice of such shareholder's intent to demand payment
prior to the shareholder vote on the Merger and (ii) not vote such
shareholder's shares in favor of the Merger. If the Merger is approved
and consummated notwithstanding the condition to closing described above,
any American Artists Shareholder who has complied with the steps
described above may demand payment and deposit such shareholder's
certificates of American Artists Common Stock in accordance with the
terms of a notice that will be sent to such shareholder by American
Artists no later than ten (10) days following the consummation of the
Merger. American Artists must offer to pay the amount of what it
estimates to be the fair market value of the dissenting shareholder's
stock to the shareholder, plus interest thereon, within ten (10) days of
the consummation of the Merger or the effective date of the Merger,
whichever is later (the "Offer Date"). If the dissenting shareholder
accepts the determination by American Artists of the fair value of the
shares, or if the dissenting shareholder fails to respond in a timely
fashion, American Artists must pay the shareholder such amount within
sixty (60) days of the Offer Date. Any shareholder who does not accept
the estimate of fair value by American Artists must demand payment based
on such shareholder's own estimate of fair value within thirty (30) days
after the offer by American Artists. American Artists must file an
action in a court of competent jurisdiction in Fulton County, Georgia
within sixty (60) days after receiving the payment demand to request a
judicial determination of fair value or, if it fails to file such action,
pay each dissenting shareholder whose demand has not yet been settled the
amount demanded by such shareholder. See "RIGHTS OF DISSENTING
SHAREHOLDERS."
6
<PAGE>
ACCOUNTING TREATMENT
The Merger will result in the issuance of a controlling interest in
the Surviving Corporation to the shareholders of American Artists.
Because of this, and because Setab Alpha has not had, and will not have
had, any material operations, the Merger will be accounted for as a
recapitalization of American Artists in which (i) American Artists is
deemed to have (a) created a second class of common stock, such that its
authorized capital consists of Class A and Class B Common Stock, each
with a par value of $.001, and (b) effected a recapitalization in which
an aggregate of 11,900 shares of Class A Common Stock and 5,502,974 of
Class B Common Stock are exchanged for the outstanding shares of its
common stock (an exchange ratio of an aggregate of .5862 Class A or Class
B shares for each presently outstanding share), and (ii) American Artists
is deemed to have issued 700,020 shares of Class A Common Stock
(representing the number of shares of Setab Alpha's Common Stock to be
outstanding upon the completion of the Public Offering), in exchange for
the net assets of Setab Alpha, recorded at their historical cost.
American Artists will be the continuing entity for accounting and
financial reporting purposes, and accordingly the results of operations
to be reported for periods prior to the Merger will be those of American
Artists. See "PRO FORMA FINANCIAL STATEMENTS."
FEDERAL INCOME TAX CONSEQUENCES
Assuming the Merger is consummated in accordance with the terms of
the Merger Agreement, under applicable provisions of the Internal Revenue
Code of 1986, as amended (the "Code"), no gain or loss will be recognized
for Federal income tax purposes by American Artists, the shareholders of
Setab Alpha or the American Artists Shareholders who receive Class A and
Class B Common Stock in connection with the Merger. No ruling to that
effect will be requested from the Internal Revenue Service. Cash
received by holders of American Artists Common Stock exercising their
dissenters' rights will be treated as amounts distributed in redemption
of their American Artists Common Stock and will be taxable under the
provisions of section 302 of the Code as either ordinary income or
capital gain or loss, depending upon the circumstances of the individual
shareholders.
THE PRECEDING DISCUSSION RELATES ONLY TO THE MATERIAL FEDERAL INCOME
TAX CONSEQUENCES OF THE MERGER TO THE SETAB ALPHA SHAREHOLDERS AND THE
AMERICAN ARTISTS SHAREHOLDERS. IT DOES NOT ADDRESS ALL ASPECTS OF
FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO PARTICULAR SHAREHOLDERS
AND MAY NOT BE APPLICABLE TO SHAREHOLDERS WHO ARE NOT CITIZENS OR
RESIDENTS OF THE UNITED STATES. THE DISCUSSION DOES NOT ADDRESS THE
EFFECT OF ANY APPLICABLE FOREIGN, STATE, LOCAL OR OTHER TAX LAWS. EACH
SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
MARKETS FOR CAPITAL STOCK; DIVIDENDS
The Class A Common Stock and Class B Common Stock are not traded on
an established public market. As of June 30, 1996, there were 20 shares
of Class A Common Stock outstanding, and two record holders of such
shares. No shares of Class B Common Stock had been issued as of such
date. Setab Alpha has not declared or paid any cash dividends on its
Class A Common Stock or its Class B Common Stock since its formation, and
the Board of Directors intends to retain all of its earnings, if any, for
the development of the Surviving Corporation's business. The declaration
and payment of cash dividends in the future will be at the discretion of
the Surviving Corporation's Board of Directors.
The capital stock of American Artists is not traded on an
established public trading market. As of July 12, 1996, there were
9,407,837 shares of American Artists Common Stock outstanding and 119
record holders of such shares. American Artists has not declared or paid
any cash dividends on its Common Stock since its formation, and the Board
of Directors of American Artists currently intends to retain all of its
earnings, if any, for the Surviving Corporation's business. The
declaration and payment of cash dividends following the consummation of
the Merger will be at the discretion of the Surviving Corporation's Board
of Directors.
7
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth for the periods indicated selected
historical per share data of Setab Alpha and American Artists and the
corresponding pro forma and pro forma equivalent per share amounts giving
effects to the Merger. The data presented is based upon the consolidated
financial statements and related notes of Setab Alpha and American
Artists included in this Proxy Statement/Prospectus and the pro forma
financial statements, including the notes thereto, appearing elsewhere
herein. This information should be read in conjunction with such
historical and pro forma financial statements and the notes related
thereto. These data are not necessarily indicative of the results of the
future operations of the combined organization or the actual results that
would have occurred if the Merger had been consummated prior to the
periods indicated.
HISTORICAL PER SHARE DATA:
<TABLE>
<CAPTION>
PERIOD ENDED
SETAB ALPHA APRIL 30, 1996
--------------
<S> <C>
Net income (loss) per share $ -
Book value per share at end of period (1) .02
Cash dividends per share -
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
AMERICAN ARTISTS APRIL 30, JULY 31,
------------------ --------------
1996 1995 1995 1994
--------- ------- ----- -------
<S> <C> <C> <C> <C>
Pro forma net income (loss) per share (2) $(.14) $ .04 $ - $(.09)
Pro forma book value per share at end of period (2) .16 .16
Pro forma cash dividends per share - - - -
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS YEAR ENDED
PRO FORMA PER SHARE DATA: ENDED APRIL 30, JULY 31,
---------------- ------------
1996 1995 1995 1994
-------- ------ ----- -----
<S> <C> <C> <C> <C>
Pro forma net income (loss)
Per Setab Alpha
share (1) $(.05) $ .01 $ - $ .08
Per equivalent
American Artists
share (2) (.05) .01 - .08
Pro forma book value
Per Setab Alpha
share (1) .13 .14
Per equivalent
American Artists
share (2) .13 .14
Pro forma cash dividends
Per Setab Alpha
share - - - -
Per equivalent
American Artists
share - - - -
</TABLE>
__________________
(1) Per share amounts for Setab Alpha are based upon 700,020 shares
outstanding, representing the number of shares Setab Alpha will have
outstanding upon the completion of the Public Offering. Book value
per share includes the effect of the receipt of the net proceeds of
the Public Offering.
(2) The consummation of the Merger Agreement will be accounted for as a
recapitalization of American Artists, in which (i) American Artists
will be deemed to have (a) created a second class of common stock,
such that its authorized capital consists of Class A and Class B
Common Stock, and (b) effected a recapitalization in which an
aggregate of 11,900 shares of Class A Common Stock and 5,502,974 of
Class B Common Stock are exchanged for the outstanding shares of its
common stock (an exchange ratio of an aggregate of .5862 Class A or
Class B shares for each presently outstanding share), and (ii)
American Artists is deemed to have issued shares of its Class A
Common Stock in exchange for the net assets of Setab Alpha recorded
at their historical cost. Pro forma net income (loss) per share
reflected in American Artists' historical financial statements is
computed to reflect the effect of such a reverse stock split on
American Artists' historical shares outstanding. See Note 1 of
Notes to American Artists' Consolidated Financial Statements.
9
<PAGE>
RISK FACTORS
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. IT MUST BE
RECOGNIZED THAT RISKS, NOT NOW FORESEEN BY SETAB ALPHA, MIGHT BECOME
SIGNIFICANT IN THE FUTURE AND THAT RISKS WHICH ARE NOW FORESEEN MIGHT
AFFECT THE SURVIVING CORPORATION TO A GREATER EXTENT THAN IS NOW FORESEEN
OR IN A MANNER NOT NOW CONTEMPLATED.
RESTRICTIONS ON TRANSFER
Any transfer of shares of Class B Common Stock, other than to (i)
the transferor's spouse, issue, parents or siblings, or a trust for the
benefit of the transferor or any such persons, (ii) in the event of the
transferor's death or legal disability, the transferor's executor,
administrator or personal representative, (iii) any transferee receiving
the shares as a gift, legacy or inheritance, or as a distribution from a
corporation, partnership, trust or other entity in respect of the
transferee's ownership interest therein, or (iv) any person approved in
advance by the Board of Directors of the Surviving Corporation or its
designee, will be deemed to constitute an election by the holder of
record thereof to convert such shares of Class B Common Stock into an
equal number of shares of Class A Common Stock. In determining whether
to grant such approval the Corporation will assess whether the proposed
transfer will contribute to maintaining cohesive and harmonious ownership
of Class B shares or is otherwise in the best interest of the Surviving
Corporation. See "DESCRIPTION OF CAPITAL STOCK" - Pursuant to the Merger
Agreement, for a period of 365 days after the effectiveness of the Merger
(the "Restricted Period"), none of the shares of Class A or Class B
Common Stock received in the Merger, issuable upon exercise of
outstanding options and warrants or shares of Class A Common Stock issued
upon the conversion of shares of Class B Common Stock issued in the
Merger may be sold, transferred or otherwise disposed of without the
prior written consent of the Surviving Corporation.
POSSIBLE ILLIQUIDITY DUE TO LACK OF ACTIVE TRADING MARKET
Prior to the Public Offering there has been no public market for the
Class A Common Stock, and there can be no assurance that an active or
liquid trading market will develop. In addition, no trading market for
the Class B Common Stock will develop following the termination of the
Restricted Period. If a trading market in the Class A Common Stock does
develop, it may not be sustained. If the Class A Common Stock is not
listed on an exchange and the trading price is less than $5.00 per share,
the Class A Common Stock could be subject to Rule 15g-9 of the Exchange
Act, which, among other things, requires that broker-dealers satisfy
special sales practice requirements, including making individualized
written suitability determinations and receiving a purchaser's written
consent prior to any transaction. Moreover, the Class A Common Stock
could be considered a "penny stock," which would require additional
disclosure in connection with trades in the Surviving Corporation's
securities, including the delivery of a disclosure schedule explaining
the nature and risks of the penny stock market. Such requirements could
limit the release of market prices of the Class A Common Stock and reduce
news coverage of the Surviving Corporation. Such events may reduce
investors' interest in the Class A Common Stock and materially and
adversely affect the trading prices for the Class A Common Stock and/or
the Class B Common Stock and the ability of holders of the Class B Common
Stock or Class A Common Stock to sell such shares in the secondary
market.
POSSIBLE NEED TO REGISTER SHARES OF CLASS A COMMON STOCK UPON RESALE
The shares of Class A Common Stock received in the Merger or upon
the conversion of shares of Class B Common Stock issued in the Merger may
not be sold, transferred or otherwise disposed of for a period of 365
days after the effectiveness of the Merger without the prior written
consent of the Surviving Corporation. Moreover, such shares of Class A
Common Stock have not been registered under the securities laws of any
state in reliance on exemptions therefrom. As a result, such shares of
Class A Common Stock may not be sold,
10
<PAGE>
transferred or otherwise disposed of at any time absent either
registration under such laws as enacted by the state in which the
potential purchaser resides or the availability of an applicable
exemption therefrom. A majority of state securities laws provide that
sales by persons not affiliated with the issuer are exempt from statutory
registration requirements if an approved securities manual contains
certain information, including financial information, regarding the
issuer. In order for such information to be included in such securities
manual, the Surviving Corporation will be required to submit detailed
information to the publisher and pay a substantial fee. Upon
consummation of the Merger, the Surviving Corporation intends to seek
publication of the information necessary to make the securities manual
exemption available. The failure of such information to be contained in
an approved securities manual, or the absence of such an exemption in the
state in which the proposed purchaser resides, could restrict the ability
of any holder of the shares of Class A Common Stock to resell such shares
at a time or price at which he may wish to do so.
HISTORY OF AMERICAN ARTISTS OPERATING LOSSES
On a consolidated basis, American Artists and its subsidiaries
(collectively the "AAFC Group") have incurred net losses in each fiscal
period since American Artists' organization in 1991, including net losses
of $7,793 and $466,567 in fiscal 1995 and 1994, respectively, and a net
loss of $816,572 for the nine months ended April 30, 1996. As of April
30, 1996, AAFC Group has an accumulated deficit of $1,665,486. Following
the Merger, management of AAFC Group anticipates that the Surviving
Corporation, as the successor to the business previously conducted by
AAFC Group may continue to incur net losses for at least several
additional periods, and no assurance can be made as to whether or when
the Surviving Corporation, as the successor to the business of AAFC
Group, will achieve or sustain profitability. The Surviving
Corporation's ability to generate significant revenue and become
profitable as the operator of AAFC Group's business will be dependent in
large part upon its ability to acquire, create, develop and produce
feature films and broadcast programming which will appeal to a
significant audience and achieve market acceptance.
NEED FOR ADDITIONAL FINANCING
To date, AAFC Group has met its capital requirements in part through
the sale of securities to persons reasonably believed by the AAFC Group
to be "accredited investors" as defined under Rule 501 of the Securities
Act, and in part through funding to produce motion pictures obtained from
the sale of revenues participations, or the pre-production sale of
certain distribution rights. The ability of AAFC Group to produce
feature films and television specials, and to negotiate favorable
distribution terms for its products, has been severely restricted by its
need to depend on financing from the sale of revenue participations, or
the pre-production sale of certain distribution rights. AAFC Group's
current plans call for the production, during fiscal 1997, of "I.R.S.,
Death and Taxes", and production of a one-hour program on an astronomy
project and the possible production of an initial one-hour television
special on the subject of the millennium (see "INFORMATION REGARDING
AMERICAN ARTISTS - Business of American Artists"). Production costs for
these motion pictures are estimated to be $400,000, $330,000 and $30,000
to $100,0000, respectively. Additionally, AAFC Group has operated at a
loss, due principally to the shortfall of the coverage of selling,
general and administrative expenses by commercial production profits (see
"INFORMATION REGARDING AMERICAN ARTISTS - Management's Discussion
Analysis of Financial Condition and Results of Operations"). Such
shortfalls have also been financed through the sale of securities. A
continuation of such shortfalls, which is anticipated for at least the
fourth quarter of 1996, will create a continued need for such financing.
After the Merger, such management expects to meet external funding needs
through the private or public offering of debt or equity securities
issued by the Surviving Corporation and, with respect to the funding of
motion pictures, the sale of revenue participations and the pre-
production sale of certain distribution rights. However, there can be no
assurance that such funding will be available, or if available, that it
will be available on acceptable terms. The successful completion by the
Surviving Corporation of an additional sale of its securities may be made
on terms which result in substantial dilution of the voting and/or
economic interest of purchasers of Class A Common Stock or the Class B
Common Stock. Shareholders of the Surviving Corporation have no
preemptive or other subscription rights to participate in any subsequent
external financing arrangements which may be made by the Surviving
Corporation. The inability of the Surviving Corporation to satisfy the
funding
11
<PAGE>
requirements of the business to be acquired in the Merger could prevent
it from achieving its business objectives and would, therefore, have a
material adverse effect on the Surviving Corporation.
CONCENTRATION OF VOTING CONTROL
Four principal shareholders of American Artists, who will
beneficially own approximately 57.4% of the shares of Common Stock of the
Surviving Corporation outstanding after the Merger (including shares
obtainable upon the exercise of currently exercisable warrants and
options), including approximately 64.0% of the Class B Common Stock of
the Surviving Corporation, are parties to a voting agreement which
obligates each such holder to vote his or her shares of American Artists
Common Stock (and will obligate them to so vote their shares of Common
Stock received in the Merger) as determined by the vote of the holders of
a majority of the shares held by the parties to the voting agreement.
Accordingly, such shareholders, acting in concert, will be able to
determine the vote on any matter submitted to a vote of the Surviving
Corporation's shareholders (with the exception of the election of
directors), including a merger, sale of assets or other form of business
combination and change of control involving the Surviving Corporation.
In addition, the voting rights applicable to the Class B Common Stock
will enable such shareholders to determine the composition of no less
than a majority of the members of the Board of Directors of the Surviving
Corporation following the consummation of the Merger, regardless of the
number of shares of Class A Common Stock which may be issued, as long as
such shareholders continue to own a majority of the outstanding shares of
the Class B Common Stock.
DEPENDENCE ON KEY PERSONNEL
The success of AAFC Group's business depends to a significant extent
on the efforts and abilities of several senior management personnel and
other key employees, especially its creative personnel and technical
directors. In particular, such business is dependent upon the services
of Steven D. Brown, Rex Hauck and Vivian W. Jones. AAFC Group does not
currently maintain, and has no current plans to obtain, "key person" life
insurance for any of its employees. Moreover, AAFC Group does not
currently have employment agreements with Ms. Jones or Messrs. Brown or
Hauck and has no current plans to enter any such employment agreement.
The loss of the services of any of such persons or of any other key
employees could have a material adverse effect on AAFC Group's business,
and (after the Merger) the operating results and financial condition of
the Surviving Corporation.
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
Management of AAFC Group expects to experience significant
fluctuations in the Surviving Corporation's future annual and quarterly
operating results that may be caused by numerous factors, many of which
are outside its control. Such factors include the timing of domestic and
international releases of feature films and broadcast programming, the
commercial success of such properties, the timing of the release of
related products into their respective markets, the demand for related
products, the timing and amount of costs incurred to distribute and
promote the Surviving Corporation's properties and related products, the
introduction of new feature films or programming by competitors, the
timing of significant operating expenses and capital expenditures, the
level and profitability of its commercial production assignments and
general economic conditions. As a result, such management believes that
period to period comparisons of its results of operations will not
necessarily be meaningful and that its historical operating results may
not be reliable indicators of its future performance. Due to all of the
foregoing factors, it is likely that in some future period, the Surviving
Corporation's operating results will be below the expectations of
analysts and investors. In such event, the market value of the Surviving
Corporation's Common Stock would likely be materially and adversely
affected.
UNPREDICTABILITY OF COMMERCIAL SUCCESS
The Surviving Corporation, as the operator of AAFC Group's business,
expects to be significantly dependent upon the success of feature films
and television specials and other programming to be developed in the
future. The production and distribution of feature films and television
programming involve a substantial degree
12
<PAGE>
of risk. Each project is an individual artistic work and its commercial
success is primarily determined by the reactions of distributors and the
general public, each of which is unpredictable. The commercial success
of such projects also depends upon the quality and acceptance of
competing programming, critical reviews, the availability of alternative
forms of entertainment and leisure time activities, general economic
conditions and other tangible and intangible factors, all of which can
change and cannot be predicted with certainty. There can be no assurance
that such projects will be successfully created, developed and released,
or that if they are released, they will generate significant revenues for
the Surviving Corporation. Significant delays in creative development
and production can be expected and there can be no assurance that the
Surviving Corporation will be able to produce and develop films,
specials, television programming and related products that will meet with
commercial success.
POSSIBLE INABILITY TO RECOVER CAPITALIZED FILM COSTS
A substantial portion of the assets reflected in AAFC Group's
Balance Sheet at April 30, 1996, are capitalized film costs which
include, among other things, costs incurred to develop stories and
acquire story rights for future films and programs. Accordingly, the
ability of the Surviving Corporation to realize upon the value of such
assets may be dependent upon its ability to finance the production of
those films and programs in the future or to license others to produce
them. Capitalized film costs are amortized based upon management's
estimate of total gross revenues to be earned by a film over its life;
although revenue estimates are reviewed periodically and revised when
appropriate, there can be no assurance that the estimated total gross
revenues will be realized.
COMPETITION
The market for the production of feature films and television
programming and commercials is extremely competitive. Following the
Merger, the Surviving Corporation's competitors will include a large
number of national, regional and local competitors, many of whom are
well-established with contacts and working relationships with recognized
distributors, advertising agencies and markets. In addition, the
Surviving Corporation, as the operator of AAFC Group's business, will
compete in various portions of its business with major movie studios,
including Warner Brothers, Inc., Twentieth Century Fox Film Corporation,
Paramount Pictures, Universal City Studios, Inc., and a number of
independent motion picture production companies. The Surviving
Corporation will also compete with these companies for the acquisition of
literary properties, production financing, the services of performing
artists and the services of other creative and technical personnel. In
addition, the market for television commercials is extremely price
competitive. Management of AAFC Group expects such competition in all
areas of its business to continue and believes that such competition may
increase in the future. Management of AAFC Group believes that most of
its competitors have longer operating histories, greater name
recognition, larger customer bases and significantly greater financial,
technical, marketing and other resources than will the Surviving
Corporation following the Merger. There can be no assurance that the
Surviving Corporation will be able to compete successfully against its
current or future competitors, and such competition could materially
adversely affect AAFC Group's business, and the Surviving Corporation's
operating results and financial condition.
DEPENDENCE ON AND POSSIBLE DIFFICULTY IN DEFENDING INTELLECTUAL PROPERTY
RIGHTS
The Surviving Corporation's success and ability to compete will be
dependent in part upon its ability to obtain and maintain protection for
AAFC Group's current and the Surviving Corporation's future literary
properties, to defend its intellectual property rights and to operate
without infringing the proprietary rights of others. While AAFC Group
relies, and the Surviving Corporation will rely, on a combination of
copyright and trademark to establish and protect its intellectual
property rights, the management of AAFC Group believes that factors such
as the technical and creative skills of its personnel are more essential
to its success and ability to compete. There can be no assurance that
any intellectual property rights of AAFC Group to be acquired by the
Surviving Corporation in the Merger will provide competitive advantages
or will not be challenged, invalidated or circumvented by competitors.
There can be no assurance that disputes will not arise concerning the
ownership of intellectual property. Furthermore, there can be no
assurance that intellectual properties will not become known or be
independently developed by competitors or that the Surviving Corporation
will be able to maintain the confidentiality
13
<PAGE>
of information relating to its literary properties. See "INFORMATION
REGARDING AMERICAN ARTISTS -Business of AAFC Group - Arbitration,
Litigation and Intellectual Property."
There has been substantial litigation in the entertainment industry
with respect to literary properties that are the subject of conflicting
copyrights, trademarks and other claims of ownership. If the Surviving
Corporation is required to defend against charges of infringement of the
intellectual property rights of third parties or to protect its own
rights against third parties, the Surviving Corporation may incur
substantial expense and divert significant effort of the Surviving
Corporation's technical and management personnel and could lose rights to
develop or produce films or television programming or be required to pay
monetary damages or royalties to license rights to third parties.
Although intellectual property disputes are often settled through
licensing or similar arrangements, the costs associated with such
arrangements (including foregone revenues) may be substantial and could
include ongoing royalties. Furthermore, there can be no assurance that
the necessary licenses would be available to the Surviving Corporation on
terms deemed acceptable by the Surviving Corporation. Accordingly, an
adverse determination in a judicial or administrative proceeding or the
failure to obtain necessary licenses could prevent the Surviving
Corporation from producing certain of its future products which could
have a material adverse effect on its business, financial condition and
results of operation. See "INFORMATION REGARDING AMERICAN ARTISTS -
Arbitration, Litigation and Intellectual Property."
ANTI-TAKEOVER EFFECTS OF ARTICLES OF INCORPORATION AND BYLAWS
The Surviving Corporation's Board of Directors will have authority
to issue up to 10,000,000 shares of Preferred Stock and to determine the
price, rights, preferences, privileges and restrictions thereof,
including voting rights, without any further vote or action by the
Surviving Corporation's shareholders. The voting and other rights of the
holders of Common Stock will be subject to, and may be adversely affected
by, the rights of the holders of any Preferred Stock that may be issued
in the future. The issuance of Preferred Stock, while providing
desirable flexibility in connection with obtaining necessary capital
resources and other corporate purposes, could have the effect of
delaying, deferring or preventing a change in control of the Surviving
Corporation. The Surviving Corporation has no current arrangements to
issue any shares of Preferred Stock. See "DESCRIPTION OF CAPITAL STOCK."
In addition, the Surviving Corporation's Articles of Incorporation and
Bylaws will include certain provisions providing for a majority of the
members of the Board of Directors to be elected by the holders of the
Surviving Corporation's Class B Common Stock and restrictions on the
ability of shareholders to call special meetings of shareholders. See
"CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS." The
Surviving Corporation will also be subject to the Missouri Takeover Bid
Disclosure Act, which under certain circumstances may prohibit a business
combination between the Surviving Corporation and a shareholder owning
20% or more of the outstanding voting power of the Surviving Corporation.
Such provisions could have the effect of delaying, deferring or
preventing a change in control of the Surviving Corporation.
POSSIBLE LIABILITY AND ARBITRATION PROCEEDING
AAFC Group is currently involved in an arbitration dispute in Los
Angeles, California with Greystone Communications, Inc. concerning the
scope of their 1994 co-production agreement and allowable expenses
thereunder. See "INFORMATION REGARDING AAFC GROUP - Arbitration,
Litigation and Intellectual Property".
THE MERGER AGREEMENT
In May 1996 Setab Alpha entered the Merger Agreement with American
Artists. The following is a summary of certain provisions of the Merger
Agreement, a copy of which is attached as Annex A. This summary is
qualified in its entirety by reference to the Merger Agreement, which is
incorporated herein by this reference.
14
<PAGE>
THE MERGER
The Merger Agreement provides that, subject to certain terms and
conditions, American Artists will merge into Setab Alpha at the Effective
Time. By reason of the Merger, the shareholders of American Artists will
become shareholders of the Surviving Corporation, a separate existence of
American Artists will cease, and the business and management of American
Artists will thereafter will be the business and management of the
Surviving Corporation. See "INFORMATION REGARDING AMERICAN ARTISTS -
Business of American Artists" -"Management." The Merger Agreement has
been approved, and is recommended to the shareholders of American
Artists, by the Board of Directors of American Artists. The Board of
Directors and shareholders of Setab Alpha have unanimously approved the
Merger Agreement. The Merger will become effective upon the filing of
duly executed certificates of merger with the Secretaries of State of
Missouri and Georgia. These filings are to be made immediately following
the consummation of the Merger which will occur on the fifth business day
after the conditions specified in the Merger Agreement have been
satisfied or waived.
Concurrent with the first mailing of this Proxy Statement/Prospectus
to the American Artists Shareholders, Setab Alpha commenced an all-or-
none public offering (the "Public Offering") of 700,000 shares of its
Class A common stock, par value $.001 per share (the "Class A Common
Stock"). The amount of proceeds expected to be received by Setab Alpha
from the sale of the shares of Class A Common Stock in the Public
Offering after payment of offering expenses, payment of loans and
consulting fees owed to shareholders and expenses relating to the Merger
are anticipated to be approximately $8,000. The consummation of the
Merger is conditioned on, among other things, the receipt by Setab Alpha
of valid subscriptions for the sale of the shares of Class A Common Stock
offered in the Public Offering from not less than 200 persons and the
consummation of the Public Offering. Such condition may be waived by
American Artists. If (i) valid subscriptions for all the shares offered
in the Public Offering are not received on or before December 31, 1996,
or (ii) the Merger Agreement is terminated prior to consummation of the
Merger, the Public Offering will be terminated.
BACKGROUND INFORMATION; REASONS FOR THE MERGER
Setab Alpha was formed in July 1995 for the purpose of engaging in a
merger or other business combination with a then unidentified operating
company. In September 1995 Setab Alpha filed the SB-2 Registration
Statement with the Commission. During the first week of March, 1996, a
representative of American Artists contacted Alan G. Johnson, a principal
shareholder of Setab Alpha at the suggestion of BDO Seidman, LLP, which
serves as independent certified accountant for each of American Artists
and Setab Alpha. As a result of this unsolicited contact, Douglas J.
Bates, President of Setab Alpha, met with representatives of American
Artists on March 26, 1996 to discuss the possibility of a business
combination between American Artists and Setab Alpha. In April 1996,
Douglas J. Bates, President of Setab Alpha, Eric Van Atta, Vice President
of American Artists and a representative of American Artists legal
counsel telephonically met to confirm each party's interest in pursuing a
merger of American Artists into Setab Alpha. During such telephonic
meeting and in several conversations telephonically held during late
April, 1996, Mr. Bates, on behalf of Setab Alpha and Mr. Van Atta on
behalf of American Artists, negotiated the detailed terms, provisions and
conditions of the Merger Agreement, including the Merger Consideration to
be paid and the scope of the representations and warranties contained
therein. In May 1996 Setab Alpha filed Amendment No. 1 to the SB-2
Registration Statement with the Commission, providing information
concerning American Artists and the terms of the Merger.
Setab Alpha. The Board of Directors of Setab Alpha believes that a
business combination with American Artists pursuant to the Merger
Agreement, is in the best short-term and long-term interest of Setab
Alpha and its shareholders. The Setab Alpha Board considered (i) the
potential of the Merger to achieve Setab Alpha's business objective of
entering into a business combination with an operating company, (ii) the
opportunity to enhance the value of Setab Alpha as a result of the
business, assets and properties of American Artists, (iii) the financial
return anticipated by Setab Alpha's management, and (iv) the addition of
American Artists' seasoned management team.
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<PAGE>
American Artists. In arriving at a decision to authorize the Merger
Agreement and to recommend that the shareholders of American Artists
approve the Merger with Setab Alpha, the Board of Directors of American
Artists considered various factors, including (i) the possibility of
access to additional equity financing, (ii) the additional liquidity of
the Surviving Corporation's Common Stock as compared to the Common Stock
of American Artists, and (iii) the meaningful benefits which may be
offered to key employees in the form of incentive and other stock options
in a public company. In the course of seeking financing sources for the
implementation of its business plan, the management of American Artists
has been advised by potential investment sources and by its own
independent financial advisor that the existence of a public trading
market for the common stock of the corporation would substantially
improve its appeal to equity investors. Although the proposed Merger
does not insure the development of a public market for the Common Stock
of the Surviving Corporation, it will provide the Surviving Corporation
with more than 300 shareholders for its Class A Common Stock, thus
allowing the Surviving Corporation to meet one important requirement for
trading in the Nasdaq OTC Bulletin Board market. Moreover, the shares of
Common Stock of the Surviving Corporation issued in the Merger will be
registered under the Securities Act of 1933 (the "1933 Act"), unlike the
previously outstanding shares of American Artists, which were issued
pursuant to exemptions from registration under the 1933 Act.
Prior to entering the Merger Agreement with Setab Alpha, the
management of American Artists considered various other possibilities for
achieving its financing goals, including venture capital financing or a
registered public offering, and determined in consultation with its
financial advisor that the Merger was its preferred course of action.
THE BOARD OF DIRECTORS OF AMERICAN ARTISTS RECOMMEND THAT EACH
AMERICAN ARTISTS SHAREHOLDER VOTE FOR THE PROPOSAL TO APPROVE THE MERGER
AGREEMENT.
MERGER CONSIDERATION
In connection with the Merger, each of the 9,407,837 shares of
outstanding Common Stock of American Artists will be exchanged for 0.5862
share of the capital stock of the Surviving Corporation, of which the
first 100 shares issued to each American Artists Shareholder will be
issued as Class A Common Stock and the remainder as Class B Common Stock,
and the outstanding options and warrants to purchase an aggregate of
3,815,328 shares of Common Stock of American Artists will become options
and warrants to purchase an aggregate of 2,236,545 shares of Class B
Common Stock of the Surviving Corporation, in each case assuming no
options or warrants to purchase American Artists Common Stock are
exercised between the date of this Proxy Statement/Prospectus and the
Effective Time. No fractional shares of Class A or Class B Common Stock
will be issued in the Merger; rather the number of shares to be issued to
any single holder of American Artists Common Stock will be rounded to the
nearest whole share. The holders of the Class A and Class B Common Stock
will vote together as a single class on all matters submitted to the
shareholders of the Surviving Corporation, except that the holders of the
Class B Common Stock, voting as a class, shall be entitled to elect no
fewer than a majority of the members of the Board of Directors of the
Surviving Corporation. See "DESCRIPTION OF CAPITAL STOCK."
16
<PAGE>
The following table sets forth the relative share ownership of pre-
Merger American Artists Shareholders and Setab Alpha shareholders in the
Surviving Corporation following the Merger, assuming that all of the
shares offered are sold in the Public Offering and that no options or
warrants to purchase American Artists Common Stock are exercised between
the date of this Proxy Statement/Prospectus and the Effective Time:
<TABLE>
<CAPTION>
Number of Shares Held (%)
------------------------------------------------------------
Before Merger After Merger
------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C>
Pre-merger Shareholders of Setab Alpha 700,020 Class A (100%) 700,020 Class A (98.3%)
0 Class B ( - %) 0 Class B ( - %)
------- -------
Total of all classes 700,020 (100%) 700,020 (11.3%)
======= =======
Pre-merger Shareholders of 0 Class A ( - %) 11,900 Class A (1.7%)
American Artists 0 Class B ( - %) 5,502,974 Class B (100%)
------- ---------
Total of all classes 0 ( - %) 5,514,874 (88.7%)
======= =========
</TABLE>
The following table sets forth the stockholders equity of the
Company and American Artists at April 30, 1996, on a historical basis,
and the relative interests of the Company and American Artists
stockholders in the pro forma stockholders' equity of the Company as if
the Merger had been consummated on April 30, 1996:
The Company American Artists
----------- ----------------
Historical stockholders' equity $12,456/(1)/ $895,023
Relative interest in pro forma
stockholders' equity 94,350 743,129
_______________
/(1)/ Includes the effect of the receipt of the net proceeds of the
Public Offering. See "THE MERGER AGREEMENT."
REPRESENTATIONS, WARRANTIES AND COVENANTS
The Merger Agreement contains various representations, warranties
and covenants of Setab Alpha and American Artists, all of which will
survive the Effective Time. Under the Merger Agreement, each of Setab
Alpha and American Artists has represented and warranted to the other as
to (i) such party's organization and authority to conduct its business,
(ii) such party's authorized capital stock and outstanding agreements
calling for the issuance of any such capital stock, (iii) the conformity
of such party's financial statements to generally accepted accounting
principles, (iv) the absence of certain changes in the business,
governing documents or capitalization of such party and (v) the
noncontravention of the governing documents, material obligations or
governmental orders to which such party may be subject by such party's
execution, delivery and performance of the Merger Agreement.
Pursuant to the Merger Agreement, each of Setab Alpha and American
Artists has agreed that it will use its reasonable best efforts to
consummate and effect the Merger. Setab Alpha has also agreed to prepare
and file a registration statement with respect to the shares of Class A
or Class B Common Stock to be issued in the Merger. American Artists has
agreed to indemnify Setab Alpha and its directors, officers and agents
with respect to certain
17
<PAGE>
liabilities which may arise out of the information concerning American
Artists contained in this Prospectus and any registration statement which
may be filed in connection with the Merger. Setab Alpha has agreed to
indemnify American Artists and its directors, officers and agents with
respect to certain liabilities which may arise out of any other
information contained in (or omitted from) this Prospectus and any
registration statement which may be filed in connection with the Merger.
CONDITIONS
The obligations of Setab Alpha and American Artists to consummate
the Merger are subject to fulfillment or waiver of certain conditions,
which have been incorporated into the Merger Agreement for the benefit of
one or both of the parties. The conditions include: (i) approval of the
Merger by shareholders of American Artists, (ii) lack of any pending
legal proceeding to restrain or prevent the carrying out of the Merger,
(iii) the continued truth and accuracy of the representations and
warranties in all material respects, (iv) the due registration of the
shares of Class B Common Stock to be issued in the Merger or the
availability of an exemption therefrom, and (v) the receipt by Setab
Alpha of valid subscriptions for all of the shares of Class A Common
Stock offered by this Prospectus from at least 200 persons and the
consummation of the Public Offering. In addition, unless waived by
American Artists, the Merger is conditioned upon the failure of any
shareholder of American Artists to perfect any applicable statutory right
to dissent from the Merger. Each party is entitled to waive any
conditions included for its benefit so that the Merger can be consummated
even if the condition has not been satisfied. The parties may also, by
mutual agreement, amend conditions to consummation of the Merger
Agreement. In determining whether to waive or amend an unsatisfied
condition, a party, acting through its duly authorized representatives,
will consider the degree to which a condition is unsatisfied, the
circumstances surrounding the non-satisfaction, and the presumed cost or
risk to the party for non-satisfaction of the condition as compared to
the presumed cost or risk of not consummating the Merger.
ACCOUNTING TREATMENT
The Merger will result in the issuance of a controlling interest in
the Surviving Corporation to the shareholders of American Artists.
Because of this, and because Setab Alpha has not had, and will not have
had, any material operations, the Merger will be accounted for as a
recapitalization of American Artists in which (i) American Artists is
deemed to have (a) created a second class of common stock, such that its
authorized capital consists of Class A and Class B Common Stock, each
with a par value of $.001, and (b) effected a recapitalization in which
an aggregate of 11,900 shares of Class A Common Stock and 5,502,974 of
Class B Common Stock are exchanged for the outstanding shares of its
common stock (an exchange ratio of an aggregate of .5862 Class A or Class
B shares for each presently outstanding share), and (ii) American Artists
is deemed to have issued 700,020 shares of Class A Common Stock
(representing the number of shares of Setab Alpha's Common Stock to be
outstanding upon the completion of the Public Offering), in exchange for
the net assets of Setab Alpha, recorded at their historical cost.
American Artists will be the continuing entity for accounting and
financial reporting purposes, and accordingly the results of operations
to be reported for periods prior to the Merger will be those of American
Artists. See "PRO FORMA FINANCIAL STATEMENTS."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
Assuming the Merger is consummated in accordance with the terms of
the Merger Agreement, Setab Alpha and American Artists believe that:
1. The Merger and the issuance of shares of Class A or Class B
Common Stock in connection therewith, as described in the Merger
Agreement, will constitute a tax-free reorganization under section
368(a)(1)(A) of the Code.
2. Except for the recognition of gain as required by section
302 of the Code with respect to the receipt by holders of Common
Stock of American Artists of cash in lieu of fractional shares, no
gain or
18
<PAGE>
loss will be recognized for Federal income tax purposes by the
holders of American Artists Common Stock upon the exchange of such
stock solely for Class A or Class B Common Stock as a result of the
Merger.
3. The aggregate tax basis of the Class A or Class B Common
Stock received by an American Artists Shareholder pursuant to the
Merger will be the same as the aggregate tax basis of the shares of
American Artists Common Stock exchanged therefor, decreased by any
portion of such tax basis allocated to fractional shares of Class A
or Class B Common Stock that are treated as redeemed by Setab Alpha.
4. The holding period of shares of Class A or Class B Common
Stock received by an American Artists Shareholder as part of the
Merger will include the holding period of the shares of American
Artists Common Stock exchanged therefor, provided that the American
Artists Common Stock is held as a capital asset on the date of the
consummation of the Merger.
Neither Setab Alpha nor American Artists has received an opinion of
legal counsel, or requested a ruling from the Internal Revenue Service
with respect to any Federal income tax consequences of the Merger.
In general, cash received by holders of American Artists Common
Stock exercising their dissenters' rights will be treated as amounts
received from the sale of their shares of American Artists Common Stock,
and (provided that such American Artists Common Stock is a capital asset
in the hands of such shareholders) each such shareholder will recognize
capital gain or loss (short or long term, as appropriate) measured by the
difference between the sale price of such American Artists Common Stock
and such shareholder's tax basis in such American Artists Common Stock.
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER TO AMERICAN ARTISTS SHAREHOLDERS. IT DOES NOT
ADDRESS ALL ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE RELEVANT TO
PARTICULAR SHAREHOLDERS AND MAY NOT BE APPLICABLE TO SHAREHOLDERS WHO ARE
NOT CITIZENS OR RESIDENTS OF THE UNITED STATES. THE DISCUSSION DOES NOT
ADDRESS THE EFFECT OF ANY APPLICABLE FOREIGN, STATE, LOCAL OR OTHER TAX
LAWS. EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING
THE APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
19
<PAGE>
CAPITALIZATION OF SETAB ALPHA
The following table sets forth the capitalization of Setab Alpha as
of April 30, 1996. This table should be read in conjunction with the
financial statements of Setab Alpha, "INFORMATION REGARDING SETAB ALPHA,
INC.--Management's Discussion and Analysis of Financial Condition and
Plan of Operations," "DESCRIPTION OF CAPITAL STOCK" and "PRO FORMA
FINANCIAL STATEMENTS" included elsewhere in this Joint Proxy
Statement/Prospectus.
<TABLE>
<CAPTION>
As of April 30, 1996
--------------------------------------------
Actual As Adjusted/(1)/ Pro Forma/(2)/
-------- ----------------- ---------------
<S> <C> <C> <C>
Notes payable $ 3,791 $ -- $ 91,297
======= ===========
Long-term debt -- -- --
------- ------- -----------
Minority interest -- -- 50,000
======= ======= ===========
Stockholders' equity
Preferred stock, $.001 par value;
10,000,000 shares authorized,
none issued -- -- --
Common Stock
Class A, $.001 par value;
20,000,000 shares authorized, 20,
700,020 and 711,920 shares
outstanding -- 700 712
Class B, $.001 par value;
20,000,000 shares authorized,
0, 0 and 5,502,974 shares
outstanding -- -- 5,503
Additional paid-in capital -- 19,300 2,496,750
Deficit (4,335) (7,549) (1,665,486)
------- ------- -----------
Total stockholders' equity (4,335) 12,456 837,479
------- ------- -----------
Total capitalization $ ( 544) $12,456 $ 978,776
------- ------- -----------
- --------------
</TABLE>
/(1)/ As adjusted for Setab Alpha's receipt and application of the
net proceeds from the Public Offering, but not for the effects of the
consummation of the Merger Agreement.
/(2)/ Pro forma for the effects of the consummation of the Merger
Agreement, which will be accounted for as a recapitalization of American
Artists. See "PRO FORMA FINANCIAL STATEMENTS."
20
<PAGE>
INFORMATION REGARDING SETAB ALPHA, INC.
SETAB ALPHA, INC.
SELECTED FINANCIAL INFORMATION
The following selected financial information for Setab Alpha is
derived from, and should be read in conjunction with, the historical
financial statements and notes thereto, of Setab Alpha and the pro forma
financial information regarding the Merger included elsewhere in this
Proxy Statement/Prospectus.
<TABLE>
<CAPTION>
Period Commencing on July 5, 1995
(date of inception) through April 30, 1996
------------------------------------------
<S> <C>
Statement of Operations Data:
Sales............................ $ --
Operating Expenses............... 4,335
Net Loss......................... $ (4,335)
As of April 30, 1996
--------------------
Actual As Adjusted/(1)/
------ ----------------
Balance Sheet Data:
Working Capital (deficit)........ $ (4,335) $ 12,456
Total -- 12,456
Long-term Debt................... -- --
Shareholders' Equity (deficit)... (4,335) 12,456
</TABLE>
________________
(1) As adjusted for Setab Alpha's receipt and application of the net
proceeds of the Public Offering, but not for the effects of the
consummation of the Merger Agreement.
19
<PAGE>
Management's Discussion and Analysis of
Financial Condition and Plan of Operations
Background
Setab Alpha was incorporated under the laws of the State of Missouri
on July 5, 1995, for the purpose of engaging in a merger or other business
combination with a then unidentified operating company. In May 1996 Setab
Alpha entered the Merger Agreement with American Artists. See "THE MERGER
AGREEMENT" and "INFORMATION REGARDING AMERICAN ARTISTS." Setab Alpha has no
predecessors and has never engaged in any business activity, other than
with respect to organizational matters, the Public Offering and the Merger
Agreement. Setab Alpha's current business plan is to consummate the Merger
Agreement. Such business combination will result in a change in control of
Setab Alpha.
Plan of Operations
Setab Alpha has never engaged in any business activity, except with
respect to its organization and the Merger Agreement, and does not intend
to do so until after the consummation of the Merger. Setab Alpha's current
business plan is to consummate the Merger Agreement. As of April 30, 1996,
Setab Alpha had recorded no revenues, but had incurred expenses of $4,335,
all of which were incurred in connection with its organization and the
Merger. All of Setab Alpha's cash expenditures to date have been advanced
by Setab Alpha's current shareholders.
Liquidity and Capital Resources
Since its organization, Setab Alpha has satisfied its cash
requirements solely through cash advances from its current shareholders.
Setab Alpha's sole uses of its cash have been filing fees, printing costs,
postage expenses and similar disbursements relating to the organization of
Setab Alpha and the Merger. At June 30, 1996, Setab Alpha had no cash,
assets or other capital resources.
Setab Alpha's current shareholders have agreed, in their discretion,
to make up to an aggregate of $10,000 advances to fund Setab Alpha's
immediate cash needs. The aggregate amount of any such advances bear
interest at an annual rate equal to the prime rate plus 2% (10.25% at June
30, 1996), and are payable on the date on which a business combination
involving Setab Alpha is effected. At June 30, 1996, the aggregate amount
of such advances (together with accrued interest thereon) was $4,918.03.
Business of Setab Alpha
General
Setab Alpha, Inc. was incorporated under the laws of the State of
Missouri on July 5, 1995, for the purpose of engaging in a merger or other
business combination with a then unidentified operating company. Setab
Alpha is in the development stage and has no operating history. Setab Alpha
has no predecessors and has never engaged in any business activity, other
than with respect to organizational matters, the Public Offering and the
Merger Agreement. The Merger Agreement, if consummated, will result in a
change of control of Setab Alpha.
Analysis of Merger
The analysis of the potential business combination with American
Artists has been undertaken by or under the supervision of Setab Alpha's
management, no member of which is a professional business analyst.
Management of Setab Alpha (except for Mr. Van Atta, who has not
participated in the evaluation of the Merger on behalf of Setab Alpha) has
no experience in the type of business conducted by American Artists. Setab
Alpha's limited funds
20
<PAGE>
and lack of full-time management have made it impractical for the Setab
Alpha to conduct a complete and exhaustive investigation and analysis of
the Merger. Management decisions prior to the consummation of the Merger
have been and will be made without detailed feasibility studies,
independent analysis, market surveys and the like, which would be desirable
and which might be obtained if the Setab Alpha had more funds available to
it.
Notwithstanding the fact that Setab Alpha may technically be the
acquiring entity, generally accepted accounting principles require that
this transaction be accounted for as if Setab Alpha had been acquired by
American Artists as the controlling entity of the resulting business.
Therefore, a write-up in the carrying value of the assets of either company
will not be permitted.
Property
Setab Alpha does not own or lease any real or personal property.
Employees
Setab Alpha has no employees. Setab Alpha's operations are conducted
by its officers and directors without compensation, on a part-time basis.
To effect its organization and the Public Offering, however, Setab Alpha
has entered into separate consulting agreements with its two shareholders.
See "MANAGEMENT OF SETAB ALPHA--Certain Transactions and Relationships."
Litigation
Setab Alpha is not a party to any litigation and, to Setab Alpha's
knowledge, no such proceedings are threatened.
Markets for Capital Stock; Dividends
The Class A Common Stock and Class B Common Stock are not traded on an
established public market. As of June 30, 1996, there were 20 shares of
Class A Common Stock outstanding and 2 recordholders of such shares. No
shares of Class B Common Stock had been issued as of such date. Setab Alpha
has not declared or paid any cash dividends on its Class A Common Stock or
its Class B Common Stock since its formation, and the Board of Directors
intends to retain all of its earnings, if any, for the development of the
Surviving Corporation's business. The declaration of payment of cash
dividends in the future will be at the discretion of the Surviving
Corporation's Board of Directors.
Management of Setab Alpha
Directors and Executive Officers
The following table sets forth certain information concerning Setab
Alpha's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Douglas J. Bates 38 Director, President and Chief Executive Officer
J. Eric Van Atta* 32 Director and Vice President
</TABLE>
* After the completion of the Merger, Mr. Van Atta will also serve as an
executive officer of the Surviving Corporation.
21
<PAGE>
The executive directors and officers of Setab Alpha devote such time
and attention to the affairs of Setab Alpha as is reasonable and necessary.
As a result of Setab Alpha's currently limited activities, its executive
officers devote less than 10% of their time to the affairs of Setab Alpha.
Set forth below is a description of the background of the officers and
directors of Setab Alpha.
DOUGLAS J. BATES has been a director and President and Chief Executive
Officer of Setab Alpha since its organization in July 1995. Since 1989, Mr.
Bates has been associated with the law firm of Gallop, Johnson & Neuman,
L.C., St. Louis, Missouri.
J. ERIC VAN ATTA has been a director and Vice President of Setab Alpha
since April 1996. He is Vice President and Secretary of American Artists,
by whom he has been employed since its organization in July 1991. Prior to
that time he was Vice President and Secretary of MovieAmerica Corporation.
The Board of Directors of Setab Alpha will consist of such number of
directors as are determined from time to time by the Board of Directors,
which number will not be less than 3 nor more than 15 persons. All
directors who serve in such capacity for a one-year term or until their
successors have been elected and qualified, subject to earlier resignation,
removal or death. At the date of this Prospectus, there exists one vacancy
on the Board of Directors of the Setab Alpha. No action has been, or will
be, taken by the Setab Alpha to fill such vacancy until the Merger has been
consummated. Setab Alpha's officers serve at the discretion of the Board of
Directors, subject to any effective contractual arrangements. Following the
consummation of the Merger the Board of Directors and management of the
Surviving Corporation will consist of those persons who currently are
serving in such positions with American Artists. See "INFORMATION REGARDING
AMERICAN ARTISTS--Management." In addition, the parties intend for the
service of Mr. Bates to remain available to the Surviving Corporation on a
part time or consulting basis to be determined through arms'-length
negotiations following consummation of the Merger.
Director and Executive Compensation
The compensation of Setab Alpha's directors and executive officers is
fixed by the Board of Directors. Consistent with Setab Alpha's present
policy, however, no director or executive officer of Setab Alpha receives
compensation for services rendered to Setab Alpha. Such persons are
entitled to be reimbursed for expenses incurred by them in pursuit of Setab
Alpha's business objectives. Moreover, Setab Alpha has entered into a
consulting agreement with its President under which Mr. Bates has been paid
the sum of $5,000 on the effective date of the SB-2 Registration Statement.
Certain Transactions and Relationships
In July 1995, Setab Alpha was incorporated in the State of Missouri
with an authorized capital of 30,000,000 shares of Class A Common Stock at
a par value of $.001 per share. In connection with its organization, Setab
Alpha issued to Alan G. Johnson and to Douglas J. Bates 10 shares of Class
A Common Stock each, at a purchase price of $.01 per share.
At June 30, 1996, Setab Alpha was indebted to Messrs. Bates and
Johnson in the aggregate principal amount of $2,741.90 and $2,055.33,
respectively. Such amount was advanced to Setab Alpha for the purpose of
funding disbursements relating to the organization of Setab Alpha and the
Merger. The indebtedness of Setab Alpha to Messrs. Bates and Johnson is
unsecured, bears interest at an annual rate equal to the prime rate plus 2%
and is payable on the date a business combination is effected.
Pursuant to separate letters of engagement dated July 5, 1995, Setab
Alpha has agreed to pay to Alan G. Johnson and Douglas J. Bates the sum of
$5,000 each on the effective date of the SB-2 Registration Statement, as
consideration for services rendered by such persons in connection with the
formation and organization of Setab Alpha.
22
<PAGE>
PRINCIPAL SHAREHOLDERS OF SETAB ALPHA
The following table sets forth certain information, assuming
completion of the Public Offering, with respect to the beneficial ownership of
Setab Alpha's Class A Common Stock as of June 30, 1996, with respect to each
person known by Setab Alpha to be the beneficial owner of more than five percent
of Setab Alpha's outstanding Class A Common Stock, by each director or person
selected to become a director, by each executive officer and by all directors
and officers of Setab Alpha as a group. Each person named has sole voting and
investment power with respect to the shares indicated, except as otherwise
stated in the notes to the table. At June 30, 1996, Setab Alpha had two
shareholders of record.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE MERGER(A) AFTER THE MERGER
------------------------- -------------------------
NUMBER OF
NUMBER CLASS A PERCENT OF PERCENT OF
OF SHARES PERCENT SHARES CLASS A ALL COMMON
----------- ------------ ---------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Douglas J. Bates
244 B Greenwood Drive 125,010 17.9% 125,010 17.9% 2.0%
Ballwin, Missouri 63011
J. Eric Van Atta __ __(b) __ __(b) 1.3%(b)
1245 Fowler Street, N.W.
Atlanta, Georgia 30318
Alan G. Johnson 125,010 17.9% 125,010 17.9% 2.0%
325 Highway DD
Defiance, Missouri 63341
All directors and officers as a group
(2 persons).......................... 125,010 17.9% 125,010 17.9% 3.3%
</TABLE>
--------------
(a) Assumes that the named shareholders will accept Setab Alpha's offer
of certain shares reserved for purchase by them in the Public
Offering.
(b) Mr. Van Atta is the beneficial owner of 140,000 shares of the Common
Stock of American Artists (including 75,000 shares obtainable upon
the exercise of vested options) which will be converted into shares
of Setab Alpha's Class A and Class B Common Stock upon the
effectiveness of the Merger.
INFORMATION REGARDING AMERICAN ARTISTS
GENERAL
American Artists Film Corporation, a Georgia corporation, and its
subsidiaries ("AAFC Group") are engaged in the production of television
commercials, the development and production of television specials and
related properties, and the development of feature-length motion picture
screenplays and other media products for possible future production or
license.
25
<PAGE>
AAFC Group's headquarters is at 1245 Fowler Street, N.W., Atlanta,
Georgia 30318 and its telephone number is 404/876-7373.
In August 1993 AAFC Group acquired all of the outstanding capital
stock of First Light Entertainment Corporation ("First Light") from its founder
and sole shareholder Vivian Jones. In June 1994 AAFC Group subscribed for
49% of the outstanding capital stock of Diversity Filmworks, Inc.
("Diversity"), formerly First Light Diversity, Inc., which was organized
and is 51%-owned by Tyrone C. Johnson. See "INFORMATION REGARDING
AMERICAN ARTISTS -- Certain Related Transactions."
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
NINE MONTHS ENDED
APRIL 30, YEAR ENDED JULY 31,
--------------------------- ---------------------------
1996 1995 1995 1994
----------- -------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues....................... $1,719,225 $3,409,871 $3,939,531 $2,034,420
Net income (loss).............. (816,543) 222,065 (7,793) (466,567)
Pro forma net income (loss)
per share/(1)/................ (.14) .04 -- (.09)
Pro forma weighted average
common shares and
equivalent shares
outstanding/(1)/.............. 5,819,763 5,284,857 5,280,653 4,973,116
BALANCE SHEET DATA:
April 30, 1996
--------------------------- As of
Actual Pro Forma/(2)/ July 31, 1995
---------- -------------- -------------
Film costs, net................ $ 502,474 $ 502,474 $ 415,721
Total assets................... 1,490,366 1,432,822 1,414,059
Stockholders' equity........... 895,023 837,479 790,894
---------- ---------- ----------
</TABLE>
- ------------
(1) The consummation of the Merger Agreement will be accounted for
as a recapitalization of American Artists, in which (i) American Artists
will be deemed to have (a) created a second class of common stock, such
that its authorized capital consists of Class A and Class B Common Stock,
and (b) effected a recapitalization in which an aggregate of 11,900
shares of Class A Common Stock and 5,502,974 of Class B Common Stock are
exchanged for the outstanding shares of its common stock (an exchange
ratio of an aggregate of .5862 Class A or Class B shares for each
presently outstanding share), and (ii) American Artists is deemed to have
issued shares of its Class A Common Stock in exchange for the net assets
of Setab Alpha, recorded at their historical cost. Pro forma net income
(loss) per share is computed to reflect the effect of such a reverse
stock split on American Artists' historical shares outstanding. See Note
1 of Notes to American Artists' Consolidated Financial Statements, and
Pro Forma Financial Statements.
26
<PAGE>
(2) Pro forma for the effect of the consummation of the Merger
Agreement. See Note (1) above and Pro Forma Financial Statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
AAFC Group is engaged in two lines of business; the development and
production of television, cable and feature films, including documentaries, and
in the contract production of films, generally television commercials.
Revenues from the license or sale of films produced by American
Artists are generally recognized when the film is exhibited or is available for
distribution in the applicable market. In general, the majority of the revenue
to be derived from a film will be earned during the two to three years following
its initial release. Accordingly, film revenues will fluctuate dependent on the
timing of AAFC Group's production and release of films.
Additionally, in some instances the level of revenues generated by a
film in the periods immediately following its release may not be directly
related to the film's success. As described below, AAFC Group will often sell
certain distribution rights, in advance of production, for fixed amounts as a
means of financing production costs. In those instances, the film's success
might not affect revenues initially, but could generate revenues later as the
result of distribution in secondary markets or the sale of ancillary products.
AAFC Group capitalizes the costs incurred to develop, produce and
print films, as well as advertising and other costs that benefit future periods.
Capitalized film costs are amortized, using the individual film forecast method,
under which capitalized costs are amortized based on total projected gross
revenues.
Several factors can affect the relationship that amortized film
costs bears to film revenues. AAFC Group has in the past, and may in the future,
exchanged interest in the revenues from certain or all distribution for
contributions towards the costs of production. Capitalized costs, and the
related amortization, are reduced by such contributions, while revenues are
reduced for outside interests. Accordingly, the terms of the arrangements, which
can vary from film to film, in addition to the total costs of the film, will
affect the relationship of film costs to film revenues.
AAFC Group's commercial production services are performed by the
Commercials Companies under short-term (typically less than two months)
agreements. The Commercials Companies generally use fixed fee agreements.
Revenues and costs will therefore vary based on the number of production
assignments obtained and completed in any particular period, and the
profitability of the individual assignments. The number of production
assignments obtained in any particular period will be influenced by both the
overall level of commercial production activity in the markets in which the
Commercial Companies operate, and their success in competitive biddings, and can
therefore fluctuate significantly.
RESULTS OF OPERATIONS
YEAR ENDED JULY 31, 1995 COMPARED TO YEAR ENDED JULY 31, 1994.
Revenues for the year ended July 31, 1995 ("fiscal 1995") increased
93.6% to $3,939,531 from $2,034,420 for the year ended July 31, 1994 ("fiscal
1994"). Revenues from both films and commercial production increased.
27
<PAGE>
Film and related revenues for fiscal 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Angels: The Mysterious
Messengers ("Angels I") $ 99,985 $373,951
Angels II: Beyond The
Light ("Angels II") 484,855 -
Book Royalties 297,491 -
-------- --------
$882,331 $373,951
======== ========
</TABLE>
Film and related revenues in fiscal 1994 were comprised primarily of
the television license fee for Angels I, which was released in May 1994.
Angels II was released in October 1994, and revenues for fiscal 1995
include the television license fee for Angels II, as well as foreign and
domestic video sales for both films. Film revenues in fiscal 1995 also
included royalties received from the publication and sale of "Angels:
The Mysterious Messengers," which was based in part on the Angels I film
and first published in September 1994.
The amortization of film costs equaled 72.4% and 59.0% of film and
related revenues in fiscal 1995 and 1994, respectively. AAFC Group's
film costs, as a percentage of projected total revenues, were higher for
Angels II than for Angels I principally as the result of differences in
the revenue and cost sharing agreements between AAFC Group and other
interests owners in the films. In producing both Angels I and Angels II,
a major objective of AAFC Group was to establish itself in the industry;
accordingly, in order to obtain production capital, AAFC Group agreed to
revenue sharing terms which may not be representative of those it will be
able to obtain on future projects.
Commercial production revenues increased 84.1% in fiscal 1995 from
$1,660,469 to $3,057,200. AAFC Group produced approximately sixty
minutes of commercials in fiscal 1995 compared to twenty-five minutes in
fiscal 1994. AAFC Group began commercial production in September, 1993,
after the August 31, 1993 completion of its acquisition of First Light
Entertainment Corporation ("First Light"). Commercial production costs
were 78.5% and 90.6% of production revenues in fiscal 1995 and 1994,
respectively. The gross margin (revenues less production costs) from
commercial production was $658,535 and $156,829 in fiscal 1995 and 1994,
respectively. Commercial production costs, as a percentage of related
revenues, declined in fiscal 1995 as the result of the elimination of
cost inefficiencies and the improvement of cost controls during and after
First Light's first year of operations.
Selling, general and administrative ("SG&A") expenses were $896,613
in fiscal 1995 and $765,357 in fiscal 1994. The majority of AAFC Group's
SG&A expenses are not directly revenue related, and therefore will not
necessarily vary proportionately with increases or decreases in revenues.
SG&A expenses were higher in fiscal 1995 as the result of the addition
of research staff, which increased salaries and related costs by
approximately $98,000, and legal fees of approximately $20,000 related to
the arbitration with Greystone (See "INFORMATION REGARDING AMERICAN
ARTISTS - Business of AAFC Group - Angels")
Interest expense was essentially unchanged between fiscal 1995 and
fiscal 1994. Interest bearing debt was reduced in fiscal 1995; however,
approximately 53% of AAFC Group's debt bears interest at a variable rate,
and the effect of lower borrowings was offset by the effect of higher
interest rates.
The net loss for fiscal 1995 was $7,793, compared to a net loss of
$466,567 for fiscal 1994.
NINE MONTHS ENDED APRIL 30, 1996 COMPARED TO NINE MONTHS ENDED
APRIL 30, 1995
Revenues for the first nine months of the year to end July 31, 1996
("fiscal 1996") were $1,719,225, which represented a $1,690,646 or 49.6%
decline from revenues of $3,409,871 for the nine months ended April 30,
1995.
28
<PAGE>
A decline in American Artists' film revenues, from $713,176 for the nine
months ended April 30, 1995 to $22,012 for the first nine months of
fiscal 1996, was the cause for $691,164 of the decline in revenues. As
previously discussed, the majority of the revenues from a film will be
earned during the two to three years following its initial release. The
last film released by American Artists, Angels II, was released in
October 1994, and the decline in revenues is consistent with the absence
of more recently released films.
Revenues from commercial production declined by $999,482 or 37.1%
from the nine months ended April 30, 1995 to the first nine months of
fiscal 1996, due to a decline in the volume of assignments obtained.
Commercial production revenue declined for the first nine months of
fiscal 1996 as a result of both an overall decline of commercial
production activity in the Commercial Companies' markets and a decline in
their rate of success in competitive bids. Commercial production
revenues are estimated to be $100,000 and $450,000 for the months of May
and June 1996, and management believes that these trends are not
necessarily indicative of permanent developments, and believes that
commercial production revenues will increase during the balance of fiscal
1996 and into fiscal 1997.
Film cost amortization was $8,077 for the first nine months of
fiscal 1996, compared to $516,339 for the nine months ended April 30,
1995. The decline was due to the decline in film revenues. Commercial
production costs, as a percentage of related revenues, were 79.4% for the
nine months ended April 30, 1996 as compared to 79.4% for the first nine
months of fiscal 1995. Resulting gross profits for commercial production
were $350,070 and $554,600 for the nine months ended April 30, 1996 and
1995, respectively.
Selling, general and administrative expenses increased $656,856 to
$1,175,985 for the nine months ended January 31, 1996 from $519,129 for
the first nine months of fiscal 1995. An increase in marketing related
expenses of approximately $65,000 was a principal cause of the increase
in SG&A expenses. That increase resulted from increased marketing
efforts being undertaken by the Commercial Companies in an effort to
reverse the decline in their revenues. Also, contributing to the
increase in SG&A were costs of $90,000 incurred in pursuing financing for
the production of "I.R.S., Death and Taxes," and other projects and legal
fees of $60,000 related to the Greystone arbitration, and an overall
increase in most SG&A expenses categories resulting from the increase in
pre-production activity for "I.R.S., Death and Taxes" and the Millennium
related projects.
Interest expense declined from $10,243 in the first nine months of
fiscal 1995 to $4,592 for the comparable period in fiscal 1996 due to a
decline in outstanding debt.
As a result of the foregoing factors (principally the decline in
film revenues, the decline in commercial production revenues, and the
increase in SG&A expenses), AAFC Group incurred a net loss of $816,572
for the first nine months of fiscal 1996, compared to net income of
$222,065 for the nine months ended April 30, 1995.
LIQUIDITY AND CAPITAL RESOURCES
AAFC Group's strategy is to finance its operating (i.e. selling,
general and administrative) expenses from the gross profits generated by
its commercial production operations while utilizing equity financing,
pre-production license revenues, and co-producer contributions to finance
the production of its films. Using this strategy, AAFC hopes to insulate
itself from the risks of significant operating losses and negative cash
flows, while retaining the potential for significant profits and positive
cash flows from highly successful films. The success of such a strategy
is, however, dependent on AAFC Group's ability to obtain sufficient, and
sufficiently profitable, commercial production contracts.
Operating cash flows were $17,692 in fiscal 1995, principally as the
result of a shortfall in the coverage of SG&A expenses by commercial
production profits of $238,078. The marginal operating cash flows were
financed with the proceeds from the issuance of shares of common stock.
Operating cash flows were a negative $425,746 in fiscal 1994, and also
were financed from the proceeds of equity offerings. For the nine months
ended
29
<PAGE>
April 30, 1996, operating cash flows were a negative $887,885, again due
to a shortfall in the coverage of SG&A expenses by commercial production
profits.
Operating cash flows include as a cash outflow expenditures
capitalized to develop and produce motion pictures. Such expenditures
were $714,486 and $405,729 for fiscal 1995 and 1994, respectively, and
$94,830 for the nine months ended April 30, 1996. These amounts exclude
development and production costs financed by outside investors which
approximated $347,000 and $286,000 in fiscal 1995 and 1994, respectively.
AAFC Group will continue to depend on financing provided by outside
investors, the pre-production sale of distribution rights, or the
proceeds from the sale of its equity securities, to finance the
production of motion pictures. Accordingly, the timing of the production
of motion pictures will depend on the availability of such financing.
AAFC Group is currently planning to film "I.R.S., Death and Taxes,"
in fiscal 1997, and is currently offering interests in D&T, up to
$4,000,000, to obtain production financing. If the full amount of the
$4,000,000 sought is obtained, AAFC Group believes that "I.R.S., Death
and Taxes" could be produced with that financing. In the event the
offering raises the minimum of $2,000,000, it is anticipated that the
remaining production budget could be financed through one or both of the
proceeds from other equity offerings or fees from the pre-production sale
of certain distribution rights. There can be no assurance that D&T will
be able to complete the private placement or finance the proposed film in
an alternative way, nor that the film would provide a profit to AAFC
Group if produced.
AAFC Group has also been developing a concept for a related group of
television specials and other media preparations pertaining to the
forthcoming financing end of the second millennium of the modern era. In
October 1994 AAFC Group organized Millennium Group, L.L.C. ("MG"), as a
Georgia limited liability company with itself as Manager, for the purpose
of producing and exploiting an initial one-hour television special on the
subject of the millennium. MG has financed certain research and
development of the millennium materials through a private placement of
$50,000 of limited liability company interests with three accredited
investors. AAFC Group has presented its "millennium" concept and certain
treatments to several over-the-air and cable television networks.
Several networks have indicated interest in the properties but AAFC Group
is unable to state whether the interest will continue or whether the
parties will reach a mutually satisfactory agreement through negotiation.
AAFC Group's goal is also to derive related video and book properties
from any television program that might be produced. If MG is able to
obtain network or other funding for producing the program, which is
currently projected to have a production budget ranging from $30,000 to
$100,000, the investors are entitled to recover 100% of MG"s revenues
from the program until their initial investment has been returned, 50%
thereafter until an equal additional amount has been received, and 10% of
any further revenues. All other revenues would be paid to AAFC Group as
management fees. Accordingly, the timing of the production of this
program, or the source of the production financing cannot be predicted
with certainty.
AAFC Group's negative operating cash flows, which include the
funding of Diversity's losses ($59,646 and $1,644 in fiscal 1995 and
1994, respectively) have, as previously stated, generally been caused by
a shortfall in the coverage of SG&A by commercial production
profits.
Such shortfalls in the coverage of SG&A by commercial production
profits the will cause AAFC Group's liquidity to be constrained until
commercial production revenues, and the resulting profits, increase.
During the first nine months of fiscal 1996 AAFC Group again financed
this shortfall principally by issuing equity securities, and management
anticipates the same will occur in the fourth quarter of fiscal 1996.
The use of equity or debt financing will continue to be necessary until
commercial production profits are sufficient to cover SG&A expenses,
except in periods when significant film revenues are realized and can be
devoted to such use. There can be no assurance that any such debt or
equity financing will be available to AAFC Group, or if available, that
such financing would be available on terms considered acceptable to AAFC
Group. The inability to obtain such equity or debt financing as needed
could cause AAFC Group to have to reduce the scope of its operations.
30
<PAGE>
OTHER
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." AAFC Group will adopt SFAS No. 121 as of
August 1, 1996 and its implementation is not expected to have a material
effect on AAFC Group's consolidated financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation." SFAS No. 123 is effective December 15, 1995,
and requires either the application of an option pricing model
measurement for stock compensation, or, if a company elects to continue
to measure stock compensation based on the difference between the market
price of the company's common stock and the exercise price of the
employer stock option, disclosure of what the effects of the application
of option pricing model measurement would have been. AAFC Group will
initially apply SFAS No. 123 in fiscal 1996, and will elect to disclose
the effect that the application of option pricing model measurement would
have had for options granted from October 1, 1995. The adoption of SFAS
123 will not impact AAFC Group's consolidated results of operations,
financial position, or cash flows.
BUSINESS OF AAFC GROUP
GENERAL
American Artists, a Georgia corporation, and its subsidiaries ("AAFC
Group") are engaged in the production of television commercials, the
development and production of television specials and related properties,
and the development of feature-length motion picture screenplays and
other media products for possible future production or license.
AAFC Group's headquarters is at 1245 Fowler Street, N.W., Atlanta,
Georgia 30318 and its telephone number is 404/876-7373.
In August 1993 AAFC Group acquired all of the outstanding capital
stock of First Light Entertainment Corporation ("First Light") from its
founder and sole shareholder Vivian Jones. In June 1994 AAFC Group
subscribed for 49% of the outstanding capital stock of Diversity
Filmworks, Inc. ("Diversity"), formerly First Light Diversity, Inc.,
which was organized and is 51%-owned by Tyrone C. Johnson. See
"INFORMATION REGARDING AMERICAN ARTISTS -- Certain Related Transactions."
BUSINESS OF AMERICAN ARTISTS
Since its organization by Steven D. Brown and Rex Hauck in July
1991, American Artists' activities have consisted primarily of producing
network television specials, developing other television specials for
possible future production, developing various feature-film screenplays
and treatments for possible future production, and seeking to arrange
financing for production and exploitation of one or more of its feature-
film properties.
Angels. In 1994 AAFC Group produced with Greystone Communications,
Inc. ("Greystone"), two 2-hour prime time specials for the NBC television
network: "Angels: The Mysterious Messengers," hosted by Patty Duke, and
"Angels II: Beyond the Light," hosted by Stephanie Powers. NBC has
aired the first program twice and the second program one once. The
network is entitled to one additional broadcast of the second program
prior to November 1996; thereafter NBC has no further rights to the
properties. In June 1996, AAFC Group entered a three-year license
agreement, authorizing Turner Original Productions, Inc. ("Turner") to
broadcast two Angels programs on TBS Superstation for a total license fee
of $100,000. Under the agreement, the licensor bears any obligation for
residuals and must refrain from licensing the programs to any other
broadcaster in the United States during the term of the license.
31
<PAGE>
AAFC Group also entered a 3-year agreement in July 1994 with Alfred
Haber Distribution, Inc. for foreign distribution of the Angels programs.
Under that agreement AAFC Group and Greystone receive 75% of any license
fees, less expenses, obtained from licensing the Angel programs outside
the United States. License fees have now been received for television,
cable and satellite broadcast of the programs in more than 55 countries.
Under a May 1994 agreement, Calling Card Company, Inc. ("CCC")
marketed home videos of the Angels programs through advertising during
the NBC network broadcasting, providing royalties, which were shared by
NBC, American Artists and Greystone, of $223,000 through January 31,
1996. In addition, a video edition of the first Angels program has been
separately marketed by Time-Life Video under an August 1994 agreement
which granted Time-Life exclusive home-video rights to the program in the
United States and Canada for a five-year term. The agreement provided
for $100,000 in non-refundable advance royalties and guaranteed minimum
royalties of $10,000 per year for the duration of the agreement after
recoupment of the advanced royalties. Royalties under the agreement are
shared among NBC, American Artists, and Greystone.
Another short treatment of the Angels theme was developed and
produced for CCC at a cost to AAFC Group of approximately $30,000. In
fiscal 1996 AAFC Group determined that this project is not expected to
result in full recovery of costs.
AAFC Group also developed a book entitled Angels: The Mysterious
Messengers, edited for American Artists by Mr. Hauck and published by
Ballantine Books, Inc. The book has also been published in German,
Italian, French and Spanish edition. Advance royalties for the book
amounted to $250,000.
The agreement among American Artists, Greystone and NBC provided for
(i) the payment of license fees by NBC to American Artists and Greystone
and (ii) the payment to NBC of 50% of the royalties from videos sold
during the NBC broadcasts and 20% of the royalties from videos sold by
Time-Life Videos. Under an agreement dated May 1994, AAFC Group and
Greystone agreed to divide equally all revenues from the two television
specials and certain derivative properties. The scope of that agreement
and the definition of allowable expenses have become the subject of
dispute between the parties and are the subject of a pending arbitration
proceeding in Los Angeles, California. See "Arbitration, Litigation and
Intellectual Property."
AAFC Group financed development of the initial Angels program
primarily through the private placement of $128,000 of its Revenue
Participating Joint Venture Investment Units with eight accredited
investors. The private placement was completed in February 1994.
Investors receive 100% of AAFC Group's revenues from the first television
special and ancillary rights until their initial investment has been
returned, 50% thereafter until an equal additional amount has been
received, and 25% of any further revenues. The investors also receive 5%
of AAFC Group's revenues from the second television special. Through
April 1996, the investors had received $1.30 for each dollar of their
investment. Additional distributions may be made later depending on
future revenues of the Angels programs.
Other Television Projects. Since 1995 AAFC Group has been
developing, under Mr. Hauck's supervision, the concept for a related
group of television specials and other media properties pertaining to the
forthcoming end of the second millennium of the modern era. The
development work has included historical and scientific research,
development of themes and preparation of story treatments.
AAFC Group has presented its "millennium" concept and certain
treatments to several over-the-air and cable television networks.
Several networks have indicated interest in the properties but AAFC Group
is unable to state whether the interest will continue or whether the
parties will reach a mutually satisfactory agreement through negotiation.
AAFC Group's goal is also to derive related video and book properties
from any television program that might be produced.
32
<PAGE>
In October 1994 AAFC Group organized Millennium Group, L.L.C.
("MG"), as a Georgia limited liability company with itself as Manager,
for the purpose of producing and exploiting an initial one-hour
television special on the subject of the millennium. MG has financed
certain research and development of the millennium materials through a
private placement of $50,000 of limited liability company interests with
three accredited investors. If MG is able to obtain network or other
funding for producing the program, the investors are entitled to recover
100% of MG's revenues from the program until their initial investment has
been returned, 50% thereafter until an equal additional amount has been
received, and 10% of any further revenues. All other revenues would be
paid to AAFC Group as management fees.
In June 1996, AAFC Group entered an agreement with Turner Original
Productions, Inc. ("Turner") for pre-production development of a proposed
one-hour program on an astronomy project. After funding pre-production
development at a cost of $20,000, Turner has an option to fund the
production of the program by AAFC Group. In that event, Turner would
have exclusively rights to the program in the United States while AAFC
would retain a limited participation interest in any foreign
revenues.
Feature Films. In April 1996 AAFC Group organized Death and Taxes
Film Company, L.L.C. ("D&T"), as a Georgia limited liability company with
itself as Manager, for the purpose of producing a feature-length motion
picture based on a screenplay written by Mr. Hauck currently titled
"I.R.S., Death and Taxes." AAFC Group has begun its efforts to finance
D&T's production and distribution costs for the film through a private
placement of up to $4,000,000 of limited liability company interests in
an offering limited to "accredited investors." After providing for costs
associated with production of the film, the investors would receive all
available funds of D&T up to 110% of their initial investment.
Thereafter, all revenues would be divided equally between AAFC Group (as
license fees for the film property) and the investors.
If the full amount of the $4,000,000 sought is obtained, AAFC Group
believes that "I.R.S., Death and Taxes" could be produced with that
financing. In the event the offering raises the minimum of $2,000,000,
it is anticipated that the remaining production budget could be financed
through one or both of the proceeds from other equity offerings or fees
from the pre-production sale of certain distribution rights. There can
be no assurance that D&T will be able to complete the private placement
or finance the proposed film in an alternative way, nor that the film
would provide a profit to AAFC Group if produced.
AAFC Group also has several other film properties (screenplay or
treatment) in various stages of development, and holds an option to
acquire one film property. No commitments have been obtained for
financing production of any of those properties.
Under a February 1992 agreement, AAFC Group issued 250,000 shares of
its common stock to Icon International, Inc. ("Icon"), in exchange for
$500,000 in credits for certain media advertising. The availability of
the media credits expires December 31, 1996, but up to one-half of any
credits not used by that date may be returned to Icon in exchange for a
portion of the shares previously issued (calculated at the rate of $2.00
of unused media credits for each share of stock). AAFC Group anticipates
using the credits, at least in part, for promoting its film and video
properties.
FIRST LIGHT ENTERTAINMENT AND DIVERSITY FILMWORKS
First Light and Diversity (collectively, the "Commercials
Companies") produce television commercials on a contract basis for
advertisers and their agencies. They typically enter short-term
agreements for the production of the commercials, whose scripts or story
outlines ("story boards") are provided by the client. The Commercials
Companies then typically arrange all production aspects of the
commercials, including casting, location selection and contractual
arrangements with the director and other production personnel. The
Commercials Companies have established relationships with ten independent
directors, some of whom work with them on an exclusive basis. The
Commercials Companies usually produce their commercials on a fixed fee or
cost-plus basis established through bids or negotiations following
analysis of the script or story boards generated by the client.
33
<PAGE>
In marketing their services the Commercials Companies emphasize the
talents of the directors with whom they work, their skills in cost
control and timely production, and the advantages of Atlanta as a
production center. In its work, Diversity especially emphasizes use of
directors and other production staff from diverse cultural and ethnic
backgrounds. Although most of the commercials produced by the
Commercials Companies are filmed in Atlanta, they are experienced at
producing commercials throughout North America.
In fiscal 1995 the Commercials Companies produced 95 commercials for
net revenues of $3,057,000, compared to 60 commercials and $1,161,000 in
fiscal 1994. Production volume declined in the first nine months of
fiscal 1996 (to 47 commercials and $1,697,000), affected in part by a
change in First Light's marketing director early in the period. Based on
the volume of story boards presently being submitted to it for bids or
cost estimates, management of AAFC Group anticipates an improvement in
revenue levels of the Commercials Companies during the balance of fiscal
1996.
In addition, Diversity is also negotiating with potential
advertisers, investors and other parties for erecting at the Underground
Atlanta area in Atlanta, Georgia, a large screen video display for news
and advertising similar to the one at Times Square in New York. This
project is in the development stage and is subject to a variety of
conditions, including sufficient commitments by advertisers, the
availability of financing, and compliance with applicable regulatory
requirements. There is no assurance that the project can be brought to
fruition or would be profitable for Diversity and AAFC Group if
completed.
EMPLOYEES
In its production activities AAFC Group relies primarily upon
independent third parties for production facilities and personnel. AAFC
Group currently has eleven full-time employees. A portion of the
salaries payable to AAFC Group's employees is paid, from time to time,
directly from the production budgets of the projects on which the
individuals are working. AAFC Group hires additional personnel for
projects on a contract basis as needed. Such individuals are generally
be paid directly from the budget of the projects on which they are
working.
FACILITIES
AAFC Group leases as its headquarters a facility of approximately
8,000 square feet located at 1245 Fowler St., N.W., in Atlanta, Georgia.
Rent under the lease, which expires in November 1996, is $3,200 per
month. AAFC Group does not own sound stages and related production
facilities (generally referred to as a "studio") and, accordingly, does
not have the fixed payroll, general, administrative and other expenses
resulting from ownership and operation of a studio. Studio facilities
are generally available for rental as needed.
COMPETITION
The industries in which AAFC Group operates are extremely
competitive. Many of the competitors are major corporations with
substantially greater resources than AAFC Group. Although the demand for
low-cost quality media products has expanded dramatically with the growth
of cable, video and foreign markets, the production of television
specials and feature films remains dominated by major studios and
distributors. Some major distributors such as Walt Disney, Turner
Broadcasting and Fox Broadcasting have acquired or developed their own
production companies. In this environment AAFC Group competes on the
basis of the artistic creativity of its projects and its commitment to
low-cost quality production.
The production of television commercials is highly fragmented and
AAFC Group competes in that field with numerous national and regional
companies, no one of which has a major share. AAFC Group competes
primarily on the basis of the skills of its executive producers,
directors and production staff, and the advantages of Atlanta as a
production center.
34
<PAGE>
ARBITRATION, LITIGATION AND INTELLECTUAL PROPERTY
AAFC Group is currently involved in an arbitration dispute in Los
Angeles, California, with Greystone Communications, Inc. ("Greystone"),
its co-producer of the television specials "Angels: The Mysterious
Messengers," and "Angels II: Beyond the Light," concerning relations
under their main 1994 co-production agreement. Greystone's principal
issues relate to certain costs claimed by AAFC Group and to Greystone's
contention that it is entitled to participate in revenues from the book
Angels: The Mysterious Messengers, while AAFC Group claims that
Greystone has withheld distribution of certain revenue. While it is
unable to predict the results of the arbitration proceedings, management
believes that it is remote that any recovery by Greystone would exceed
$100,000. No provision has been recorded in the Company's financial
statements. See Note 6 of Notes to AAFC Group's consolidated financial
statements.
A former employee of AAFC Group has filed suit against AAFC Group
for alleged claimed damages arising in connection with termination of his
employment and for alleged unpaid compensation. No lawsuit has yet been
filed by the claimant. Management of AAFC believes that there is no
liability to the former employee and intends to contest this litigation
vigorously any suit that he may initiate.
There has been substantial litigation in the entertainment industry
with respect to any literary properties. AAFC Group has no formal
procedure for monitoring the possible infringement of its literary
properties by others or for confirming that its literary properties do
not infringe the rights of others, but AAFC Group addresses some specific
issues as they are brought to its attention from time to time. In 1992,
AAFC Group received approximately $350,000 in settlement of its claim
that a certain motion picture then in production infringed upon a
literary property of AAFC Group.
In 1996, counsel for MovieAmerica Corporation expressed to AAFC
Group "concerns" that the four-feature film properties transferred by
Messrs. Brown and Hauck to AAFC Group at the time of its organization in
1991 were or should have been properties of MovieAmerica Corporation by
reason of Mr. Brown's duties while he was an employee of MovieAmerica
Corporation. See "-Management." Messrs. Brown and Hauck have assured
AAFC Group that MovieAmerica Corporation has no ownership interest in the
four literary properties.
MARKETS FOR CAPITAL STOCK; DIVIDENDS
The capital stock of American Artists is not traded on an
established public trading market. As of July 12, 1996, there were
9,407,837 shares of American Artists Common Stock outstanding and 119
recordholders of such shares. American Artists has not declared or paid
any cash dividends on its common stock since its formation, and the Board
of Directors of American Artists currently intends to retain all of its
earnings, if any, for the Surviving Corporation's business. The
declaration and payment of cash dividends following the consummation of
the Merger will be at the discretion of the Surviving Corporation's Board
of Directors.
35
<PAGE>
MANAGEMENT
The officers, directors and director nominees of American Artists
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------- --- -----------------------------------------------------------
<S> <C> <C>
Steven D. Brown 49 Director, Co-Chairman of the Board, Chief Executive Officer
Rex Hauck 45 Director, Co-Chairman of the Board, Co-President
Vivian W. Jones 43 Director, Co-President
Robert A. Martinez 33 Vice President - Finance, Treasurer
J. Eric Van Atta 32 Vice President, Secretary
John Boyd 59 Director
V. Robert Colton 66 Director
Malcolm C.
Davenport, V 44 Director
Ron L. Loveless 53 Director
Glen C. Warren 65 Director
Dan W. Holloway 74 Director Nominee
Norman J. Hoskin 62 Director Nominee
</TABLE>
STEVEN D. BROWN. Mr. Brown began his association with the motion
picture industry in 1976 by initiating and later producing the
critically-acclaimed motion picture "The Chosen," starring Rod Steiger,
Maximillian Schell and Robby Benson. Mr. Brown founded AAFC Group in
July 1991 with Mr. Hauck and has served as Co-Chairman of the Board and
Chief Executive Officer since that time. Prior to founding AAFC Group he
was President, Chief Operating Officer and Treasurer of MovieAmerica
Corporation, a motion picture development company.
Mr. Brown, who holds a B.B.A. in accounting from the University of
Massachusetts and an M.B.A. in finance from Northeastern University,
serves on the Governor's Georgia Film and Videotape Advisory Board and
served on the Atlanta Film and Video Advisory Board.
REX HAUCK. Mr. Hauck founded AAFC Group in July 1991 with Mr.
Brown. He served as Executive Vice President from the inception of the
AAFC Group until July 1994, when he was elected to his current positions.
Prior to 1991 he was Senior Vice President of MovieAmerica Corporation.
Mr. Hauck has received numerous awards since entering the film industry
in 1981, including Emmy Awards as writer for "Bull Rider" (1989) and
producer for the children's production "Bug Hollow" (1990). He has also
received the New York Film Festival Silver Award for "Pomme de Terre"
(1986), the AFM Medallion and the Drive-In Academy Award as
writer/producer of "Destroyer" (1988) and the Star Award as
writer/director of "Bull Rider" (1989).
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<PAGE>
Mr. Hauck's other film credits include screenwriter, producer and
director of the NBC two-hour prime time specials "Angels: The Mysterious
Messengers," hosted by Patty Duke, and "Angels II: Beyond the Light,"
hosted by Stephanie Powers; associate producer of "Kid Colter"; producer
of "The Denver Open"; editor of "This is This."
In addition to his prize-winning screenplay for "The Destroyer,"
starring Tony Perkins, Lyle Alzado and Deborah Foreman, Mr. Hauck has
written other screenplays, some of which have been optioned by
unaffiliated companies for possible feature film production. His book
Angels: The Mysterious Messengers was published by Ballantine Books, and
he has written and directed numerous commercials.
A member of the Directors Guild of America and the Writers Guild of
America, Mr. Hauck received a B.A. degree in sociology from the
University of Virginia and pursued studies toward a Master's degree in
oceanology at George Washington University.
VIVIAN W. JONES. Ms. Jones, who has been involved in the film
industry for 19 years, founded First Light Entertainment Corporation
(originally Current Corporation) ("First Light") in 1993 to purchase
certain assets of Jayan House, Ltd., a commercial production company,
where she had been employed as General Manager and Executive Producer
since 1990. She has been president of First Light since its founding
and, after First Light's acquisition by AAFC Group in 1993, co-president
of AAFC Group as well. Ms. Jones has won many awards in the commercial
production industry including the Clio Award. A graduate of Georgia
State University with a degree in business administration, she was named
in 1990 one of Atlanta's Top Ten Businesswomen. She is Co-Chair of the
Governor's Georgia Film and Videotape Advisory Board and was a founding
member of the Mayor's Commission on the Atlanta Entertainment
Industry.
ROBERT A. MARTINEZ. Mr. Martinez joined AAFC Group in December 1995
after nine years as an accountant with BDO Seidman, LLP. He received his
B.S. degree in accounting from the University of Southern California and
became a certified public accountant in 1988.
J. ERIC VAN ATTA. Prior to joining AAFC Group at its founding in
1991, Mr. Van Atta was associated with Messrs. Brown and Hauck as Vice
President and Secretary of MovieAmerica Corporation from 1989. He
received his A.B.A. degree from Middle Georgia College in 1985.
OTHER DIRECTORS. John Boyd, a private investor, was a physician on
the staff of Southwest Regional Medical Center from 1969 to January 1996
and President of Boyd Medical Center in McComb, Mississippi, from 1965 to
December 1995. V. Robert Colton, a private investor, has been a
consultant and advisor to various businesses in the United States and
abroad for more than the past five years. He serves as a director of Air
Sensors, Inc., an auto emissions technology company. Mr. Davenport has
practiced law in West Point, Georgia, since October 1993, originally as a
sole practitioner and since 1996 as a partner in the firm of Coulter &
Davenport. Mr. Davenport previously practiced law in Dalton, Georgia, as
a sole practitioner from 1984 to 1991 and as a partner in Ponder &
Davenport, P.C., from 1991 to 1993. He is a director of ITC Holding
Company, a communications holding company, and Spintek Gaming
Technologies, Inc., a gaming equipment manufacturer and licensor. Ron L.
Loveless, a private investor and business consultant from 1986 to 1995
and Senior Vice President-Marketing for Member Services, Inc., since
October 1995, was previously Senior Vice President and General Manager of
Sam's Wholesale Club, a division of Wal-Mart Stores, Inc. Dr. Glen C.
Warren has served as Chairman of the Board of River Oaks Hospital in
Jackson, Mississippi, since 1988, President of Mississippi Diagnostic
Imaging Center, Ltd., since 1986 and a clinical professor of neurological
surgery at the University of Mississippi School of Medicine since 1972.
Dan W. Holloway and Norman J. Hoskin have agreed to serve as members
of AAFC's Board of Directors upon their election at a future meeting of
shareholders. Dr. Holloway is a physician in private practice in Las
Vegas, Nevada, affiliated with Desert Springs Hospital, where he is
presently Chairman of the Department of Family Practice. Mr. Hoskin has
been Chairman of the Board of Directors of Atlantic International
Capital, Inc. since July 1994. He was previously Chairman of Atlantic
Capital Group, Ltd., a venture capital advisory service, from 1986. Mr.
Hoskin is a director of Aquacare Systems, Inc., a producer of water
purification equipment, Consolidated Technologies Corp., a diversified
manufacturing company, Concept Technologies Group, Inc., which
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<PAGE>
specializes in high-tech 3-D technology, Trans Global Services, Inc., a
telephone and internet communications company and Sequential Information
Systems, Inc., a high-tech aircraft equipment company,
CERTAIN RELATED TRANSACTIONS
Upon the founding of AAFC Group in July 1991, Messrs. Brown and
Hauck each acquired 2,380,000 shares of Common Stock of AAFC Group in
exchange for assigning to the corporation four feature film properties
(screenplays or treatments) valued by the Board of Directors at $238,000.
AAFC Group is currently seeking to obtain financing for production
of one of the film properties, entitled "I.R.S., Death and Taxes,"
through a limited liability company to which the property would be
licensed. See INFORMATION REGARDING AMERICAN ARTISTS - Business of
American Artists. The other properties, entitled "Blood Brothers,"
"Prometheus 2000," and "The Watchman," are being held by AAFC Group for
future exploitation. Mr. Van Atta at the time of founding purchased
100,000 shares of Common Stock at an aggregate price of $5,000 ($0.05 per
share), paid by delivery of his non-recourse promissory note, which he
satisfied in full in December 1995.
Pursuant to an agreement dated August 31, 1993, and restructured
November 3, 1995, AAFC Group acquired all of the outstanding stock of
Current Corporation (later renamed First Light Entertainment Corporation)
from Ms. Jones in exchange for 750,000 shares of Common Stock of AAFC
Group and an option to purchase up to 1,500,000 additional shares on or
before September 1, 2003, at a price of $0.50 per share. Ms. Jones'
options become exercisable in three annual increments of 500,000 shares
each, the last of which will vest September 1, 1996. Current
Corporation, organized by Ms. Jones in August 1993, had acquired certain
assets of Jayan House, Ltd., a commercial production business with which
she had been employed, in exchange for its 4.37% note, $100,000
principal amount, payable in 20 equal quarterly installments of principal
and interest commencing November 1993.
Since December 1993 Dr. Warren has purchased 147,060 shares of
Common Stock of AAFC Group at an aggregate price of $125,000 ($0.85 per
share). In connection with certain of these purchases, Dr. Warren also
received warrants for the purchase of 44,118 shares of Common Stock at a
price, to be determined by the related agreement, between $1.50 and
$2.00. These warrants are exercisable through June 1998. In November
1995 the AAFC Group granted Dr. Warren an option under its 1995 Stock
Option Plan to purchase 200,000 shares of Common Stock of AAFC Group at
$0.85 per share. The option expires in June 1998.
Effective July 1995 AAFC Group agreed with Dr. Warren and Mr. Boyd
to cancel February 1993 transactions in which the two individuals each
purchased, by delivery of their respective non-recourse promissory notes,
111,111 shares of Common Stock of AAFC Group at an aggregate price of
$100,000 ($0.90 per share).
In July 1994 AAFC Group issued shares of Common Stock of AAFC Group
to certain private investors to retire options previously purchased by,
or included in stock and option units purchased by those investors.
Included among those investors were certain directors of AAFC Group, who
were issued 81,977 shares of AAFC Group Common Stock in exchange for an
aggregate of 819,774 options exercisable at prices ranging from $1.25 to
$2.25 per share. The directors who were option holders were as
follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES WEIGHTED AVERAGE SHARES ISSUED
OPTION HOLDERS SUBJECT TO OPTION OPTION EXERCISE PRICE IN EXCHANGE
<S> <C> <C> <C>
John W. and Sandra L. Boyd 500,000 $1.45 50,000
Glen C. Warren 259,533 1.56 25,953
Ron L. Loveless 60,241 1.75 6,024
</TABLE>
In July 1993, Dr. Glen Warren and Dr. John Boyd opened a $100,000
revolving bank line of credit with Deposit Guaranty National Bank for the
benefit of AAFC Group. In September 1994, the revolving line of credit
was replaced by a note which AAFC is repaying in monthly installments.
At April 30, 1996, the principal balance was $46,100.
38
<PAGE>
Under an agreement dated May 16, 1995, as amended, AAFC Group has
retained Atlantic International Capital, Ltd. ("AIC"), of which Mr.
Hoskins is Chairman and a principal shareholder, to assist AAFC Group in
its efforts to secure $4,000,000 in a private placement of up to 25% of
American Artists's capital stock prior to July 31, 1996, or a later date,
if extended. Upon successful completion of such a placement, AIC would
be entitled to 5% of the capital stock of American Artists plus $380,000.
Under this agreement, American Artists has paid AIC retainer fees of
$35,750 and reimbursed $732 in expenses. American Artists will pay a
monthly retainer of $3,000 through July 31, 1996, and, upon completion of
the private placement, $5,000 per month thereafter for 12 months.
Subject to the parties rights to terminate the agreement upon 90 days'
prior notice, AIC also has certain rights to serve as American Artists's
sole advisor in connection with certain other corporate finance
transactions.
In April 1996 Messrs. Brown, Hauck and Warren and Ms. Jones entered
an agreement under which they agreed to vote all their shares of stock of
AAFC Group as a block in accordance with the majority vote (by shares)
among themselves. By reason of their corporate offices, share ownership
and voting agreements they may be deemed "controlling persons" of AAFC
Group.
MANAGEMENT COMPENSATION
The following table furnishes compensation information for the year
ended July 31, 1995, for the Chief Executive Officer and the other most
highly compensated executive officers who during such year earned more
than $100,000 in base salary for services rendered in all capacities.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-----------------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION SALARY BONUS COMPENSATION
------------------ -------- ----- ------------
<S> <C> <C> <C>
Steven D. Brown $108,000 -0- -0-
Co-Chairman of the Board
Executive Officer of AAFC Group
Rex Hauck $108,000 -0- -0-
Co-Chairman of the Board
of Directors and Co-President
of AAFC Group
Vivian W. Jones $108,000 -0- -0-
Co-President and Director
of AAFC Group; President of
First Light
</TABLE>
DIRECTOR COMPENSATION
Currently, members of the Board of Directors are not compensated for
their services as directors.
STOCK OPTION PLAN
On December 1, 1995, AAFC adopted its 1995 Stock Option Plan (the
"Stock Option Plan"). The purpose of the Stock Option Plan is to
encourage grown in shareholder value by providing financial incentives to
selected members of its Board of Directors, employees, consultants and
advisors who are in positions to make significant contributions toward
that success. The aggregate number of shares of Common stock reserved for
issuance under
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<PAGE>
the Stock Option Plan is 2,500,000 shares. Options granted under the
Stock Option Plan may be either (i) options intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), or (ii) non-qualified stock options.
The Stock Option Plan permits the grant of stock appreciation rights in
connection with the grant of stock options. The Stock Option Plan is
administered by the Compensation Committee of the Board of Directors.
The Compensation Committee has the authority to determine exercise prices
applicable to the options, the eligible directors, employees, consultants
and advisers to whom options may be granted, the number of shares of
AAFC's Common Stock subject to each option, and the extent to which
options may be exercisable. The Compensation Committee is empowered to
interpret the Stock Option Plan and to prescribe, amend and rescind the
rules and regulations pertaining to the Stock Option Plan. No option is
transferable by the optionee other than by will or the laws of descent
and distribution, and each option is exercisable during the lifetime of
the optionee only by such optionee.
Any incentive stock option that is granted under the Stock Option
Plan may not be granted at a price less than the fair market value of
AAFC's Common Stock on the date of grant (or less than 110% of fair
market value in the case of holders of 10% or more of the total combined
voting power of all classes of stock of AAFC). Non-qualified stock
options may be granted at the exercise price established by the
Compensation Committee, which may not be less than the fair market value
of the Common Stock on the date of grant.
Each option granted under the Stock Option Plan is exercisable for a
period not to exceed ten years from the date of grant (or five years in
the case of a holder of more than 10% of the total combined power of all
classes of stock of AAFC) and shall lapse upon expiration of such period,
or earlier upon termination of the recipient's employment with AAFC, or
as determined by the Compensation Committee.
As of July 10, 1996, options to purchase 3,273,120 (pre-merger)
shares of Common Stock were outstanding under the Stock Option Plan and
no shares of Common Stock had been issued upon exercise of options
granted under the Stock Option Plan.
STOCK OWNERSHIP
The following table shows beneficial ownership of capital stock of
American Artists at April 30, 1996, and of the Surviving Corporation as
if the Merger had occurred on such date for the respective directors,
director nominees and 10% shareholders and for all officers and directors
as a group:
<TABLE>
<CAPTION>
Shares of Common Stock Shares of Class A Stock Shares of Class B
of American Artists Common Stock of the Common Stock of the
Beneficially Owned Surviving Corporation Surviving Corporation
Prior to the Beneficially Owned After Beneficially Owned After
Merger Completion of the Merger(2) Completion of the Merger(2)
Name(1) Number % Number % Number %
<S> <C> <C> <C> <C> <C> <C>
Steven D. Brown 2,143,000 22.8% 100 - 1,256,127 22.8%
Rex Hauck 2,237,000 23.8% 100 - 1,311,229 23.8%
Vivian W. Jones 1,750,000(3) 16.8% 100(2) - 1,025,750(3) 16.8%
John W. Boyd 584,000 6.2% 100 - 342,241 6.2%
Dr. Glen W. Warren 526,134 5.6% 100 - 308,320 5.6%
Ron L. Loveless 86,265 0.9% 100 - 50,469 0.9%
V. Robert Colton 10,000 0.1% 100 - 5,762 0.1%
Malcolm C. Davenport, V 223,824(4) 2.4% 100 - 131,106 2.4%
</TABLE>
40
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Norman J. Hoskin - - - - - -
Dr. Dan Holloway - - - - - -
All Officers and Directors)
as a Group (12 persons) 7,700,223 73.5% 800 0.1% 4,512,972 73.6%
</TABLE>
(1) The address for the officers, directors, and director nominees
is the corporate office of AAFC Group located at 1245 Fowler St., N.W.,
Atlanta, Georgia 30318.
(2) The percentages shown assume that (i) all of the shares
offered in the Public Offering are sold, and (ii) no options or warrants
to purchase American Artists Common Stock are exercised between the date
of this Proxy Statement/Prospectus and the Effective Time.
(3) Includes 1,000,000 shares of American Artists (586,200 shares
of Class B Common Stock of the Surviving Corporation) obtainable upon the
exercise of currently exercisable options.
(4) Including 110,000 shares acquired from Mr. Brown and 40,000
shares acquired from Mr. Hauck in June 1994, all at $0.75 per share, by
Mr. Davenport as trustee of a family trust.
DESCRIPTION OF CAPITAL STOCK
The aggregate number of shares of capital stock which Setab Alpha
has the authority to issue (and which the Surviving Corporation will have
authority to issue) under its Amended Articles of Incorporation is
50,000,000 shares, consisting of 20,000,000 shares of Class A Common
Stock par value $0.001 per share; 20,000,000 shares of Class B Common
Stock par value $0.001 per share (the Class A Common Stock and the Class
B Common Stock hereinafter sometimes referred to collectively as the
"Common Stock"); and 10,000,000 shares of preferred stock, par value
$0.001 per share. As of April 30, 1996, 20 shares of Class A Common
Stock were issued and outstanding, and no shares of Class B Common Stock
or preferred stock have been issued.
AUTHORIZED AND OUTSTANDING COMMON STOCK
The Class A Common Stock and the Class B Common Stock are identical
in all respects and the holders thereof will have equal rights and
privileges, except with respect to the election of directors. The
holders of outstanding shares of Common Stock will be entitled to vote on
the election of directors as follows:
(A) With respect to the election of directors, holders of
Class B Common Stock voting as a separate class will be
entitled to elect a number of directors equal to the greater
of:
(i) the number (rounded to the nearest whole number) that
bears to the total number of directors of Setab Alpha the
same ratio that the number of outstanding shares of Class
B Common Stock bears to the aggregate number of
outstanding shares of Class A and Class B Common Stock, or
(ii) the smallest number of directors that constitutes a
majority of the Board of Directors.
Holders of Class A Common Stock voting as a separate class
shall be entitled to elect all of the other members of the
Board of Directors.
(B) The holders of Class A Common Stock as a separate
class will be entitled by majority vote to remove, with or
without cause, any director elected by the holders of Class A
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<PAGE>
Common Stock (or by directors elected by them) and the holders
of Class B Common Stock as a separate class will be entitled by
majority vote to remove, with or without cause, any director
elected by the holders of Class B Common Stock (or by directors
elected by them).
(C) Any vacancy in the office of a director elected by the
holders of Class A Common Stock may be filled by majority vote
of such holders voting as a separate class and any vacancy in
the office of a director elected by the holders of Class B
Common Stock may be filled by majority vote of such holders
voting as a separate class or, in the absence of a shareholder
vote, in either case by majority vote of the remaining
directors elected by holders of the same class. Any vacancy
created by increasing the number of directors may be filled by
majority vote of the holders of Class A Common Stock voting as
a separate class or of the holders of Class B Common Stock
voting as a separate class or, in the absence of a shareholder
vote, in either case by majority vote of the directors of such
class, whichever is necessary in order to insure that holders
of Class B Common Stock (or directors elected by them) shall
have elected the same number of directors as they would be
entitled to elect at such time in an election of directors
pursuant to sub-paragraph (A) above, and that holders of Class
A Common Stock (or directors elected by them) shall have
elected the other members of the Board of Directors. Any
director elected by the members of the Board of Directors to
fill a vacancy shall serve until the next annual meeting of
shareholders and until his or her successor has been elected
and qualified.
Except as set forth above or otherwise in the Amended Articles of
Incorporation or Bylaws of Setab Alpha or otherwise required by law, the
holders of Class A and Class B Common Stock will vote together as a
single class on all matters submitted for vote of the shareholders, with
each share being entitled to one vote.
Notwithstanding the foregoing, Class A and Class B Common Stock will
be deemed to be in all respects a single class of Common Stock, and no
distinction whatsoever will exist between the voting rights or any other
rights and privileges of the holders of Class A and Class B Common Stock,
if at any time after December 31, 1996, the number of issued and
outstanding shares of Class B Common Stock constitutes less than 10% of
the aggregate number of issued and outstanding shares of Class A and
Class B Common Stock. Moreover, (i) at any time when no shares of Class
B Common Stock are issued and outstanding the holders of Class A Common
Stock shall have exclusive voting power on all matters, and (ii) at any
time when no shares of Class A Common Stock are outstanding the holders
of Class B Common Stock shall have exclusive voting power on all matters.
Each holder of record of Class B Common Stock may at any time or
from time to time, in such holder's sole discretion, elect to convert any
whole number of such holder's Class B Common Stock into fully paid and
nonassessable Class A Common Stock at the rate of one share of Class A
Common Stock for each share of Class B Common Stock converted. Any such
conversion may be effected by the holder surrendering the certificate or
certificates evidencing the Class B Common Stock to be converted, duly
endorsed, at the office of any transfer agent for the Class B Common
Stock, together with a written notice (in form satisfactory to Setab
Alpha) that the holder elects to convert all or a specified number of
shares of Class B Common Stock and stating the name or names in which
such holder desires the certificate or certificates for such shares of
Class A Common Stock to be issued. Authorized shares of Class A Common
Stock, to the extent that such shares shall be subject to issuance or
reissuance upon conversion of the shares of issued and outstanding Class
B Common Stock as aforesaid, will be held in reserve by Setab Alpha,
without the necessity of any declaration by the Board of Directors, to be
issued or reissued only upon conversion of shares of issued and
outstanding Class B Common Stock. No Class B Common Stock may be issued
unless the reserved shares of Class A Common Stock are sufficient to
satisfy the conversion privilege that will then exist with respect to
such Class B Common Stock when issued.
Any transfer of record of shares of Class B Common Stock other than
to a Qualified Transferee (as herein defined) will be conclusively deemed
to constitute an election by the holder of record thereof to convert the
said shares of Class B Common Stock into an equal number of shares of
Class A Common Stock. As used herein, "Qualified Transferee" means any
one or more of (i) the transferor's spouse, issue, parents or siblings,
or a trust
42
<PAGE>
for the benefit of the transferor or any such persons, (ii) in the event
of the transferor's death or legal disability, the transferor's executor,
administrator or personal representative, (iii) any transferee receiving
the shares as a gift, legacy or inheritance, or as a distribution from a
corporation, partnership, trust or other entity in respect of the
transferee's ownership interest therein, or (iv) any other person
approved in their sole discretion by the board of directors or its
designee upon written application submitted to the Secretary of Setab
Alpha at least five business days prior to the date of the transfer. Any
shares of Class B Common Stock transferred beneficially but not of record
may upon application by any record holder of Class B Common Stock be
denied the right to vote and receive payment of dividends until the
shares have been transferred of record.
All shares of capital stock of Setab Alpha currently issued and
outstanding are classified as shares of Class A Common Stock. Shares of
Class B Common Stock may be issued only (i) in connection with an
acquisition (whether by merger or otherwise) by Setab Alpha or any of its
subsidiaries of any other firm, corporation, business enterprise, or
other business asset (ii) pursuant to any employee benefit plan now in
effect or hereafter adopted, (iii) to effect a subdivision of such shares
in the form of a stock split, stock dividend or other distribution in
respect of such shares, or (iv) otherwise with the approval of the
holders of a majority of the shares of Class B Common Stock then
outstanding.
Upon any stock dividend or other distribution in the form of Common
Stock of Setab Alpha, only Class A Common Stock will be distributed in
respect of Class A Common Stock and only Class B Common Stock may be
distributed in respect of Class B Common Stock. Whenever any such
distribution is made, the same number of shares shall be distributed in
respect of each outstanding share of Class A and Class B Common Stock.
Setab Alpha will not combine or subdivide shares of either of such
classes without at the same time making a proportionate combination or
subdivision of shares of the other class.
Neither the holders of the Class A Common Stock, nor the holders of
the Class B Common Stock have preemptive or other subscription rights to
participate in any subsequent external financing arrangements which may
be made by the Company or to cumulate their respective votes in
connection with the election of directors.
PREFERRED STOCK
Setab Alpha has 10,000,000 shares of authorized but undesignated
preferred stock. The Board of Directors is authorized to provide for the
issuance of classes and series of preferred stock out of these
undesignated shares and to establish the voting powers, designations,
preferences and relative, participating, optional or other special rights
and qualifications, limitations or restrictions of any such class or
series of preferred stock, including the dividend rights, dividend rate,
terms of redemption, redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any series, without
any further vote or action by the shareholders of Setab Alpha.
TRANSFER AGENT AND REGISTRAR
Setab Alpha has appointed Liberty Transfer, Inc. as the transfer
agent and registrar of the Class A Common Stock and the Class B Common
Stock.
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
As a result of the Merger, holders of American Artists Common Stock
will become shareholders of the Surviving Corporation, and the rights of
all such former American Artists Shareholders will thereafter be governed
by the Missouri General and Business Corporation Law (the "Missouri Law")
and the Articles of Incorporation and Bylaws of the Surviving
Corporation. The rights of shareholders of American Artists are presently
governed by
43
<PAGE>
the Georgia Business Corporation Code ("GBCC") and the Articles of
Incorporation and Bylaws of American Artists. The following summary sets
forth the material differences between the rights of American Artists
Shareholders and Setab Alpha shareholders.
RIGHTS OF SETAB ALPHA CLASS A AND CLASS B COMMON STOCK
The Articles of Incorporation of American Artists provide that the
Common Stock shall possess all rights and privileges as are afforded to
capital stock by applicable Georgia law, including but not limited to the
payment of dividends, the right to vote for the directors of American
Artists, and the right to receive the assets of American Artists upon
liquidation, dissolution or winding-up of the company. If the Merger is
consummated, holders of American Artists Common Stock will receive in
exchange for their shares of Class A and Class B Common Stock of the
Surviving Corporation. The Amended and Restated Articles of
Incorporation of the Surviving Corporation provide that the holders of
Class B Common Stock voting as a separate class will be entitled to elect
a number of directors equal to the greater of (i) the number (rounded to
the nearest whole number) that bears to the total number of directors of
the Company the same ratio that the number of outstanding shares of Class
B Common Stock bears to the aggregate number of outstanding shares of
Class A and Class B Common Stock, or (ii) the smallest number of
directors that constitutes a majority of the Board of Directors. The
holders of Class A and Class B Common Stock will be entitled, voting
respectively as a separate class, to remove, with or without cause, any
director elected by the holders of such class or to fill any vacancy in
the office of a director elected by the holders of the respective class.
Pursuant to the Merger Agreement, none of the shares of Class A or
Class B Common Stock issued in connection with the Merger, or issued upon
exercise of currently outstanding options or warrants of American
Artists, may be sold, transferred or assigned, and no shares of Class A
Common Stock issued upon conversion of such Class B Common Stock may be
sold, transferred or assigned, in each case within 365 days after the
Effective Time, unless such sale, transfer or assignment has been
approved in writing by the Surviving Corporation upon the written
application by the holder of such shares. The Surviving Corporation may
place a legend to this effect on the certificates representing such
shares.
Except as set forth above or otherwise in the Amended and Restated
Articles of Incorporation or Bylaws of the Surviving Corporation or
otherwise required by law, the holders of Class A and Class B Common
Stock will vote together as a single class on all matters submitted for
vote of the shareholders, with each share being entitled to one vote. If
at any time no shares of either the Class A or Class B Common Stock are
issued and outstanding, the holders of the issued and outstanding Class A
or Class B Common Stock shall have exclusive voting power on all matters.
Holders of Class B Common Stock may convert their Class B Common
Stock into Class A Common Stock at the rate of one share of Class A
Common Stock for each share of Class B Common Stock by following the
procedures more fully described above. Any transfer of Class B Common
Stock other than to certain designated transferees will be deemed to
constitute an election by the holder thereof to convert such Class B
Common Stock into Class A Common Stock. Shares of Class B Common Stock
may be issued only in connection with an acquisition of a business, an
employee benefit plan, a subdivision of shares, or otherwise with the
approval of a majority of holders of Class B Common Stock.
MERGERS, SHARE EXCHANGES AND SALES OF ASSETS
Under Georgia law, a plan of merger must be approved by the
affirmative vote of a majority of all of the voting shares of the
corporation and the affirmative vote of the holders of a majority of the
shares of each class of stock outstanding and entitled to vote thereon
unless the GBCC, the articles of incorporation or the bylaws provide
otherwise. A plan of share exchange must be similarly approved by the
shareholders of the corporation being acquired. The sale by a
corporation of all or substantially all of its assets must be approved by
a majority of all the votes entitled to be cast on the transaction.
Additionally, Georgia law provides that with respect to a merger
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<PAGE>
no vote of the shareholders of the surviving corporation is required,
unless its articles of incorporation otherwise provide (American Artists'
Articles of Incorporation do not so provide), to approve the merger if
(i) the articles of incorporation of the surviving corporation will not
differ from its articles before the merger, (ii) each shareholder of the
surviving corporation whose shares were outstanding immediately before
the effective date of the merger will hold the same number of shares,
with identical designations, preferences, limitations, and relative
rights, immediately after the merger, and (iii) the number and kind of
shares outstanding immediately after the merger, plus the number and kind
of shares issuable as a result of the merger and by the conversion of
securities issued pursuant to the merger or the exercise of rights and
warranties issued pursuant to the merger, will not exceed the total
number and kind of shares of the surviving corporation authorized by its
articles of incorporation immediately before the merger. The Articles of
Incorporation and Bylaws of American Artists do not alter the voting
requirements described above.
Under Missouri law, the vote required to approve a plan of merger,
consolidation or sale of all or substantially all the assets of the
corporation is two-thirds of the outstanding shares entitled to vote at
such meeting, unless the articles of incorporation provide otherwise.
Where the merger is between one or more Missouri corporations and one or
more foreign corporations, the foregoing two-thirds vote is required only
for the Missouri corporation. The foreign corporation or corporations
must comply with the applicable provisions of the jurisdiction where they
are incorporated.
ANTI-TAKEOVER AND FAIR PRICE LAWS
Georgia law contains certain "business combinations" provisions
which may have the effect of preventing, discouraging or delaying a
change of control of a Georgia corporation that elects to be subject to
the business combinations. Georgia corporations may adopt a provision in
their bylaws requiring that business combinations be approved by a
special vote of the board of directors and/or shareholders unless certain
fair pricing criteria are met. Georgia law also permits corporations to
adopt a provision in their articles of incorporation or bylaws requiring
that business combinations with "interested shareholders" be approved by
a super-majority vote. Neither of the foregoing provisions has been
adopted in the Articles of Incorporation or Bylaws of American Artists.
The Missouri Law provides that under certain circumstances, a
corporation may engage in a business combination with a shareholder
owning 20% or more of the outstanding voting power of the corporation
provided such business combination occurs at least five years after such
interested shareholder became such; provided further, that the
consideration received by shareholders in such transaction is at least
equal to the greater of (i) the highest per share price paid by the
interested shareholder while an interested shareholder during the five-
year period prior to the announcement of the business combination or (ii)
the higher of the market price of the shares on the announcement date or
on the date of the interested shareholder's acquisition of the stock.
DISSENTERS' RIGHTS
Georgia law grants shareholders the right to dissent and receive
payment of fair value of their shares in connection with (i) mergers and
sales by the corporation of all, or substantially all, of its assets for
which shareholder approval is required, (ii) share exchanges (where the
corporation's shares are being acquired) for which shareholder approval
is required, (iii) amendments to the articles of incorporation which
materially and adversely affect certain rights in respect of the
dissenter's shares, and (iv) any corporate action to the extent the
articles, bylaws or any resolution of the board of directors grant a
right of dissent (American Artists' Articles of Incorporations and Bylaws
do not grant such rights). This right is not available if the affected
shares are listed on a national securities exchange or held of record by
more than 2,000 shareholders unless (a) the articles of incorporation or
a resolution of the board of directors approving the transaction provide
otherwise, or (b) in a plan of merger or share exchange, the holders of
such shares are required to accept anything other than share of the
surviving corporation or another publicly held corporation, except for
payments in lieu of fractional shares. The American Artists Articles of
Incorporation do not modify these limitations on dissenters' rights. For
a more
45
<PAGE>
complete description of the rights of shareholders to dissent under
Georgia law, see "RIGHTS OF DISSENTING SHAREHOLDERS."
Similarly, Missouri law provides that a shareholder of a Missouri
corporation who complies with applicable statutory procedures is entitled
to receive fair value for his or her shares if the shareholder votes
against certain transactions, including without limitation, a merger or
consolidation, a disposition of all or substantially all of the
corporation's assets, a share exchange, an amendment to the articles of
incorporation which materially and adversely affects the rights of such
shareholder, or any other action taken in accordance with the articles of
incorporation and bylaws which grant such rights.
ACTIONS BY CONSENT OF SHAREHOLDERS WITHOUT MEETING
Under Georgia law, any action that may be taken at a shareholder's
meeting may be taken without a meeting if all of the shareholders
entitled to vote at such meeting consent in writing to such action, or,
if so provided in the articles of incorporation, by persons who would
have the power to cast not less than the minimum number of votes that
would be necessary to authorize or take the action at meeting. The
Articles of Incorporation of American Artists provides that an action may
be taken by written consent of less than all of the shareholders,
provided that action by less than unanimous written consent may not be
taken with respect to any election of directors as to which shareholders
would be entitled to cumulative voting.
Missouri law provides that any action that may be taken at a
shareholder's meeting may be taken without a meeting if all of the
shareholders entitled to vote at such meeting consent in writing to such
action.
INDEMNIFICATION AND PERSONAL LIABILITY OF DIRECTORS
As permitted by Georgia law, the Articles of Incorporation of
American Artists provide that a director of the corporation shall not be
personally liable to the corporation or its shareholders for monetary
damages for breach of the duty of care or other duty as a director,
provided, however, that a director will be liable for any appropriation,
in violation of the director's duties, of any business opportunity of the
corporation, for acts or omissions which involve intentional misconduct
or a knowing violation of the law, for any transaction from which the
director derived an improper personal benefit, or for any unlawful
distribution for which the director voted or to which the director
assented. American Artists' Articles of Incorporation provide that
American Artists shall indemnify each director and officer of the company
against all expenses reasonably incurred by him or imposed on him in
connection with, or arising out of, any action, suit or proceeding in
which he may be involved by reason of his being or having been a director
or officer of American Artists, provided that such person acted in good
faith and in the manner he reasonably believed to be in or not opposed to
the best interests of the corporation and, in the case of any criminal
proceeding, he had to reasonable cause to believe his conduct was
unlawful. Under Georgia law the corporation may not indemnify a director
in connection with a proceeding by or in the right of the corporation in
which the director was adjudged liable to the corporation or in
connection with any other proceeding in which he was adjudged liable on
the basis that personal benefit was improperly received by him.
The Missouri Law does not contain a similar or corresponding
provision permitting Missouri corporations to limit the personal
liability of directors to the corporation. Missouri law does provide
that a corporation may indemnify a director or officer against
liabilities and expenses if such director or officer acted in good faith
and in a manner in which he or she reasonably believed to be in, or not
opposed to, the best interests of the corporation, and, in the case of a
criminal action, if the director or officer had no reason to believe his
or her conduct was unlawful. In a proceeding brought by or on behalf of
the corporation, no indemnification shall be made with respect to any
claim as to which an officer or director has been adjudged to have been
reasonably and fairly entitled to indemnification of expenses.
Indemnification may be made by a corporation only if a determination has
been made, by majority vote of a quorum of the disinterested directors or
by the shareholders or by independent legal counsel, that the director or
officer met the required standard of conduct. A corporation may purchase
liability insurance on behalf of an officer or director whether or not
the corporation would otherwise have the power to indemnify such
46
<PAGE>
a person. Moreover, the Missouri law provides that the articles of
incorporation or bylaws of a corporation may authorize any further
indemnity to an officer or director, provided that no indemnity is given
for conduct that is adjudged to be knowingly fraudulent, deliberately
dishonest, or willful misconduct. For additional information see
"CERTAIN PROVISIONS OF THE ARTICLES OF INCORPORATION AND BYLAWS OF SETAB
ALPHA--Indemnification of Directors and Officers."
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, Setab Alpha
and American Artists have been advised that in the opinion of the
Commission such indemnification is against public policy as expressed in
the Securities Act and is, therefore, unenforceable.
PREEMPTIVE RIGHTS
Georgia law does not provide for preemptive rights to acquire a
corporation's unissued stock; however, such right may be expressly
granted to the shareholders in a corporation's certificate or articles of
incorporation. The Articles of Incorporation of American Artists do not
provide for preemptive rights.
Missouri law allows the preemptive rights of shareholders to be
limited or denied to the extent provided in the articles of
incorporation. The Amended Articles of Incorporation of the Surviving
Corporation provide that holders of all classes of stock in the
corporation shall not have preemptive rights to acquire additional shares
in the corporation.
CONTROL SHARE ACQUISITION PROVISIONS
Missouri has enacted a "control share acquisition" statute which
restricts voting rights of persons with respect to shares acquired by
such person which, when added to the shares already owned by the
acquiring person, would entitle such person to exercise certain degrees
of voting power with respect to the stock of the issuing corporation.
These voting restrictions may be lifted if (i) the retention of voting
rights is approved by at least a majority of shares entitled to vote,
excluding interested shares and (ii) certain disclosure requirements are
met. A corporation's articles of incorporation or bylaws may provide
that the corporation will not be subject to the control share acquisition
statute. The Amended Articles of Incorporation of the Surviving
Corporation do not exempt Setab Alpha from Missouri's control share
acquisition statute.
Georgia law does not contain a statute comparable to Missouri's
control share acquisition statute discussed above.
TAKEOVER BID DISCLOSURE
Pursuant to the Missouri Takeover Bid Disclosure Act, Missouri
regulates takeover bids, which are defined as the acquisition of or offer
to acquire any equity security of a Missouri corporation if, after
acquisition thereof, the offeror would directly or indirectly be a
beneficial owner of more than five percent of any class of the issued and
outstanding equity securities of such target corporation. A "takeover
bid" does not include an offer to acquire such equity securities solely
in exchange for other securities, or the acquisition of such equity
securities pursuant to such offer, for the sole account of the offeror,
in good faith and not to avoid the statutory takeover bid regulation, and
not involving any public offering within the meaning of the Securities
Act. An offeror must, prior to making a takeover bid, file with the
Commissioner of Securities and deliver to the target corporation certain
materials, including copies of all offering information, certain
information about the offeror, the source of financing for the offer, the
number of shares to be acquired and whether the offeror intends to sell
the assets of the corporation.
Georgia does not have a statute comparable to the Missouri Takeover
Bid Disclosure Act.
47
<PAGE>
AMENDMENT OF ARTICLES OF INCORPORATION
Under Georgia law, the articles of incorporation may be amended only
by the affirmative vote of a majority of the votes entitled to be cast on
the amendment by each voting group entitled to vote on the amendment,
unless the articles of incorporation provided otherwise. The Articles of
Incorporation of American Artists do not alter the vote required to amend
the articles of incorporation.
Similarly, Missouri law provides that the articles of incorporation
may be amended by the affirmative vote of the holders of a majority of
the shares present and entitled to vote on the amendment, except with
respect to an amendment which would have the effect of opting the
corporation out of the control share acquisition statute, which amendment
must be approved by a two-thirds vote of the shares.
AMENDMENT OF BYLAWS
Georgia law provides that, unless a corporation's articles of
incorporation, applicable law or a particular bylaw approved by the
shareholders provides otherwise, either the corporation's directors or
shareholders may amend that corporation's bylaws. The Articles of
Incorporation and Bylaws of American Artists do not limit the ability of
either the directors or shareholders to amend such Bylaws.
Under Missouri law, the power to adopt, amend or repeal the bylaws
is reserved to the shareholders unless vested by the articles of
incorporation in the board of directors. The Amended Articles of
Incorporation of the Surviving Corporation provide that the board of
directors may amend the Bylaws.
CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BYLAWS OF SETAB ALPHA
Following the consummation of the Merger the Amended Articles of
Incorporation and Bylaws of Setab Alpha will be the Articles of
Incorporation and Bylaws of the Surviving Corporation. The Amended
Articles of Incorporation and Bylaws of Setab Alpha contain certain
provisions regarding the rights and privileges of shareholders, some of
which may have the effect of discouraging certain types of transactions
that involve an actual or threatened change of control of the Surviving
Corporation, diminishing the opportunities for shareholders to
participate in tender offers, including tender offers at a price above
the then current market value of the Class A Common Stock or over a
shareholder's cost basis in the Class A Common Stock, and inhibiting
fluctuations in the market price of the Class A Common Stock that could
result from takeover attempts. These provisions of the Articles and
Bylaws are summarized below.
SIZE OF BOARD AND ELECTION OF DIRECTORS
The Articles provide that the Board of Directors will consist of
such number of directors as shall be determined from time to time by the
Board of Directors, which number will be not less than three nor more
than 15 directors in the absence of any amendment to Setab Alpha's
Amended Articles of Incorporation. Under applicable law, any such
amendment would require the consent of the Board of Directors and the
holders of a majority of the Common Stock then outstanding. The Articles
further provide that the Board may amend the Bylaws by action taken in
accordance with such Bylaws, except to the extent that any matters under
the Articles or applicable law are specifically reserved to the
shareholders.
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<PAGE>
SHAREHOLDER NOMINATIONS AND PROPOSALS
Setab Alpha's Bylaws provide advance notice requirements for
shareholder nominations and proposals at annual meetings of Setab Alpha.
Shareholders may nominate directors or submit other proposals only upon
written notice to Setab Alpha not less than 120 days nor more than 150
days prior to the date of the notice to shareholders of the previous
year's annual meeting. A shareholder's notice also must contain certain
additional information, as specified in the Bylaws. The Board may reject
any proposals that are not made in accordance with the procedures set
forth in the Bylaws or that are not proper subjects of shareholder action
in accordance with the provisions of applicable law.
CALLING SHAREHOLDER MEETINGS; ACTION BY SHAREHOLDERS WITHOUT A MEETING
Matters to be acted upon by the shareholders at special meetings are
limited to those which are specified in the notice thereof. A special
meeting of shareholders may be called by the Board of Directors or the
President of Setab Alpha. As required by Missouri law, the Bylaws
provide that any action by written consent of shareholders in lieu of a
meeting must be signed by all of the holders of outstanding stock.
The foregoing provisions contained in the Articles and Bylaws are
designed, in part, to make it more difficult and time consuming to obtain
majority control of the Board of Directors or otherwise to bring a matter
before shareholders without the Board's consent, and therefore to reduce
the vulnerability of Setab Alpha to an unsolicited takeover proposal.
These provisions are designed to enable the Setab Alpha (and, following
the Merger, the Surviving Corporation) to develop its business in a
manner which will foster its long-term growth, without the threat of a
takeover not deemed by the Board to be in the best interests of Setab
Alpha (or, following the Merger, the Surviving Corporation) and its
shareholders, and to reduce, to the extent practicable, the potential
disruption entailed by such a threat. However, these provisions may
have an adverse effect on the ability of shareholders to influence the
governance of the Surviving Corporation and the possibility of
shareholders receiving a premium above the market price for their
securities from a potential acquirer who is unfriendly to management.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 351.355(1) and (2) of The General and Business Corporation
Law of the State of Missouri provide that a corporation may indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of
the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful, except that, in the case of an action or suit by or in the
right of the corporation, the corporation may not indemnify such persons
against judgments and fines and no person shall be indemnified as to any
claim, issue or matter as to which such person shall have been adjudged
to be liable for negligence or misconduct in the performance of the
person's duty to the corporation, unless and only to the extent that the
court in which the action or suit was brought determines upon application
that such person is fairly and reasonably entitled to indemnity for
proper expenses. Section 351.355(3) provides that, to the extent that a
director, officer, employee or agent of the corporation has been
successful in the defense of any such action, suit or proceeding or in
defense of any claim, issue or matter therein, the person shall be
indemnified against expenses, including attorney's fees, actually and
reasonably incurred by such person in connection with such action, suit
or proceeding. Section 351.355(7) provides that a corporation may
provide additional indemnification to any person indemnifiable under
subsection (1) of (2), provided such additional indemnification is
authorized by the corporation's articles of incorporation or an amendment
thereto or by a shareholder-approved bylaw or agreement, and provided
further that no person shall thereby be indemnified against conduct which
was finally adjudged to have been knowingly fraudulent, deliberately
dishonest
49
<PAGE>
or willful misconduct or which involves an accounting for profits
pursuant to Section 16(b) of the Exchange Act. Paragraph 9 of the
Articles of Incorporation of Setab Alpha permits Setab Alpha to enter
into agreements with its directors, officers, employees and agents to
provide such indemnification as deemed appropriate. Paragraph 9 also
provides that Setab Alpha shall extend to its directors and executive
officers the indemnification specified in subsections (1) and (2) and
that it may extend to other officers, employees and agents such
indemnification and additional indemnification.
Setab Alpha has entered into an indemnification agreement with its
directors and executive officers. The form of indemnity agreement
provides that such person will be indemnified to the full extent
permitted by applicable law against all expenses (including attorneys'
fees), judgments, fines, penalties and amounts paid in settlement of any
threatened, pending or completed action, suit or proceeding, on account
of his services as a director and officer of Setab Alpha or any other
company or enterprise in which he is serving at the request of Setab
Alpha, or as a guarantor of any debt of Setab Alpha. To the extent the
indemnification provided under the agreement exceeds that permitted by
applicable law, indemnification may be unenforceable or may be limited to
the extent it is found by a court of competent jurisdiction to be
contrary to public policy. The officers and directors of Setab Alpha
also have been indemnified with respect to certain matters relating to
this Prospectus and the Registration Statement of which this Prospectus
is a part, including certain liabilities arising under the Securities
Act. See "THE MERGER AGREEMENT--Representations, Warranties and
Covenants." Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of Setab Alpha pursuant to the foregoing indemnification
provisions, or otherwise, Setab Alpha has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Setab Alpha may procure and maintain a policy of insurance under
which the directors and officers of Setab Alpha will be insured, subject
to the limits of the policy, against certain losses arising from claims
made against such directors and officers by reason of any acts or
omissions covered under such policy in their respective capacities as
directors or officers.
RIGHTS OF DISSENTING SHAREHOLDERS
Pursuant to Section 14-2-1302 of the Georgia Business Corporations
Code ("GBCC"), any record shareholder of American Artists entitled to
vote on the Merger who objects to the Merger and who fully complies with
Section 14-2-1301 et seq. of the GBCC will be entitled to demand and
receive payment in cash of an amount equal to the fair value of such
shareholder's shares of American Artists Common Stock if the Merger is
consummated. A record shareholder may exercise such dissenter's rights
as to fewer than all the shares registered in such shareholder's name
only if such shareholder dissents with respect to all shares beneficially
owned by any one beneficial owner and notifies American Artists in
writing of the name and address of each person on whose behalf such
shareholder is asserting dissenter's rights. In determining the amount
to be received in connection with the exercise of statutory dissenter's
rights under the provisions referred to above, the fair value of a
dissenting shareholder's shares of American Artists Common Stock will
equal the value of such shares immediately prior to the Effective Time,
excluding any appreciation or depreciation in anticipation of the Merger.
Shareholders desiring to receive payment of the fair value of such
shares in accordance with the requirements of the GBCC (i) must deliver
to American Artists written notice of such shareholder's intent to demand
payment prior to the shareholder vote on the Merger and (ii) must not
vote such shareholder's shares in favor of the Merger. If the Merger
Agreement is approved, any shareholder desiring to dissent must
additionally (I) demand payment for the shares in writing and (II)
deposit such shareholder's certificates of American Artists Common Stock
in accordance with the terms of a notice that will be sent to such
shareholder by American Artists no later than 10 days following the
consummation of the Merger. Written notices of intent to dissent from
the Merger must be sent to: J. Eric Van Atta, Secretary, American
Artists Film Corporation, 1245 Fowler Street, N.W., Atlanta, Georgia
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<PAGE>
30318. A VOTE AGAINST THE MERGER AGREEMENT ALONE WILL NOT SATISFY THE
REQUIREMENTS FOR SEPARATE WRITTEN NOTICE OF INTENT TO DISSENT, SEPARATE
WRITTEN DEMAND FOR PAYMENT OF FAIR VALUE FOR THE SHARES OF AMERICAN
ARTISTS COMMON STOCK AND THE DEPOSIT OF SUCH STOCK CERTIFICATES WITH
AMERICAN ARTISTS. RATHER, A DISSENTING SHAREHOLDER MUST SEPARATELY
COMPLY WITH ALL OF THOSE CONDITIONS.
Within 10 days of the later of the Effective Time or receipt of a
demand for payment by a shareholder who deposits stock certificates in
accordance with the dissenters' notice sent to those shareholders who
notified American Artists of their intent to dissent (as described in the
preceding paragraph) (the "Offer Date"), American Artists must offer to
pay the amount of what it estimates to be the fair market value of the
dissenting shareholder's stock to the shareholder, plus interest accrued
thereon. Such notice and offer must include: (a) the balance sheet of
American Artists as of the end of a fiscal year ending not more than 16
months before the date of making an offer, an income statement for that
period, a statement of changes in shareholders' equity for that year, and
the latest available interim financial statements, if any; (b) a
statement of American Artists' estimate of the fair value of the shares;
(c) an explanation of how the interest was calculated; (d) a statement of
the shareholder's right to demand payment of a different amount under
GBCC Section 14-2-1327; and (e) a copy of the dissenter's rights
provisions of the GBCC.
If the dissenting shareholder accepts American Artists's offer by
written notice within 30 days following such offer or if the dissenting
shareholder is deemed to have accepted the offer by failing to respond
within such time period, American Artists must pay the shareholder such
amount within 60 days of the Offer Date. Upon payment of the agreed
value, the dissenting shareholder will cease to have any interest in such
shareholder's shares of American Artists Common Stock.
Any shareholder who does not accept the estimate of fair value by
American Artists must demand payment based on such shareholder's own
estimate of fair value within 30 days after the offer by American
Artists. American Artists must file an action in a court of competent
jurisdiction in Fulton County, Georgia within sixty (60) days after
receiving the payment demand to request a judicial determination of fair
value or, if it fails to file such action, pay each dissenting
shareholder whose demand has not yet been settled the amount demanded by
such shareholder.
The foregoing does not purport to be a complete statement of the
provisions of the GBCC relating to statutory dissenters' rights and is
qualified in its entirety by reference to the Dissenters' Rights
provisions of the Georgia Business Corporations Code, which are
reproduced in full in Annex B to this Proxy Statement/Prospectus and
which are incorporated herein by reference.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Public Offering and consummation of the
Merger, Setab Alpha will have outstanding 711,920 shares of Class A
Common Stock and 5,502,974 shares of Class B Common Stock, assuming no
options or warrants previously issued by American Artists to purchase
American Artists Common Stock are exercised between the date of this
Proxy Statement/Prospectus and the Effective Time. In addition, holders
of outstanding options and warrants will have the right to purchase an
aggregate of 2,236,545 shares of Class B Common Stock. Of such shares,
20 shares of Class A Common Stock are "restricted" shares within the
meaning of the Securities Act and may not be sold in the absence of
registration under the Securities Act or an exemption therefrom,
including the exemptive provisions of Rule 144 under the Securities Act.
The exemption from registration provided by Rule 144 will not be
available to the holders of such shares until July 1997. Pursuant to the
Merger Agreement, for a period of 365 days after the Effective Time, none
of the shares of Class A or Class B Common Stock received in the Merger,
issued upon exercise of outstanding options and warrants or of Class A
Common Stock issued upon conversion of Class B Common Stock issued in the
Merger may be sold, transferred or otherwise disposed of without the
prior written consent of Setab Alpha.
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LEGAL MATTERS
Certain legal matters relating to the Merger are being passed upon
for Setab Alpha by Clark W. Holesinger, Attorney-at-Law.
EXPERTS
The financial statements of Setab Alpha as of April 30, 1996 and for
the period ending April 30, 1996 included in the Prospectus and the
Registration Statement and the financial statements for American Artists
Film Corporation as of July 31, 1995 and 1994 and the periods then ended
have been so included in reliance on the reports of BDO Seidman, LLP,
independent certified public accountants, given on the authority of said
Firm as experts in accounting and auditing.
52
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Setab Alpha, Inc. Page
- ----------------- ----
<S> <C>
Report of Independent Certified Public Accountants F-2
Balance sheet F-3
Statement of operations F-4
Statement of stockholders' deficit F-5
Statement of cash flows F-6
Summary of accounting policies F-7
Notes to financial statements F-8
American Artists Film Corporation
- ---------------------------------
Report of Independent Certified Public Accountants F-9
Consolidated balance sheets F-10
Consolidated statements of operations F-12
Consolidated statements of stockholders' equity F-13
Consolidated statements of cash flows F-14
Notes to consolidated financial statements F-15
Pro Forma Financial Statements
- ------------------------------
Introduction F-28
Pro forma consolidated balance sheet F-29
</TABLE>
F-1
<PAGE>
Report of Independent Certified Public Accountants
Board of Directors
Setab Alpha, Inc.
Ballwin, Missouri
We have audited the balance sheet of Setab Alpha, Inc. as of April 30, 1996, and
the related statements of operations, stockholders' deficit and cash flows for
the period from July 5, 1995 (date of inception) through April 30, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Setab Alpha, Inc. at April 30,
1996 and the results of its operations and its cash flows for the period from
July 5, 1995 (date of inception) through April 30, 1996 in conformity with
generally accepted accounting principles.
BDO SEIDMAN, LLP
St. Louis, Missouri
May 1, 1996
F-2
<PAGE>
Balance Sheet
April 30, 1996
<TABLE>
<CAPTION>
Assets
<S> <C>
Current
Cash $ 0.20
Deferred offering costs (Note 2) 10,000.00
------------
$ 10,000.20
============
Liabilities and Stockholders' Equity
Current
Accounts payable (Note 2) $ 10,500.00
Accrued interest 43.89
Note payable - related party (Note 2) 3,790.64
----------
Total Liabilities 14,334.53
----------
Stockholders' Deficit (Note 2)
Preferred stock, $0.001 par - shares authorized, 10,000,000;
issued and outstanding, 0 --
Common stock, $0.001 par:
Class A - shares authorized, 20,000,000;
issued and outstanding, 20 0.02
Class B - shares authorized, 20,000,000;
issued and outstanding, 0 --
Additional paid-in capital 0.18
Deficit accumulated during the development stage (4,334.53)
----------
Total Stockholders' Deficit (4,334.33)
----------
$ 10,000.20
==========
</TABLE>
See accompanying summary of accounting policies and notes to
financial statements.
F-3
<PAGE>
Statement of Operations
For the Period July 5, 1995 (date of inception)
through April 30, 1996
<TABLE>
<CAPTION>
<S> <C>
Revenues $ 0.00
Expenses 4,334.53
----------
Net loss $(4,334.53)
==========
Net loss per share $ (216.73)
==========
Weighted average net shares outstanding 20
==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-4
<PAGE>
Setab Alpha, Inc.
(A Development Stage Company)
Statement of Stockholders' Deficit
For the Period July 5, 1995 (date of inception)
through April 30, 1996
<TABLE>
<CAPTION>
Deficit
accumulated
Common Stock Additional during the Total
---------------- paid-in development stockholders'
Shares Amount capital stage deficit
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Issuance of common stock on July 5,
1995 (date of inception) for cash 20 $0.02 $0.18 $ 0.00 $ 0.20
Net loss 0 0.00 0.00 (4,334.53) (4,334.53)
-- ----- ----- ---------- ----------
Balance, April 30, 1996 20 $0.02 $0.18 $(4,334.53) $(4,334.33)
== ===== ===== ========== ==========
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-5
<PAGE>
Setab Alpha, Inc.
(A Development Stage Company)
Statement of Cash Flows
For the Period July 5, 1995 (date of inception)
through April 30, 1996
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss $(4,334.53)
Adjustments to reconcile net loss to net
cash used in operating activities:
Increase in accounts payable 500.00
Increase in accrued interest 43.89
----------
CASH USED IN OPERATING ACTIVITIES (3,790.64)
----------
FINANCING ACTIVITIES
Borrowings under note payable 3,790.64
Proceeds from issuance of common stock 0.20
----------
CASH PROVIDED BY FINANCING ACTIVITIES 3,790.84
----------
INCREASE IN CASH 0.20
CASH, beginning of period 0.00
----------
CASH, end of period $ 0.20
==========
</TABLE>
See accompanying summary of accounting policies and
notes to financial statements.
F-6
<PAGE>
Summary of Accounting Policies
BUSINESS Setab Alpha, Inc. (the Company) was formed as a Missouri
corporation for the purpose of engaging in a merger or other
business combination with an operating company. Recently,
the Company entered into an agreement with a company engaged
in the independent production of feature films,
television/cable programming and commercials with respect to
the merger of such company with and into the Company. The
contemplated transaction will result in the issuance of
previously authorized but unissued shares of Class A and
Class B common stock, respectively, and a change in control
of the Company. Since the planned principal operations have
not commenced, the Company is considered to be a development
stage company, as defined in Statement of Financial
Accounting Standards No. 7.
ORGANIZATION The Company was formed on July 5, 1995 under the laws of the
State of Missouri. The Company has adopted a fiscal year
ending on July 31.
CASH EQUIVALENTS The Company considers all highly liquid instruments with a
maturity of three months or less to be cash equivalents.
ORGANIZATION COSTS Organization costs are expensed as incurred.
F-7
<PAGE>
Notes to Financial Statements
1. PROPOSED PUBLIC
OFFERING The Company intends to offer for public sale 700,000
shares of its common stock at an offering price of $0.05
per share. Of such shares, the Company has reserved
250,000 shares for offer and sale to the two current
stockholders of the Company. All of the proceeds from the
proposed public offering will be placed in an escrow
account pending completion of the offering; accordingly,
such offering proceeds will not be available for immediate
use by the Company. If the offering is not completed
before December 31, 1996, all funds held in escrow will be
returned promptly to the investors and the shares of
common stock issued by the Company in connection with the
proposed public offering will be cancelled.
2. RELATED PARTY
TRANSACTIONS In July 1995, the Company was incorporated in the State of
Missouri with an authorized capital of 30,000,000 shares
of common stock at a par value of $.001 per share. In
connection with its organization, the Company issued to
Alan G. Johnson and to Douglas J. Bates 10 shares of
common stock each, at a purchase price of $.01 per share.
In May, 1996, the Company's Articles of Incorporation were
amended to authorize 20,000,000 shares of Class A common
stock, 20,000,000 shares of Class B common stock and
10,000,000 shares of Preferred Stock, each having a par
value of $0.001 per share. All outstanding shares of
common stock were converted into an equal number of shares
of Class A common stock.
At April 30, 1996, the Company was indebted to Messrs.
Bates and Johnson in the aggregate principal amounts of
$1,735.31 and $2,055.33, respectively. Such amounts were
advanced to the Company for the purpose of funding
disbursements relating to the organization of the Company.
The indebtedness of the Company to Messrs. Bates and
Johnson is unsecured, bears interest at an annual rate
equal to the prime rate plus 2% and is payable on the date
a business combination is effected.
Pursuant to separate letters of engagement dated July 5,
1995, the Company has agreed to pay to Alan G. Johnson and
Douglas J. Bates the sum of $5,000 each on the effective
date of the Registration Statement, as consideration for
services rendered by such persons in connection with the
formation and organization of the Company. These amounts
are reflected on the balance sheets as deferred offering
costs.
F-8
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
American Artists Film Corporation
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of American Artists
Film Corporation and Subsidiaries as of July 31, 1995 and 1994, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
each of the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
American Artists Film Corporation and Subsidiaries as of July 31, 1995 and 1994,
and the consolidated results of their operations and their cash flows for each
of the years then ended, in conformity with generally accepted accounting
principles.
BDO SEIDMAN, LLP
Atlanta, Georgia
November 3, 1995
F-9
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, July 31,
----------------------
1996 1995 1994
---------- ----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
ASSETS
CASH $ 161,388 $ 125,115 $ 154,670
ACCOUNTS RECEIVABLE 150,537 201,658 335,300
FILM COSTS, NET OF ACCUMULATED
AMORTIZATION (Note 1) 502,474 415,721 277,215
PROPERTY AND EQUIPMENT, NET (Notes 1, 2 and 3) 67,024 78,962 87,111
GOODWILL, NET OF ACCUMULATED AMORTIZATION
(Note 2) 166,358 195,714 234,857
DEFERRED OFFERING COSTS (Note 1) 105,000 105,000 -
ADVANCES TO OFFICERS (Note 1) 214,967 156,178 78,428
OTHER (Note 1) 122,618 135,711 122,618
---------- ---------- ----------
$1,490,366 $1,414,059 $1,290,199
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-10
<PAGE>
Consolidated Balance Sheets
<TABLE>
<CAPTION>
APRIL 30, July 31,
1996 -----------------------
(unaudited) 1995 1994
---------- -----------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
<S> <C> <C> <C>
Accounts payable $ 301,098 $ 284,073 $ 351,110
Accrued expenses 152,948 110,140 49,460
Film revenue participations - 41,910 37,798
Deferred revenue - 56,303 -
Notes payable (Notes 2 and 3) 91,297 130,739 204,394
----------- ---------- ----------
TOTAL LIABILITIES 545,343 623,165 642,762
----------- ---------- ----------
MINORITY INTEREST (Note 1) 50,000 - -
CONTINGENCIES (Note 6)
STOCKHOLDERS' EQUITY (Note 4)
Preferred stock, 10,000,000 shares
authorized, none issued - - -
Common stock, par value $.05 per share,
30,000,000 shares authorized, 9,372,837,
8,368,220 and 8,092,720 issued and outstanding 468,642 418,411 404,636
Additional paid-in capital 2,091,867 1,221,397 1,083,922
Accumulated deficit (1,665,486) (848,914) (841,121)
----------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 895,023 790,894 647,437
----------- ---------- ----------
$ 1,490,366 $1,414,059 $1,290,199
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-11
<PAGE>
Consolidated Statements of Operations
<TABLE>
<CAPTION>
NINE MONTHS ENDED
APRIL 30, Year ended July 31,
------------------------- --------------------------------
1996 1995 1995 1994
----------- --------------------
(unaudited) (unaudited)
----------- -----------
REVENUES
<S> <C> <C> <C> <C>
Commercial production $1,697,213 $2,696,695 $3,057,200 $1,660,469
Film revenues (Note 1) 22,012 713,176 882,331 373,951
---------- ---------- ---------- ----------
1,719,225 3,409,871 3,939,531 2,034,420
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of commercial production 1,347,143 2,142,095 2,398,665 1,503,640
Film cost amortization 8,077 516,339 639,236 220,486
Selling, general and administrative 1,175,985 519,129 896,613 765,357
---------- ---------- ---------- ----------
2,531,205 3,177,563 3,934,514 2,489,483
---------- ---------- ---------- ----------
INCOME (loss) FROM OPERATIONS (811,980) 232,308 5,017 (455,063)
Interest expense 4,592 10,243 12,810 11,504
---------- ---------- ---------- ----------
NET INCOME (loss) $ (816,572) 222,065 $ (7,793) $ (466,567)
========== ========== ========== ==========
PRO FORMA NET INCOME (loss)
PER SHARE (Note 1) $(.14) $.04 $ - $(.09)
========== ========== ========== ==========
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENT SHARES
OUTSTANDING (Note 1) 5,819,763 5,284,857 5,280,653 4,973,116
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Additional
Common Stock Paid-In Total
------------------- Paid-In Accumulated Stockholders'
Shares Amount Capital Deficit Equity
--------- -------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
BALANCE, July 31, 1993 6,754,480 $337,724 $ 275,834 $ (374,554) $239,004
Issuances of common stock:
Cash 588,240 29,412 470,588 - 500,000
Acquisition of First Light (Note 2) 750,000 37,500 337,500 - 375,000
Net loss - - - (466,567) (466,567)
--------- -------- ---------- ----------- ---------
BALANCE, July 31, 1994 8,092,720 404,636 1,083,922 (841,121) 647,437
Issuances of common stock:
Cash 185,286 9,264 141,986 - 151,250
Option conversion (Note 8(b)) 90,214 4,511 (4,511) - -
Net loss - - - (7,793) (7,793)
--------- -------- ---------- ----------- ---------
BALANCE, July 31, 1995 8,368,220 418,411 1,221,397 (848,914) 790,894
Issuance of common stock:
Cash (unaudited) 1,004,617 50,231 870,470 - 920,701
Net loss (unaudited) - - - (816,572) (816,572)
--------- -------- ---------- ----------- ---------
BALANCE, April 30, 1996 (unaudited) 9,372,837 $468,642 $2,091,867 $(1,665,486) $895,023
========= ======== ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine months ended
April 30, Year ended July 31,
------------------------- ----------------------
1996 1995 1995 1994
(UNAUDITED) (unaudited)
----------- -----------
OPERATING ACTIVITIES
<S> <C> <C> <C> <C>
Net income (loss) $(816,572) $ 222,065 $ (7,793) $(466,567)
Adjustments to reconcile net
income (loss) to cash provided by
(used in) operating activities:
Film cost amortization 8,077 516,339 575,980 220,486
Depreciation and amortization 48,395 49,487 67,134 57,325
Changes in assets and liabilities
Accounts receivable 51,121 (17,939) 133,642 (253,071)
Film costs additions (94,830) (573,308) (714,486) (405,729)
Other assets (45,696) (473,156) (90,843) 30,796
Accounts payable 17,025 297,681 (67,037) 319,352
Accrued expenses 42,808 (29,322) 60,680 33,864
Film revenue participations (41,810) (37,798) 4,112 37,798
Deferred revenues (56,303) - 56,303 -
--------- --------- --------- ---------
Cash provided by (used in)
operating activities (887,885) (45,951) 17,962 (425,746)
INVESTING ACTIVITY
Capital expenditures (7,101) (14,204) (19,842) (5,293)
--------- --------- --------- ---------
FINANCING ACTIVITIES
Repayment of notes payable (39,442) (39,630) (73,655) 69,394
Issuances of common stock 920,701 101,250 151,250 500,000
Increase in deferred offering costs - - (105,000) -
Minority interest 50,000 - - -
--------- --------- --------- ---------
Cash provided by (used in)
financing activities 931,259 61,620 (27,405) 569,394
--------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH 36,273 1,465 (29,555) 138,355
CASH, beginning of period 125,115 154,670 154,670 16,315
--------- --------- --------- ---------
CASH, end of period $ 161,388 $ 156,135 $ 125,115 $ 154,670
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
1. SUMMARY OF SIGNIFICANT NATURE OF BUSINESS
ACCOUNTING POLICIES American Artists Film Corporation ("American
Artists", and together with its subsidiaries "AAFC
Group"), directly and through its subsidiaries,
engages in the development, production and
exploitation of made-for-television and feature
length motion pictures, and in the commercial
contract productions of film products, principally
television commercials. The Company classifies its
operations in two business segments: (i) film
development and production and (ii) contract
production. The Company's film development and
production operations involve the granting of credit
to film exhibitors and distributors. The Company's
contract production operations involve the granting
of credit to advertising agencies that represent
clients in various industries.
BASIS OF PRESENTATION
The consolidated financial statements include the
accounts of American Artists and First Light
Entertainment Corporation ("First Light"), a 100
percent-owned subsidiary. Also included in the
consolidated financial statements are the accounts
of Diversity Filmworks, Inc. ("Diversity"), of which
American Artists owns 49 percent, and Millennium
Group, L.L.C. ("Millennium").
Diversity engages in contract production as a
qualified minority contractor. American Artists
formed Diversity together with a qualified minority
owner. American Artists has historically funded the
capital requirements of Diversity, and as a result
thereof has had the ability to approve Diversity's
budgets and operating plans. As a result, American
Artists consolidates the accounts of Diversity.
Diversity has had a net deficit since inception.
Therefore, a minority interest has not been
reflected in the consolidated financial statements
with respect to Diversity.
Millennium is a limited liability corporation in
which the Company exercises significant control
through its capacity as manager, which position
allows it to direct the operations of Millennium,
Millennium's purchase and sale of assets, issuance
of debt or equity securities, and Millennium's
execution of contracts and agreements, without the
approval of the other stockholders. Millennium was
formed to produce and distribute a sixty minute
video. American
F-15
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Month Ended
April 30, 1996 and 1995 is Unaudited)
Artists will be entitled to (i) 50 percent of net
income after the minority stockholders have
recovered their investment up to a point where the
minority stockholders have received a 200% return
and (ii) 90% thereafter. As of April 30, 1996,
Millennium's activities have been limited to
organization and pre-production story development.
The minority interest at April 30, 1996 relates to
Millennium.
In accordance with Statement of Financial Accounting
Standards No. 53 "Financial Reporting by Producers
and Distributors of Motion Picture Films" ("SFAS No.
53"), AAFC Group presents an unclassified balance
sheet.
The preparation of financial statements in
conformity with generally accepted accounting
principles requires management to make estimates and
assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial
statements and the reported amounts of revenues and
expenses during the reporting period. Actual results
could differ from those estimates.
The financial statements as of April 30, 1996 and
for the nine months ended April 30, 1996 and 1995
are unaudited, but, in the opinion of management,
contain all adjustments, consisting of normal
recurring accruals, necessary to present fairly the
financial position, results of operations and cash
flows for the periods presented. Results of
operations and cash flows for the interim nine month
periods are not necessarily indicative of what the
results of operations or cash flows will be for an
entire fiscal year. Certain amounts in prior periods
have been reclassified for comparative purposes.
FILM COSTS AND REVENUES
Costs incurred to develop stories, acquire story
rights, produce and print films, and advertising or
distribution costs which benefit future markets, are
capitalized as film costs when incurred. All other
advertising and distribution costs are expected as
incurred.
AAFC Group finances certain of its projects by
granting revenue participations to outside investors
in exchange for investments in the production of the
film. Capitalized film costs are reduced by the
financing provided under these arrangements.
F-16
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
Capitalized film cost are amortized using the
individual film forecast method under which
capitalized costs are amortized based on the
relationship between the gross revenue realized and
the estimate of the total gross revenues to be
earned by the film over its life. Revenue estimates
are reviewed periodically and, when appropriate, are
revised. Where unamortized film costs exceed a
revised estimate of total future gross revenues,
film costs are written down to net realizable value.
The components of capitalized film costs were as
follows:
<TABLE>
<CAPTION>
July 31,
April 30, -----------------------
1996 1995 1994
----------- -----------------------
<S> <C> <C> <C>
Released $ 888,517 $ 888,517 $ 246,864
Accumulated
amortization (804,543) (796,466) (220,486)
--------- --------- ---------
83,974 92,051 26,378
In production 143,305 71,508 37,059
In development 275,195 252,162 213,778
--------- --------- ---------
$ 502,474 $ 415,721 $ 277,215
========= ========= =========
</TABLE>
The above amounts do not include any value for four
developed scripts contributed to AAFC Group upon its
formation in 1991 by its founding stockholders in
exchange for common stock. In accordance with
generally accepted accounting principles, the
scripts were recorded at zero, which, because no
amounts had been expended for the development of
scripts, represented the cost basis of the
contributing stockholders, and the par value of the
common shares issued, $238,000, was charged against
additional paid-in capital. In general, the majority
of the revenue to be derived from a film will be
earned during the two to three years following its
release. On the basis of American Artists' current
production projections, which could change in the
future based on the availability of production
funding, film demand and other factors, 40% of the
unamortized film costs will be amortized over the
three years that will end July 31, 1998, and
F-17
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
60% will be amortized over the four year period that
will end July 31, 2000.
Film revenues are recognized, in accordance with
SFAS No. 53, generally when the film has been
accepted by the licensee, where applicable,
collection of license fees is reasonably assured,
and the film is exhibited or is available for
distribution in the applicable market. Films are
generally first exhibited in television markets, and
then are distributed on video tape. Revenues from
the foreign exhibition or sale of films are
denominated in U.S. dollars. Minimum guaranteed
amounts from video license agreements, and from book
royalties, are recognized when the applicable
license period begins and the film or book is
available to the distributor; amounts in excess of
the minimum guarantee are recognized when earned.
Revenues are reduced for amounts payable on account
of revenue participations, which are accrued on the
same basis as film costs are amortized. The
components of film revenues were as follows:
<TABLE>
<CAPTION>
April 30, July 31,
----------------- ------------------
1996 1995 1995 1994
------- -------- -------- --------
<S> <C> <C> <C> <C>
Television $ - $364,739 $451,250 $359,320
Book royalties - 240,458 297,491 -
Foreign video 22,012 60,673 75,064 -
Domestic video - 47,306 58,526 14,631
------- -------- -------- --------
$22,012 $713,176 $882,331 $373,951
======= ======== ======== ========
</TABLE>
COMMERCIAL PRODUCTION
AAFC Group produces film products, primarily
television commercials, for customers under fixed
fee arrangements, which typically are less than two
months in duration. Revenues and costs attributable
to these contracts are recognized as the applicable
contract is completed. Revenues and costs applicable
to contracts in progress are deferred, except that
provision is made for any anticipated losses on
contracts in progress. The results of the
application of the completed contract method do not
differ materially from those which would result from
the use of percentage-of-completion accounting.
F-18
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 in Unaudited)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost.
Depreciation is provided using the straight-line
method over the estimated life of the related asset.
The components of property and equipment are as
follows:
<TABLE>
<CAPTION>
Useful APRIL 30, July 31,
------------------
Lives 1996 1995 1994
------ --------- -------- --------
<S> <C> <C> <C> <C>
Office furniture
and fixtures 5-7 $ 87,658 $ 82,057 $ 68,176
Leasehold
improvements 4 37,080 35,580 35,580
Production
equipment 5-7
7,498 7,498 1,537
-------- -------- --------
132,236 125,135 105,293
Less accumulated
depreciation
and amortization 65,212 46,173 18,182
-------- -------- --------
$ 67,024 $ 78,962 $ 87,111
======== ======== ========
</TABLE>
ADVANCES TO OFFICERS
AAFC Group has, on certain occasions, made non-
interest bearing cash advances to certain officers.
Management anticipates that these advances will be
repaid through their offset against future
compensation. AAFC Group does not recognize imputed
interest income or offsetting compensation expense
on the advances.
DEFERRED OFFERING COSTS
Deferred offering costs are comprised principally of
audit and other fees incurred in connection with
AAFC Group's proposed merger with Setab Alpha, Inc.
("Setab Alpha"). Such costs will be charged against
F-19
<PAGE>
Notes to Consolidated Financial
Statements (Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
stockholders' equity upon the completion of the merger,
or charged to expense if the merger is abandoned.
<TABLE>
<CAPTION>
Other Assets
<S> <C> <C>
Other assets were as follows:
April 30, July 31,
------------------
1996 1995 1994
-------- ------------------
Advertising credits $122,618 $122,618 $122,618
Other - 13,093 -
-------- --------- --------
$122,618 $135,711 $122,618
======== ======== ========
</TABLE>
The advertising credits entitle AAFC Group to purchase
media advertising having an aggregate "standard cost"
value of $500,000. The credits were valued at an amount
based on the number of shares of common stock (250,000
shares) AAFC Group issued in exchange for the credits.
The recoverability of the advertising credits is
assured based on the current market price for similar
advertising and AAFC Group's ability to utilize the
credits may be used by the Company through December,
1996.
Income Taxes
AAFC Group files a consolidated income tax return and
provides for income taxes under Statement of Financial
Accounting Standards No. 109 "Accounting for Income
Taxes." Under that standard, deferred income taxes are
provided on the difference between the financial
reporting and tax bases of assets and liabilities.
F-20
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
Pro Forma Earnings Per Share
As described elsewhere in this Prospectus, AAFC Group and
Setab Alpha have entered into an agreement ("The Merger
Plan") whereby, upon completion of the offering, Setab Alpha
will acquire 100 percent of the outstanding common stock of
American Artists in exchange for the issuance of 11,900
shares of Setab Alpha Class A common stock and 5,502,974
shares of Setab Alpha Class B common stock. The Merger will
be accounted for as a recapitalization of American Artists,
as a result of which American Artists will be deemed to have
(i) changed its capitalization to provide for two classes of
Common Stock (Class A and Class B), and (ii) effected a
recapitalization in which an aggregate of 11,900 shares of
Class A Common Stock and 5,502,974 shares of Class B Common
Stock are exchanged for the outstanding shares of its common
stock (an exchange ratio of an aggregate of .5862 Class A or
Class B shares for each presently outstanding share). Pro
forma earnings (loss) per share, computed to reflect the
effect of such a recapitalization on the historical shares
outstanding, is presented in lieu of historical earning
(loss) per share as the pro forma presentation is considered
to be more relevant.
Pro forma earnings per share are computed on the basis of the
pro forma weighted average common shares and dilutive common
share equivalents outstanding. Common stock equivalents
consist of outstanding stock options.
Cash and Cash Equivalents
Cash and cash equivalents are generally comprised of demand
deposits and time deposits or highly liquid debt instruments
with original maturities of three months or less. The
Company's cash balances do not involve any significant
concentrations of credit risk.
2. Acquisition On August 31, 1993, American Artists acquired 100 percent of
the outstanding common stock of First Light in exchange for
the issuance of 750,000 shares of its common stock and the
assumption of First Light's liabilities, which consisted
primarily of a $100,000 note payable secured by First Light's
property, equipment and tradename. The acquisition was
accounted for as a purchase; accordingly, the purchase price,
with the common stock issued recorded at $.50 per
F-21
<PAGE>
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
share, representing a discount deemed appropriate for such a
block of shares, was allocated to First Light's tangible
assets (comprised principally of equipment, leasehold
improvements, First Light's tradename, and contracts in
progress), with the remainder allocated to goodwill, as
follows:
<TABLE>
<CAPTION>
<S> <C>
Contracts in progress $101,000
Furniture and fixtures 55,000
Leasehold improvements 35,000
Tradename 10,000
Goodwill 274,000
--------
$475,000
========
</TABLE>
The goodwill is being amortized on a straight line basis over
seven years. Accumulated amortization was $107,642, $78,286
and $39,143 at April 30, 1996, July 31, 1995 and 1994. AAFC
Group annually assesses the recoverability of unamortized
goodwill by comparison to projections of undiscounted cash
flows from First Light's operations over the remaining
amortization period.
In connection with the acquisition, the president of First
Light was granted stock options for the purchase of 1.5
million shares of common stock, which vest over three years
and are exercisable at a price of $0.50 per share for ten
years.
First Light's results of operations are included in the
Company's consolidated financial statements from August 31,
1993. The consummation of the acquisition of First Light as
of August 1, 1993 would not have had a material effect on the
consolidated results of operations.
F-22
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
<TABLE>
<CAPTION>
3. NOTES PAYABLE Notes payable consisted of the following:
APRIL 30, July 31,
--------- ---------------------
1996 1995 1994
--------- ---------------------
<S> <C> <C> <C>
Unsecured installment note
payable to bank, interest
at 1% above the prime rate
(8.25% at April 30, 1996),
due in monthly installments
through March 1997 $ 38,584 $ 68,153 $ 98,045
Secured installment note,
collateralized by property,
equipment and tradename
of First Light, due with
interest at 4.37% per annum
in quarterly installments
through July 1998 52,713 62,586 86,349
Other - - 20,000
-------- -------- --------
$ 91,297 $130,739 $204,394
======== ======== ========
Aggregate maturities of notes payable at July 31, 1995 are as
follows:
Amount
------
1996 $ 52,705
1997 55,817
1998 22,217
--------
$130,739
========
</TABLE>
F-23
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
4. STOCKHOLDERS' EQUITY (a) AAFC Group adopted a stock option plan in
1991 which, as revised, permits the issuance
of stock options for the purchase of up to 4
million shares of American Artists' common
stock. Stock options may be granted to
officers, directors, employees and consultants
and may be either "incentive stock options"
(as defined in the Internal Revenue Code) or
non-qualified stock options. Stock options are
generally granted at an exercise price equal
to the grant date fair value of American
Artists' common stock, and vest at varying
rates over periods ranging from one to four
years.
In December 1995, AAFC Group replaced its
existing stock option plan with the 1995 stock
option plan ("1995 Option Plan"). The 1995
Option Plan allows for the issuance of up to
2.5 million options as either incentive stock
options or nonqualified stock options, and
stock appreciation rights. The method used in
determining the grant price and vesting period
is similar to the method used under the
previous stock option plan.
Stock options outstanding and vested as of
April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Exercise Options Options Exercisable
Price Outstanding Vested Through
----- ----------- ------ -------
<S> <C> <C> <C>
$ .05 140,000 100,000 2004
.50 1,500,000 1,000,000 2003
.85 1,269,250 175,000 2005
1.00 44,120 - 1998
1.50 319,750 - 2005
</TABLE>
F-24
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
(b) During fiscal 1995 and the nine months ended
April 30, 1996, American Artists undertook certain
private placements of units comprised of shares of
common stock and common stock purchase warrants.
During fiscal 1995 American Artists issued, for $.85
per unit, two units with each unit comprised of
29,412 shares of common stock and 14,706 common stock
purchase warrants. During the nine months ended April
30, 1996, AAFC issued 15.7 additional such units, as
well as 21.1 units, for $25,000 per unit, comprised
of 25,000 shares of common stock and 12,500 common
stock purchase warrants. Subsequent to April 30, 1996
AAFC received additional proceeds of $35,000 for the
issuance of 1.4 additional such units. The resulting
changes in outstanding warrants during the years
ended July 31, 1994 and 1995 and the nine months
ended April 30, 1996 are as follows:
<TABLE>
<CAPTION>
Shares
------
<S> <C>
Outstanding, August 1, 1993 -
Issued -
Exercised -
Forfeited -
-------
Outstanding, July 31, 1994 -
Issued 29,412
Exercised -
Forfeited -
-------
Outstanding, July 31, 1995 29,412
Issued 495,296
Exercised -
Forfeited -
-------
Outstanding, April 30, 1996 524,708
=======
</TABLE>
F-25
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Noted to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
<TABLE>
<CAPTION>
Warrants outstanding at April 30, 1996 are as follows:
Exercise Warrants Exercisable
Price Outstanding Through
----- ----------- -------
<S> <C> <C>
$1.50-$2.00 524,708 June 1998
</TABLE>
5. INCOME TAXES Deferred tax assets result from the following
temporary differences between book and tax bases of
assets:
<TABLE>
<CAPTION>
July 31
----------------------
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Net operating loss carry-
forward $ 304,752 $ 292,839
Valuation allowance (304,752) (292,839)
--------- ---------
$ $
- -
========== ==========
</TABLE>
AAFC Group has net operating loss carryforwards for
federal tax purposes amounting to approximately
$770,000 at July 31, 1995. These net operating loss
carryforwards expire through fiscal year 2010. As a
result of such net operating loss carryforwards and
the related valuation allowance, AAFC Group has not
provided a provision for income taxes for the years
ended July 31, 1995 and 1994.
6. CONTINGENCIES American Artists is currently involved in an
arbitration with one of its co-producers concerning
the accounting for the costs incurred and revenues
received by each company relating to two co-produced
feature films. The probable outcome of the arbitration
is not presently determinable, and accordingly no
provision has been recorded in the accompanying
financial statements. Management believes that it is
reasonably possible that the arbitration may result in
a finding against the Company ranging up to $100,000.
F-26
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Information as to the Nine Months Ended
April 30, 1996 and 1995 is Unaudited)
<TABLE>
<CAPTION>
7. SEGMENT INFORMATION Financial information by business segment is as follows:
Development
and Film Contract
Production Production Consolidated
---------- ---------- ------------
1995
----
<S> <C> <C> <C>
Revenues $882,331 $3,057,200 $3,939,531
Income (loss) from
operations 26,770 (21,753) 5,017
Identifiable assets 9,098 265,578 274,676
Capital expenditures 10,895 8,947 19,842
Depreciation and
amortization 578,312 64,802 643,114
1994
----
Revenues $373,951 $1,660,469 $2,034,420
Income (loss) from
operations (91,811) (363,252) (455,063)
Identifiable assets 536 321,432 321,968
Capital expenditures 626 104,667 105,293
Depreciation and
amortization 220,486 57,235 277,721
8. SUPPLEMENTAL CASH
FLOW INFORMATION 1995 1994
---- ----
Cash paid for interest $10,009 $ 6,462
Cash paid for income taxes 2,498 -
</TABLE>
(a) The Company acquired First Light, as
described in Note 2, in a non-cash
transaction.
(b) In September 1994, the American Artists
converted stock options, which would have
allowed for the purchase of 902,140 shares of
common stock at prices ranging from $1.25 to
$2.25, into 90,214 shares of common stock. The
transaction was accounted for as an exchange
of equity instruments, with no gain or loss
recognized.
F-27
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Pro Forma Financial Statements
(Unaudited)
INTRODUCTION As discussed elsewhere in the Prospectus, the Company
and AAFC Group have entered into an agreement ("the
Merger Plan") whereby, upon the completion of the
offering, the Company will acquire 100 percent of the
outstanding common stock of American Artists in
exchange for the issuance of 11,900 shares of the
Company's Class A common stock and 5,502,974 shares of
the Company's Class B common stock (the "Merger"). The
consummation of the Merger is conditioned upon, among
other things, Setab Alpha's prior completion of its
Public Offering, with not fewer than 200 stockholders,
and the approval of the shareholders of American
Artists.
The accompanying unaudited pro forma consolidated
balance sheet is presented to illustrate the effect of
the proposed Merger on the Company's financial
position and assumes that the Merger, and the
prerequisite Public Offering, were completed on April
30, 1996. The Merger will result in the issuance of a
controlling interest in the Company to the
stockholders of American Artists. Because of this, and
because the Company has not had, and will not have
had, any material operations, the Merger will be
accounted for as a recapitalization of American
Artists in which (i) American Artists is deemed to
have (a) created a second class of common stock, such
that its authorized capital consists of Class A and
Class B common stock, each with a par value of $.001,
and (b) exchanged for the outstanding shares of its
common stock, an aggregate of 11,900 shares of Class A
Common Stock and 5,502,974 shares of Class B Common
Stock, and (ii) issued 700,020 shares of Class A
common stock, (representing the number of shares of
its Company's Common Stock to be outstanding upon the
completion of the Public Offering) in exchange for the
net assets of the Company, recorded at their
historical cost.
AAFC Group will be the continuing entity for
accounting and financial reporting purposes, and
accordingly the results of operations to be reported
for periods prior to the Merger will be those of AAFC
Group. The Company has had no material operations, and
as a result the pro forma results of operations would
not differ materially from AAFC Group's historical
results of operations. Accordingly, pro forma
statements of operations are not presented.
The following unaudited pro forma information may not
be indication of future financial position. The
unaudited pro forma information should be read in
conjunction with the historical financial statements
of the Company and AAFC Group presented elsewhere
herein.
F-28
<PAGE>
SETAB ALPHA/AMERICAN ARTISTS FILM CORPORATION
Pro Forma Consolidated Balance Sheet
(Unaudited)
<TABLE>
<CAPTION>
American
Artists Film
Corporation Setab Alpha
April 30, April 30, Pro forma
1996 1996 Adjustments Pro forma
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 161,388 $ - $ 35,000 [A] $ 208,844
12,456 [C]
Accounts receivable 150,537 - 150,537
Film assets, net of
accumulated amortization 502,474 - 502,474
Property and equipment, net 67,024 - 67,024
Goodwill, net of accumulated
amortization 166,358 - 166,358
Deferred offering cost 105,000 $10,000 (115,000) [E] -
Advances to officers 214,967 - 214,967
Other 122,618 - 122,618
---------- ------- --------- ----------
$1,490,366 $10,000 $ (67,544) $1,432,822
========== ======= ========= ==========
</TABLE>
F-29
<PAGE>
SETAB ALPHA/AMERICAN ARTISTS FILM CORPORATION
Pro Forma Consolidated Balance Sheet
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C> <C> <C>
Accounts payable $ 301,098 $10,500 $ (10,500) [C] $ 301,098
Accrued expenses 152,948 44 (44) [C] 152,948
Film revenue participation - - -
Deferred revenue - - -
Notes payable 91,297 3,791 (3,791) [C] 91,297
----------- ------- -------------- -----------
Total liabilities 545,343 14,335 (14,355) 545,343
----------- ------- -------------- -----------
MINORITY INTEREST 50,000 50,000
Stockholders' equity
Preferred stock - - -
American Artists common stock 468,642 - 1,750 [A] -
(470,392) [B]
Class A common stock 12 [B] 712
- - 700 [D]
Class B common stock - 5,503 [B] 5,503
Additional paid-in capital 2,091,867 - 33,250 [A] 2,496,750
464,877 [B]
(5,000) [C]
26,756 [D]
(115,000) [E]
Deficit (1,665,486) - - (1,665,486)
Net Assets of Setab Alpha - (4,335) 31,791 [C] -
(27,456) [D]
--------------
Total stockholders' equity 895,023 (4,335) (53,209) 837,479
------------ ------- -------------- ------------
$ 1,490,366 $10,000 (67,544) $ 1,432,822
=========== ======= ============== ===========
</TABLE>
F-30
<PAGE>
SETAB ALPHA/AMERICAN ARTISTS FILM CORPORATION
Pro Forma Consolidated Balance Sheet
(Unaudited)
1. BASIS OF PRESENTATION Reference is made to the "Introduction" at
page F-26.
2. PRO FORMA ADJUSTMENTS Adjustments to the pro forma consolidated
balance sheet are as follows:
(A) To reflect American Artists' receipt,
subsequent to April 30, 1996 of $35,000 from
the issuance of 35,000 shares of common stock.
(B) To reflect American Artists' deemed
recapitalization in which it exchanged the
shares of its outstanding common stock for an
aggregate of 11,900 shares of Class A Common
Stock and 5,502,974 shares of Class B Common
Stock.
(C) To reflect Setab Alpha's receipt and
application of the net proceeds of the Public
Offering of 700,000 shares of Class A Common
Stock at $0.05 per share.
(D) To record the Merger, accounted for as the
issuance by American Artists of 700,020 shares
of Class A common stock (representing the
number of shares of Setab Alpha common stock
to be outstanding upon the completion of the
offering) for the net assets of Setab
Alpha.
(E) To charge deferred offering costs against
the proceeds of the offering and the Merger.
F-31
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") is made and
entered into as of this 1st day of May 1996 by and between AMERICAN
ARTISTS FILM CORPORATION ("Film"), a corporation organized under the laws
of the State of Georgia, and SETAB ALPHA, INC. ("Setab"), a corporation
organized under the laws of the State of Missouri (Film and Setab being
hereinafter sometimes referred to collectively as the "Constituent
Corporations").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, Film is a corporation organized under the laws of the State
of Georgia with its principal office therein located at 1245 Fowler
Street, City of Atlanta, County of Fulton, State of Georgia;
WHEREAS, Setab is a corporation organized under the laws of the
State of Missouri with its principal office therein located at 244B
Greenyard Drive, City of Ballwin, County of St. Louis, State of Missouri;
WHEREAS, the Boards of Directors of each of the Constituent
Corporations have determined that it is advisable and for the benefit of
each of the Constituent Corporations and their respective shareholders
that Film be merged with and into Setab on the terms and subject to the
conditions hereinafter set forth, and by resolutions duly adopted have
adopted the terms and conditions of this Agreement and directed that the
proposed merger (the "Merger") be submitted to the shareholders of Film
and Setab with the recommendation that such shareholders approve of the
terms and conditions hereinafter set forth;
WHEREAS, the laws of the States of Georgia and Missouri permit a
merger of the Constituent Corporations; and
WHEREAS, it is intended that the Merger shall qualify as a
reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code");
NOW, THEREFORE, for and in consideration of the premises and of the
mutual agreements, promises and covenants contained herein, the parties
hereto, for good and valuable consideration, warrant, represent, covenant
and agree as follows:
ARTICLE I
MERGER
------
1.1 Merger. Subject to the conditions hereinafter set forth and in
accordance with the Georgia Business Corporation Code (the "Georgia
Code") and the Missouri General and Business Corporation Law (the
"Missouri Law"), at the Effective Time (as hereinafter defined), Film
shall be merged with and into Setab, and the separate existence of Film
shall thereupon cease. Setab (hereinafter with respect to the period
following the Effective Time sometimes referred to as the "Surviving
Corporation") shall continue in existence and the merger shall in all
respects have the effect provided for in Sections 14-2-1106 and 14-2-1107
of the Georgia Code and Sections 351.450 and 315.458 of the Missouri Law.
1.2 Effect. Without limiting the foregoing, at and after the
Effective Time, the Surviving Corporation shall possess all the rights,
privileges, powers and franchises, of a public as well as of a private
nature, and be subject to all the restrictions, disabilities and duties
of each of the Constituent Corporations, and all property, real, personal
and mixed, and all debts due to either of the Constituent Corporations on
whatever account, as well as for
A-1
<PAGE>
stock subscriptions and all other things in action or belonging to each
of the Constituent Corporations, shall be vested in the Surviving
Corporation; and all property, rights, privileges, powers and franchises,
and all and every other interest shall be thereafter as effectively the
property of the Surviving Corporation as they were of the Constituent
Corporations; and the title to any real estate vested by deed or
otherwise in either of the Constituent Corporations shall not revert or
be in any way impaired; but all rights of creditors and all liens upon
any property of either of the Constituent Corporations shall be preserved
unimpaired; and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attached to the Surviving Corporation, and
may be enforced against it to the same extent as if said debts and
liabilities had been incurred by it.
1.3 Articles; Bylaws. At the Effective Time, (i) the Articles of
Incorporation of Setab as in effect immediately prior to the Effective
Time shall be the Articles of Incorporation of the Surviving Corporation,
and (ii) the Bylaws of Setab as in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation.
1.4 Directors; Officers. The directors and officers of Film at the
Effective Time shall, from and after the Effective time, be the sole
directors and officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the
Surviving Corporation's Articles of Incorporation and Bylaws.
1.5 Closing.
-------
(a) The completion of the merger transaction (the "Closing") will
take place at the offices of Troutman Sanders LLP, NationsBank Plaza,
Suite 5200, 600 Peachtree Street, NE, Atlanta, Georgia at 10:00 a.m. on
the fifth business day after the conditions set forth in Articles VI and
VII shall have been fulfilled or waived in accordance with this Agreement
(the "Closing Date"), unless another date, time or place is agreed in
writing by the parties hereto.
(b) At the Closing, the parties shall (i) provide to each other
proof of the satisfaction or waiver of each of the conditions set forth
in Articles VI and VII, respectively, (ii) execute and acknowledge
Articles of Merger, and (iii) immediately cause the Merger to be
consummated by filing the Articles of Merger with the Secretary of State
of the State of Georgia and the Secretary of State of the State of
Missouri in accordance with the provisions of the Georgia Code and the
Missouri Law. The Merger shall be effective at the time of the last to
occur of such filings of the Articles of Merger or such later time as may
be provided therein (the "Effective Time").
1.6 Further Action. Prior to and from and after the Effective
Time, the Constituent Corporations and the proper officers of each of
them shall take all such commercially reasonable actions as shall be
necessary or appropriate in order to carry out the purposes of this
Agreement and effectuate the Merger in accordance with the terms hereof.
If at any time the Surviving Corporation shall consider or be advised
that any further assignments or assurances in law or any other actions
are necessary, appropriate or desirable to vest in said corporation
according to the terms hereof the title to any property or rights of
Film, the last acting officers of Film, or the corresponding officers of
the Surviving Corporation, shall and will execute and make all such
proper assignments and assurances and take all action necessary and
proper to vest title in such property or rights in the Surviving
Corporation, and otherwise to carry out the purposes of this Agreement.
ARTICLE II
TERMS OF MERGER
---------------
2.1 At the Effective Time, by virtue of the Merger and without any
other or further action by the parties:
(a) Each share of Common Stock of Film issued and outstanding
immediately prior to the Effective Time shall, by virtue of the merger
and without any action on the part of the holder thereof, thereupon be
converted into 0.5862 share of the capital stock of the Surviving
Corporation, of which the first 100 shares issued to each Film
shareholder shall be issued as Class A Common Stock and the remainder as
Class B Common Stock,
A-2
<PAGE>
subject to the provisions of Section 2.3 below; provided, however, that
no fractional shares shall be issued and the aggregate number of shares
of Class B Common Stock to be issued to each shareholder of record by
reason of such conversion shall be rounded to the nearest whole number
(the "Merger Consideration"). The shares of Class A and Class B Common
Stock of the Surviving Corporation required for such purpose shall be
drawn from authorized but unissued shares of Class A and Class B Common
Stock, respectively, of the Surviving Corporation.
(b) Each share of Class A Common Stock of Setab issued and
outstanding immediately prior to the Effective Time shall, by virtue of
the merger and without any action on the part of the holder thereof,
thereupon be and remain one share of Class A Common Stock of the
Surviving Corporation, subject to the provisions of Section 2.4 below.
(c) Each share of the capital stock of Film held in the
Treasury of Film shall be canceled and retired and no payment shall be
made in respect thereof.
2.2 After the Effective Time:
(a) Each holder of an outstanding certificate or certificates
which immediately prior thereto represented shares of Common Stock of
Film will, upon surrender of such certificate or certificates, be
entitled to certificates representing the number of shares of Class A and
Class B Common Stock of the Surviving Corporation into which the
aggregate number of shares of Common Stock of Film previously represented
by the surrendered certificate or certificates shall have been converted
pursuant to Section 2.1 of this Agreement.
(b) Each holder of an outstanding certificate or certificates
which immediately prior thereto represented shares of Class A Common
Stock of Setab will, upon surrender of such certificate or certificates,
be entitled to a certificate or certificates representing the number of
shares of Class A Common Stock of the Surviving Corporation into which
the aggregate number of shares of Class A Common Stock of Setab
previously represented by the surrendered certificate or certificates
shall have been converted pursuant to Section 2.1 of this Agreement.
2.3 Notwithstanding any provision of this Agreement to the
contrary, shares of Common Stock of Film which are issued and outstanding
immediately prior to the Effective Time and which are held by
shareholders who have timely filed with Film a written objection to the
merger (the "Dissenting Film Shares") shall not be converted into or
represent a right to receive shares of Class A and Class B Common Stock
of the Surviving Corporation pursuant to Section 2.1 hereof, but the
holder thereof shall be entitled only to such rights as are granted by
Article 13 of the Georgia Code. Each holder of Dissenting Shares who
becomes entitled to payment for such shares pursuant to the foregoing
Article of the Georgia Code shall receive payment therefor from the
Surviving Corporation in accordance with the Georgia Code. If any holder
shall have failed to perfect, or shall have effectively withdrawn or
lost, his or her right to appraisal and payment for his or her shares
under the said Article of the Georgia Code, each such share shall be
converted into and represent the right to receive shares pursuant to
Section 2.1 hereof, upon surrender to the Surviving Corporation of the
certificate representing such share.
2.4 Notwithstanding any provision of this Agreement to the
contrary, shares of Class A Common Stock of Setab which are issued and
outstanding immediately prior to the Effective Time and which are held by
shareholders who have timely filed with Setab a written objection to the
merger (the "Dissenting Setab Shares") shall not be and remain one share
of Class A Common Stock of the Surviving Corporation pursuant to Section
2.1 hereof, but the holder thereof shall be entitled only to such rights
as are granted by Section 351.455 of the Missouri Law. Each holder of
Dissenting Setab Shares who becomes entitled to payment for such shares
pursuant to the foregoing Section of the Missouri Law shall receive
payment therefore from the Surviving Corporation in accordance with the
Missouri Law. If any holder shall have failed to perfect, or shall have
effectively withdrawn or lost, his or her right to appraisal and payment
for his or her shares under the said Section of the Missouri Law, each
such share shall be and remain one share of Class A Common Stock of the
Surviving Corporation pursuant to Section 2.1 hereof, upon surrender to
the Surviving Corporation of the certificate representing such
share.
2.5 Subject to Section 2.6 hereof, each option or warrant issued
and outstanding immediately prior to the Effective Time with respect to
the purchase of Common Stock of Film shall upon completion of the Merger
be exchanged for an option or warrant containing substantially the same
terms and conditions except that each share
A-3
<PAGE>
of Common Stock of Film subject to purchase upon exercise thereof shall
be replaced by 0.5862 share of Class B Common Stock of the Surviving
Corporation; provided, however, that the aggregate number of shares of
Class B Common Stock subject to purchase upon exercise thereof shall be
rounded to the nearest whole number and no fractional share shall be
issued upon any exercise thereof.
2.6 None of the shares of Class A or Class B Common Stock issued by
reason of conversion of shares of Common Stock of Film in the Merger,
shares of Class B Common Stock issued upon exercise of options or
warrants outstanding at the Effective Time, or share of Class A Common
Stock issued upon conversion of Class B Common Stock issued in connection
with the Merger, may be sold, transferred or assigned by the holder
thereof within 365 days after the Effective Time, unless and until such
sale, transfer or assignment shall have been specifically approved in
writing by the Surviving Corporation upon written application by the
holder. The application shall describe the proposed sale, transfer or
assignment in such detail as the Surviving Corporation may request, and
the Surviving Corporation may approve or disapprove any such application
in its sole discretion. Certificates issued by the Surviving Corporation
in respect of outstanding shares of Class A or Class B Common Stock,
Class A Common Stock issued upon conversion of outstanding Class B Common
Stock, or Class B Common Stock issued upon exercise of outstanding
options or warrants may contain a legend, in such detail as the Surviving
Corporation may deem appropriate, referring to this provision.
ARTICLE III
ADDITIONAL AGREEMENTS
---------------------
3.1 Upon reasonable notice, the parties will each (i) afford to the
officers, employees, accountants, counsel and other representatives of
the other, access, during normal business hours to all its properties,
books, contracts, commitments and records, and (ii) furnish promptly to
the other all information in its possession concerning its business
properties and personnel as the inquiring party may reasonable request.
The parties agree that they will not, and will cause their
representatives not to, use any information obtained pursuant to this
Section for any purpose unrelated to the consummation of the transactions
contemplated by this Agreement.
3.2 The parties will each use their reasonable best efforts to
consummate and effect the Merger (including (i) furnishing all
information reasonably required in connection with approvals of or
filings with the Securities and Exchange Commission or any other
governmental entity, and (ii) causing the conditions set forth in Article
VI and VII, respectively, to be satisfied) and will promptly cooperate
with and furnish information to each other in connection with any such
requirements imposed upon either of them or any of their subsidiaries in
connection with the Merger.
3.3 Setab shall pay all of its own costs and expenses incident to
the negotiation and preparation of this Agreement and the consummation of
the transactions contemplated hereby, including the fees, expenses and
disbursements of its counsel and advisors; provided, however, that such
costs and expenses of Setab shall not exceed $35,000. Setab shall not
incur or otherwise become obligated to pay any such costs and expenses in
excess of $35,000 prior to the consummation of the Merger without the
prior written consent of Film.
3.4 Each of the parties represents as to itself, its subsidiaries
and its affiliates, that no agent, broker, investment banker, financial
advisor or other firm or person is or will be entitled to any broker's or
finder's fee or any other commission or similar fee in connection with
any of the transactions contemplated by this Agreement, and the parties
each agree to indemnify and hold the other harmless from and against any
fees, commissions or expenses asserted by any person on the basis of any
act or statement alleged to have been made by such party or its
subsidiaries or affiliates.
3.5 Film hereby acknowledges that Setab has filed with the
Securities and Exchange Commission a Registration Statement on Form SB-2
with respect to an offering of its Class A Common Stock and intends to
file a Registration Statement on Form S-4 with respect to the shares of
Class A and Class B Common Stock to be issued pursuant to the Merger
(collectively, the "Registration Statements"). Film shall furnish Setab
with all information concerning Film as may be required for inclusion in
the Registration Statements and shall cooperate with Setab in the
preparation of the Registration Statements in a timely fashion and use
its best efforts to have each of the
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Registration Statements declared effective by the Securities and Exchange
Commission as promptly as possible. Setab will prepare and file in
consultation with Film such amendments to the Registration Statement on
Form SB-2 and such supplements to the Prospectus included therein as
shall be necessary to cause such Registration Statement to become
effective and remain effective (and to cause the Prospectus included
therein to remain current) until the related offering has been completed,
in each case in accordance with applicable law. Setab will prepare and
file (in consultation with Film) the above-referenced Registration
Statement on Form S-4 as promptly as practicable, subject to the right of
Film to request that such filing be delayed as and to the extent Film
shall deem appropriate in order to facilitate the orderly and efficient
preparation thereof and processing and review thereof by the Securities
and Exchange Commission. Setab will thereafter prepare and file (in
consultation with Film) such amendments to such Registration Statement on
Form S-4 and such supplements to the Prospectus included therein as shall
be necessary to cause such Registration Statement to become effective and
remain effective (and to cause the Prospectus included therein to remain
current) for the period required in order to consummate the Merger, as
set forth herein, in accordance with applicable law. Setab shall use its
best efforts to assure that each Registration Statement includes all
information required to be included therein by applicable law, and that
each Registration Statement shall not contain any untrue statement of a
material fact or any omission to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading.
Film represents and warrants that the written description of Film
headed "AAFC GROUP" delivered by Film to Setab for inclusion in Amendment
No. 2 to its Registration Statement No. 33-97196C on Form SB-2, as
amended (the "Registration Statement"), filed with the Securities and
Exchange Commission is true and correct in all material respects at the
date of this Agreement. If at any time prior to the Effective Time any
information pertaining to Film contained in or omitted from the
Registration Statements make such statements contained in the
Registration Statements false or misleading, Film shall promptly so
inform Setab and provide Setab with the information necessary to make
statements contained therein not false and misleading. As soon as is
reasonably practicable, Film shall prepare and mail to its shareholders
an information or proxy statement which shall include all information
required under applicable law to be furnished to Film's shareholders in
connection with the Merger and transactions contemplated hereby.
Film agrees to indemnify and hold harmless Setab, its officers and
directors, agents and counsel against any and all loss, liability, claim,
damage and expense whatsoever as and when incurred arising out of, based
upon or in connection with any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statements or
any omission or alleged omissions to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, but only with respect to statements or omissions, if any,
made in reliance upon and in conformity with written information
furnished to Setab with respect to Film by or on behalf of Film expressly
for inclusion therein. Setab agrees to indemnify and hold harmless Film,
its officers and directors, agents and counsel against any and all loss,
liability, claim, damage and expense whatsoever as and when incurred
arising out of, based upon or in connection with any untrue statement or
alleged untrue statement of a material fact contained in either of the
Registration Statements or any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading except for any untrue statement or
alleged untrue statement or omission or alleged omission which is based
upon written information furnished to Setab with respect to Film by or on
behalf of Film expressly for inclusion therein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF FILM
--------------------------------------
Film represents, warrants and covenants to Setab as follows:
4.1 Film is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Georgia, and is not required
to be qualified as a foreign corporation under the laws of any other
jurisdiction. Film has full power and lawful authority to carry on its
business as now conducted and to own and operate its assets, properties
and business.
4.2 The authorized capital stock of Film consists of (i) 30,000,000
shares of Common Stock, per value $0.05 per share, of which 9,407,837
shares are validly issued and outstanding, fully paid and non-assessable
and
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3,797,828 shares are subject to purchase upon exercise of options and
warrants as described in Exhibit A to this Agreement, and (ii) 10,000,000
shares of preferred stock, none of which is issued and outstanding.
Except as stated above, there are no outstanding subscriptions, warrants,
options, calls, commitments or agreements to which Film is a party or by
which it is bound calling for the issuance of any class of Film's capital
stock.
4.3 Film has heretofore delivered to Setab (i) the consolidated
financial statements of Film and its consolidated subsidiaries as at July
31, 1995 and for the two fiscal years then ended, certified by BDO
Seidman, LLP, and (ii) the unaudited consolidated financial statements of
Film and its consolidated subsidiaries as at April 30, 1996, and for the
nine months then ended. Such financial statements are hereinafter
collectively referred to as the "Film Financial Statements." Each of the
balance sheets included in the Film Financial Statements was prepared in
conformity with generally accepted accounting principles, and presents
fairly the financial condition of each of Film and its consolidated
subsidiaries as of the date thereof. Each of the statements of
operations included in the Film Financial Statements presents fairly the
results of the operations of Film and its consolidated subsidiaries for
the period covered thereby in conformity with generally accepted
accounting principles applied on a consistent basis.
4.4 From January 31, 1996, to the date of this Agreement there has
not been, and from the date of this Agreement to the Effective Time there
will not be with respect to Film and its consolidated subsidiaries:
(i) Any material adverse change except changes in the ordinary
course of business;
(ii) Any declaration, setting aside or payment of any dividend
or any other distribution on or in respect of its capital stock or
any direct or indirect redemption, retirement, purchase or other
acquisition of any of such stock or any issuance of any shares of
such stock, or of any options, warrants or other rights with respect
thereof, except issuance of Common Stock upon exercise of
outstanding options or warrants or otherwise for fair value; or
(iii) Any change in its Articles of Incorporation or By-laws.
4.5 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not:
(i) Result in the breach of any of the terms or conditions of,
or constitute a default under, the Articles of Incorporation or By-
laws of Film or of any mortgage, note, bond, indenture, agreement,
license or other instrument or obligation to which Film is now a
party or by which it or any of its properties or assets may be bound
or affected; or
(ii) Violate any order, writ, injunction or decree or any
court, administrative agency or governmental body.
4.6 The Board of Directors of Film has duly approved this Agreement
and the transactions contemplated herein, subject to the requisite
approval by the holders of Film Common Stock, and has authorized the
execution and delivery by Film of this Agreement.
4.7 All representations, warranties and covenants made by Film in
this Agreement are true and correct when made and, except as Film shall
otherwise advise Setab in writing prior thereto, shall be true and
correct in all material respects at the Closing with the same effect as
if they had been made at and as of the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF SETAB
---------------------------------------
Setab represents, warrants and covenants to Film as follows:
5.1 Setab is a corporation duly organized, validly existing, and in
good standing under the laws of the State of Missouri, and is not
required to be qualified as a foreign corporation under the laws of any
other
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jurisdiction. Setab is not engaged in the active conduct of any
business. Copies of Setab's Articles of Incorporation and By-laws are
attached hereto as Exhibits B and C, respectively,
5.2 The authorized capital stock of Setab consists of (i)
20,000,000 shares of Class A Common Stock, per value $0.01 per share, of
which 20 shares are validly issued and outstanding, fully paid and non-
assessable, (ii) 20,000,000 shares of Class B Common Stock, per value
$0.001 per share, none of which is issued and outstanding, and (iii)
10,000,000 shares of preferred stock, none of which is issued and
outstanding. There are no outstanding subscriptions, warrants, options,
calls, commitments or agreements to which Setab is a party or by which it
is bound calling for the issuance of any class of Setab's capital stock;
provided, however, that Setab proposes to sell up to 700,000 additional
shares of its Class A Common Stock, per value $0.001 per share in a
public offering (the "Offering") as described in the Registration
Statement.
5.3 Setab has heretofore delivered to Film its financial statements
as of April 30, 1996, and for the period from its incorporation to such
date, certified by BDO Seidman, LLP. Such financial statements are
hereinafter collectively referred to as the "Setab Financial Statements."
The balance sheet included in the Setab Financial Statements was prepared
in conformity with generally accepted accounting principles, and presents
fairly the financial condition of each of Setab as of the date thereof.
The statement of operations included in the Setab Financial Statements
presents fairly the results of the operations of Setab for the period
covered thereby in conformity with generally accepted accounting
principles applied on a consistent basis.
5.4 From April 30, 1996, to the date of this Agreement there has
not been, and from the date of this Agreement to the Effective Time there
will not be with respect to Setab:
(i) Any material adverse change;
(ii) Any declaration, setting aside or payment of any dividend
or any other distribution on or in respect of its capital stock or
any direct or indirect redemption, retirement, purchase or other
acquisition of any of such stock or any issuance of any shares of
such stock, or of any options, warrants or other rights with respect
thereof; or except issuance of Common Stock upon exercise of
outstanding options or warrants or otherwise for fair value; or
(iii) Any change in its Articles of Incorporation or By-laws.
5.5 The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not:
(i) Result in the breach of any of the terms or conditions of,
or constitute a default under, the Articles of Incorporation or By-
laws of Setab or of any mortgage, note, bond, indenture, agreement,
license or other instrument or obligation to which Film is now a
party or by which it or any of its properties or assets may be bound
or affected; or
(ii) Violate any order, writ, injunction or decree or any
court, administrative agency or governmental body.
5.6 The Board of Directors and the shareholders of Setab have each
duly approved this Agreement and the transactions contemplated herein,
and have authorized the execution and delivery by Film of this Agreement
and the consummation of the transactions contemplated herein.
5.7 The Registration Statement does not, and the Registration
Statement when it becomes effective will not, contain any untrue
statement or omit any material statement necessary in order to make any
statement therein not misleading. Until the Closing Setab will advise
Film promptly in writing of any change material to Setab in any of the
matters therein described.
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5.8 All representations, warranties and covenants made by Setab in
this Agreement are true and correct when made and, except as Setab shall
otherwise advise Film in writing prior thereto, shall be true and correct
in all material respects at the Closing with the same effect as if they
had been made at and as of the Closing.
ARTICLE VI
CONDITIONS PRECEDENT TO SETAB'S OBLIGATIONS
-------------------------------------------
The obligations of Setab under this Agreement are, at the option of
Setab, subject to satisfaction of the following conditions at or before
the Closing Date:
6.1 The Merger shall have obtained the requisite approval of
holders of capital stock of Film.
6.2 All representations and warranties of Film contained in this
Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the
effective date of the Merger and shall then be true and accurate in all
material respects.
6.3 Film shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing.
6.4 No action, suit or proceeding shall have been instituted before
a court or governmental body, or instituted or threatened by any
governmental agency or body, to restrain or prevent the carrying out of
the transactions contemplated hereby.
6.5 Setab shall have received a certificate executed by the
President and Secretary of Film certifying, as of the Closing Date, that
all representations and warranties of Film contained in this Agreement
are, as of the Closing Date, true and accurate in all respects, and that
Film has performed and complied with all covenants, agreements and
conditions required by this Agreement to be performed or complied with by
it prior to or at the effective date of the merger.
ARTICLE VII
CONDITIONS PRECEDENT TO FILM'S OBLIGATIONS
------------------------------------------
The obligations of Film under this Agreement are, at the option of
Film, subject to satisfaction of the following conditions at or before
the Closing Date:
7.1 The Merger shall have obtained the requisite approval of
holders of capital stock of Film.
7.2 All representations and warranties of Setab contained in this
Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to be made again at and as of the
effective date of the Merger and shall then be true and accurate in all
material respects.
7.3 Setab shall have performed and complied with all covenants,
agreements and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing.
7.4 No action, suit or proceeding shall have been instituted before
a court or governmental body, or instituted or threatened by any
governmental agency or body, to restrain or prevent the carrying out of
the transactions contemplated hereby.
7.5 Film shall have received a certificate executed by the
President of Setab, dated the Closing Date, certifying that all
representations and warranties of Setab contained in this Agreement are,
as of such date, true and accurate in all respects and that Setab has
performed and complied with all covenants, agreements and conditions
required by this Agreement to be performed or complied with by it prior
to or at the effective date of the merger.
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7.6 The Registration Statement shall have become effective, Setab
shall have received acceptable subscriptions for the sale of 700,000
shares of its Class A Common Stock pursuant to the Offering at a net
price to Setab of not less than $0.05 per share from not fewer than 200
subscribers.
7.7 The offer and sale of the shares of Class A and Class B Common
Stock of the Surviving Corporation to be exchanged in the Merger for
shares of Common Stock of Film shall, in the opinion of counsel for Film,
have been duly registered under all applicable federal and state
securities laws or be exempt from registration thereunder.
7.8 None of the shareholders of Film shall have effectively
dissented to the Merger under Article 13 of the Georgia Code, unless such
dissent shall have theretofore been withdrawn.
ARTICLE VIII
SURVIVAL
--------
8.1 All representations, warranties, covenants and agreements made
in this Agreement or in any certificate or document delivered pursuant
hereto, shall survive the execution and delivery hereof and the effective
date of the Merger.
ARTICLE IX
TERMINATION
-----------
This Agreement may be terminated and the Merger abandoned at any
time before or after approval thereof by the shareholders of Film
notwithstanding favorable action on the merger by the shareholders of
Film, but not later than its Effective Time by:
9.1 Film and Setab, by mutual consent.
9.2 Either Film or Setab after December 31, 1996, if the merger has
not become effective by that date.
9.3 Film, if any of the conditions provided in Article VII of this
Agreement have not been met at or before the Closing and have not been
waived.
9.4 Setab, if any of the conditions provided in Article VI of this
Agreement have not been met at or before the Closing and have not been
waived.
In the event of termination by either Setab or Film as provided
above, written notice shall forthwith be given to the other party.
ARTICLE X
NOTICES
-------
All notices, requests, demands and other communications required or
permitted to be given hereunder shall be in writing and shall be deemed
to have been duly given if delivered personally, or delivered by
recognized courier service as follows:
10.1 If to Film:
1245 Fowler Street, N.W.
Atlanta, Georgia 30318
Attention: Mr. Steven D. Brown, Chief Executive Officer
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Copy to:
Carl I. Gable, P.C.
Troutman Sanders LLP
NationsBank Plaza, Suite 5200
600 Peachtree Street, N.E.
Atlanta, Georgia 30308-2216
10.2 If to Setab:
244-B Greenyard Drive
Ballwin, Missouri 63011
Attention: Mr. Douglas J. Bates, President
or such other address as hereafter shall be furnished in writing by
either of the parties hereto to the other party hereto.
ARTICLE XI
GENERAL
-------
11.1 The article and section headings contained herein are for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement.
11.2 This Agreement sets forth the entire agreement and
understanding of the parties and supersedes all prior agreements,
arrangements and understandings between the parties.
11.3 No representation, promise, inducement or statement of
intention has been made by any party hereto which is not embodied in this
Agreement or the written statements, deeds, certificates, schedules or
other documents delivered pursuant hereto or in connection with the
transaction contemplated hereby, and no party hereto shall be bound by or
liable for any alleged representation, promise, inducement or statement
of intention not so set forth.
11.4 All the terms, covenants, representations, warranties and
conditions of this Agreement shall be binding upon, and inure to the
benefit of and be enforceable by, the parties hereto and their respective
successors and assigns.
11.5 This Agreement may be amended, modified, superseded or
cancelled, and any of the terms, covenants, representations, warranties
or conditions hereof may be waived, only by a written instrument executed
by all of the parties hereto or, in the case of a waiver, by the party or
parties waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in no manner
affect the right at a later time to enforce the same. No waiver by any
party of any condition, or of the breach of any term, covenant,
representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be
or construed as a further or continuing waiver of any such condition or
breach or a waiver of any other condition or of the breach of any other
term, covenant, representation or warranty in this Agreement.
11.6 Setab and Film may by written notice to the other and without
the consent of any other person, firm or corporation: (i) extend the
time for performance of any of the obligations or other acts of the other
party; (ii) waive any inaccuracies in the representations and warranties
of the other party contained in this Agreement or in any statement
(including financial statements), deed, certificates, schedules or other
document delivered pursuant hereto or in connection with the transactions
contemplated hereby; and (iii) waive compliance with any of the covenants
of the other party contained in this Agreement and waive performance of
any of the obligations of the other party.
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11.7 This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have each caused this Agreement to
be executed and their respective corporate seals to be affixed by their
duly authorized officers, as of the date hereinabove first written.
AMERICAN ARTISTS FILM CORPORATION
By:
------------------------------
Co-Chairman of the Board
[CORPORATE SEAL]
Attest:
- ----------------------------------
Secretary
SETAB ALPHA, INC.
By:
------------------------------
President
[CORPORATE SEAL]
- ----------------------------------
Secretary
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ANNEX B
GEORGIA DISSENTERS' RIGHTS STATUTES
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that
right when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the
corporate action until the date of payment, at a rate that is fair and
equitable under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Code 1981, (S) 14-2-1301, enacted by Ga. L. 1988, p. 1070,
l; Ga. L. 1993, p. 1231, (S) 6.)
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent
from, and obtain payment of the fair value of his shares in the event of,
any of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party;
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or the
articles of incorporation and the shareholder is entitled to
vote on the merger; or
(B) If the corporation is a subsidiary that is merger with
its parent under Code Section 14-2-1104;
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(2) Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be
acquired, if the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially
all of the property of the corporation if a shareholder vote is
required on the sale or exchange pursuant to Code Section 14-2-1202,
but not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders within
one year after the date of sale;
(4) An amendment of the articles of incorporation that
materially and adversely affects rights in respect of a dissenter's
shares because it:
(A) Alters or abolishes a preferential right of the
shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund for
the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder
of the shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on
any matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights;
(E) Reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is
to be acquired for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the
shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote
to the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to
dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating
his entitlement unless the corporate action fails to comply with
procedural requirements of this chapter or the articles of incorporation
or bylaws of the corporation or the vote required to obtain approval of
the corporate action was obtained by fraudulent and deceptive means,
regardless of whether the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall
be no right of dissent in favor of the holder of shares of any class or
series which, at the record date fixed to determine the shareholders
entitled to receive notice of and to vote at a meeting at which a plan of
merger or share exchange or a sale or exchange of property or an
amendment of the articles of incorporation is to be acted on, were either
listed on a national securities exchange or held of record by more than
2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under the plan
of merger or share exchange to accept for their shares anything
except shares of the surviving corporation or another publicly held
corporation which at the effective date of the merger or share
exchange are either listed on a national securities exchange or held
of record by more than 2,000 shareholders, except for scrip or cash
payments in lieu of fractional shares; or
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(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise. (Code
1981, (S) 14-2-1302, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L.
1989, p. 946, (S) 58.)
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in his name only if he dissents with respect to
all shares beneficially owned by any one beneficial shareholder and
notifies the corporation in writing of the name and address of each
person on whose behalf he asserts dissenters' rights. The rights of a
partial dissenter under this Code section are determined as if the shares
as to which he dissents and his other shares were registered in the names
of different shareholders. (Code 1981, (S) 14-2-1303, enacted by Ga. L.
1988, p. 1070, (S) 1.)
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled to
assert dissenters' rights under this article and be accompanied by a copy
of this article.
(b) If corporate action creating dissenters' rights under Code
Section 14-2-1302 is taken without a vote of shareholders, the
corporation shall notify in writing all shareholders entitled to assert
dissenters' rights that the action was taken and send them the
dissenters' notice described in Code Section 14-2-1322 no later than ten
days after the corporate action was taken. (Code 1981, (S) 14-2-1320,
enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1993, p. 1231, (S) 17.)
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is submitted to a vote at a shareholders' meeting,
a record shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his
shares under this article. (Code 1981, (S) 14-2-1321, enacted by Ga. L.
1988, p. 1070, (S) 1.)
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
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(1) State where the payment demand must be sent and where and
when certificates for certified shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand
is received;
(3) Set a date by which the corporation must receive the
payment demand, which date may not be fewer than 30 nor more than 60
days after the date the notice required in subsection (a) of this
Code section is delivered; and
(4) Be accompanied by a copy of this article. (Code 1981, (S)
14-2-1322, enacted by Ga. L. 1988, p. 1070, (S) 1.)
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in
accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares
under subsection (a) of this Code Section retains all other right of a
shareholder until these rights are cancelled or modified by the taking of
the proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his
share certificates where required, each by the date set in the
dissenters' notice, is not entitled to payment for his shares under this
article. (Code 1981, (S) 14-2-1323, enacted by Ga. L. 1988, p. 1070, (S)
1.)
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated
shares from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under
Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed
corporate action. (Code 1981, (S) 14-2-1324, enacted by Ga. L. 1988, p.
1070, (S) 1.)
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in code Section 14-2-1327, within ten days of
the later of the date the proposed corporate action is taken or receipt
of a payment demand, the corporation shall by notice to each dissenter
who complied with Code Section 14-2-1323 offer to pay to such dissenter
the amount the corporation estimates to be the fair market value of his
or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for that year, a statement of changes in
shareholders' equity for that year, and the latest available interim
financial statements, if any:
B-4
<PAGE>
(2) A statement of the corporation's estimate of the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment
under Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's offer or
is deemed to have accepted such offer by failure to respond within such
30 days, payment for his or her shares shall e made within 60 days after
the making of the offer or the taking of the proposed corporate action,
whichever is later. (Code 1981, (S) 14-2-1325, enacted by Ga. L. 1988, p.
1070, (S) 1; Ga. L. 1989, p. 946, (S) 59; Ga. L. 1993, p. 1231, (S) 18.)
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing share
certificates, the corporation shall return the deposited certificates and
release the transfer restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing
transfer restrictions, the corporation takes the proposed action, it must
send a new dissenters' notice under Code Section 14-2-1322 and repeat the
payment demand procedure. (Code 1981, (S) 14-2-1326, enacted by Ga. L.
1988, p. 1070, (S) 1; Ga. L. 1990, p. 257, (S) 20.)
14-2-1327. PROCEDURES IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest due, and
demand payment of his estimate of the fair value of his shares and
interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares or that
the interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after
the day set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code section and is deemed to have accepted the corporation's offer
unless he or she notifies the corporation of his or her demand in writing
under subsection (a) of this Code section within 30 days after the
corporation offered payment for his or her shares, as provided in Code
Section 14-2-1325.
(c) If the corporation does not offer payment within the time set
forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall
provide the information to the shareholder within ten days after
receipt of a written demand for the information; and
B-5
<PAGE>
(2) The shareholder may at any time, subject to the limitations
period of Code Section 14-2-1332, notify the corporation of his own
estimate of the fair value of his shares and the amount of interest
due and demand payment of his estimate of the fair value of his
shares and interest due. (Code 1981, (S) 14-2-1327, enacted by Ga.
L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946, (S) 60; Ga. L. 1990,
p. 257, (S) 21; Ga. L. 1993, p. 1231, (S) 19.)
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60 days
after receiving the payment demand and petition the court to determine
the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the 60 day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation will commence the proceeding, which shall be a
non-jury equitable valuation proceeding, in the superior court of the
county where a corporation's registered office is located. If the
surviving corporation is a foreign corporation without a registered
office in this state, it shall commence the proceeding in the county in
this state where the registered office of the domestic corporation merged
with or whose shares were acquired by the foreign corporation was
located.
(c) The corporation will make all dissenters, whether or not
residents of this state, whose demands remain unsettled parties to the
proceeding, which shall have the effect of an action quasi in rem against
their shares. The corporation shall serve a copy of the petition in the
proceeding upon each dissenting shareholder who is a resident of this
state in the manner provided by law for the service of a summons and
complaint, and upon each nonresident dissenting shareholder either by
registered or certified mail or by publication, or in any other manner
permitted by law.
(d) The jurisdiction of the court in which the proceeding is
commenced under subsection (b) of this Code section is plenary and
exclusive. The court may appoint one or more persons as appraisers to
receive evidence and recommend decision on the question of fair value.
The appraisers have the powers described in the order appointing them or
in any amendment to it. Except as otherwise provided in this chapter,
Chapter 11 of Title 9, known as the "Georgia Civil Practice Act," applies
to any proceeding with respect to dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to
judgment for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment. (Code 1981, (S) 14-2-
1330, enacted by Ga. L. 1988, p. 1070, (S) 1; Ga. L. 1989, p. 946; (S)
61; Ga. L. 1993, p. 1231, (S) 20.)
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code
Section 14-2-1330 will determine all costs of the proceeding, including
the reasonable compensation and expenses of appraisers appointed by the
court, but not including fees and expenses of attorneys and experts for
the respective parties. The court shall assess the costs against the
corporation, except that the court may assess the costs against all or
some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or
not in good faith in demanding payment under code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable;
B-6
<PAGE>
(1) Against the corporation and in favor of any or all
dissenters if the courts find the corporation did not substantially
comply with the requirements of Code Sections 14-2-1320 through 14-
2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or
not in good faith with respect to the rights provided by this
article.
(c) If the court finds that the services of attorneys for any
dissenter were of substantial benefit to other dissenters similarly
situated, and that the fees for those services should not be assessed
against the corporation, the court may award to these attorneys
reasonable fees to be paid out of the amounts awarded to the dissenters
who were benefitted. (Code 1981, (S) 14-2-1331, enacted by Ga. L. 1988,
p. 1070, (S) 1.)
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights will be
brought more than three years after the corporate action was taken,
regardless of whether notice of the corporate action and of the right to
dissent was given by the corporation in compliance with the provisions of
Code Section 14-2-1320 and Code Section 14-2-1322. (Code 1981, (S) 14-2-
1332, enacted by Ga. L. 1988, p. 1070, (S) 1.)
B-7
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 351.355(1) and (2) of The General and Business Corporation Law of
the State of Missouri provide that a corporation may indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding by reason of the fact that he is or was
a director, officer, employee or agent of the corporation, or is or was serving
at the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by such person in connection with
such action, suit or proceeding if the person acted in good faith and in a
manner the person reasonably believed to be in or not opposed to the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such person's conduct was
unlawful, except that, in the case of an action or suit by or in the right of
the corporation, the corporation may not indemnify such persons against
judgments and fines and no person shall be indemnified as to any claim, issue or
matter as to which such person shall have been adjudged to be liable for
negligence or misconduct in the performance of the person's duty to the
corporation, unless and only to the extent that the court in which the action or
suit was brought determines upon application that such person is fairly and
reasonably entitled to indemnity for proper expenses. Section 351.355(3)
provides that, to the extent that a director, officer, employee or agent of the
corporation has been successful in the defense of any such action, suit or
proceeding or in defense of any claim, issue or matter therein, the person shall
be indemnified against expenses, including attorney's fees, actually and
reasonably incurred by such person in connection with such action, suit or
proceeding. Section 351.355(7) provides that a corporation may provide
additional indemnification to any person indemnifiable under subsection (1) of
(2), provided such additional indemnification is authorized by the corporation's
articles of incorporation or an amendment thereto or by a shareholder-approved
bylaw or agreement, and provided further that no person shall thereby be
indemnified against conduct which was finally adjudged to have been knowingly
fraudulent, deliberately dishonest or willful misconduct or which involves an
accounting for profits pursuant to Section 16(b) of the Exchange Act. Paragraph
9 of the Articles of Incorporation of Setab Alpha permits Setab Alpha to enter
into agreements with its directors, officers, employees and agents to provide
such indemnification as deemed appropriate. Paragraph 9 also provides that Setab
Alpha shall extend to its directors and executive officers the indemnification
specified in subsections (1) and (2) and that it may extend to other officers,
employees and agents such indemnification and additional indemnification.
Setab Alpha has entered into an indemnification agreement with its
directors and executive officers. The form of indemnity agreement provides that
such person will be indemnified to the full extent permitted by applicable law
against all expenses (including attorneys' fees), judgments, fines, penalties
and amounts paid in settlement of any threatened, pending or completed action,
suit or proceeding, on account of his services as a director and officer of
Setab Alpha or any other company or enterprise in which he is serving at the
request of Setab Alpha, or as a guarantor of any debt of Setab Alpha. To the
extent the indemnification provided under the agreement exceeds that permitted
by applicable law, indemnification may be unenforceable or may be limited to the
extent it is found by a court of competent jurisdiction to be contrary to public
policy.
Setab Alpha (and, following the Merger, the Surviving Corporation) may
procure and maintain a policy of insurance under which the directors and
officers of Setab Alpha (or the Surviving Corporation) will be insured, subject
to the limits of the policy, against certain losses arising from claims made
against such directors and officers by reason of any acts or omissions covered
under such policy in their respective capacities as directors or officers.
II-1
<PAGE>
ITEM 21. EXHIBITS
2.1 Agreement and Plan of Merger dated as of May 1, 1996 with
American Artists Film Corporation
3.1 Articles of Incorporation of the Registrant
3.2 Amended and Restated Bylaws of the Registrant
3.3 Amendment to Articles of Incorporation of the Registrant
adopted May 1, 1996
3.4 Articles of Incorporation of American Artists
3.5 Bylaws of American Artists
4.1 Form of Subscription Agreement
4.2 Escrow Agreement with Allegiant Bank
5.1 Opinion of Clark W. Holesinger, Attorney-at-Law
10.1 Form of Indemnification Agreement
10.2 Consulting Agreement with Douglas J. Bates
10.3 Consulting Agreement with Alan G. Johnson
10.4 Promissory Note with Douglas J. Bates
10.5 Promissory Note with Alan G. Johnson
10.6 Common Stock Investment Agreement, dated February 24, 1992,
and the Agreement dated February 24, 1992, between American
Artists and Icon International, Inc., as extended by letter
dated August 21, 1995
10.7 Asset Purchase Agreement, dated August 1, 1993, between
Current Corporation and First Light Entertainment Corporation
10.8 Lease Agreement, dated August 5, 1993, between Kee Joint
Venture and Current Corporation, as renewed June 15, 1995
between Kee Joint Venture and First Light Entertainment
Corporation
10.9 Share Purchase Agreement, dated August 31, 1993, and
Amendment Agreement, dated November 3, 1995, between American
Artists and Vivian Walker Jones, with respect to shares of
First Light Entertainment Corporation
10.10 Agreement, dated April ___, 1994, between NBC Entertainment
and Greystone Communications, Inc., as supplemented by letter
agreement dated April 7, 1994, regarding Angels I.
10.11 License Agreement, dated April 13, 1994, between Calling Card
Company, Inc. and American Artists, as supplemented by letter
agreement dated July 28, 1994.
10.12 Letter Agreement, dated May 13, 1994, between Calling Card
Company, Inc. and American Artists.
10.13 Joint Venture Agreement, dated May 20, 1994, between
Greystone Communications, Inc. and American Artists.
10.14 Subscription Agreement, dated June 29, 1994, between American
Artists and First Light Diversity, Inc.
10.15 Agreement, dated July 26, 1994, between NBC Entertainment and
Greystone Communications, Inc., as supplemented by agreement
dated July 26, 1994, regarding Angels II.
10.16 Distribution Agreement, dated July 26, 1994, as revised
October 10, 1994, between Alfred Haber Distribution, Inc. and
American Artists
10.17 Agreement, dated August 3, 1994, between American Artists and
Ballantine Books
10.18 License Agreement, dated as of August 8, 1994, between Time-
Life Video and American Artists
10.19 Promissory Note, dated September 13, 1994, made by John W.
Boyd and Glen C. Warren, to be paid to the order of Deposit
Guaranty National Bank
10.20 Financial Consulting Agreement, dated May 6, 1995, between
Atlantic International Capital, Ltd. and American Artists, as
amended by letter agreement dated May 1, 1996
10.21 American Artists 1995 Stock Option Plan, approved December 1,
1995
10.22 Voting Agreement, dated april 29, 1996, among Rex Hauck,
Steve Brown, Dr. Glen Warren, and Vivian Jones
10.23 License Agreement, dated as of April 30, 1996, between
American Artists and Turner Original Productions, Inc.,
regarding Angels I and Angels II
10.24 Development Agreement, dated June 14, 1996, between American
Artists and Turner Original Productions, Inc.
II-2
<PAGE>
10.25 Articles of Incorporation of Millennium Group, L.L.C.
10.26 Operating Agreement of Millennium Group, L.L.C.
10.27 Articles of Organization of Death and Taxes Film Company,
L.L.C.
10.28 Form of Operating Agreement of Death and Taxes Film Company,
L.L.C.
10.29 Articles of Incorporation of First Light Entertainment
Corporation
10.30 Bylaws of First Light Entertainment Corporation
10.31 Articles of Incorporation of Diversity Film Works, Inc.
10.32 Bylaws of Diversity Film Works, Inc.
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Clark W. Holesinger, Attorney-at-Law
(included in Exhibit 5.1)
ITEM 22. UNDERTAKINGS
(a) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the small business issuer pursuant to
the foregoing provisions, or otherwise, the small business issuer has
been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in
the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
small business issuer of expenses incurred or paid by a director, officer
or controlling person of the small business issuer in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the small business issuer will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of
responding to the request.
(c) The undersigned registrant hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter
within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the
applicable registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information called for by
the other items of the applicable form.
(e) The registrant undertakes that every prospectus: (i) that is
filed pursuant to paragraph (d) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is
used in connection with an offering of securities subject to Rule 145,
will be filed as a part of an amendment to the registration statement and
will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933,
each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
has duly caused this Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned thereunto duly authorized, in the
County of St. Louis, State of Missouri, on the 17 day of July, 1996.
SETAB ALPHA, INC.
By: /s/ Douglas J. Bates
-------------------------------------
Douglas J. Bates
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
--------- ----- ----
/s/ Douglas J. Bates President, Chief Executive Officer July 17, 1996
- -------------------- and Director
Douglas J. Bates (principal executive and financial officer)
/s/ J. Eric Van Atta Vice President and Director July 17, 1996
- --------------------
J. Eric Van Atta
II-4
<PAGE>
EXHIBIT INDEX
Exhibit Number DESCRIPTION PAGE
-------------- ----------- ----
2.1* Agreement and Plan of Merger dated as of May 1, 1996 with
American Artists Film Corporation..............................
3.1* Articles of Incorporation of the Registrant....................
3.2* Amended and Restated Bylaws of the Registrant..................
3.3* Amendment to Articles of Incorporation of the Registrant
adopted May 1, 1996............................................
3.4* Articles of Incorporation of American Artists..................
3.5* Bylaws of American Artists.....................................
4.1* Form of Subscription Agreement.................................
4.2* Escrow Agreement with Allegiant Bank...........................
5.1** Opinion of Clark W. Holesinger, Attorney-at-Law................
10.1* Form of Indemnification Agreement..............................
10.2* Consulting Agreement with Douglas J. Bates.....................
10.3* Consulting Agreement with Alan G. Johnson......................
10.4* Promissory Note with Douglas J. Bates..........................
10.5* Promissory Note with Alan G. Johnson...........................
10.6* Common Stock Investment Agreement, dated February 24, 1992,
and the Agreement dated February 24, 1992, between
American Artists and Icon International, Inc.,
as extended by letter dated August 21, 1995....................
10.7* Asset Purchase Agreement, dated August 1, 1993, between
Current Corporation and First Light Entertainment Corporation..
10.8* Lease Agreement, dated August 5, 1993, between
Kee Joint Venture and Current Corporation, as renewed June 15,
1995 between Kee Joint Venture and First Light Entertainment
Corporation....................................................
10.9* Share Purchase Agreement, dated August 31, 1993, and Amendment
Agreement, dated November 3, 1995, between American Artists and
Vivian Walker Jones, with respect to shares of First Light
Entertainment Corporation......................................
10.10* Agreement, dated April ___, 1994, between NBC Entertainment
and Greystone Communications, Inc., as supplemented by letter
agreement dated April 7, 1994, regarding Angels I..............
10.11* License Agreement, dated April 13, 1994, between Calling Card
Company, Inc. and American Artists, as supplemented by letter
agreement dated July 28, 1994..................................
10.12* Letter Agreement, dated May 13, 1994, between Calling Card
Company, Inc. and American Artists.............................
10.13* Joint Venture Agreement, dated May 20, 1994, between Greystone
Communications, Inc. and American Artists......................
10.14* Subscription Agreement, dated June 29, 1994, between American
Artists and First Light Diversity, Inc.........................
10.15* Agreement, dated July 26, 1994, between NBC Entertainment and
Greystone Communications, Inc., as supplemented by agreement
dated July 26, 1994, regarding Angels II.......................
10.16* Distribution Agreement, dated July 26, 1994, as revised October
10, 1994, between Alfred Haber Distribution, Inc. and American
Artists........................................................
10.17* Agreement, dated August 3, 1994, between American Artists and
Ballantine Books...............................................
10.18* License Agreement, dated as of August 8, 1994, between Time-
Life Video and American Artists................................
E-1
<PAGE>
10.19* Promissory Note, dated September 13, 1994, made by John W. Boyd
and Glen C. Warren, to be paid to the order of Deposit Guaranty
National Bank..................................................
10.20* Financial Consulting Agreement, dated May 6, 1995, between
Atlantic International Capital, Ltd. and American Artists,
as amended by letter agreement dated May 1, 1996...............
10.21* American Artists 1995 Stock Option Plan, approved December 1,
1995...........................................................
10.22* Voting Agreement, dated april 29, 1996, among Rex Hauck, Steve
Brown, Dr. Glen Warren, and Vivian Jones.......................
10.23* License Agreement, dated as of April 30, 1996, between American
Artists and Turner Original Productions, Inc., regarding
Angels I and Angels II.........................................
10.24* Development Agreement, dated June 14, 1996, between American
Artists and Turner Original Productions, Inc...................
10.25* Articles of Incorporation of Millennium Group, L.L.C...........
10.26* Operating Agreement of Millennium Group, L.L.C.................
10.27* Articles of Organization of Death and Taxes Film Company,
L.L.C..........................................................
10.28* Form of Operating Agreement of Death and Taxes Film Company,
L.L.C..........................................................
10.29* Articles of Incorporation of First Light Entertainment
Corporation....................................................
10.30* Bylaws of First Light Entertainment Corporation................
10.31* Articles of Incorporation of Diversity Film Works, Inc.........
10.32* Bylaws of Diversity Film Works, Inc............................
23.1 Consent of BDO Seidman, LLP....................................
23.2* Consent of Clark W. Holesinger, Attorney-at-Law
(included in Exhibit 5.1)......................................
- ----------------------
* Incorporated by reference to the Registrant's Registration Statement
on Form SB-2 (File No. 33-97196C)
** Previously filed
E-2
<PAGE>
Exhibit 23.1(a)
---------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
American Artists Film Corporation
Atlanta, Georgia
We hereby consent to the use in the Registration Statement on Form S-4
of our report dated November 3, 1995, relating to the consolidated financial
statements of American Artists Film Corporation, which is contained in this
Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Registration Statement.
BDO SEIDMAN, LLP
Atlanta, Georgia
July 17, 1996
<PAGE>
Exhibit 23.1(b)
---------------
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Setab Alpha, Inc.
Ballwin, Missouri
We hereby consent to the use in the Registration Statement on Form S-4
of our report dated May 1, 1996, relating to the financial statements of
Setab Alpha, Inc., which is contained in that Registration Statement.
We also consent to the reference to us under the caption "Experts" in
the Registration Statement.
BDO SEIDMAN, LLP
St. Louis, Missouri
July 17, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE PERIOD ENDING APRIL 30, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> JUL-05-1995
<PERIOD-END> APR-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 10,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 14,335
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> (4,335)
<TOTAL-LIABILITY-AND-EQUITY> 0
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 4,335
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (4,335)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,335)
<EPS-PRIMARY> 217
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JULY 31, 1995 AND
FOR THE NINE MONTHS ENDED APRIL 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> JUL-31-1995 JUL-31-1996
<PERIOD-START> AUG-01-1994 AUG-01-1995
<PERIOD-END> JUL-31-1995 APR-30-1996
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<PP&E> 126,135 132,231
<DEPRECIATION> 46,173 62,212
<TOTAL-ASSETS> 1,414,059 1,490,336
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0 0
0 0
<OTHER-SE> 372,483 426,301
<TOTAL-LIABILITY-AND-EQUITY> 1,414,059 1,490,366
<SALES> 3,939,531 1,719,225
<TOTAL-REVENUES> 3,939,531 1,719,225
<CGS> 0 0
<TOTAL-COSTS> 3,934,514 2,531,205
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,810 4,592
<INCOME-PRETAX> (7,793) (816,572)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,793) (816,572)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,793) 816,572
<EPS-PRIMARY> 0 (.14)
<EPS-DILUTED> 0 0
</TABLE>
