<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 21, 1996
Registration No. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
SETAB ALPHA, INC.
(Exact Name of Registrant as Specified in its Charter)
MISSOURI 6770 43-171711
(State or jurisdiction of (Primary Standard Industrial (I.R.S. employer
incorporation or Classification Code Number) identification number)
organization)
-------------------
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. [_]
-------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
===================================================================================================================================
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 B Common Stock, $0.001 par value per share. 6,241,762 Shares $ - $873,563 $301.23(a)
===================================================================================================================================
</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.
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
June __, 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 June __, 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"). Upon
consummation of the Merger, shareholders of American Artists will be entitled to
receive 0.5862 shares of the Class B Common Stock of Setab Alpha for each share
of American Artists common stock held by them. The consummation of the Merger is
subject to several conditions, including the prior completion of Setab Alpha's
currently proposed public offering of shares of its Class A Common Stock. Shares
of the Class B Common Stock are convertible, on a share-for-share basis, into
shares of the Class A Common Stock. The name of the surviving corporation will
be "American Artists Film Corporation."
The Board of Directors believes that the merger is an important step in the
development of American Artists which will provide American Artists with greater
access to sources of capital and provide shareholders of American Artists with
greater investment liquidity. The accompanying proxy statement/prospectus sets
forth important information, including financial data relating to American
Artists and Setab Alpha and describes the terms and conditions of the proposed
merger. THE BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE FAIR TO, AND IN THE BEST
INTERESTS OF, AMERICAN ARTISTS AND ITS SHAREHOLDERS. ACCORDINGLY, THE BOARD OF
DIRECTORS RECOMMENDS THAT ALL SHAREHOLDERS OF AMERICAN ARTISTS VOTE FOR THE
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
Approval of the Merger Agreement requires the affirmative vote of the
holders of a majority of the outstanding shares of American Artists common
stock. As of _______ __, 1996, the executive officers and directors of American
Artists and certain of their affiliates may be deemed to be beneficial owners of
approximately _____% of the outstanding American Artists common stock and each
such person has advised that he, she or it intends to vote in favor of the
merger.
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 JUNE ___, 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 June ___, 1996 at 10:00 a.m., Eastern Daylight Savings 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 Class B Common Stock,
$0.001 par value per share. A copy of the Merger Agreement is attached as Annex
A to the accompanying Proxy Statement/Prospectus.
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 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 and certain of their
affiliates have expressed an intention to vote in favor of the foregoing
proposal.
The consummation of the merger is subject to the fulfillment or waiver of
certain conditions, including the failure of any American Artists shareholder to
perfect any applicable statutory right to dissent from the merger. However, if
the merger is consummated, shareholders dissenting from the merger will be
entitled to receive the "fair value" of their shares in cash, provided that they
have filed a written notice of intent to demand payment for their shares before
the shareholder vote is taken at the Special Meeting, have not voted their
shares in favor of the merger and have complied with the provisions of Section
14-2-1301 et seq. of the Official Code of Georgia Annotated regarding the rights
of dissenting shareholders, as more fully set forth under the caption "RIGHTS OF
DISSENTING SHAREHOLDERS" and in Annex B to the attached 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
June ___, 1996
<PAGE>
PROSPECTUS PROXY STATEMENT
SETAB ALPHA, INC. AMERICAN ARTISTS FILM CORPORATION
6,241,762 SHARES OF CLASS B COMMON STOCK FOR SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD JUNE __, 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 June __, 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 Class B Common Stock, par value $.001 per share (the "Class B
Common Stock"), of the Surviving Corporation 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 (consisting of 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 (consisting of all of the
outstanding shares of Class A Common Stock). 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 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 B Common Stock. In June 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 consummation of the Merger is
conditioned on, among other things, the receipt by Setab Alpha of acceptable
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.
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
June __, 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 June __, 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 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 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
Page
----
AVAILABLE INFORMATION............................................. 2
REPORTS TO SECURITY HOLDERS....................................... 2
SUMMARY........................................................... 4
RISK FACTORS...................................................... 10
THE MERGER AGREEMENT.............................................. 14
CAPITALIZATION OF SETAB ALPHA..................................... 19
SELECTED FINANCIAL INFORMATION.................................... 20
INFORMATION REGARDING SETAB ALPHA, INC............................ 21
INFORMATION REGARDING AMERICAN ARTISTS............................ 25
DESCRIPTION OF CAPITAL STOCK...................................... 37
CERTAIN PROVISIONS OF THE ARTICLES OF
INCORPORATION AND BYLAWS OF SETAB ALPHA......................... 44
RIGHTS OF DISSENTING SHAREHOLDERS................................. 46
SHARES ELIGIBLE FOR FUTURE SALE................................... 47
LEGAL MATTERS..................................................... 47
EXPERTS........................................................... 48
INDEX TO FINANCIAL STATEMENTS..................................... F-1
AGREEMENT AND PLAN OF MERGER...................................... A-1
GEORGIA DISSENTERS' RIGHTS STATUTES............................... B-1
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 (as hereafter
defined) and the Merger Agreement. The Merger Agreement, if consummated,
will result in the transfer of control over Setab Alpha's affairs to the
shareholders of American Artists (the "American Artists Shareholders").
In June 1996, 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 consummation
of the Merger is conditioned on, among other things, the receipt by Setab
Alpha of acceptable 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.
Setab Alpha's executive office is located at 244 B Greenyard Drive,
Ballwin, Missouri 63011, and its telephone number is (314) 394-6349.
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
Surviving Corporation will acquire all of the assets and liabilities of
American Artists, the American Artists Shareholders will become
shareholders of the Surviving Corporation, and the separate existence of
American Artists will cease. Each of the 9,372,837 outstanding shares of
American Artists Common Stock will become 0.5862 share of Class B common
stock, $0.001 par value per share (the "Class B Common Stock"), of the
Surviving Corporation, and outstanding options and warrants to purchase
an aggregate of 3,797,828 shares of
4
<PAGE>
Common Stock of American Artists will become options and warrants to
purchase an aggregate of 2,226,287 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.
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 Common
Stock of the Surviving Corporation (consisting of 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 (consisting of all of the outstanding shares of Class A
Common Stock). 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.
THE SPECIAL MEETING OF SHAREHOLDERS; VOTE REQUIRED
The Special Meeting of Shareholders of American Artists will be held
on June __, 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 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 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 [_____] 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 [___] holders
of record.
As of April 30, 1996, the executive officers and directors of
American Artists beneficially owned, in the aggregate, approximately
7,625,223 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.
5
<PAGE>
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 certain conditions, including the failure of any American
Artists Shareholder to perfect any applicable statutory right to dissent
from the Merger. However, if 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 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."
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 .5862 for 1 reverse stock
split, as the result of which it has outstanding 5,494,357 shares of
Class B Common Stock, 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."
6
<PAGE>
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 or the American
Artists Shareholders who receive 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 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 April 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 _______________, 1996, there
were __________ shares of American Artists Common Stock outstanding and
_____ 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>
SIX MONTHS ENDED YEAR ENDED
AMERICAN ARTISTS JANUARY 31, JULY 31,
----------- --------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pro forma net income (loss) per share (2) $(.07) $.01 $ - $(.09)
Pro forma book value per share at end of period (2) .17 .16
Pro forma cash dividends per share - - - -
</TABLE>
8
<PAGE>
SIX MONTHS YEAR ENDED
PRO FORMA PER SHARE DATA: ENDED JANUARY 31, JULY 31,
----------------- --------
1996 1995 1995 1994
---- ---- ---- ----
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) .15 .14
Per equivalent
American Artists
share (2) .15 .14
Pro forma cash dividends
Per Setab Alpha
share - - - -
Per equivalent
American Artists
share - - - -
- -----------
(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 .5862 for 1 reverse stock split,
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. THE RISK
FACTORS SET FORTH BELOW AND ELSEWHERE IN THIS PROSPECTUS ARE NOT INTENDED
TO BE AN EXHAUSTIVE LIST OF THE GENERAL OR SPECIFIC RISKS INVOLVED, BUT
MERELY TO IDENTIFY CERTAIN RISKS THAT ARE NOW FORESEEN BY SETAB ALPHA.
IT MUST BE RECOGNIZED THAT OTHER RISKS, NOT NOW FORESEEN, MIGHT BECOME
SIGNIFICANT IN THE FUTURE AND THAT THE 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; POSSIBLE ILLIQUIDITY DUE TO LACK OF ACTIVE
TRADING MARKET
Any transfer of res of Class B Common Stock other than to certain
specified persons or 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. 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 B Common Stock received in the Merger or issuable
upon exercise of outstanding options and warrants or issued upon the
conversion of shares of Class B Common Stock into shares of Class A
Common Stock may be sold, transferred or otherwise disposed of without
the prior written consent of the Surviving Corporation. Moreover, 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, it is unlikely that an active
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 B COMMON STOCK OR CLASS A
COMMON STOCK UPON RESALE
The shares of Class B Common Stock offered hereby have not been
registered under the securities laws of any state in reliance on
exemptions therefrom. As a result, such shares of Class B Common Stock
may not be sold, 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 B Common Stock issued in the Merger
to resell such shares at a time or price at which he may wish to do so.
10
<PAGE>
ABSENCE OF SETAB ALPHA OPERATING HISTORY
Setab Alpha was organized in July 1995 and has not conducted any
business activities, other than with respect to organizational matters,
the Public Offering and the proposed Merger. Setab Alpha has no business
history that shareholders of American Artists can analyze to aid them in
making an informed judgment as to the merits of the Merger. As a new
business, Setab Alpha is subject to all of the risks inherent in the
commencement of a new business enterprise with new management, including
unforeseen costs, expenses, problems and risks. There can be no
assurance that any benefits to American Artists arising out of the Merger
will outweigh the risks inherent in a business combination with Setab
Alpha.
CONFLICTS OF INTEREST
Douglas J. Bates, the President, Chief Executive Officer and a
director of Setab Alpha, intends to engage in other business activities
similar and dissimilar to those engaged in by Setab Alpha. To the extent
that Mr. Bates engages in such other activities, he may have conflicts of
interest in diverting opportunities to other companies, entities or
persons with which he is or may be associated or has an interest, rather
than directing such opportunities to the Surviving Corporation. In
addition, the other business activities of Mr. Bates will reduce the time
and energy devoted by him to the Surviving Corporation. No policy has
been established for the resolution of such conflicts and the Surviving
Corporation may be adversely affected if Mr. Bates chooses to place his
other business interests before those of the Surviving Corporation. J.
Eric Van Atta, Vice President and a director of Setab Alpha, is also an
officer of American Artists. Prior to consummation of the Merger, Mr.
Van Atta may therefore have conflicts of interest arising out of his dual
roles as an officer and director of Setab Alpha and as an officer of
American Artists.
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. Following the
Merger, management of AAFC Group anticipates that the Surviving
Corporation as the operator of 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 and operating requirements
in part through the sale of securities. 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
shortage of working capital. To date, AAFC Group has not been able to
obtain financing for production and distribution of a feature film or to
expand its commercial production operations geographically. Management
of AAFC Group believes that full implementation of its business plan will
require substantial additional 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. 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 holders of
the 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.
11
<PAGE>
The inability of the Surviving Corporation to satisfy its funding
requirements 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 57.5% 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 64.2% 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 Class B
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, 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 man" 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 of unreimbursed film production costs in excess of budgeted maximum
amounts 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 Class A Common Stock and would likely be
materially and adversely affected.
12
<PAGE>
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 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.
CAPITALIZED FILM COSTS
A substantial portion of the assets reflected in AAFC Group's
Balance Sheet at January 31, 1996, are intangible. In addition,
capitalized film costs 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 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
13
<PAGE>
others. While AAFC Group relies, and the Surviving Corporation will
rely, on a combination of copyright, trademark and trade secret
protection, nondisclosure agreements and cross licensing arrangements 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 the Surviving Corporation's confidentiality agreements will not be
breached, that the Surviving Corporation will have adequate remedies for
any breach or that disputes will not arise concerning the ownership of
intellectual property or the applicability of confidentiality agreements.
Furthermore, there can be no assurance that the Surviving Corporation's
trade secrets and other intellectual properties will not become known or
be independently developed by competitors or that the Surviving
Corporation will be able to maintain the confidentiality of information
relating to its literary properties.
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 changes 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.
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.
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, Setab Alpha will acquire all the
business, properties, assets and liabilities of American Artists, the
shareholders of American Artists will become shareholders of Setab Alpha,
and the separate existence of American Artists will cease. 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.
14
<PAGE>
BACKGROUND INFORMATION; REASONS FOR THE MERGER
Setab Alpha was formed in July 1995 for the purpose 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, In April 1996 representatives of Setab
Alpha met with representatives of American Artists to discuss the
possibility of a business combination between American Artists and Setab
Alpha. Following further discussions and negotiations over the terms of
the Merger, 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, (iv) the addition of
American Artists' seasoned management team and (v) the preservation of
Setab Alpha's ability to pursue future growth and acquisition
opportunities.
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) 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.
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 9,372,837 shares of
outstanding Common Stock of American Artists will be exchanged for 0.5862
share of Class B Common Stock of Setab Alpha, and the outstanding options
and warrants to purchase an aggregate of 3,797,828 shares of Common Stock
of American Artists will become options and warrants to purchase an
aggregate of 2,226,287 shares of Class B Common Stock of Setab Alpha, 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 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 Setab Alpha, 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 Setab Alpha. See "DESCRIPTION OF CAPITAL STOCK."
15
<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 (100%)
0 Class B ( - %) 0 Class B ( - %)
------- -------
Total of all classes 700,020 (100%) 700,020 (11.3%)
======= =======
Pre-merger Shareholders of 0 Class A ( - %) 0 Class A ( - %)
American Artists 0 Class B ( - %) 5,494,357 Class B (100%)
------- ---------
Total of all classes 0 ( - %) 5,494,357 (88.7%)
======= =========
</TABLE>
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.
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 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 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, including:
(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,
(v) the receipt by Setab Alpha of acceptable 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, and (vi) the failure of any shareholder
of American Artists to perfect any applicable statutory right to dissent from
the Merger.
16
<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 .5862 for 1 reverse stock
split, as the result of which it has outstanding 5,494,357 shares of
Class B Common Stock, 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:
1. The Merger and the issuance of shares of 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 loss will be recognized for Federal income tax purposes by
the holders of American Artists Stock upon the exchange of such
stock solely for Class B Common Stock as a result of the Merger.
3. The aggregate tax basis of the 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 B
Common Stock that are treated as redeemed by Setab Alpha.
4. The holding period of shares of 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.
5. No ruling will be requested 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 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,
17
<PAGE>
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.
18
<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 $ -- $ 106,346
Long-term debt -- -- --
------- ------- -----------
$ 3,791 -- $ 106,346
Total 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,
20,700,00 and 700,020 shares
outstanding -- 700 700
Class B, $.001 par value;
20,000,000 shares authorized,
0, 0 and 5,494,357 shares
outstanding -- -- 5,494
Additional paid-in capital -- 19,300 2,457,480
Deficit (4,335) (4,335) (1,236,946)
------- ------- -----------
Total stockholders' equity (4,335) 15,665 1,226,728
------- ------- -----------
Total capitalization $ ( 544) $15,665 $ 1,383,074
======= ======= ===========
</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."
19
<PAGE>
SELECTED FINANCIAL INFORMATION
The following selected financial information for Setab Alpha and American
Artists is derived from, and should be read in conjunction with, the historical
financial statements and notes thereto, of Setab Alpha and American Artists and
the pro forma financial information regarding the Merger included elsewhere in
this Proxy Statement/Prospectus.
SETAB ALPHA, INC.:
<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) $15,665
Total Assets..................... -- $15,665
Long-term Debt................... -- --
Shareholders' Equity (Deficit)... (4,335) $15,665
</TABLE>
AMERICAN ARTISTS FILM CORPORATION:
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
Six Months Ended Jan. 31 Year ended July 31
------------------------- ------------------
1996 1995 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $1,185,806 $1,849,787 $3,939,531 $2,034,420
Net income (loss) (388,032) 41,639 (7,793) (466,567)
Pro forma net income (loss)
per share/(2)/ (.07) .01 -- (.09)
Pro forma weighted average
common shares and
equivalent shares
outstanding/(2)/ 5,719,797 5,272,222 5,280,653 4,973,186
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
BALANCE SHEET DATA:
January 31, 1996
----------------
Actual Pro Forma/(3)/ July 31, 1995
---------- --------- -------------
<S> <C> <C> <C>
Film costs, net $ 463,361 $ 463,361 $ 415,721
Total assets 1,425,118 1,778,283 1,414,059
Stockholders' equity 873,563 1,226,728 790,894
</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.
(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 .5862 for 1 reverse stock split, 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.
(3) Pro forma for the effect of the consummation of the Merger
Agreement. See Note (2) above and Pro Forma Financial Statements.
INFORMATION REGARDING SETAB ALPHA, INC.
BUSINESS OF SETAB ALPHA
GENERAL
Setab Alpha, Inc. (the "Company") 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 management, no
member of which is a professional business analyst. Management has
employed accountants, attorneys, consultants and advisors in connection
with its investigation of the possible business combination with American
Artists in order to supplement the business experience of management.
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.
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
the
21
<PAGE>
other entity owning or controlling the resulting the business. Therefore,
a write-up in the carrying value of the assets of either company will not
be permitted.
NOT AN INVESTMENT COMPANY OR INVESTMENT ADVISOR
Setab Alpha does not intend to engage in the business of investing
in securities or to operate in any manner that would require it to
register as an "investment company" under the Investment Company Act of
1940 (the "Investment Company Act"). Rule 3a-2 under the Investment
Company Act provides that an issuer such as Setab Alpha will be deemed
not to be engaged in the business of investing in securities if, during a
period of time not to exceed one year, the issuer has a bona fide
intention to be engaged primarily, as soon as is reasonably possible, in
a business other than investing in securities and such intent is
evidenced by an appropriate resolution of the issuer's board of
directors. Setab Alpha's Board of Directors has adopted such a
resolution. Setab Alpha believes that it will be exempt from
registration under the Investment Company Act so long as it does not
engage primarily in the business of investing, reinvesting and trading in
securities and it maintains its funds primarily in cash items.
Setab Alpha will not furnish or distribute advise, counsel,
publications, writings, analysis or reports to anyone related to the
purchase or sale of any securities (within the language, meaning and
intent of the Investment Advisers Act of 1940) and will not register as
an investment adviser.
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.
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.
22
<PAGE>
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, the Merger Agreement and the Public Offering. 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, the Merger Agreement and the Public
Offering. At April 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
April 30, 1996), and are payable on the date on which a business
combination involving Setab Alpha is effected. At April 30, 1996, the
aggregate amount of such advances (together with accrued interest
thereon) was $3,835.
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>
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 consists of two members, 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. Setab Alpha's officers serve at the discretion of the Board of
Directors, subject to any effective
23
<PAGE>
contractual arrangements. Following the Merger the Board of Directors of
the Surviving Corporation will consist of such number of members between
three and 15 as shall be determined from time to time by the Board of
Directors. [It is currently anticipated that immediately 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."
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, at a purchase price of $.01 per share.
At April 30, 1996, Setab Alpha was indebted to Messrs. Bates and
Johnson in the aggregate principal amount of $1,735.31 and $2,055.33,
respectively. Such amount was advanced to Setab Alpha and the
investigation of and negotiations with American Artists for the purpose
of funding disbursements relating to the organization of Setab Alpha. 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 and the preparation and
filing of the SB-2 Registration Statement.
24
<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 April 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 April 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 OF 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 B Common Stock upon the effectiveness of the
Merger.
INFORMATION REGARDING AMERICAN ARTISTS
BUSINESS OF AMERICAN ARTISTS
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.
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 "AAFC
GROUP --Related Transactions."
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 one once. The network is
entitled to one additional broadcast of the second program prior to
November 1, 1996; thereafter NBC has no further rights to the properties.
AAFC Group and Greystone have received expressions of interest from
several domestic cable television networks for future cable broadcasting
of the Angels programs in the United States, but there can be no
assurance as to the financial terms which might be achieved through
negotiations.
AAFC Group also entered an 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 provided non-refundable advance royalties, which were also shared
among NBC, American Artists and the investors and Greystone of $100,000.
Another short treatment of the Angels theme, developed and produced
for CCC at a cost to AAFC Group of approximately $30,000, is not expected
to result in full recovery of costs.
AAFC Group also developed a book entitled Angels: The Mysterious
Messengers, written 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 broadcast 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
26
<PAGE>
proceeding in Los Angeles, California. While it is unable to predict the
results of the arbitration proceedings management believes that any
recovery by Greystone would not exceed $100,000. No provision has been
made in AAFC Group's consolidated financial statements in respect of the
proceedings. See Note 6 of Notes to AAFC Group's Consolidated Financial
Statements.
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
March 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.
Millennium. 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.
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. One cable network has made a
written offer for pre-production of an initial one-hour program on an
aspect of the millennium subject, but there can be no assurance that a
mutually satisfactory agreement will be reached.
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.
27
<PAGE>
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.
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 six months of
fiscal 1996 (to 36 commercials and $1,164,000), 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.
28
<PAGE>
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. Setab Alpha 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.
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 in exchange 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
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<PAGE>
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 agreements obtained and completed in any particular period, and the
profitability of the individual agreements.
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.
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 (including a $250,000 minimum guaranteed royalty)
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. 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.
30
<PAGE>
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 and legal fees related to the arbitration with
Greystone (See "AAFC Group - American Artists - 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.
SIX MONTHS ENDED JANUARY 31, 1996 COMPARED TO SIX MONTHS ENDED
JANUARY 31, 1995
Revenues for the first six months of the year to end July 31, 1996
("fiscal 1996") were $1,185,806, which represented a $663,981 or 35.9%
decline from revenues of $1,849,787 for the six months ended January 31,
1995. A decline in American Artists' film revenues, from $580,811 for
the six months ended January 31,1995 to $22,012 for the first half of
fiscal 1996, was the principal cause for 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 $105,182 or 8.3%
from the six months ended January 31, 1995 to the first half of fiscal
1996, due to a decline in the volume of agreements obtained. However,
based on the volume of story boards presently being submitted for bids or
cost estimates, the management of AAFC Group anticipates an increase in
commercial production revenues during the balance of fiscal 1996.
Film cost amortization was $8,077 for the first half of fiscal 1996,
compared to $420,506 for the six months ended January 31, 1995. The
decline was due to the decline in film revenues. Commercial production
costs, as a percentage of related revenues, were 83.3% for the six months
ended January 31, 1996 as compared to 83.2% for the first half of fiscal
1995. The percentage for the first half of fiscal 1996 was higher than
that for the full fiscal 1995 year (78.5%) due principally to the decline
in revenues.
Selling, general and administrative expenses increased $268,645 to
$592,771 for the six months ended January 31, 1996 from $324,126 for the
first half of fiscal 1995. SG&A increased as the result of the addition
of finance and marketing executives, expenses related to the Merger, and
additional legal fees relating to the arbitration with Greystone.
Interest expense declined from $7,125 in the first half of fiscal
1995 to $4,088 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 and the increase in SG&A expenses), AAFC Group incurred a
net loss of $388,032 for the first half of fiscal 1996, compared to net
income of $41,639 for the six months ended January 31, 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,
31
<PAGE>
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 a negative $87,308 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 negative 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 six months ended January 31, 1996, operating cash flows were
a negative $601,423, again due to a shortfall in the coverage of SG&A by
commercial production profits. Such shortfalls will to cause AAFC
Group's liquidity to be constrained until commercial production revenues,
and the resulting profits, increase. During the first half of fiscal
1996 AAFC Group again financed this shortfall principally by issuing
equity securities. 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. The inability to obtain such
equity or debt financing as needed could cause AAFC Group to have to
reduce the scope of its operations.
For additional information concerning the plans of AAFC Group with
respect to pending projects, see "AAFC GROUP"
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.
32
<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) in 1993 to purchase certain assets of
Jayan House, Ltd., another commercial production company, where she had
been employed as General Manager and Executive Producer since 1990. She
heads AAFC Group's commercial production operations in addition to other
managerial duties. 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
34
<PAGE>
water purification equipment, Consolidated Technologies Corp., a
diversified manufacturing company, Concept Technologies Group, Inc.,
which 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.
Mr. Van Atta at the same time 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 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 AAFC Group opened a $100,000 single pay revolving bank
line of credit with Deposit Guaranty National Bank, Jackson, Mississippi,
personally guaranteed by Dr. Glen Warren and Dr. John Boyd. Repayment of
borrowings under the line of credit is AAFC Group's responsibility. At
March 31, 1996, the principal balance was $46,100 and the credit was
being repaid in monthly installments. The line of credit has been
utilized to support production activities and working capital
requirements of AAFC Group.
35
<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. 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
ANNUAL COMPENSATION
-------------------
OTHER
NAME AND ANNUAL
PRINCIPAL POSITION SALARY BONUS COMPENSATION
------------------ ------ ----- ------------
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
DIRECTOR COMPENSATION
Currently, members of the Board of Directors are not compensated for
their services as directors.
36
<PAGE>
STOCK OWNERSHIP
The following table shows beneficial ownership of capital stock of
American Artists at April 30, 1996, 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 COMMON STOCK
NAME(1) BENEFICIALLY OWNED PRIOR BENEFICIALLY OWNED AFTER
-------- TO THE MERGER COMPLETION OF THE MERGER(2)
------------------------ ---------------------------
Number % Number %
------ --- ------ ---
<S> <C> <C> <C> <C>
Steven D. Brown 2,143,000 22.8% 1,256,227 20.3%
Rex Hauck 2,237,000 23.8% 1,311,329 21.2%
Vivian W. Jones 1,750,000(3) 16.9% 1,025,850(2) 15.1%
John W. Boyd 584,000 6.2% 342,341 5.5%
Dr. Glen W. Warren 526,134 5.6% 308,420 5.0%
Ron L. Loveless 86,265 0.9% 50,569 0.8%
V. Robert Colton 10,000 0.1% 5,862 0.1%
Malcolm C. Davenport, V 223,824(4) 2.4% 131,206(3) 2.1%
Norman J. Hoskin - - - -
Dr. Dan Holloway - - - -
All Officers and Directors
as a Group (12 persons) 7,625,223 73.5% 4,469,907 65.9%
</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 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
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<PAGE>
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
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.
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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 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
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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.
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 the Georgia Business Corporation Code ("GBCC") and
the Articles of Incorporation and Bylaws of American Artists. The
following summary sets forth certain material differences between the
rights of American Artists shareholders and Setab Alpha shareholders.
This summary does not purport to be a complete description of the
differences of the rights of such shareholders, or to give full effect to
the provisions of statutory or common law, and is subject to, and
qualified in its entirety by reference to, the Missouri Law and the GBCC.
The identification of specific differences is not intended to indicate
that other equally or more significant differences do not exist.
RIGHTS OF SETAB ALPHA 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 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.
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Pursuant to the Merger Agreement, none of the shares of 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 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.
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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 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
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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 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.
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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.
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.
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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.
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.
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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 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
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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
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'
47
<PAGE>
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 700,020 shares of Class A
Common Stock and 5,494,357 shares of Class B Common Stock, 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. In addition, holders of outstanding options and warrants
will have the right to purchase an aggregate of 2,226,287 shares of Class
B Common Stock. Of such shares, 20 shares of Class A Common Stock are
"restricted" shares with 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 B Common Stock received in
the Merger or issued upon exercise of outstanding options and warrants
may be converted into shares of Class A Common Stock or sold, transferred
or otherwise disposed of without the prior written consent of Setab
Alpha.
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 AAFC Group 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.
48
<PAGE>
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' equity 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-26
Pro forma consolidated balance sheet F-28
</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>
SETAB ALPHA, INC.
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
April 30, 1996
<TABLE>
<CAPTION>
ASSETS
CURRENT
<S> <C>
Cash $ 0.20
----------
$ 0.20
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT
Accounts payable $ 500.00
Accrued interest 43.89
Note payable - related party (Note 2) 3,790.64
----------
TOTAL LIABILITIES 4,334.53
----------
COMMITMENTS (Note 3)
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par - shares authorized, 30,000,000;
issued and outstanding, 20 0.02
Additional paid-in capital 0.18
Deficit accumulated during the development stage (4,334.53)
----------
TOTAL STOCKHOLDERS' DEFICIT (4,334.33)
----------
$ 0.20
==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-3
<PAGE>
SETAB ALPHA, INC.
(A DEVELOPMENT STAGE COMPANY)
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 equity
------ ------ ------- ----- ------
<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>
<CAPTION>
OPERATING ACTIVITIES
<S> <C>
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 (Note 2) 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>
SETAB ALPHA, INC.
(A DEVELOPMENT STAGE COMPANY)
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 has commenced negotiations with a
company engaged in the independent production of feature
films, television/cable programming and commercials with
respect to the possible combination of the two companies'
businesses. If an agreement is reached, the contemplated
transaction will likely result in the issuance of a
substantial number of previously authorized but unissued
shares of common stock and a change in control of the
Company. Since the planned principal operations have not
com-menced, the Company is considered to be a development
stage company, as defined in 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 December 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>
SETAB ALPHA, INC.
(A DEVELOPMENT STAGE COMPANY)
Summary of Accounting Policies
1. PROPOSED PUBLIC The Company intends to offer for public sale
700,000 shares of its common stock at an offering
price OFFERING 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. Substantially 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 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 In July 1995, the Company was incorporated in the
TRANSACTIONS 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
stockeach, at a purchase price of $.01 per share.
At April 30, 1996, the Company was indebted to
Messrs. Bates and Johnson in the aggregate
principal mounts 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
and the preparation and filing of the Registration
Statement.
F-8
<PAGE>
Setab Alpha, Inc.
(A Development Stage Company)
Notes to Financial Statements
3. COMMITMENTS The Company has entered into separate consulting
agreements with its two stockholders (Note 2).
Under the terms of the consulting agreements, the
amounts due will be payable on the date that the
Securities and Exchange Commission declares the
Company's Registration Statement effective under
the Securities Act of 1933. Accordingly, no amounts
related to these consulting agreements have been
recorded as of April 30, 1996.
F-9
<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-10
<PAGE>
American Artists Film Corporation
and Subsidiaries
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JANUARY 31, July 31,
----------------------
1996 1995 1994
---------- ----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
ASSETS
CASH $ 13,724 $ 125,115 $ 154,670
ACCOUNTS RECEIVABLE 248,174 201,658 335,300
FILM COSTS, NET OF ACCUMULATED AMORTIZATION (Note 1) 463,361 415,721 277,215
PROPERTY AND EQUIPMENT, NET (Notes 1, 2 and 3) 78,601 78,962 87,111
GOODWILL, NET OF ACCUMULATED AMORTIZATION (Note 2) 176,143 195,714 234,857
DEFERRED OFFERING COSTS 105,000 105,000 -
OTHER (Note 1) 340,115 291,889 201,046
---------- ---------- ----------
$1,425,118 $1,414,059 $1,290,199
========== ========== ==========
</TABLE>
See accompanying summary of accounting policies and notes to financial
statements.
F-11
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
<TABLE>
<CAPTION>
JANUARY 31, July 31,
-----------------------
1996 1995 1994
----------- ----------
(UNAUDITED)
-----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 309,900 $ 284,073 $ 351,110
Accrued expenses 85,309 110,140 49,460
Film revenue participations - 41,910 37,798
Deferred revenue - 56,303 -
Notes payable (Notes 2 and 3) 106,346 130,739 204,394
----------- ---------- ----------
TOTAL LIABILITIES 501,555 623,165 642,762
----------- ---------- ----------
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, 8,921,513,
8,368,220 and 8,092,720 issued and outstanding 446,076 418,411 404,636
Additional paid-in capital 1,664,433 1,221,397 1,083,922
Accumulated deficit (1,236,946) (848,914) (841,121)
----------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY 873,563 790,894 647,437
----------- ---------- ----------
$ 1,425,118 $1,414,059 $1,290,199
=========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31, Year ended July 31,
---------------------- -----------------------
1996 1995 1995 1994
---------- ----------
(UNAUDITED) (unaudited)
----------- ----------
<S> <C> <C> <C> <C>
REVENUES
Commercial production $1,163,794 $1,268,976 $3,057,200 $1,660,469
Film revenues (Note 1) 22,012 580,811 882,331 373,951
---------- ---------- ---------- ----------
1,185,806 1,849,787 3,939,531 2,034,420
---------- ---------- ---------- ----------
COSTS AND EXPENSES
Cost of commercial production 968,902 1,056,391 2,398,665 1,503,640
Film cost amortization 8,077 420,506 639,236 220,486
Selling, general and administrative 592,771 324,126 896,613 765,357
---------- ---------- ---------- ----------
1,569,750 1,801,023 3,934,514 2,489,483
---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPERATIONS (383,944) 48,764 5,017 (455,063)
Interest expense 4,088 7,125 12,810 11,504
---------- ---------- ---------- ----------
NET INCOME (LOSS) $ (388,032) $ 41,639 $ (7,793) $ (466,567)
========== ========== ========== ==========
PRO FORMA NET INCOME (LOSS)
PER SHARE (NOTE 1) $ (.07) $ .01 $ - $ (.09)
========== ========== ========== ==========
PRO FORMA WEIGHTED AVERAGE COMMON
SHARES AND EQUIVALENT SHARES
OUTSTANDING (NOTE 1) 5,719,797 5,272,222 5,280,653 4,973,116
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
<PAGE>
American Artists Film Corporation
and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
<CAPTION>
Common Stock Additional 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) 553,293 27,665 443,036 - 470,701
Net loss (unaudited) - - - (388,032) (388,032)
--------- -------- ---------- ----------- ---------
BALANCE, January 31, 1996 (unaudited) 8,921,513 $446,076 $1,664,433 $(1,236,946) $ 873,563
========= ======== ========== =========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-14
<PAGE>
AMERICAN ARTISTS FILM CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
January 31, Year ended July 31,
---------------------- -----------------------
1996 1995 1995 1994
(UNAUDITED) (unaudited)
---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $(388,032) $ 41,639 $ (7,793) $(466,567)
Adjustments to reconcile net
income (loss) to cash used in
operating activities:
Film cost amortization 8,077 420,506 575,980 220,486
Depreciation and amortization 26,208 32,666 67,134 57,325
Changes in assets and liabilities
Accounts receivable (46,516) (49,649) 133,642 (253,071)
Film costs additions (55,717) (568,346) (714,486) (405,729)
Other assets (48,226) (390,488) (90,843) 30,796
Accounts payable 25,827 138,596 (172,037) 319,352
Accrued expenses (24,831) (61,790) 60,680 33,864
Film revenue participations (41,910) - 4,112 37,798
Deferred revenues (56,303) 392,960 56,303 -
--------- --------- --------- ---------
Cash used in operating activities (601,423) (43,906) (87,308) (425,746)
INVESTING ACTIVITY
Capital expenditures (6,276) (13,163) (19,842) (5,293)
--------- --------- --------- ---------
FINANCING ACTIVITIES
(Repayment) proceeds of
notes payable (24,393) (25,731) (73,655) 69,394
Issuances of common stock 470,701 101,750 151,250 500,000
Minority interest 50,000 - - -
--------- --------- --------- ---------
Cash provided by financing activities 496,308 76,019 77,595 569,394
--------- --------- --------- ---------
NET (DECREASE) INCREASE IN CASH (111,391) 18,950 (29,555) 138,355
CASH, beginning of period 125,115 154,670 154,670 16,315
--------- --------- --------- ---------
CASH, end of period $ 13,724 $ 173,620 $ 125,115 $ 154,670
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-15
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 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
consolidates the accounts of Diversity because it
has historically funded Diversity's capital
requirements. Diversity has had net losses 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. Millennium was
formed to produce and distribute a sixty minute
video. American 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 January 31, 1996, Millennium's activities have
been limited to organization and pre-production
story development. The minority interest at January
F-16
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
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 January 31, 1996 and
for the six months ended January 31, 1996 and 1995
are unaudited, but, in the opinion of management,
contain all adjustments 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 six 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
other costs which benefit future periods, are
capitalized as film costs when 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.
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
F-17
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
The components of capitalized film costs were as
follows:
<TABLE>
<CAPTION>
JANUARY 31, July 31,
---------------------
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 123,157 71,508 37,059
In development 256,230 252,162 213,778
--------- --------- ---------
$ 463,361 $ 415,721 $ 277,215
========= ========= =========
</TABLE>
The above amounts do not include any value for four
developed scripts contributed to AAFC Group in 1991
by its founding stockholders in exchange for common
stock. In accordance with generally accepted
accounting principles, the scripts were recorded at
zero, representing 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.
Film revenues are recognized, in accordance with
SFAS No. 53, generally when the film is exhibited
or is available for distribution in the applicable
market. Minimum guaranteed amounts from video
license agreements are recognized when the
applicable license period begins and the film 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>
January 31, July 31,
------------------ -----------------
1996 1995 1995 1994
------- --------- -------- --------
<S> <C> <C> <C>
Television $ - $296,214 $451,250 $359,320
Book royalties - 197,475 297,491 -
Foreign video 22,012 52,273 75,064 -
Domestic video - 34,849 58,526 14,631
------- -------- -------- --------
</TABLE>
F-18
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
$22,012 $580,811 $ 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.
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>
July 31,
Useful JANUARY 31, --------------------------
Lives 1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C> <C>
Office furniture
and fixtures 5-7 $ 88,333 $ 82,057 $ 68,176
Leasehold
improvements 4 35,580 35,580 35,580
Production
equipment 5-7 7,498 7,498 1,537
-------- -------- --------
131,411 125,135 105,293
-------- -------- --------
Less accumulated
depreciation
and amortization 52,810 46,173 18,182
-------- -------- --------
$ 78,601 $ 78,962 $ 87,111
======== ======== ========
</TABLE>
F-19
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
OTHER ASSETS
Other assets were as follows:
<TABLE>
<CAPTION>
July 31,
JANUARY 31, ---------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Unearned
compensation $204,404 $156,178 $ 78,428
Advertising credits 122,618 122,618 122,618
Other 13,093 13,093 -
-------- -------- --------
$340,115 $291,889 $201,046
======== ======== ========
</TABLE>
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.
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 AAFC Group issued in exchange for
the credits.
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>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
PRO FORMA EARNINGS PER SHARE
As described elsewhere in this Prospectus, AAFC Group and Setab
Alpha, Inc. ("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
5,494,357 shares of Setab Alpha Class B common stock. The
Merger Plan will be accounted for as a recapitalization of
American Artists, as a result of which American Artists will be
deemed to have effected a .5862 for 1 reverse stock split. Pro
forma earnings (loss) per share, computed to reflect the effect
of such a reverse stock split 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.
F-21
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
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 trademark. The acquisition was
accounted for as a purchase; accordingly, the purchase price,
with the common stock issued recorded at $.50 per share,
representing a discount from fair market value 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 trade name,
and contracts in progress), with the remainder allocated to
goodwill. The resulting goodwill of $274,000 is being
amortized on a straight line basis over seven years.
Accumulated amortization was $97,857, $78,286 and $39,143 at
January 31, 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 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 Six Months Ended
January 31, 1996 and 1995 is Unaudited)
3. NOTES PAYABLE Notes payable consisted of the following:
<TABLE>
<CAPTION>
July 31,
JANUARY 31, ------------------
1996 1995 1994
----------- ---- ----
(unaudited)
<C> <S> <C> <C> <C>
Unsecured installment
note payable to bank
interest at 1% above
the prime rate (8.25
at January 31, 1996)
due in monthly
installments through
March 1997 $ 48,670 $ 68,153 $ 98,045
Secured installment
note, collateralized
by property, equipment
and trademark of First
Light, due with
interest at 4.37% per
annum in quarterly
installments through
July 1998 57,676 62,586 86,349
Other - - 20,000
-------- -------- --------
$106,346 $130,739 $204,394
======== ======== ========
</TABLE>
Aggregate maturities of notes payable at July 31,
1995 are as follows:
<TABLE>
<CAPTION>
Amount
------
<S> <C>
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 Six Months Ended
January 31, 1996 and 1995 is Unaudited)
4. STOCKHOLDERS' (a) AAFC Group adopted a stock option plan in 1991
EQUITY 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 January
31, 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
1.50 319,750 - 2005
</TABLE>
F-24
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
(b) During fiscal 1995 and the six months ended
January 31, 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
six months ended January 31, 1996, AAFC issued 15.7
additional such units, as well as 3.1 units, for
$25,000 per unit, comprised of 25,000 shares of
common stock and 12,500 common stock purchase
warrants. Subsequent the January 31, 1996 AAFC
received additional proceeds of $442,500 for the
issuance of 17.7 additional such units. The
resulting changes in outstanding warrants during
the years ended July 31, 1994 and 1995 and the six
months ended January 31, 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 269,634
Exercised -
Forfeited -
-------
Outstanding, January 31, 1996 (unaudited) 299,046
-------
</TABLE>
(c) Warrants outstanding at January 31, 1996 are as
follows:
F-25
<PAGE>
American Artists Film Corporation
and Subsidiaries
Notes to Consolidated Financial Statements
(Information as to the Six Months Ended
January 31, 1996 and 1995 is Unaudited)
<TABLE>
<CAPTION>
Exercise Warrants Exercisable
Price Outstanding Through
----- ----------- -------
<S> <C> <C>
$1.50-$2.00 299,046 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 Six Months Ended
January 31, 1996 and 1995 is Unaudited)
7. SEGMENT INFORMATION Financial information by business segment is as
follows:
<TABLE>
<CAPTION>
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
</TABLE>
8. SUPPLEMENTAL CASH
FLOW INFORMATION 1995 1994
---- ----
Cash paid for interest $10,009 $6,462
Cash paid for income taxes 2,498 -
(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.
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 5,494,357 shares of the
Company's Class B common stocks.
The accompanying unaudited pro forma consolidated balance sheet
is presented to illustrate the effect of the proposed Merger
Plan on the Company's financial position. The Merger Plan 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)
effected a .5862 for 1 revenue stock split, as the result of
which it has outstanding, 5,494,357 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 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
January 31, April 30, Pro forma
1996 1996 Adjustments Pro forma
------------- ----------- ---------------- -----------
<S> <C> <C> <C> <C>
ASSETS
Cash $ 13,724 $ - $ 442,500 [A] $ 471,889
15,665 [C]
Accounts receivable 248,174 - 248,174
Film assets, net of
accumulated amortization 463,361 - 463,361
Property and equipment, net 78,601 - 78,601
Goodwill, net of accumulated
amortization 176,143 - 176,143
Deferred offering cost 105,000 - (105,000) [E] -
Other 340,115 - 340,115
----------- ------ --------- -----------
$ 1,425,118 - $ 353,165 $ 1,778,283
=========== ====== ========= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accounts payable $ 309,900 $ 500 $ (500) [C] $ 309,900
Accrued expenses 85,309 44 (44) [C) 85,309
Film revenue participation - - -
Deferred revenue - - - -
Notes payable 106,346 3,791 (3,791) [C] 106,346
----------- ------ -----------
Total liabilities 501,555 4,335 501,555
MINORITY INTEREST 50,000 50,000
STOCKHOLDERS' EQUITY
Preferred stock - - -
American Artists common stock 446,076 - 22,125 [A] -
(468,201) [B]
Class A common stock - - 700 [D] 700
Class B common stock - 5,494 [B] 5,494
Additional paid-in capital 1,664,433 - 420,375 [A] 2,457,480
462,707 [B]
14,965 [D]
(105,000) [E]
Deficit (1,236,946) - - (1,236,946)
</TABLE>
F-29
<PAGE>
Setab Alpha/American Artists Film Corporation
Pro Forma Consolidated Balance Sheet
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Net cost of Setab Alpha - (4,335) 20,000 (C) -
(15,665) (D)
---------- ------- -------- ----------
Total stockholders' equity 873,563 - 357,500 1,226,728
---------- ------- -------- ----------
$1,425,118 $ - $353,165 $1,778,283
========== ======= ======== ==========
</TABLE>
See notes to pro forma consolidated balance sheet.
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 January 31, 1996 of $442,500
from the issuance of 442,500 shares of
common stock and 221,250 common stock
purchase warrants.
(B) To reflect American Artists' deemed .5862
for 1 reverse stock split and change in par
value, as a result of which American
Artists' capitalization is comprised of
5,494,357 outstanding shares of Class B
common stock, par values $.001 per share.
(C) To reflect Setab Alpha's receipt of the net
proceeds of the offering.
(D) To record the Merger Plan, 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
A-1
<PAGE>
account, as well as for 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
A-2
<PAGE>
be converted into 0.5862 share of Class B Common Stock of the Surviving
Corporation, 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 shares of Class B Common Stock of the Surviving Corporation
required for such purpose shall be drawn from authorized but unissued
shares of Class B Common Stock 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 a
certificate or certificates representing the number of shares of 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 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 of Class B Common
Stock of the Surviving Corporation pursuant to Section 2.1 hereof, upon
surrender to the Surviving Corporation of the certificate representing such
share.
2.4 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
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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 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 B Common Stock of the Surviving Corporation
issued by reason of conversion of shares of Common Stock of Film in the Merger,
or issued upon exercise of options or warrants of the Surviving Corporation, may
be sold, transferred or assigned by the holder thereof within 365 days after the
Effective Time, and none of the shares of Class A Common Stock of the Surviving
Corporation which may be issued following the Effective Time upon conversion of
any such shares of Class B Common Stock may be sold, transferred or assigned by
the holder thereof within 365 days after the Effective Time, in each such case
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 B Common Stock, or options or warrants issued with
respect to Class B Common Stock, 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.
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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 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 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. 1 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.
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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 9,372,837 shares are
validly issued and outstanding, fully paid and non-assessable and 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 January 31, 1996, and for the six 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.
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<PAGE>
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 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) 40,000,000 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 date of the Merger 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,
A-7
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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.
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 effective
date of the Merger:
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 effective
date of the merger:
7.1 The Merger shall have obtained the requisite approval of holders of
capital stock of Film.
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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.
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 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 July 15, 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.
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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
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.
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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.
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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<PAGE>
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
B-2
<PAGE>
(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:
B-3
<PAGE>
(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 April 30, 1996
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
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Clark W. Holesinger, Attorney-at-Law (included in
Exhibit 5.1)
27.1 Setab Alpha, Inc. Financial Data Schedules
27.2 American Artists Film Corporation Financial Data Schedules
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.
II-2
<PAGE>
(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
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and has authorized this Amendment to
Registration Statement to be signed on its behalf by the undersigned, in the
County of St. Louis, State of Missouri, on the 20th day of May, 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 May 20, 1996
- -------------------------- and Director
Douglas J. Bates (principal executive and financial
officer)
/s/ J. Eric Van Atta Vice President and Director May 20, 1996
- ---------------------------
J. Eric Van Atta
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION PAGE
- -------------- ----------- ----
<S> <C> <C>
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................................
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........................................................................
23.1 Consent of BDO Seidman, LLP.................................................................................
23.2 Consent of Clark W. Holesinger, Attorney-at-Law (included in Exhibit 5.1)...................................
27.1 Setab Alpha, Inc. Financial Data Schedule...................................................................
27.2 American Artists Film Corporation Financial Data Schedule...................................................
- ----------------------
</TABLE>
* Incorporated by reference to the Registrant's Registration Statement on Form
SB-2 (File No. 33-97196C)
E-1
<PAGE>
Exhibit 5.1
-----------
CLARK W. HOLESINGER
Attorney at Law
6195 Central Ave.
Portage, IN 46368
Telephone # (219) 763-7246 Facsimile # (219) 762-7525
May 20, 1996
Setab Alpha, Inc.
244 Greenyard Drive, Suite B
Ballwin, Missouri 63011
Re: Registration Statement on Form S-4
----------------------------------
Gentlemen:
I have acted as special counsel for Setab Alpha, Inc., a Missouri
corporation ( the "Company"), in connection with various legal matters related
to the filing of a Registration Statement on Form S-4 (the "Registration
Statement") under the Securities Act of 1933, as amended, relating to an
aggregate of 6,241,762 shares of (i) Class B common stock, $0.001 par value per
share, of the Company (the "Class B Common Stock") issuable in connection with
the merger of American Artists Film Corporation with and into the Company, and
(ii) Class A common stock, $0.001 par value per share, of the Company (the
"Class A Common Stock") issuable upon conversion of the Class B Common Stock.
I have examined such corporate records of the Company, such laws and such
other information as I have deemed relevant, including the Company's Articles of
Incorporation (as amended), Amended and Restated ByLaws, resolutions adopted by
the Board of Directors of the Company relating to such offering and certificates
received from state officials and from officers of the Company. In delivering
this opinion, I have assumed the genuineness of all signatures, the authenticity
of all documents submitted to me as originals, the conformity to the originals
of all documents submitted to me as certified, photostatic or conformed copies
and the correctness of statements submitted to me by officers of the Company.
Based solely on the foregoing, the undersigned is of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Missouri.
2. The Class B Common Stock being issued by the Company, if issued in the
manner described in the Registration Statement, will be validly issued and
outstanding and will be fully paid and non-assessable.
3. The Class A Common Stock subject to issuance by the Company, if issued
pursuant to the conversion of the Class B Common Stock, will be validly issued
and outstanding and will be fully paid and non-assessable.
I consent to the filing of this opinion as an exhibit to the Registration
Statement and to the use of my name in the Registration Statement. I also
consent to your filing of copies of this opinion as an exhibit to the
Registration Statement with agencies of such states as you deem necessary in the
course of complying with the laws of such states regarding the issuance of the
Class A and Class B Common Stock.
Very truly yours,
/s/ Clark W. Holesinger
Clark W. Holesinger
<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
May 20, 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
May 20, 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>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> APR-30-1996
<PERIOD-START> JUL-05-1995
<PERIOD-END> APR-30-1996
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 4,335
<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 six months ended January 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 6-MOS
<FISCAL-YEAR-END> JUL-31-1995 JUL-31-1996
<PERIOD-START> AUG-01-1994 AUG-01-1995
<PERIOD-END> JUL-31-1995 JAN-31-1996
<EXCHANGE-RATE> .1 .1
<CASH> 125,115 13,724
<SECURITIES> 0 0
<RECEIVABLES> 201,658 248,174
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 126,135 131,411
<DEPRECIATION> 46,173 52,810
<TOTAL-ASSETS> 1,414,059 1,425,118
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
<COMMON> 418,411 446,076
0 0
0 0
<OTHER-SE> 372,483 427,487
<TOTAL-LIABILITY-AND-EQUITY> 1,414,059 1,425,118
<SALES> 3,939,531 1,185,806
<TOTAL-REVENUES> 3,939,531 1,185,806
<CGS> 0 0
<TOTAL-COSTS> 3,934,514 1,569,750
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 12,810 4,088
<INCOME-PRETAX> (7,793) (388,032)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (7,793) (388,032)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (7,793) (388,032)
<EPS-PRIMARY> 0 (.07)
<EPS-DILUTED> 0 0
</TABLE>
