As filed with the Securities and Exchange Commission on December 10, 2001.
Registration No. 333-55088
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------
AMENDMENT NO. 4
TO
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
HARP & EAGLE, LTD.
(Name of small business issuer in its charter)
------------------
WISCONSIN 7011 39-1980178
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
1234 NORTH ASTOR STREET
MILWAUKEE, WISCONSIN 53202 1234 NORTH ASTOR STREET
(414) 272-5273 - FAX (414) 290-6300 MILWAUKEE, WISCONSIN 53202
(Address and telephone number of principal executive offices) (Address of principal place of business)
CARY JAMES O'DWANNY
HARP & EAGLE, LTD.
1234 NORTH ASTOR STREET
MILWAUKEE, WISCONSIN 53202
(414) 272-5273 - FAX (414) 290-6300
(Name, address and telephone number of agent for service)
Copies of communications to:
ROBERT J. PHILIPP, ESQ. KEVIN B. DUNNE, ESQ.
KRANITZ & PHILIPP KEVIN B. DUNNE LAW OFFICE
2230 EAST BRADFORD AVENUE 823 NORTH CASS STREET
MILWAUKEE, WISCONSIN 53211 MILWAUKEE, WISCONSIN 53202
(414) 332-2118 - FAX (414) 332-4480 (414) 276-1818 - FAX (414) 273-0554
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. |_| If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended, other than securities offered only in
connection with dividend or interest reinvestment plans, please check the
following box, |X| If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act, please check the
following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering. |_| ____________
__________________. If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_| _____________________________.
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_| _____________________________________. If delivery of
the prospectus is expected to be made pursuant to Rule 434, please check the
following box. |_|
<Caption>
CALCULATION OF REGISTRATION FEE
=========================================================================================================================
Proposed Proposed
Amount maximum maximum Amount of
Title of each class of securities to be offering price aggregate registration
to be registered registered per unit offering price fee
- -------------------------------------------------------------------------------------------------------------------------
Common Stock 1,000,000 shares $6.50 (1) $6,500,000 (1) $1,625.00
=========================================================================================================================
(1) Price of Common Stock estimated solely for the purpose of calculating the
registration fee.
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.
================================================================================
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting offers to buy these
securities in any state where the offer or sale is not permitted.
PROSPECTUS (SUBJECT TO COMPLETION)
DATED DECEMBER 10, 2001
[Insert Harp & Eagle logo]
1,000,000 SHARES
HARP & EAGLE, LTD.
COMMON STOCK
Harp & Eagle, Ltd. is offering a minimum of 60,000 shares and a maximum of
1,000,000 shares of its common stock. This is our initial public offering and no
public market currently exists for our shares. We expect that the initial public
offering price will be between $5.00 and $6.50 per share.
We anticipate that, upon the completion of this offering, our common stock
will be quoted on the NASD's OTC Bulletin Board under the symbol "HARP".
INVESTING IN OUR COMMON STOCK INVOLVES SUBSTANTIAL RISKS. SEE "RISK
FACTORS" BEGINNING ON PAGE 5.
PRICE $ A SHARE
Underwriting
Price to Discounts and Proceeds to
Public Commissions Harp & Eagle
------ ----------- ------------
Per Share................................. $ $ $
Minimum (60,000 shares)................... $ $ $
Maximum (1,000,000 shares)................ $ $ $
THE SECURITIES AND EXCHANGE COMMISSION AND STATE SECURITIES REGULATORS HAVE
NOT APPROVED OR DISAPPROVED THESE SECURITIES, OR DETERMINED IF THIS PROSPECTUS
IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
This is a best-efforts, minimum-maximum offering. Our selected placement
agents must sell the minimum offering of 60,000 shares if any are sold. The
selected placement agents are not required to sell any specific number or dollar
amount of securities in excess of the 60,000-share minimum offering, but will
use their best efforts to sell all of the 1,000,000 shares offered. Funds
received from subscribers will be held in escrow by Grafton State Bank. Unless
the minimum offering is fully sold within 120 days from the date of this
prospectus, all purchase payments will be returned in full to subscribers,
without interest or deduction. If the minimum offering is sold within the
foregoing period, the offering may continue until 1,000,000 shares are sold or
December 31, 2002, whichever occurs first. However, we may terminate the
offering at any earlier time if we choose to do so.
LISS FINANCIAL SERVICES
, 2001
[Inside front cover]
[Insert graphic, including photographs of Castledaly Manor
superimposed on a map of its location in Ireland]
TABLE OF CONTENTS
Page
----
Prospectus Summary............................................................................................ 3
Risk Factors.................................................................................................. 5
Use of Proceeds............................................................................................... 8
Dividend Policy............................................................................................... 9
Dilution...................................................................................................... 10
Selected Financial Data....................................................................................... 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................................. 12
Business...................................................................................................... 15
Management.................................................................................................... 18
Certain Relationships and Related Transactions................................................................ 20
Principal Stockholders........................................................................................ 22
Description of Securities..................................................................................... 23
Shares Eligible for Future Sale............................................................................... 27
Underwriting.................................................................................................. 28
Legal Matters................................................................................................. 30
Experts....................................................................................................... 30
Where You Can Find Additional Information..................................................................... 30
Index to Financial Statements................................................................................. 31
Exhibit A (Subscription Agreement)............................................................................ A-1
2
PROSPECTUS SUMMARY
You should carefully read the following summary in conjunction with the
more detailed information appearing elsewhere in this prospectus concerning our
company and the common stock being offered, including our consolidated financial
statements and related notes. In this prospectus, "Harp & Eagle," "we," "us" and
"our" refer to Harp & Eagle, Ltd., a Wisconsin corporation, and its
subsidiaries, and not to the selected placement agents.
OUR COMPANY
Harp & Eagle is engaged in the business of forming, acquiring, operating
and managing Irish-theme inns and restaurants. We own all of the outstanding
common stock of Castledaly Acquisition Corporation, a Wisconsin corporation
which wholly owns Castledaly Manor, Ltd., an Irish limited company which owns a
24-room inn and related facilities in a refurbished country manor known as
Castledaly Manor, located approximately five miles from Athlone, County
Westmeath, in the center of Ireland. Our consolidated sales totalled $861,663
for fiscal 2000 and $1,085,108 for the nine months ended September 30, 2001,
yielding consolidated net income of $47,605 and $37,612 for such periods,
respectively. See "Business."
Harp & Eagle was incorporated in 1999 under the laws of the State of
Wisconsin. Castledaly Acquisition Corporation and Castledaly Manor, Ltd. were
incorporated in 1997 under the laws of Wisconsin and Ireland, respectively. Our
executive offices are located at 1234 North Astor Street, Milwaukee, Wisconsin
53202. Our telephone number is (414) 272-5273, and our facsimile number is (414)
290-6300. Castledaly Manor is located in Athlone, County Westmeath, Ireland. Its
telephone number, when dialing from the United States, is (011) 353-902-81221,
and its facsimile number is (011) 353-902-81600; its e-mail address is
castledaly@tinet.ie.
THE OFFERING
Common stock offered.......................................................... 1,000,000 shares
Common stock outstanding before the offering.................................. 649,661 shares
Common stock to be outstanding after minimum offering......................... 709,661 shares
Common stock to be outstanding after maximum offering......................... 1,649,661 shares
Proposed OTC Bulletin Board trading symbol.................................... HARP
This is a best-efforts, minimum-maximum offering. Unless at least 60,000
shares of our common stock are sold within 120 days following the date of this
prospectus, the offering will terminate and no shares will be sold. If the
60,000-share minimum offering is sold within the foregoing period, the offering
may continue until 1,000,000 shares are sold or December 31, 2002, whichever
occurs first. Our selected placement agents are not obligated to (1) sell any
number or dollar amount of our common stock in excess of the 60,000-share
minimum offering or (2) purchase any shares at any time. While these agents have
agreed to use their best efforts to sell on our behalf all of the common stock
offered, we cannot guarantee how much stock in excess of the required minimum,
if any, will actually be sold in the offering. See "Risk Factors" and
"Underwriting" for additional information concerning the terms of this offering.
------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE
HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
CONTAINED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO
BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE
PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF
THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THE
PROSPECTUS OR OF ANY SALE OF OUR COMMON STOCK.
3
USE OF PROCEEDS
We intend to use the initial net proceeds of this offering to repay
existing indebtedness incurred principally in connection with the acquisition of
Castledaly Acquisition Corporation and the improvement and operation of our
Castledaly Manor inn and restaurant located in Athlone, Ireland. We anticipate
that approximately $486,000 will be expended for this purpose. If we receive
sufficient net proceeds in excess of the minimum offering, we will pursue our
plans to develop inns in Green Bay, Wisconsin and County Antrim, Ireland. We
expect that the cost of these projects will require approximately $2,000,000 and
$1,500,000 of proceeds, respectively. If net proceeds are not sufficient or
exceed the amounts required for the foregoing purposes, we will expend such
proceeds to grow and expand our existing business, principally by improving our
properties and/or increasing our ownership interest in affiliated properties.
Please see "Use of Proceeds" for additional information concerning the manner in
which we intend to expend the net proceeds of this offering.
SUMMARY FINANCIAL DATA
You should read the following summary financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, and related notes, which
are included in this prospectus. The information shown below as of December 31,
2000 and 1999, and for the years then ended, has been taken from our
consolidated financial statements, which have been audited by Cherry, Bekaert &
Holland, L.L.P., independent certified public accountants. Our unaudited
consolidated financial statements as of September 30, 2001, and for the
nine-month periods ended September 30, 2001 and 2000, reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition and results for such
periods.
Year Ended Nine Months Ended
---------------------------- ----------------------------
December 31, December 31, September 30, September 30,
2000 1999 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
STATEMENT OF INCOME DATA:
Total revenues............................. $ 861,663 $ 272,326 $1,085,108 $ 596,447
Total costs and expenses................... 809,485 437,976 1,038,184 649,045
----------- ----------- ---------- -----------
Income (loss) before income taxes.......... 52,178 (165,650) 46,924 (52,598)
Income tax expense (benefit)............... 4,573 (18,672) 9,312 (4,576)
----------- ----------- ---------- -----------
Net income (loss).......................... $ 47,605 $ (146,978) $ 37,612 $ (48,022)
Accumulated deficit beginning
of period............................... $ (333,921) $ (186,943) $ (286,316) $ (333,921)
----------- ----------- ---------- -----------
Accumulated deficit end
of period............................... $ (286,316) $ (333,921) $ (248,704) $ (381,943)
=========== =========== ========== ===========
Not
Net income (loss) per common share......... $ 0.10 Meaningful $ 0.07 $ (0.10)
=========== =========== ========== ===========
Weighted average common Not
shares outstanding.................... 474,359 Meaningful 532,332 465,532
BALANCE SHEET DATA: September 30, 2001
------------------
(unaudited)
Cash and cash equivalents..................................................... $ 46,799
Total assets.................................................................. $ 2,102,635
Long-term debt, less current portion.......................................... $ 526,920
Stockholders' equity.......................................................... $ 823,265
THE DATA APPEARING IN THE TABLE ABOVE AND ELSEWHERE IN THIS PROSPECTUS
REFLECTS A 1 SHARE FOR 3 SHARES REVERSE SPLIT OF OUR OUTSTANDING COMMON STOCK,
EFFECTED AS OF APRIL 4, 2001.
4
RISK FACTORS
This offering and an investment in our common stock involve a high degree
of risk. You should carefully consider the following risk factors and the other
information in this prospectus, including our financial statements and the
related notes, before investing in our common stock. If any of the following
risks actually occurs, our business, operating results, prospects or financial
condition could be seriously harmed. The trading price of our common stock could
decline, and you could lose all or part of your investment.
THIS IS A BEST-EFFORTS, MINIMUM-MAXIMUM OFFERING, AND WE MAY NOT RAISE ENOUGH
CAPITAL FROM THE SALE OF OUR COMMON STOCK TO FUND OUR PLANNED METHOD OF GROWTH
AND EXPANSION AS QUICKLY AS INTENDED.
The managing placement agent, Liss Financial Services, and the other
selected placement agents are not obligated (1) to sell on our behalf any number
or dollar amount of our common stock in excess of the 60,000-share minimum
offering or (2) to purchase any number or dollar amount of shares at any time.
These agents have agreed to use their best efforts to sell on our behalf all of
the common stock offered by this prospectus. However, we cannot guarantee how
much of our common stock in excess of the required minimum, if any, will
actually be sold in this offering.
We plan to use up to approximately $486,000 of net offering proceeds to
repay existing indebtedness, whether or not we are also able to acquire or
develop additional hotel properties. Thereafter, if sufficient net proceeds of
this offering are available, we intend to acquire and develop one or more
additional hotel properties. We anticipate that we will be able to acquire or
develop additional hotel properties for prices ranging from approximately
$500,000 to $3.5 million per property.
If the proceeds of this offering, after deduction of selling commissions
and other expenses, are not sufficient to meet our cash requirements for such
expansion, we will expend all the proceeds we receive to grow and expand our
existing business, principally by improving our properties and/or increasing our
ownership interest in affiliated properties. Our inability to obtain financing
in excess of the minimum will impede the implementation of our plans for growth
and expansion, thereby possibly extending the time required for you to realize a
positive return, if any, on your investment in our company.
WE CANNOT GUARANTEE THAT AN ACTIVE TRADING MARKET FOR OUR COMMON STOCK WILL
DEVELOP OR BE SUSTAINED.
While our common stock will be quoted on the NASD's OTC Bulletin Board upon
completion of this offering, we cannot provide definite assurance that our
shares will be actively traded. The development and continuation of a trading
market will depend principally upon our business, financial condition and
operating results.
Further, if the market price for our common stock drops below $5.00 per
share, SEC rules may impose additional requirements upon broker-dealers who
effect transactions in our shares, principally with respect to (1) additional
disclosures concerning the risks of investment in lower-priced stocks, (2)
written investor-suitability determinations and (3) written authorization of
these transactions by the proposed purchasers. Compliance with these rules could
impede trading and adversely impact the price and liquidity of your shares.
OUR MANAGEMENT MAY NOT BE SUCCESSFUL IN APPLYING THE PROCEEDS OF THIS OFFERING
IN A MANNER THAT INCREASES THE VALUE OF YOUR INVESTMENT.
We plan to utilize the net proceeds of this offering in the manner
described in this prospectus under "Use of Proceeds." Nevertheless, we will have
broad discretion in determining specifically how the proceeds will be used. You
will be entrusting your funds to our management, upon whose judgment you must
depend, with limited information concerning acquisitions, if any, or other
purposes to which the funds will ultimately be applied. We may not be successful
in spending the proceeds from this offering, whether in our existing operations
or for external investments, in ways which increase our profitability or our
market value, or otherwise yield favorable returns.
5
PURCHASERS OF COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION.
Assuming a price of $6.00 per share, the initial public offering price of
our common stock is substantially higher than its book value immediately after
the offering. As a result, if you invest in this offering, you will incur
immediate dilution of at least $2.30 per share in the net tangible book value of
the shares purchased from the price you pay for your stock. You will incur this
dilution largely because our earlier investors paid substantially less than the
initial public offering price when they purchased their common stock. See the
discussion under "Dilution" for a calculation of the dilution you will
experience, assuming various levels of sales in this offering.
PROVISIONS IN OUR CHARTER DOCUMENTS AND WISCONSIN LAW COULD PREVENT OR DELAY A
CHANGE IN CONTROL OF OUR COMPANY AND POSSIBLY REDUCE THE AMOUNT PAID FOR OUR
COMMON STOCK IN THE FUTURE.
Provisions of our articles of incorporation, bylaws and Wisconsin law
could, separately or together:
- discourage potential acquisition proposals;
- delay or prevent a change in control; and
- limit the price that investors might be willing to pay in the future
for shares of our common stock.
The application of these provisions could make it more difficult for a
third party to acquire us, even if doing so would be beneficial to our
stockholders. See "Description of Securities - Anti-Takeover Provisions" for a
further discussion of statutory and other anti-takeover provisions which may
affect us. Also, our board of directors has the authority to issue up to
2,000,000 shares of preferred stock and to determine the price, voting rights,
restrictions, preferences and privileges of those shares without the approval of
our stockholders. The rights of holders of common stock will be subject to, and
may be impaired by, the rights of the holders of any shares of preferred stock
that may be issued in the future. The issuance of preferred stock may delay,
defer or prevent a change in control by making it more difficult for a third
party to acquire a majority of our stock. In addition, the issuance of preferred
stock could have a dilutive effect on our stockholders. We have no present plans
to issue shares of preferred stock. However, even the potential issuance of
preferred stock could reduce the price that investors are willing to pay for our
common stock.
FUTURE SALES OF OUR COMMON STOCK MAY DEPRESS OUR STOCK PRICE.
The executive officers and directors of our company and their affiliates
currently own, in the aggregate, 375,002 shares, or 57.7%, of our outstanding
common stock. These persons have agreed to enter into lock-up agreements that
prevent them from selling, pledging or otherwise disposing of their common stock
for a period of 120 days after the commencement of this offering, without the
prior written approval of Liss Financial Services, the managing placement agent.
Upon the expiration of the 120-day lock-up period, or earlier with the written
consent of Liss Financial Services, the 375,002 restricted shares held by our
affiliates will become eligible for sale in the public market, subject to the
requirements of Rule 144 as to volume, manner of sale, notice and the
availability of public information. 119,003 restricted shares held by
non-affiliates and not subject to lock-up agreements became initially eligible
for sale under Rule 144 prior to September 30, 2001, subject to the same Rule
144 restrictions and requirements as sales by our affiliates, and 145,322 shares
were eligible for sale under Rule 144(k), without such restrictions, as of that
date. 10,334 shares have become or will become eligible for sale during the
fourth quarter of 2001, also subject to the same Rule 144 restrictions as sales
by our affiliates. Also see "Description of Securities" for information
concerning common stock issuable upon the exercise of options and underwriter's
warrants.
Sales of substantial amounts of our common stock in the public market, or
conceivably only the perception that such sales may occur, could create the
impression in the public of difficulties or problems with our business. This
might adversely affect the market price of our common stock and could impair our
ability to sell additional common stock or other equity securities on terms that
we consider satisfactory. For a more detailed discussion of potential future
sales by existing stockholders, see "Shares Eligible for Future Sale."
6
IF ACTUAL OR POTENTIAL EVENTS OF TERRORISM RESULT IN TRAVEL DISRUPTIONS WHICH
REDUCE OUR TOUR PACKAGE BUSINESS OVER AN EXTENDED PERIOD, YOUR INVESTMENT IN OUR
COMPANY MAY BE ADVERSELY AFFECTED IF WE ARE UNABLE TO REPLACE THESE CUSTOMERS.
To date, recent terrorist attacks have resulted principally in a limited
number of our U.S. tour package customers postponing, as opposed to canceling,
travel to Castledaly Manor. We believe that U.S. tour package customers can be
replaced with local patrons, as well as customers from England and Scotland.
Because we include airfare in our tour packages at cost, our net revenues will
not be reduced provided that local traffic is sufficient to replace the lodging
and food/beverage service revenues historically generated by U.S. tour package
customers. However, if we are unable to replace our U.S. tour package customers
over an extended period, our reduced revenues are likely to adversely impact
your investment in our common stock.
UNLESS AT LEAST 100,344 SHARES OF COMMON STOCK ARE SOLD IN THIS OFFERING TO
PERSONS WHO ARE NOT DIRECTORS OR EXECUTIVE OFFICERS OF HARP & EAGLE, OR THEIR
AFFILIATES, IT IS LIKELY THAT OUR DIRECTORS, EXECUTIVE OFFICERS AND THEIR
AFFILIATES WILL CONTINUE TO OWN A CONTROLLING PERCENTAGE OF OUR COMMON STOCK,
AND THE VOTING POWER OF OTHER STOCKHOLDERS MAY BE LIMITED.
We anticipate that our directors, executive officers and their affiliates
will beneficially own, in the aggregate, more than 50% of our outstanding common
stock after this offering unless at least 100,344 shares of common stock are
sold to persons who are not directors or executive officers of our company, or
their affiliates. Accordingly, if these persons act together, they will have the
ability to control all matters submitted to our stockholders for approval and to
exercise controlling influence over our business and affairs. This includes any
determination as to the election and removal of directors and the approval of
any merger or other business combination, the acquisition or disposition of our
assets, whether or not we incur indebtedness, the issuance of any additional
common stock or other equity securities and the payment of dividends on our
common stock. These stockholders may make decisions that are adverse to your
interests. See "Principal Stockholders" for more information about the ownership
of our common stock.
OUR PRESIDENT IS NOT COVERED BY AN EMPLOYMENT CONTRACT OR "KEY PERSON" LIFE
INSURANCE, AND HIS LOSS COULD ADVERSELY AFFECT OUR BUSINESS RESULTS AND THE
VALUE OF YOUR INVESTMENT.
Our future success depends upon the continued services of our President,
Cary James O'Dwanny, and the loss of his services could have a material adverse
effect on our business, financial condition, operating results and, potentially,
the value of your investment in our common stock. In addition, if Mr. O'Dwanny
or any of our key employees joins a competitor firm or forms a competing
company, the resulting loss of existing or potential clients and business
relationships, including merger or acquisition candidates, could have a serious
adverse effect upon our business and the value of your investment in our common
stock. None of our employees, including Cary James O'Dwanny, is bound by an
employment agreement, and these personnel may terminate their employment at any
time. If we were to lose one or more key employees, we may be unable to prevent
the unauthorized disclosure of our strategic planning, procedures, practices or
client lists. In addition, we do not have "key person" life insurance policies
covering any of our employees.
WE DO NOT INTEND TO DECLARE OR PAY DIVIDENDS IN THE FORESEEABLE FUTURE.
We currently intend to retain earnings, if any, to support our growth
strategy. Consequently, a prospective investor who needs to receive periodic
dividend income should probably not invest in this offering.
7
USE OF PROCEEDS
Assuming a public offering price of $6.00 per share, we estimate that our
net proceeds from the sale of the sale of this offering, after deducting
underwriting discounts and commissions and other offering expenses payable by
us, will be approximately $244,000 if the minimum offering of 60,000 shares is
sold and $5,320,000 if the maximum offering of 1,000,000 shares is sold. The
primary purposes of this offering are to obtain additional equity capital,
create a public market for our common stock and facilitate future access to
public markets. Net proceeds of this offering will be allocated to working
capital and expended for the following purposes:
Number of shares of common stock assumed sold in the offering (1)
-----------------------------------------------------------------
60,000 200,000 600,000 1,000,000
Shares Shares Shares Shares
------ ------ ------ ------
Repayment of debt (2)(3)......................... $ 244,000 $ 486,000 $ 486,000 $ 486,000
Green Bay, Wisconsin project (4)................. - - 2,000,000 2,000,000
Antrim, Ireland project (4)...................... - - - 1,500,000
Other acquisitions and improvements (5).......... - 514,000 674,000 1,334,000
--------- ----------- ------------ -----------
Total....................................... $ 244,000 $ 1,000,000 $ 3,160,000 $ 5,320,000
(1) The numbers of shares of common stock shown as sold in the above table, in
excess of the minimum offering of 60,000 shares, have been arbitrarily
selected by us for purposes of illustration only. WE CAN PROVIDE NO
ASSURANCE THAT ALL OR ANY PART OF THE COMMON STOCK OFFERED BY THIS
PROSPECTUS IN EXCESS OF THE MINIMUM WILL BE SOLD. SEE "RISK FACTORS" AND
"UNDERWRITING" FOR ADDITIONAL INFORMATION CONCERNING THIS "BEST-EFFORTS,"
"MINIMUM-MAXIMUM" OFFERING.
(2) We intend to apply all of the net proceeds of the 60,000-share minimum
offering to repay approximately $244,000 owed to Johnson Bank, bearing
interest at the prime rate plus 0.5% (6.5% at September 30, 2001), due
April 30, 2002. Proceeds of the above loan, including approximately
$168,000 of this indebtedness assumed by us in connection with our
acquisition of Castledaly Acquisition Corporation during fiscal 2001, were
used to finance the improvement and operation of the Castledaly Manor inn
and restaurant. Johnson Bank is not a related party of Harp & Eagle. If
only the minimum offering is sold, approximately $96,000 will remain
outstanding to Johnson Bank.
(3) If sufficient common stock in excess of the 60,000-share minimum is sold in
this offering, we will apply net proceeds of such sales, up to the
following approximate aggregate amounts and in the order of priority
indicated, to fully repay the following indebtedness:
- First, approximately $96,000 owed to Johnson Bank, representing
the remaining balance outstanding after the repayment described in
note (2), above;
- Second, $33,000 owed to Grafton State Bank, an unrelated party,
bearing interest at the rate of 6% per annum, due on demand,
assumed in connection with our acquisition of Castledaly
Acquisition Corporation during fiscal 2001;
- Third, approximately $13,000 owed to Cary James O'Dwanny, our
President and a director, bearing no interest, due on demand; and
- Fourth, $100,000 owed to Richard Peterson, one of our
non-affiliate shareholders, bearing interest at the rate of 9% per
annum, due on demand.
Also see "Certain Relationships and Related Transactions" for information
concerning our assumptions of debt and proposed repayments.
(4) If we receive sufficient net proceeds in excess of the minimum offering, we
intend to pursue our plans to develop inns in Green Bay, Wisconsin and
County Antrim, Ireland. We expect that our equity contributions to these
projects will require approximately $2,000,000 and $1,500,000 of proceeds,
respectively. The balance of project costs will be borrowed.
8
(5) If the proceeds of this offering, after deduction of selling commissions
and other expenses, are not sufficient to meet our cash requirements for
one or both of the projects referred to in note (4), above, or if net
proceeds exceed the amounts required for the purposes referred to in notes
(2), (3) and (4), above, we will expend such proceeds to grow and expand
our existing business, principally by improving our properties and/or
increasing our ownership interest in affiliated properties. We may also
acquire or develop other additional hotel properties, at prices which we
anticipate will range from $500,000 to $3.5 million per property.
We continually evaluate and discuss potential acquisitions and strategic
investments. However, we have no present understandings, commitments or
agreements with respect to any acquisition or investment.
While we presently anticipate that working capital will be expended for the
above purposes in approximately the amounts indicated, the actual amount that we
expend for these purposes will depend on a number of factors, including the
amount which is raised in this offering, our future revenue growth, if any, and
the amount of cash we generate from operations. As a result, we will retain
broad discretion in the allocation of the net proceeds of this offering.
Pending their use, net proceeds from this offering will be invested in bank
certificates of deposit, interest-bearing savings accounts, prime commercial
paper, United States Government obligations, money market funds or similar
short-term investments. Any income derived from these short-term investments is
expected to be used for working capital.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be made at the discretion of our board of directors and will
depend on our financial condition, results of operations, capital requirements,
general business condition and other factors that our board of directors may
deem relevant.
9
DILUTION
Our net tangible book value as of September 30, 2001 was approximately
$779,588, or $1.20 per share of common stock. Net tangible book value per share
represents the amount of total tangible assets less total liabilities, divided
by the number of shares of common stock then outstanding. The following table
illustrates the dilution to purchasers of common stock in this offering if the
minimum offering of 60,000 shares is sold, and also at certain arbitrarily
determined sales levels on excess of the minimum (ie., 200,000, 600,000 and
1,000,000), at the assumed public offering price of $6.00 per share, after
deduction of estimated underwriting commissions and other offering expenses
payable by us. At the sales levels indicated, our pro forma net tangible book
value at September 30, 2001 would have been $1,023,588, $1,779,588, $3,939,588
or $6,099,588, respectively, or $1.44, $2.09, $3.15 or $3.70, respectively, per
share of common stock, representing an immediate increase in net tangible book
value of $0.24, $0.89, $1.95 or $2.50, respectively, per share to existing
stockholders and immediate dilution of $4.56, $3.91, $2.85 or $2.30,
respectively, per share to new investors.
Number of shares of common stock sold in the offering (1)
---------------------------------------------------------
60,000 200,000 600,000 1,000,000
Shares Shares Shares Shares
------ ------ ------ ------
Initial public offering
price per share............................ $ 6.00 $ 6.00 $ 6.00 $ 6.00
Net tangible book value
before the offering........................ 1.20 1.20 1.20 1.20
Increase in net tangible book value
attributable to new investors.............. 0.24 0.89 1.95 2.50
---- ---- ---- ----
Pro forma net tangible book value
per share after the offering................ 1.44 2.09 3.15 3.70
------ ------ ------ ------
Dilution per share to new public investors....... $ 4.56 $ 3.91 $ 2.85 $ 2.30
====== ====== ====== ======
(1) The numbers of shares of common stock shown as sold in the above table, in
excess of the minimum offering of 60,000 shares, have been arbitrarily
selected by us for purposes of illustration only. We can provide no
assurance that all or any part of the common stock offered by this
prospectus in excess of the minimum will be sold. See "Risk Factors" and
"Underwriting" for additional information concerning this "best-efforts,"
"minimum-maximum" offering.
The following table summarizes, on a pro forma basis as of September 30,
2001, after giving effect to the sale of the minimum offering of 60,000 shares,
the difference between the number of shares of common stock purchased from us,
the total consideration paid and the average price per share paid by the
existing stockholders and by new public investors purchasing shares in this
offering at the assumed initial public offering price of $6.00 per share and
before deduction of estimated underwriting discounts and commissions and
offering expenses payable by us:
Shares Total Average
Purchased Consideration Consideration
--------- ------------- -------------
Amount Percent Amount Percent Paid Per Share
------ ------- ------ ------- --------------
Existing stockholders............ 649,661 91.5% $1,185,370 76.7% $1.82
New public investors (1)......... 60,000 8.5% 360,000 23.3% $6.00
-------- ------ ---------- ------
Total....................... 709,661 100.0% $1,545,370 100.0%
======== ====== ========== ======
(1) If sales levels of 200,000 shares, 600,000 shares and 1,000,000 shares are
assumed for purposes of illustration only, at the assumed public offering
price of $6.00 per share, the percent of total shares sold which are
purchased by new investors would be 23.5%, 48.0% and 60.6%, respectively;
and the aggregate consideration paid by new investors would be $1,200,000,
$3,600,000 or $6,000,000, respectively, or 50.3%, 75.2% or 83.5%,
respectively, of the total consideration paid for all of the common stock
to be outstanding after this offering. The average consideration paid per
share, by both existing stockholders and new investors, remains the same at
all levels of sales. There can be no assurance that all or any part of the
common stock offered by this prospectus in excess of the minimum offering
of 60,000 shares will be sold. See "Risk Factors" and "Underwriting" for
additional information concerning this "best-efforts," "minimum-maximum"
offering.
10
SELECTED FINANCIAL DATA
You should read the following summary financial data in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements, and related notes, which
are included in this prospectus. The information shown below as of December 31,
2000 and 1999, and for the years then ended, has been taken from our
consolidated financial statements, which have been audited by Cherry, Bekaert &
Holland, L.L.P., independent certified public accountants. Our unaudited
consolidated financial statements as of September 30, 2001, and for the
nine-month periods ended September 30, 2001 and 2000, reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial condition and results for such
periods.
Year Ended Nine Months Ended
---------------------------- ----------------------------
December 31, December 31, September 30, September 30,
2000 1999 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
----------- -----------
STATEMENT OF INCOME DATA:
Total revenues............................. $ 861,663 $ 272,326 $1,085,108 $ 596,447
Total costs and expenses................... 809,485 437,976 1,038,184 649,045
----------- ----------- ---------- -----------
Income (loss) before income taxes.......... 52,178 (165,650) 46,924 (52,598)
Income tax expense (benefit)............... 4,573 (18,672) 9,312 (4,576)
----------- ----------- ---------- -----------
Net income (loss).......................... $ 47,605 $ (146,978) $ 37,612 $ (48,022)
Accumulated deficit beginning
of period............................... $ (333,921) $ (186,943) $ (286,316) $ (333,921)
----------- ----------- ---------- -----------
Accumulated deficit end
of period............................... $ (286,316) $ (333,921) $ (248,704) $ (381,943)
=========== =========== ========== ===========
Not
Net income (loss) per common share......... $ 0.10 Meaningful $ 0.07 $ (0.10)
=========== =========== ========== ===========
Weighted average common Not
shares outstanding.................... 474,359 Meaningful 532,332 465,532
BALANCE SHEET DATA:
September 30, 2001
------------------
(unaudited)
Cash and cash equivalents..................................................... $ 46,799
Total assets.................................................................. $ 2,102,635
Long-term debt, less current portion.......................................... $ 526,920
Stockholders' equity.......................................................... $ 823,265
THE DATA APPEARING IN THE TABLE ABOVE AND ELSEWHERE IN THIS PROSPECTUS
REFLECTS A 1 SHARE FOR 3 SHARES REVERSE SPLIT OF OUR OUTSTANDING COMMON STOCK,
EFFECTED AS OF APRIL 4, 2001.
11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following commentary in conjunction with the financial
statements and related notes contained elsewhere in this prospectus. During the
past several months, we have completed our acquisition of all of the outstanding
capital stock of Castledaly Acquisition Corporation, a Wisconsin corporation,
which certain of our officers helped to organize and which owns all outstanding
"ordinary shares" of Castledaly Manor, Ltd., an Irish corporation. Ordinary
Shares are comparable to common stock in a United States corporation. When
discussing our financial condition and performance, we refer to the financial
condition and results of operations of Castledaly Manor during the past two
years.
During 1999, Castledaly Manor had been operated under the control of an
Irish partner for the first five months. At the end of May 1999, Castledaly
Acquisition Corporation purchased the interest of its partner and instituted new
marketing and operating policies. Operations improved within 30 days, and since
then the facility has generally achieved positive cash flow. During calendar
year 2000, Castledaly Manor enjoyed significant sales and profit improvement
over calendar year 1999.
During the fall of 2000, we began a major expansion program at our
Castledaly Manor facility. This involved remodeling unused stable blocks and
improving the court yard area between the stable blocks and our main hotel
facility. We opened the new rooms for occupancy in April 2001 and experienced a
substantially greater volume of sales, with a backlog of reservations developed
through 2001.
Immediately following the September 11, 2001 attack on the World Trade
Center and other targets in the United States by international terrorists, we
experienced a reduction in sales volume due to cancellations of customer
reservations. However, 80% or more of those who cancelled their reservations
have requested an opportunity to reschedule to a later date. While forward
reservations for the first quarter of 2002 are down from the prior year, we are
taking steps to improve sales, by greater marketing to local Irish residents and
a reduced price trip from the United States, with price reductions somewhat
offset by extending the duration of the trip from six nights to seven nights.
We believe that additional revenue will be generated on the additional tour
day. We are also exploring marketing to Great Britain and the continent.
Overall, we are satisfied that the steps we are taking will maintain our
operations on a profitable, and cash flow positive basis.
RESULTS OF OPERATIONS
Gross Revenue
Sales increased from $272,326 in 1999 to $861,663 in 2000, an increase of
over 200%. During the first nine months of 2001, sales revenue further increased
from $596,447 in the prior period in 2000 to $1,085,108 in 2001, an increase of
over 80%. Sales were running at a substantially higher monthly rate prior to
September 11, 2001 over their average rate during the first nine months of 2000
due to the increased capacity of our facility. For the first nine months of
2001, our revenues consisted of $608,589, or approximately 56%, from airline
fees; $356,873, or 33%, from room rentals; and $119,646, or 11%, from food and
beverage sales, representing increases of $365,309, or 150%; $114,496, or 47%;
and $8,856, or 8%, over the same period of 2000 for the foregoing categories,
respectively. Related costs are described below.
While our overall sales revenue was adversely affected by the September 11
terrorist attack on the United States because of public fears about air travel,
we anticipate that our revised marketing plans as described above may aid us in
achieving improved sales revenue in 2002. While sales revenue increased
substantially through September 2001, our costs of sales did not increase at
the same high rate, due to greater efficiency in operations and careful cost
control. As a result, gross income increased 278% from 1999 to 2000 and by 96%
in the first nine months of the year 2001.
Operating Expenses
While operating expenses increased 111% from 1999 to 2000 and 75% in the
first nine months of 2001 over the comparable period in year 2000, they did not
increase as rapidly as gross income for those periods.
12
Consequently, income from operations increased from a loss of $(103,492) in 1999
to a profit of $113,464 in 2000. With further sales revenue increases in the
first nine months of 2001, income from operations was running at a higher level
on a monthly basis over the first nine months of 2001.
For the first nine months of 2001, our operating expenses included
$615,281, or 62%, for airline tickets; $265,797, or 27%, for room rentals;
$89,112, or 9%, for food and beverage sales; and $19,915, or 2%, for other
miscellaneous general expenses, representing increases/(decreases) of $316,553,
or 106%; $71,427, or 37%; $266, or less than 1%; and $(1,043), or 5%, compared
with the same period of 2000 for the foregoing categories, respectively.
Net Income
Since we have incurred significant debt in connection with the acquisition
and improvement of our Irish facility, our debt service requirements resulted in
an overall loss for 1999. Net income for 2000 increased principally due to our
increased occupancy rate. During the first nine months of 2001, we experienced a
profit of $37,612, despite the operating disruptions due to remodeling of the
stable blocks. This compares to a loss of $48,022 during the comparable period
in the prior year. While our operations are reduced because of cancellations and
delays in trips following September 11, 2001, we expect our operations to
continue on a generally profitable and cash-flow-positive basis.
FINANCIAL CONDITION
Liquidity; Commitments for Capital Resources; and Sources of Funds
Our principal source of liquidity from operations has been cash earnings
from rental of hotel rooms, and food and liquor sales. Our Castledaly Manor
facility has earned revenues primarily from U.S. residents who take our weekly
round-trip travel package. Under this program, two persons fly from Chicago to
Dublin, where our bus meets them to bring them to Castledaly Manor. They stay in
Castledaly Manor for a week, from Wednesday to Wednesday, and fly back to
Chicago. Beginning as of January 1, 2002, the trip will be from Wednesday
through Thursday of the following week, which is expected to produce increased
food and liquor sales. Reservations are usually made months in advance and we
generally have experienced a backlog. A few room nights are sold to walk- in
local customers in Ireland. We also receive revenues from food and beverage
sales to local residents who are welcome to use our facilities, including for
private parties. We anticipate that revenues generated by room rentals and food
and drink sales will continue to satisfy our operating cash requirements in the
future, as they do currently and have since 1999. For year 2002, we intend to
place somewhat greater emphasis on marketing to Irish, British and European
residents and to run reduced rate special trips from the United States until
international air travel returns to more normal levels following the September
events.
We have experienced increased working capital deficits during 2000 and for
the first nine months of 2001 due principally to our initial startup costs and
subsequent renovation and improvement of Castledaly Manor. We anticipate
repayment of approximately $486,000 of current obligations with proceeds of
this offering, which would reduce our working capital deficit significantly. In
addition, we have achieved positive earnings in 2000 and the first nine months
of 2001, and, in the estimation of management, will be able to generate
sufficient cash from operations to meet the balance of our obligations as they
become due.
To provide additional liquidity, we have obtained a revolving term loan
credit facility from a commercial bank, under which we may borrow up to a
maximum of $350,000 at a rate of interest equal to the prime rate plus 0.5%.
Pursuant to the current agreement, the lending commitment terminates April 30,
2002, and any loan balance outstanding shall be paid on that date; however, we
have not experienced difficulty in renewing and extending previous credit
agreements and anticipate that the current agreement will be extended on
acceptable terms. Amounts
13
outstanding under such credit facility are guaranteed by County Clare, Ltd., a
related party, and by a stockholder of Harp & Eagle. As of the date of this
prospectus, approximately $340,000 was outstanding under this credit facility,
all of which we intend to repay with proceeds of this offering: $244,000 with
proceeds of the required 60,000-share minimum offering and the remaining $96,000
if we realize sufficient net proceeds in excess of such minimum, as to which
there can be no assurance. Following any such repayment, we may if we choose
re-borrow up to $350,000 on the same terms described above. See "Use of
Proceeds" for additional information concerning our intended repayment of this
outstanding indebtedness.
We have no specific source of or provision for long-term liquidity. While
management is confident that we will be able to extend the credit facility
described above beyond its scheduled termination as of April 30, 2002 on
acceptable terms, no definite assurance can be given as to our ability to do
so.
A major use of proceeds will be to repay bank debt that we previously
incurred in connection with acquiring and improving Castledaly Manor. See "Use
of Proceeds" and "Certain Relationships and Related Transactions" for detailed
information concerning our intended retirement of outstanding indebtedness.
Repayment of these loans will reduce our future interest expenses. However, we
also intend to purchase, construct, and operate one or more other hotels in the
United States, as well as one in Northern Ireland, to the extent that investment
capital and new loans permit. Any new borrowings will increase our future
interest charges.
During 2000, we conducted a private placement of our common stock to a
small number of investors. This placement of stock was the primary source of our
increased equity capital during calendar 2000. Subsequently, as of June 30,
2001, we acquired the balance of the shares of outstanding common stock of
Castledaly Acquisition Corporation in a share exchange.
Changes in Assets and Liabilities
From fiscal 1999 to fiscal 2000, we substantially increased our assets,
reduced debts relative to assets and improved our liquidity. While total assets
increased 94%, total liabilities increased only 19%. Increases in assets were
largely represented by increases in our cash accounts and by increased prepaid
expenses primarily represented by airline reservations for tourists taking our
weekly trip. Customer deposits represented a substantial portion of increased
liabilities. For the first nine months of 2001, we increased the amount of
prepaid expenses. We also received increased amounts of customer deposits.
Costs in connection with converting the stable blocks in the rear of our
hotel into guest rooms available for rent was the primary cause of increased
building improvement costs during 2001. We also added to our furniture, fixtures
and equipment at Castledaly Manor in connection with the addition of these
rooms. These additional rooms became available for rent during April 2001, and
this improvement resulted in increased sales volume after March.
INFLATION AND OTHER FACTORS THAT MAY AFFECT FUTURE RESULTS.
We have not been affected by inflation in the past, and do not expect
inflation to have a significant effect on operations in the foreseeable future.
14
BUSINESS
BACKGROUND
Harp & Eagle has been organized to acquire, expand, build, own, manage and
operate boutique hotels in the United States and Ireland, each of which will
incorporate an ethnic Irish theme. In addition to providing overnight stays in
our rooms, we expect that our hotels will typically incorporate a bar and food
service.
Prior to the commencement of this offering, we acquired, principally
through an exchange of shares, all of the outstanding common stock of Castledaly
Acquisition Corporation, a Wisconsin corporation which owns all of the
outstanding ordinary shares of Castledaly Manor, Ltd., the Irish limited company
which directly owns Castledaly Manor. At the present time, our business
operations include (1) the operation of Castledaly Manor and (2) the review and
evaluation of other potential sites for development of additional Irish-theme
inns and restaurants. We are currently principally considering potential sites
in Green Bay, Wisconsin and County Antrim, Ireland. In the future, we will seek
to build, acquire and/or develop other Irish-theme hotels in the United States
and Ireland.
CASTLEDALY MANOR
GENERAL. Castledaly Manor is a 37-acre facility with a manor house and
stable blocks, originally built as a working estate in the early 18th Century.
During 1997, a group of Wisconsin investors organized Castledaly Acquisition
Corporation which purchased one-half of the outstanding "ordinary shares" of
Castledaly Manor, Ltd., an Irish limited company; an Irish entrepreneur owned
the balance. Castledaly Manor, Ltd. owns 100% of the equity in Castledaly Manor.
An Irish limited company, which is comparable to a typical business corporation
in the United States, provides limited liability of its shareholders; its equity
shares, which are comparable to common stock, are referred to as "ordinary
shares." In 1997, Castledaly Manor significantly renovated its buildings and
improved its grounds. During 1999, Castledaly Acquisition Corporation acquired
the remaining outstanding ordinary shares of Castledaly Manor, Ltd. and now owns
100% of its outstanding shares. During 2000 and 2001, Harp & Eagle acquired all
of the outstanding common stock of Castledaly Acquisition Corporation, thereby
becoming the sole owner of Castledaly Manor.
Castledaly Manor offers a travel package for American tourists which
includes round-trip air travel between Chicago to Dublin and one week's
accommodations at Castledaly Manor, for a package price per couple of less than
$1,350 in the winter to $1,800 in the summer. This program has resulted in an
occupancy rate of more than 80% for the period from late 1999 to date. Any rooms
not occupied by travel-package guests are available to others at the rate of
$100 per night.
Originally, Castledaly Manor had 11 rooms available for rent. Early in
2001, it expanded by renovation of the stable blocks behind the manor house,
thereby adding an additional 12 guest rooms; with these additional rooms, the
inn now has 23 guest rooms available for rent. Commencing in the second half of
1999 and continuing to date, Castledaly Manor has achieved positive cash flow.
DESCRIPTION OF THE CASTLEDALY PROPERTY. Castledaly Manor is located midway
between Athlone and Moate, in the center of Ireland. It was built over 250 years
ago and is surrounded by 37 acres of pasture and woodland. Five golf courses,
riding and angling are available in the immediate vicinity. The manor's main
building includes an entrance hall and reception hall; a dining room, lounge and
function room (for corporate and business meetings); conservatory; 11 guest
rooms including one double-family suite; a manager's living suite; a bar; and
miscellaneous other rooms. The grounds are also occupied by walled gardens, a
pond and stream, and stone stables which have been converted into an additional
12 guest rooms.
We intend to further expand Castledaly Manor by adding a pub in a section
of the stables for an estimated approximate cost of $250,000. See "Use of
Proceeds" concerning the possible expenditure of proceeds of this offering in
connection with the foregoing improvement.
15
MARKETING AND PROMOTION. We promote Castledaly Manor primarily by word of
mouth referrals and through advertising at County Clare in Milwaukee, Wisconsin
and 52 Stafford in Plymouth, Wisconsin.
FINANCING; INSURANCE. Castledaly Manor is subject to a first mortgage held
by Ulster Bank, payable in monthly installments of $3,211, due February 1, 2013,
bearing interest at the Irish prime rate less 0.5%. $405,699 was outstanding as
of December 31, 2000, and the interest rate was 7.5% per annum. The property is
fully insured.
COMPETITION
To date, we have not conducted domestic operations. However, utilizing
proceeds of this offering, we propose to expand our business to include both
Irish and U.S. operations. See "Use of Proceeds" for additional information
concerning our plans to develop additional properties in the United States,
including an inn in Green Bay, Wisconsin. With respect to our Irish operations,
as well as our proposed domestic operations, the primary method of competition
in the hotel business involves the effort to attract lodging guests and related
dining and other business, such as meetings. This competition is intense in both
countries, and we will compete with numerous hotels and inns which offer
excellent facilities and service, many of which have substantially greater
financial and other resources than our company, particularly with respect to
suitable properties and locations for expansion. Risks associated with our
expansion strategy are discussed under "Risk Factors."
In the United States, we believe that our Irish-theme concept will
distinguish our inns from the vast majority of competing facilities, providing a
significant marketing advantage.
As mentioned above, provided that the net proceeds of this offering are
sufficient to adequately fund one or more new inns, we expect to compete for
additional properties principally with respect to properties and locations. We
intend to provide for the growth of our company largely through the acquisition
or development of additional hotel properties, and our inability to successfully
compete for such properties could impede our efforts to grow and expand as
quickly as planned.
BUSINESS EXPANSION
We intend to concentrate substantial efforts, including the allocation of
management time and other resources, on the expansion our business in the United
States and Ireland. We expect to do so by (1) constructing and developing new
inns in the United States and Ireland, (2) acquiring ownership positions in
firms that own and operate hotels, predominantly, we expect, in the United
States and Ireland, and (3) increasing our interest in properties which we
already partially own.
OWNERSHIP OF EQUITY INTERESTS. We wholly own Castledaly Acquisition
Corporation, which owns and operates Castledaly Manor in Ireland, as discussed
above, and a minority equity interest in County Clare, Ltd., which operates a
30-room Irish-theme inn and restaurant named County Clare in Milwaukee,
Wisconsin. County Clare and Castledaly Manor share marketing materials and
advertising. Personnel are occasionally rotated between Milwaukee and Ireland,
and share common training.
In the future, we may increase our interest in County Clare and/or acquire
an ownership interest in one or more other facilities, including two hotels
operated by our President, Cary James O'Dwanny: 52 Stafford, a 19-room hotel
with restaurant located in Plymouth, Wisconsin, and Audubon, a 17-room hotel
with restaurant located in Mayville, Wisconsin. Our general purpose in acquiring
such interests is to gain participation in the management of the firms in which
we invest, and to develop operating synergies that benefit our company, such as
achieving economies of scale in purchasing supplies, training of personnel and
sharing of marketing expenses.
DEVELOPMENT OF NEW FACILITIES. We have explored a second location in
Ireland, in the town of Ballycastle, County Antrim. Our President has conducted
discussions with the Moyle District County officials there, who have expressed
favorable interest.
16
In the United States, we may seek in the future to enter new markets by
developing, building and operating additional Irish-theme hotels. In selecting
sites, we intend to locate in or near cities with large populations of persons
of Irish heritage, particularly in areas which exhibit pride in their ethnic
origin. In our experience, the sponsorship of local Irish-heritage
organizations, fairs, parades and similar groups and functions indicates an
interest in Irish heritage and provides an effective means of identifying and
communicating with persons who are likely to appreciate and support our
Irish-theme inns and restaurants.
Our first preference is to build an Irish-theme hotel in the Green Bay,
Wisconsin metropolitan area. A large segment of the Green Bay population is of
Irish descent. We have reviewed various potential locations to build an
Irish-theme hotel in the Green Bay area and have identified one that we consider
desirable for this purpose, located on the Fox River in the downtown area of the
city. However, we have not yet committed to purchase the site. We have also
considered potential locations in other U.S. cities, such as Cudahy, Wisconsin,
St. Paul, Minnesota and Chicago, Illinois. We will seek to expand in a manner
consistent with our format, as described below.
THE FORMAT OF OUR HOTELS
As a general rule, we expect to follow a common pattern in our newly
constructed Irish theme hotels. Typically, we will build smaller facilities,
with approximately 30 to 50 guest rooms. Each will generally be constructed in
the Georgian-style of architecture, which is a pattern common to Irish guest
houses. Each of our inns will be typically be a three-story building with
colored stucco exterior. Each will feature an entrance designed to emulate the
imposing pub entrances found throughout Ireland. Each inn will typically offer
food service and include a pub.
PERSONNEL
Harp & Eagle and its subsidiaries, Castledaly Acquisition Corporation and
Castledaly Manor, Ltd., currently have six full-time and six part-time
employees, all of whom are employed directly by Castledaly Manor, Ltd. and work
at Castledaly Manor. No employee is subject to a collective bargaining
agreement. Castledaly Manor, Ltd. generally considers its relations with its
employees to be excellent.
Neither Harp & Eagle nor Castledaly Acquisition Corporation directly
employs any full-time or part-time workers at this time. Officers of the
foregoing corporations will work part-time on an as-needed basis until our level
of operations is sufficient to justify a greater commitment of time and
financial resources. No such part-time employee is subject to a collective
bargaining agreement.
17
MANAGEMENT
DIRECTORS AND OFFICERS
Listed below are the names and ages of our directors and officers and the
positions they hold with our company.
Name Age Position
---- --- --------
Cary James O'Dwanny 60 President, Treasurer and Director
Gerard Dunne 45 Vice President and Director
Dennis J. Radtke 30 Vice President and Director
Sean D. O'Dwanny 35 Vice President and Director
Richard A. Kranitz 57 Secretary and Director
Michael S. Joyce 59 Director
Thomas J. Sheehan 62 Director
CARY JAMES "RIP" O'DWANNY has been the President, Treasurer and a director
of Harp & Eagle since our inception in 1999. From 1993 to the present, he has
also been the President, Treasurer and a director of County Clare, Ltd., which
owns and operates County Clare, an Irish-theme inn and restaurant located in
Milwaukee, Wisconsin. From 1989 to the present, Mr. O'Dwanny has also been the
President and a director of Classic Inns of Wisconsin, Inc., which owns and
operates 52 Stafford, another Irish-theme inn and restaurant located in
Plymouth, Wisconsin.
GERARD DUNNE has been a Vice President and a director of Harp & Eagle since
our inception in 1999. He has been the manager of Castledaly Manor since June
1999. From 1998 to 1999, Mr. Dunne was a manager with The Bridge House, a
popular pub in Fidelma Kiernan, Ireland, and from 1997 to 1998, he was a manager
with The Three Jolly Pigeons in Athlone, Ireland. Mr. Dunne was employed by the
accounting firm of Milne & Dwyer & Co., of Tullamore, from 1974 to 1981; from
1981 to 1982, he was employed by the accounting firm of Walsh Kealey & Co., also
of Tullamore; and from 1982 to 1998, he has maintained his own private
accounting practice.
DENNIS J. RADTKE has been a Vice President and director of Harp & Eagle
since our inception in 1999. From 1996 to the present, he has been the general
manager of County Clare, an Irish-theme inn and restaurant located in Milwaukee,
Wisconsin. From 1990 to 1996, he was employed at 52 Stafford, another
Irish-theme inn and restaurant located in Plymouth, Wisconsin.
SEAN D. O'DWANNY has been a Vice President of Harp & Eagle since our
inception in 1999 and a director since 2001. From 1986 to the present, Mr.
O'Dwanny has been the general manager of 52 Stafford, an Irish-theme inn and
restaurant located in Plymouth, Wisconsin. Since 1994, he has also owned and
operated the Rochester Inn, a historic bed-and-breakfast hotel located in
Sheboygan Falls, Wisconsin.
RICHARD A. KRANITZ has been the Secretary and a director (except for
approximately nine months during 2000 and 2001) of Harp & Eagle since our
inception in 1999. He has been an attorney in private practice since 1970,
concentrating in securities, banking and business law. Prior to establishing
Kranitz & Philipp (formerly the Law Offices of Richard A. Kranitz) in 1984, he
was with the Milwaukee law firms of Fretty & Kranitz (1982 to 1983), Habush,
Gillick, Habush, Davis, Murphy, Kraemer & Kranitz (1977 to 1978), McKay, Martin
& Kranitz (1973-1976) and Reinhart, Boerner, Van Deuren, Norris & Rieselbach,
S.C. (1970 to 1973). Mr. Kranitz is a director of the Grafton State Bank.
MICHAEL S. JOYCE has been a director of Harp & Eagle since December 2000.
Mr. Joyce is (since July, 2001) President and Chief Executive Officer of
Americans for Community and Faith-Centered Enterprise and the Foundation for
Community and Faith-Centered Enterprise, located in Washington, D.C. and
Phoenix, Arizona, respectively. From 1985 to 2001, he was President and Chief
Executive Officer of The Lynde and Harry Bradley Foundation, Milwaukee,
Wisconsin. From 1977 to 1985, Mr. Joyce was the President of the John M. Olin
Foundation, New York, New York; from 1974 to 1977, he was the President of the
Goldseker Foundation, Baltimore, Maryland. Mr. Joyce is a director of Blue Cross
& Blue Shield United of Wisconsin, the Pinkerton Foundation, the Philanthropy
Roundtable and a member of the Selection Committee of the Clare Booth Luce Fund.
18
THOMAS J. SHEEHAN has been a director of Harp & Eagle since December 2000.
From 1990 to the present, he has been the Chairman of the Board, President and
Chief Executive Officer of Grafton State Bank, a $125 million full-service
commercial bank with an active mortgage banking operation. Mr. Sheehan is the
current President of the Independent Community Bankers of America, an
organization which represents over 5,000 community banks throughout the United
States. He is also a Director of TYME Corporation, the primary provider of ATM
and POS interchange services in Wisconsin, and a member of its Executive
Committee. Mr. Sheehan is the current Chairman of the Grafton Community
Development Authority; Treasurer of the Ozaukee County Development Corporation;
a Director of the St. Mary's Hospital Foundation; and a member of the Grafton
Police and Fire Commission.
Cary James O'Dwanny is the father of Sean D. O'Dwanny.
All of our directors hold office until the next annual meeting of
stockholders and the election and qualification of their successors. Our
directors are not compensated for acting as directors, nor are they reimbursed
for expenses related to their service as directors. Officers are elected
annually by our board of directors and serve at the discretion of the board. See
"Principal Stockholders" for information concerning ownership of our common
stock by our directors and officers.
MANAGEMENT COMPENSATION
SUMMARY COMPENSATION TABLE. The following table provides information
concerning the compensation earned by our Chief Executive Officer for services
rendered to us in all capacities during the our fiscal year ended December 31,
2000. We are required to disclose in the table the compensation we paid to our
Chief Executive Officer and to any other executive officer of our company who
was paid in excess of $100,000. These persons are referred to in this prospectus
as "named executive officers." Because no executive officer of our company was
paid more than $100,000 for any fiscal year, only the compensation paid by us to
our Chief Executive Officer is included in the table.
Annual Compensation
------------------------------------------- All Other
Name and Principal Positions Year Salary($) Bonus($) Compensation($)
- -------------------------------------------------- ---- --------- -------- ---------------
Cary James O'Dwanny............................... 2000 1,200 (1) -- --
President, Treasurer and Director
- -------------
(1) Mr. O'Dwanny's base annual salary for fiscal 2001 is presently anticipated
to be $6,000. No executive officer is scheduled to receive annual
compensation in excess of $100,000 for fiscal 2001.
OPTION GRANTS IN THE LAST FISCAL YEAR. No options were granted to our Chief
Executive Officer, our only named executive officer, for our fiscal year ended
December 31, 2000.
OPTION EXERCISES IN 2000 AND AGGREGATE OPTION VALUES AT DECEMBER 31, 2000.
No options were exercised by our Chief Executive Officer, our only named
executive officer, during fiscal 2000, and, as of December 31, 2000, no
unexercised options were held by our Chief Executive Officer.
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our bylaws provide for the elimination, to the fullest extent permissible
under Wisconsin law, of the liability of our directors to us for monetary
damages. This limitation of liability does not affect the availability of
equitable remedies such as injunctive relief. Our bylaws also provide that we
shall indemnify our directors and officers against certain liabilities that may
arise by reason of their status or service as directors or officers, other than
liabilities arising from certain specified misconduct. We are required to
advance their expenses incurred as a result of any proceeding against them for
which they could be indemnified, including in circumstances in which
indemnification is otherwise discretionary under Wisconsin law. At the present
time, there is no pending litigation or proceeding involving a director,
officer, employee or other agent of our company in which indemnification would
be required or permitted. We are not aware of any threatened litigation or
proceeding which may result in a claim for such indemnification.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
Grant of Options
During December, 2000, we granted options to purchase 100,000 shares of our
common stock to four persons, all of whom are officers, directors and/or
employees of Harp & Eagle. These options were granted pursuant to a plan adopted
by our shareholders as of September 15, 1999 and were affected by the 1 for 3
reverse stock effected April 4, 2001, which reduced the aggregate number of
shares subject to such options to approximately 33,333. Options to purchase
8,333 shares were granted to each of the following persons: Gerard Dunne,
Richard A. Kranitz, Sean D. O'Dwanny and Dennis J. Radtke. All of such options
are exercisable for a period of ten years, at the price of $3.00 per share.
These options will become fully vested and exercisable on July 1, 2007, provided
that, prior to that date, the registration statement relating to this offering
has become effective. The exercise price of these options was determined by us
to reflect the fair value of our common stock as of December 31, 2000.
Use of Proceeds to Repay Indebtedness
We intend to apply the net proceeds of this offering, up to the approximate
aggregate amount and in the order of priority shown below, to repay outstanding
indebtedness:
- First, approximately $340,000 owed to Johnson Bank, an unrelated party,
bearing interest at the prime rate plus 0.5% (6.5% at September 30,
2001), due April 30, 2002.
- Second, $33,000 owed to Grafton State Bank, an unrelated party, bearing
interest at the rate of 6% per annum, due on demand;
- Third, approximately $13,000 owed to Cary James O'Dwanny, our President
and a director, bearing no interest, due on demand; and
- Fourth, $100,000 owed to Richard Peterson, one of our non-affiliate
shareholders, bearing interest at the rate of 9% per annum, due on
demand.
Proceeds of the above loans were provided to Castledaly Acquisition
Corporation to finance the improvement and operation of the Castledaly Manor inn
and restaurant. We assumed some of this indebtedness in connection with our
acquisition of Castledaly Acquisition Corporation, as described in the following
paragraph. Also see "Use of Proceeds" for additional information concerning the
purposes for which we intend to utilize the proceeds of this offering.
Acquisition of Castledaly Acquisition Corporation
In a series of transactions during 2000 and the first six months of 2001,
we acquired all of the outstanding shares of common stock of Castledaly
Acquisition Corporation in exchange for (1) the issuance of Harp & Eagle common
stock with an aggregate value of $466,682 and (2) our assumption of outstanding
indebtedness of Castledaly Acquisition Corporation in the aggregate amount of
$241,000, including indebtedness to, or guaranteed by, certain of our directors,
officers, shareholders and affiliates, as follows:
- Johnson Bank - $168,000 guaranteed by County Clare, Ltd.;
- County Clare, Ltd. - $40,000; and
- Grafton State Bank - $33,000 guaranteed by Cary James O'Dwanny, F.
Fuller McBride and Richard A. Kranitz.
20
CONFLICTS OF INTEREST
Certain potential conflicts of interest are inherent in the relationships
between our affiliates and us.
From time to time, one or more of our affiliates may form or hold an
ownership interest in and/or manage other businesses both related and unrelated
to the type of business that we own and operate. These persons expect to
continue to form, hold an ownership interest in and/or manage additional other
businesses which may compete with ours with respect to operations, including
financing and marketing, management time and services and potential customers.
These activities may give rise to conflicts between or among the interests of
Harp & Eagle and other businesses with which our affiliates are associated. Our
affiliates are in no way prohibited from undertaking such activities, and
neither we or our shareholders will have any right to require participation in
such other activities.
Further, because we intend to transact business with some of our officers,
directors and affiliates, as well as with firms in which some of our officers,
directors or affiliates have a material interest, potential conflicts may arise
between the respective interests of Harp & Eagle and these related persons or
entities. For example, we may buy additional shares of common stock of County
Clare, Ltd., the corporation which owns and operates County Clare, an
Irish-theme inn and restaurant located in Milwaukee, Wisconsin. As of June 30,
2001, we already held a 6% minority interest in County Clare, Ltd. and options
to purchase an additional 16,500 shares (approximately 11%) at the price of
$1.00 per share. Cary James O'Dwanny, who is the President, treasurer, a
director and significant shareholder of Harp & Eagle, is also an officer,
director and shareholder of County Clare, Ltd.
We believe that such transactions will be effected on terms at least as
favorable to us as those available from unrelated third parties, and, with
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that (1) the fact of the
relationship or interest giving rise to the potential conflict be disclosed or
known to the directors who authorize or approve the transaction prior to such
authorization or approval, (2) the transaction be approved by a majority of our
disinterested outside directors and (3) the transaction be fair and reasonable
to Harp & Eagle at the time it is authorized or approved by our directors.
Kranitz & Philipp, our securities counsel, are also counsel to Liss
Financial Services, the managing placement agent. We will be represented by
other independent counsel in all instances, including securities law matters,
where our interests are deemed by us to conflict with those of the managing
placement agent.
21
PRINCIPAL STOCKHOLDERS
The following table sets forth as of September 30, 2001, and as adjusted to
reflect the sale of the minimum offering of 60,000 shares, certain information
with respect to the beneficial ownership of our common stock by:
- each person known by us to beneficially own more than 5% of our common
stock;
- each of our directors;
- our sole named executive officer; and o all of our directors and
executive officers as a group.
We believe that, subject to applicable community and marital property laws,
the beneficial owners of our common stock listed below have sole voting and
dispositive power with respect to such shares.
Shares beneficially owned Shares beneficially owned
prior to offering after minimum offering (1)
------------------------- --------------------------
Name and Address of Beneficial Owner Number Percent Number Percent
- ------------------------------------- --------- --------- -------- ---------
Cary James O'Dwanny................................... 333,334 51.3% 333,334 47.0%
1234 North Astor Street
Milwaukee, WI 53202
Gerard Dunne ......................................... - - - -
Castledaly, Moate
County Westmeath, Ireland
Dennis J. Radtke...................................... - - - -
1234 North Astor Street
Milwaukee, WI 53202
Sean D. O'Dwanny...................................... - - - -
52 Stafford Street
Plymouth, WI 53073
Richard A. Kranitz.................................... 8,334 1.3% 8,334 1.2%
1238 Twelfth Avenue
Grafton, WI 53024
Michael S. Joyce...................................... 25,000 3.8% 25,000 3.5%
1201 Pennsylvania Avenue, N.W.
Washington, D.C. 20004
Thomas J. Sheehan..................................... 8,334 1.3% 8,334 1.2%
101 Falls Road
Grafton, WI 53024
All directors and executive officers
as a group (7 persons)............................. 375,002 57.7% 375,002 52.8%
- --------------
(1) Because this is a best-efforts, minimum-maximum offering, we cannot
guarantee that all or any part of the common stock offered by this
prospectus in excess of the minimum offering of 60,000 shares will be sold.
See "Risk Factors" and "Underwriting" for information concerning this type
of offering. If the number of shares of common stock sold in the offering,
as arbitrarily selected by us for purposes of illustration only, is assumed
to be 250,000 shares, 500,000 shares, 750,000 shares or 1,000,000,
ownership percentages would be as follows:
Assumed number of shares of common stock sold in the offering
-----------------------------------------------------------------
250,000 500,000 750,000 1,000,000
Shares Shares Shares Shares
---------- ---------- ---------- ----------
Cary James O'Dwanny........................... 37.1% 29.0% 23.8% 20.2%
Gerard Dunne.................................. - - - -
Dennis J. Radtke.............................. - - - -
Sean D. O'Dwanny.............................. - - - -
Richard A. Kranitz............................ 0.9% 0.7% 0.6% 0.5%
Michael S. Joyce.............................. 2.8% 2.2% 1.8% 1.5%
Thomas J. Sheehan............................. 0.9% 0.7% 0.6% 0.5%
Directors and executive officers as a group... 41.7% 32.6% 26.8% 22.7%
22
DESCRIPTION OF SECURITIES
Our authorized capital stock consists of 10,000,000 shares of common stock,
par value $0.0001 per share, and 2,000,000 shares of preferred stock, par value
$0.0001 per share. As of the date of this prospectus, 649,661 shares of common
stock and no shares of preferred stock were outstanding.
COMMON STOCK
Holders of our common stock are entitled to one vote per share of common
stock beneficially owned on each matter submitted to a vote at a meeting of
shareholders, subject to Section 180.1150 of the Wisconsin Business Corporation
Law. Our common stock does not have cumulative voting rights, which means that
the holders of a majority of the shares of common stock can, when voting for the
election of directors, elect all of the members of our board of directors.
Our common stock has no preemptive rights and no redemption or conversion
privileges.
The holders of our common stock are entitled to receive dividends out of
assets legally available at such times and in such amounts as our board of
directors may, from time to time, determine, and upon liquidation and
dissolution are entitled to receive all assets available for distribution to the
shareholders. Under the Wisconsin Business Corporation Law, a majority vote of
shares represented at a meeting at which a quorum is present is generally
sufficient for all actions that require the vote of shareholders, However,
certain actions require approval by either a super-majority of two-thirds of all
the outstanding shares entitled to vote, and certain actions require a majority
of all outstanding shares entitled to vote. See "Description of Securities -
Anti-Takeover Provisions" for additional information concerning some of these
actions.
PREFERRED STOCK
Our board of directors has the authority, within the limitations and
restrictions in our articles of incorporation, to issue 2,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, dividend rates,
conversion rights, voting rights, terms of redemption, redemption prices,
liquidation preferences and the number of shares constituting any series or the
designation of any series, without further vote or action by the stockholders.
The issuance of preferred stock may have the effect of delaying, deferring
or preventing a change in control of Harp & Eagle without further action by the
stockholders. The issuance of preferred stock with voting and conversion rights
may adversely affect the voting power of the holders of common stock, including
voting rights, of the holders of common stock. In some circumstances, this
issuance could have the effect of decreasing the market price of the common
stock. We currently have no plans to issue any shares of preferred stock.
OPTIONS AND UNDERWRITER'S WARRANTS
As of the date of this prospectus, approximately 33,333 shares of our
common stock are subject to outstanding options. These options become fully
vested and exercisable for ten years on July 1, 2007, provided that, prior to
that date, the registration statement relating to this offering has become
effective.
In connection with this offering, we have agreed to sell to the managing
placement agent or its designee, at a purchase price of $.01 each, warrants to
purchase from us shares of common stock in an amount equal to 10% of the number
of shares of common stock sold in this offering. See "Underwriting" for a
complete description of the terms and conditions of these underwriter's
warrants.
Also see "Shares Eligible for Future Sale" for additional information
concerning potential future sales of our common stock.
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LIMITATION OF DIRECTOR LIABILITY
Section 180.0828 of the Wisconsin Business Corporation Law provides that
our directors can be held personally liable only for intentional breaches of
fiduciary duties, criminal acts, transactions from which the director derived an
improper personal profit and wilful misconduct. This provision may have the
effect of reducing the likelihood of derivative litigation against directors and
may discourage or deter shareholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefitted Harp & Eagle and its
shareholders.
INDEMNIFICATION
Under the Wisconsin Business Corporation Law, our directors and officers
are entitled to mandatory indemnification from us against certain liabilities
and expenses (1) if the officer or director is successful in the defense of an
action brought against him or her and (2) if the officer or director is not
successful in the defense of an action brought against him or her, unless, in
the latter case only, it is determined that the director or officer breached or
failed to perform his or her duties to Harp & Eagle and such breach or failure
constituted: (a) a wilful failure to deal fairly with us or our shareholders in
connection with a matter in which the director or officer had a material
conflict of interest; (b) a violation of the criminal law unless the director or
officer had reasonable cause to believe his or her conduct was lawful or had no
reasonable cause to believe his or her conduct was unlawful; (c) a transaction
from which the director or officer derived an improper personal profit; or (d)
wilful misconduct. While the Wisconsin Business Corporation Law allows us to
limit our obligation to indemnify officers and directors by so providing in our
articles of incorporation, to date we have not done so. Our bylaws provide for
the indemnification of our directors and officers by us to the fullest extent
permitted by Wisconsin law. Required indemnification payments, if any, may
adversely affect our financial condition and, accordingly, your investment in
our common stock.
ANTI-TAKEOVER PROVISIONS
Provisions of our bylaws and the Wisconsin Business Corporation Law
described in this section may delay or make more difficult acquisitions or
changes in control of Harp & Eagle which are not approved by our board of
directors. We believe that these provisions will enhance our ability to develop
our business in a manner which will foster our long-term growth without the
disruption caused by the threat of a takeover that our board of directors does
not consider to be in the best interests of Harp & Eagle and its shareholders,
particularly, but not exclusively, in the initial years of our existence as a
publicly-traded company. These provisions could have the effect of discouraging
third parties from making proposals involving an acquisition or change in
control of Harp & Eagle, although such proposals, if made, might be considered
desirable by a majority of our shareholders. These provisions may also have the
effect of making it more difficult for third parties to cause the replacement of
our current management without the concurrence of our board of directors.
Number of Directors; Removal; Vacancies. Our bylaws currently provide that
we may have up to seven directors. The authorized number of directors may be
changed by amendment of the bylaws. The bylaws also provide that the our board
of directors shall have the exclusive right to fill vacancies on the board,
including vacancies created by expansion of the board or removal of a director,
and that any director elected to fill a vacancy shall serve until the next
annual meeting of our shareholders. The bylaws further provide that directors
may be removed by the shareholders only by the affirmative vote of the holders
of at least a majority of the votes then entitled to be cast in an election of
directors. This provision, in conjunction with the provisions of the bylaws
authorizing the board to fill vacant directorships, could prevent shareholders
from removing incumbent directors and filling the resulting vacancies with their
own nominees.
Amendments to the Articles of Incorporation. The Wisconsin Business
Corporation Law provides authority to Harp & Eagle to amend its articles of
incorporation at any time to add or change a provision that is required or
permitted to be included in the articles or to delete a provision that is not
required to be included in such articles. Our board of directors may propose one
or more amendments to our articles of incorporation for submission to a
24
shareholder vote. The board may condition its submission of the proposed
amendment on any basis it chooses if the board notifies each shareholder,
whether or not entitled to vote, of the shareholders' meeting at which the
proposed amendment will be voted upon.
Constituency or Stakeholder Provision. Section 180.0827 of the Wisconsin
Business Corporation Law provides that, in discharging his or her duties to Harp
& Eagle and in determining what he or she believes to be in our best interests,
a director or officer may, in addition to considering the effects of any action
on shareholders, consider the effects of the action on employees, suppliers,
customers, the communities in which we operate, so-called "stakeholders," and
any other factors that the director or officer considers pertinent.
Wisconsin Anti-Takeover Statutes. Sections 180.1140 to 180.1144 of the
Wisconsin Business Corporation Law regulate the broad range of "business
combinations" between a "resident domestic corporation," such as Harp & Eagle,
and an "interested stockholder." The law defines a "business combination" to
include a merger or share exchange, or a sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets equal to at least 5% of the
market value of our stock or assets, 10% of our earning power, or the issuance
of stock or rights to purchase stock with a market value equal to at least 5% of
our outstanding stock, the adoption of a plan of liquidation or dissolution and
certain other transactions involving an "interested stockholder," defined as a
person who beneficially owns 10% of the voting power of our outstanding voting
stock or who is an affiliate or associate of Harp & Eagle and beneficially owned
10% of the voting power of our then outstanding voting stock within the last
three years.
Section 180.1141 of the Wisconsin Business Corporation Law prohibits us
from engaging in a business combination, other than a business combination of a
type specifically excluded from the coverage of the statute, with an interested
stockholder for a period of three years following the date such person becomes
an interested stockholder, unless our board of directors approved the business
combination or the acquisition of the stock that resulted in a person becoming
an interested stockholder before such acquisition. Accordingly, the statutory
prohibition against business combinations cannot be avoided during the
three-year period by subsequent action of the board of directors or
shareholders. Business combinations after the three-year period following the
stock acquisition date are permitted only if (1) our board of directors approved
the acquisition of the stock by the interested stockholder prior to the
acquisition date, (2) the business combination is approved by a majority of our
outstanding voting stock that is not beneficially owned by the interested
stockholder, or (3) the consideration to be received by our shareholders meets
certain requirements of the statute with respect to form and amount.
In addition, the Wisconsin Business Corporation Law provides in Sections
180.1130 to 180.1133 that business combinations involving a "significant
shareholder," as defined below, and a "resident domestic corporation," such as
Harp & Eagle, are subject to a two-thirds supermajority vote of shareholders.
Compliance with this "fair price" provision is in addition to any approval
otherwise required. A "significant shareholder," with respect to a resident
domestic corporation, is defined as a person who beneficially owns, directly or
indirectly, 10% or more of the voting stock of the corporation, or an affiliate
of the corporation which beneficially owned, directly or indirectly, 10% or more
of the voting stock of the corporation within the last two years. We anticipate
that after this offering we will be an "issuing public corporation" for purposes
of the defensive action restrictions discussed below.
Under the Wisconsin Business Corporation Law, the business combinations
described above must be approved by 80% of the voting power of our stock and at
least two-thirds of the voting power of our stock that is not beneficially held
by the significant shareholder who is a party to the relevant transaction or any
of its affiliates or associates, in each case voting together as a single group,
unless the following fair price standards have been met: (1) the aggregate value
of the per share consideration is equal to the higher of (a) the highest price
paid for any of our common stock by the significant shareholder in the
transaction in which it became a significant shareholder within two years before
the date of the business combination, (b) the market value of our shares on the
date of commencement of any tender offer by the significant shareholder, the
date on which the person became a significant shareholder or the date of the
first public announcement of the proposed business combination, whichever is
highest, or (c) the highest liquidation or dissolution distribution to which
holders of the shares would be entitled, and (2) either cash, or the form of
consideration used by the significant shareholder to acquire the largest number
of shares, is offered.
25
Section 180.1134 of the Wisconsin Business Corporation Law contains
defensive action restrictions and provides that, in addition to the vote
otherwise required by law or the articles of incorporation of an issuing public
corporation, the approval of the holders of a majority of the shares entitled to
vote is required before we can take certain action while a takeover offer is
being made or after a takeover offer has been publicly announced and before it
is concluded. Under these defensive action restrictions, shareholder approval is
required for us to (1) acquire more than 5% of our outstanding voting shares at
a price above the market price from any individual who or organization which
owns more than 3% of our outstanding voting shares and has held such shares for
less than two years, unless a similar offer is made to acquire all of our voting
shares, or (2) sell or option assets of Harp & Eagle which amount to at least
10% of our market value, unless we have at least three directors who are not
officers or employees and a majority of these independent directors vote not to
have this provision apply to us.
The restrictions described in clause (1) of the preceding paragraph may
have the effect of deterring a shareholder from acquiring shares of our common
stock with the goal of seeking to have us repurchase such shares at a premium
over the market price.
Under Section 180.1150 of the Wisconsin Business Corporation Law, the
voting power of our common stock, held by any person or persons acting as a
group, which is in excess of 20% of the voting power in the election of
directors is limited to 10% of the full voting power of such common stock. This
statutory voting restriction does not apply to shares acquired directly from us
or in certain specified transactions or shares for which full voting power has
been restored pursuant to a vote of our shareholders.
Anti-Takeover Consequences. Certain provisions of our articles of
incorporation and bylaws may have significant anti-takeover affects, including
the inability of our shareholders to remove directors without cause, and the
ability of the remaining directors to fill vacancies.
The explicit grant of discretion to directors to consider non-shareholder
constituencies could, in the context of an "auction" of the Company, have
antitakeover effects in situations where the interests of "stakeholders" of our
company, including employees, suppliers, customers and communities in which we
do business, conflict with the short-term maximization of shareholder value.
The fair price provision may discourage any attempt by a shareholder to
squeeze out other shareholders without offering an appropriate premium purchase
price. In addition, the defensive action restrictions may have the effect of
deterring a shareholder from acquiring our common stock with the goal of seeking
to have us repurchase the common stock at a premium. The statutory and bylaw
provisions referenced above are intended to encourage persons seeking to acquire
control of Harp & Eagle to initiate such an acquisition through arms-length
negotiations with our board of directors, and to ensure that sufficient time for
consideration of such a proposal, and any alternatives, is available. These
measures are also designed to discourage investors from attempting to accumulate
a significant minority position in our company and then using the threat of a
proxy contest as a means to pressure us to repurchase shares of our common stock
at a premium over the market value. To the extent that such measures lessen the
likelihood of a proxy contest or the assumption of control by a holder of a
substantial block of our common stock, they could increase the likelihood that
incumbent directors will retain their positions, and may also have the effect of
discouraging a tender offer or other attempt to obtain control of Harp & Eagle,
even though such attempt might be beneficial to us and to our shareholders.
TRANSFER AGENT AND REGISTRAR
We are currently the transfer agent and registrar for our common stock.
26
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock, and sales of substantial amounts of common stock in the public market
after this offering could adversely affect market prices prevailing from time to
time and could impair our ability to raise capital through the sale of equity
securities.
SALES OF RESTRICTED SHARES
Upon completion of this offering, assuming that the entire offering is
sold, 1,649,661 shares of our common stock will be outstanding. All of the
shares we sell in this offering will be freely tradable without restriction or
further registration under the Securities Act, except that any shares purchased
by our affiliates, as that term is defined in Rule 144 under the Securities Act,
may generally only be sold in compliance with Rule 144. In general, our
affiliates are any persons that directly, or indirectly through one or more
intermediaries, control, or are controlled by, or are under common control with,
Harp & Eagle.
The remaining 649,661 shares of common stock outstanding following this
offering will be restricted securities under the terms of the Securities Act.
Sales of these restricted shares may be limited by Rule 144 and, in some cases,
by lock-up agreements. Under these agreements, we, our officers, directors and
respective affiliates have agreed, subject to limited exceptions, not to sell,
transfer or otherwise dispose of, directly or indirectly, any shares of common
stock, or any securities convertible or exchangeable for shares of common stock,
for a period of 120 days after the date of this prospectus without the prior
written consent of Liss Financial Services, the managing placement agent. Liss
Financial Services, however, may in its sole discretion, at any time and without
notice, release all or any portion of the shares of common stock subject to
lock-up agreements.
Upon the expiration of the 120-day lock-up period, or earlier with the
written consent of Liss Financial Services, 375,002 restricted shares held by
our affiliates will become eligible for sale in the public market, subject to
the volume, availability of public information, manner of sale and notice
requirements of Rule 144. 119,003 restricted shares held by non-affiliates and
not subject to lock-up agreements became initially eligible for sale under Rule
144 prior to September 30, 2001, subject to the same Rule 144 restrictions and
requirements as sales by our affiliates, and 145,322 shares were eligible for
sale under Rule 144(k), without such restrictions as described below, as of that
date. 10,334 shares have become or will become eligible for sale during the
fourth quarter of 2001, also subject to the same Rule 144 restrictions as sales
by our affiliates. Also see "Description of Securities" concerning common stock
issuable upon the exercise of options and warrants.
RULE 144
In general, under Securities Act Rule 144, a stockholder who owns
restricted shares that have been outstanding for at least one year is entitled
to sell, within any three-month period, a number of these restricted shares that
does not exceed the greater of:
- 1% of the then outstanding shares of common stock, or approximately
16,497 shares immediately after this offering, assuming the entire
offering is sold, or
- the average weekly reported trading volume in the common stock during
the four calendar weeks preceding filing of a notice on Form 144 with
respect to the sale.
In addition, our affiliates must comply with the restrictions and
requirements of Rule 144, other than the one-year holding period requirement, to
sell shares of common stock that are not restricted securities. Sales under Rule
144 are also governed by manner of sale provisions and notice requirements, and
current public information about us must be available. Under Rule 144(k), a
stockholder who is not currently, and who has not been for at least three months
before the sale, an affiliate of ours and who owns restricted shares that have
been outstanding for at least two years may resell these restricted shares
without compliance with the above requirements. The one- and two-year holding
periods described above do not begin to run until the full purchase price is
paid by the person acquiring the restricted shares from us or an affiliate of
ours.
27
UNDERWRITING
We have entered into a managing placement agent agreement with Liss
Financial Services, providing for the sale of this offering. The principal
offices of the managing placement agent are located at 424 East Wisconsin
Avenue, Milwaukee, Wisconsin 53202, and its telephone number is (414) 225-3555.
Liss Financial Services, as managing placement agent, may engage other
broker-dealer members of the NASD to participate as selected placement agents in
this offering of our common stock.
This is a "best-efforts," "minimum-maximum" offering. Our selected
placement agents, including the managing placement agent, are not obligated (1)
to sell on our behalf any number or dollar amount of our common stock in excess
of the 60,000-share minimum offering or (2) to purchase any number or dollar
amount of shares at any time. These agents have agreed to use their best efforts
to sell on our behalf all of the common stock offered by this prospectus.
However, we cannot guarantee how much stock in excess of the required minimum,
if any, will actually be sold in this offering. See "Risk Factors" for
additional information concerning this type of offering.
All funds received from subscribers for our common stock will be held in
escrow by Grafton State Bank, Grafton, Wisconsin, as escrow agent, pursuant to
an agreement among us, the managing placement agent and the escrow agent.
Pending disbursement, subscription proceeds will be deposited in a segregated
account and invested in short-term United States government securities,
securities guaranteed by the United States government, certificates of deposit
or time or demand deposits in commercial banks located in the United States.
In the event that at least 60,000 shares of Common Stock have not been sold
within 120 days from the date of this prospectus, the offering will terminate
and all funds received from subscribers will be promptly returned in full by the
escrow agent directly to subscribers, without interest or deduction, as provided
in the escrow agreement. Provided that at least 60,000 shares of Common Stock
are sold within the foregoing period, we may continue to offer our common stock
for sale until (1) 1,000,000 shares are sold or (2) December 31, 2002, whichever
occurs first. However, we may terminate the offering at any earlier time if we
choose to do so.
For services performed by it pursuant to the escrow agreement, we will pay
to the escrow agent fees in the amounts of $2,500, plus $250 per closing and $10
per subscriber (whether accepted or rejected); provided, however, that the
escrow agent shall receive, in the aggregate, not less than $3,000 in
consideration of its services rendered pursuant to the terms of the escrow
agreement.
We propose to offer our common stock to the public at the public offering
price set forth on the cover page of this prospectus, and will pay to Liss
Financial Services, the managing placement agent, commissions in an amount equal
to 8% of the aggregate purchase price of the common stock sold. The managing
placement agent may reallow all or any part of such commissions to any other
selected placement agent, up to an amount equal to 8% of the aggregate purchase
price of the common stock sold in this offering by that selected placement
agent. We have also agreed to pay to the managing placement agent a
non-accountable expense allowance equal to 2% of the aggregate purchase price of
the common stock sold in this offering. The managing placement agent may reallow
all or any part of such expense allowance to any other selected placement agent,
up to an amount equal to 2% of the aggregate purchase price of the common stock
sold in this offering by that selected placement agent.
Liss Financial Services has informed us that the selected placement agents,
including the managing placement agent, will not confirm sales of common stock
offered by this prospectus to accounts over which they exercise discretionary
authority.
To purchase common stock in this offering, a prospective investor must (1)
complete and sign a subscription agreement, in the form attached to this
prospectus as Exhibit A, and any other documents that we or the managing
placement agent may require and (2) deliver such documents, together with
payment in an amount equal to the full purchase price the shares of common stock
being purchased, to the selling selected placement agent. Checks should be made
payable to "Grafton State Bank, Escrow Agent." Each subscription payment must be
transmitted to the escrow agent by 12:00 noon on the business day next following
its receipt by a selected placement agent.
28
We will determine, in our sole discretion, to accept or reject
subscriptions within five days following their receipt. Funds of an investor
whose subscription is rejected will be promptly returned directly to such person
by the escrow agent, without interest or deduction. No subscription may be
withdrawn, revoked or terminated by the purchaser. We reserve the right to
refuse to sell our common stock to any person at any time.
We, our officers, directors and respective affiliates have agreed, subject
to limited exceptions, not to sell, transfer or otherwise dispose of, directly
or indirectly, any shares of common stock or any securities convertible or
exchangeable for shares of common stock for a period of 120 days after the date
of this prospectus without the prior written consent of the managing placement
agent, Liss Financial Services, which may, in its sole discretion, at any time
and without notice, release all or any portion of the common stock subject to
lock-up agreements.
In connection with this offering, we have agreed to sell to the managing
placement agent or its designee, which designee must be another selected
placement agent or a bona fide officer or partner of a selected placement agent,
at a purchase price of $.01 each, warrants to purchase from us shares of common
stock in an amount equal to 10% of the number of shares of common stock sold in
this offering. These underwriter's warrants are exercisable for a period of four
years, commencing one year after the date of this prospectus, at an exercise
price equal to 135% of the price per share set forth on the cover page of this
prospectus. The underwriter's warrants may not be sold, hypothecated, exercised,
assigned or transferred for a period of one year after the initial effective
date of the registration statement, except to partners or officers of the
selected placement agents (including the managing placement agent). The
underwriter's warrants contain provisions for adjustment of the exercise price
upon the occurrence of certain events, including stock dividends, stock splits,
recapitalizations and the issuance of our common stock for consideration less
than the exercise price. The holders of underwriter's warrants have no voting,
dividend or other rights as stockholders of Harp & Eagle with respect to shares
underlying their warrants, unless and until the underwriter's warrants have been
exercised.
A new registration statement or post-effective amendment to the
registration statement of which this prospectus is a part will be required to be
filed and declared effective before distribution to the public of shares of our
common stock issuable upon exercise of the underwriter's warrants. We have
agreed, on one occasion when requested, to make necessary filings, at our
expense, in order to permit a public offering of the shares underlying the
underwriter's warrants during the period beginning one year and ending five
years after the date of this prospectus, and to use our best efforts to cause
that registration statement or post-effective amendment to become effective and
remain effective for a period of at least one year. In addition, we have agreed
that, during the same four-year period, we will (1) give advance notice to
holders of underwriter's warrants and shares issued upon the exercise of
underwriter's warrants, if any, of our intention to file a registration
statement and (2) include, at the option of the holder, any common stock issued
upon the exercise of underwriter's warrants in that registration statement, at
our expense, and to maintain the effectiveness of such registration statement
for a period of at least one year.
For the period during which the underwriter's warrants are exercisable, the
managing placement agent and any transferee will have the opportunity to profit
from a rise in the market price of our common stock, with a resulting dilution
in the interest of our other stockholders. In addition, the terms on which we
will be able to obtain additional capital during the exercise period may be
adversely affected in that the warrant holder is likely to exercise the
underwriter's warrants at a time when we would, in all likelihood, be able to
obtain capital by a new offering of securities on terms more favorable than
those provided by the underwriter's warrants.
We and the selected placement agents have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933.
On November 10, 1998, Liss Financial Services, the managing placement
agent, and Jerome E. Liss, its President, consented to the issuance of orders of
prohibition and censure by the Wisconsin Division of Securities. These orders
related to Liss Financial Services' private offering of participations in
certain equipment leasing programs to accredited and high net worth subscribers
and were issued without Liss Financial or Jerome Liss admitting or denying the
Division's allegations.
29
The orders, in summary, required that Liss Financial Services and Jerome
Liss only sell securities in compliance with Wisconsin's registration
requirements and insure that securities sales are made only to suitable
subscribers; required Liss Financial Services to engage an onsight compliance
supervisor; required Liss Financial Services and Jerome Liss to submit certain
reports to the Division; required Liss Financial Services to hire a qualified
person to conduct an annual audit of compliance procedures; required the
creation of a recovery fund; and included Mr. Liss's agreement not to act as a
securities agent supervisor. Liss Financial Services fully complied with its
order, which expired after its two-year term in November, 2000. Jerome Liss is
in full compliance with the terms of the order relating to him individually.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price has been determined by negotiations
between us and the managing placement agent and is not necessarily related to
our asset value, net worth, results of operations or other established criteria
of value. The factors considered in determining the initial offering price
include the history of and the prospects for Harp & Eagle and the industry in
which we operate, our past and present operating results and the trends of such
results, our financial condition, the experience of our management, the market
price of publicly traded stock of comparable companies in recent periods and the
general condition of the securities markets at the time of this offering.
LEGAL MATTERS
The validity of the shares of our common stock offered through this
prospectus will be passed upon for us by Kevin B. Dunn Esq., Milwaukee,
Wisconsin. Legal matters relating to this offering will be passed upon for the
managing placement agent by Kranitz & Philipp, Milwaukee, Wisconsin. Richard A.
Kranitz, a partner in the law firm of Kranitz & Philipp, is a director and the
Secretary of Harp & Eagle.
EXPERTS
Cherry, Bekaert & Holland, L.L.P., independent certified public
accountants, have audited the consolidated financial statements of Harp & Eagle
and its subsidiaries as of December 31, 2000, and for each of the two years then
ended, as set forth in their report. We have included such consolidated
financial statements in this prospectus in reliance upon the report of Cherry,
Bekaert & Holland, L.L.P., given on their authority as experts in auditing and
accounting.
On November 1, 2001, we engaged Cherry, Bekaert & Holland, L.L.P. as our
principal independent public accountants and auditors upon the resignation of
Schenck & Associates, S.C. No report issued at any time by Schenck & Associates,
S.C. on the financial statements of Harp & Eagle or its subsidiaries has
contained an adverse opinion or disclaimer of opinion, or was modified as to
uncertainty, audit scope or accounting principles. Further, there were no
disagreements with Schenck & Associates, S.C., whether or not resolved, on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which, if not resolved to the satisfaction of
Schenck & Associates, S.C., would have caused them to make reference to the
subject matter of the disagreement(s) in connection with their report.
The change in accountants described above was approved by our board of
directors.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form SB-2 under the
Securities Act of 1933 with respect to the common stock to be sold in this
offering. This prospectus does not contain all of the information set forth in
the registration statement and the exhibits and schedules to the registration
statement. For further information with respect to us and the common stock to be
sold in this offering, we refer you to the registration statement and the
exhibits and schedules filed as part of the registration statement. Statements
contained in this prospectus concerning the contents of any contract or any
other document are not necessarily complete. If a contract or document has been
filed as an exhibit to the registration statement, we refer you to the copy of
the contract or
30
document that has been filed. Each statement in this prospectus relating to a
contract or document filed as an exhibit is qualified in all respects by the
filed exhibit. The registration statement, including exhibits and schedules
filed with it, may be inspected without charge at the SEC's public reference
rooms at:
- Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549;
- 233 Broadway, New York, New York 10279; or
- Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.
Copies of all or any part of the registration statement may be obtained
from such office after payment of fees prescribed by the SEC. Please call the
SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. The SEC also maintains a Web site that contains registration
statements, reports, proxy and information statements and other information
regarding registrants, including us, that file electronically with the SEC at
http://www.sec.gov.
Upon the effectiveness of this offering, we expect to become subject to the
information and periodic reporting requirements of the Securities Exchange Act
of 1934 and, accordingly, will file annual reports containing consolidated
financial statements audited by an independent public accounting firm, quarterly
reports containing unaudited consolidated financial data, current reports, proxy
statements and other information with the SEC. You will be able to inspect and
copy such periodic reports, proxy statements and other information at the SEC's
public reference room, and the Web site of the SEC referred to above.
INDEX TO FINANCIAL STATEMENTS
Page
----
Independent Auditors' Report ................................................................................ F-1
Financial Statements:
Consolidated Balance Sheet at December 31, 2000 (audited)
and September 30, 2001 (unaudited).................................................................. F-2
Consolidated Statement of Operations for the years ended December 31, 2000
and 1999 (audited) and the nine months ended September 30, 2001 and
2000 (unaudited)................................................................................... F-4
Consolidated Statement of Changes in Stockholders' Equity for the years
ended December 31, 2000 and 1999 (audited) and the nine months ended
September 30, 2001 and 2000 (unaudited)............................................................. F-5
Consolidated Statement of Cash Flows for the years ended December 31, 2000
and 1999 (audited) and the nine months ended September 30, 2001 and 2000 (unaudited)................ F-9
Notes to Consolidated Financial Statements.............................................................. F-11
31
Independent Auditors' Report
Board of Directors
Harp & Eagle, Ltd.
Milwaukee, Wisconsin
We have audited the accompanying consolidated balance sheet of Harp & Eagle,
Ltd. and Subsidiaries as of December 31, 2000 and the related consolidated
statements of operations, changes in stockholders' equity, and cash flows for
each of the two years in the period then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated 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 financial position of Harp & Eagle, Ltd.
and Subsidiaries as of December 31, 2000 and the results of their operations and
cash flows for each of the two years in the period then ended in conformity with
accounting principles generally accepted in the United States of America.
CHERRY, BEKAERT & HOLLAND, L.L.P.
Charlotte, North Carolina
November 16, 2001
F-1
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2000 September 30, 2001
----------------- ------------------
ASSETS (Unaudited)
------
Current assets
Cash and cash equivalents $ 260,485 $ 46,799
Accounts receivable 1,555 2,460
Due from related party 11,882 11,882
Prepaid expense 85,778 112,410
Inventory 5,980 12,125
---------- ----------
Total current assets 365,680 185,676
---------- ----------
Property and equipment
Land 179,400 173,235
Buildings and improvements 913,482 1,034,042
Furniture, fixtures and equipment 119,478 339,704
---------- ----------
1,212,360 1,546,981
Less accumulated depreciation 87,636 141,460
---------- ----------
Net property and equipment 1,124,724 1,405,521
---------- ----------
Other assets
Goodwill, net of accumulated amortization of $1,938 at
December 31, 2000 and $2,810 at September 30, 2001 15,500 14,628
Amounts receivable from shareholder 19,411 19,411
Costs of issuing stock 62,725 122,050
Deferred tax asset 38,361 29,049
Investment in affiliated company 326,300 326,300
---------- ----------
Total other assets 462,297 511,438
---------- ----------
$1,952,701 $2,102,635
========== ==========
See notes to consolidated financial statements.
F-2
LIABILITIES AND December 31, 2000 September 30, 2001
STOCKHOLDERS' EQUITY ----------------- ------------------
(Unaudited)
Current liabilities
- -------------------
Bank overdraft $ 10,923 $ 517
Notes payable - related parties 152,700 112,700
Notes payable - other 33,000 371,117
Current maturities of long-term debt 8,000 37,205
Accounts payable 31,544 30,463
Accrued liabilities:
Interest 62,784 14,971
Other 43,798 37,292
Customer deposits 254,972 148,185
----------- -----------
Total current liabilities 597,721 752,450
Long-term debt, less current maturities 597,816 526,920
----------- -----------
Total liabilities 1,195,537 1,279,370
----------- -----------
Commitments and contingencies (Note 8)
Stockholders' equity
Preferred stock -- --
Common stock 151 195
Additional paid-in capital 1,184,275 1,185,175
Accumulated deficit (286,316) (248,704)
Foreign currency translation adjustment (140,946) (113,401)
----------- -----------
Total stockholders' equity 757,164 823,265
----------- -----------
$ 1,952,701 $ 2,102,635
=========== ===========
F-3
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Operations
Years ended Nine-Month Periods ended
---------------------------------------- -----------------------------------------
December 31, 2000 December 31, 1999 September 30, 2001 September 30, 2000
----------------- ----------------- ------------------ ------------------
(Unaudited) (Unaudited)
Sales $ 861,663 $ 272,326 $ 1,085,108 $ 596,447
Cost of sales 107,265 72,657 89,112 88,846
Operating expenses 640,934 303,161 900,993 514,056
-------- -------- -------- -------
Income (loss) from operations 113,464 (103,492) 95,003 (6,455)
-------- --------- ------- -------
Other income (expense)
Interest income 6,907 1,857 5,651 3,839
Interest expense (68,193) (64,015) (53,730) (49,982)
-------- -------- -------- --------
Other expense, net (61,286) (62,158) (48,079) (46,143)
-------- -------- -------- --------
Income (loss) before provision
for income taxes 52,178 (165,650) 46,924 (52,598)
Provision for income taxes 4,573 (18,672) 9,312 (4,576)
------ -------- ------ -------
Net income (loss) $ 47,605 $ (146,978) $ 37,612 $ (48,022)
========= =========== ========= ==========
Net income (loss) per common
share $ 0.10 not meaningful $ 0.07 $ (0.10)
See notes to consolidated financial statements.
F-4
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Common
Preferred Shares Common
Stock Outstanding Stock
----- ----------- -----
1999
- --------------------------------------------------------------------------
Balance January 1, 1999 $ - - $ -
Capital of Castledaly Acquisition Corporation as of January 1, 1999 - - -
Comprehensive loss:
Net loss - - -
Foreign currency translation adjustment - - -
Total comprehensive loss
Issuance of common stock by Castledaly Acquisition Corporation - - -
Issuance of stock subscriptions - - -
--------- ----------- ------
Balance December 31, 1999 - - -
2000
- --------------------------------------------------------------------------
Comprehensive loss:
Net loss - - -
Foreign currency translation adjustment - - -
--------- ----------- ------
Total comprehensive loss
Balance September 30, 2000 - - -
Comprehensive income:
Net income - - -
Foreign currency translation adjustment - - -
Total comprehensive income:
Non-cash compensation of officer - - -
Issuance of common stock
For cash - 85,336 25
Acquisition of shares in Castledaly
Acquisition Corporation - 147,086 44
Settlement of stock subscription receivable
Acquisition of minority interest in County Clare, Ltd. - 271,917 82
--------- ----------- ------
Balance December 31, 2000 $ - 504,339 $ 151
See notes to consolidated financial statements.
F-5
Accumulated
Common Additional Stock Other
Stock Paid-In Subscriptions Accumulated Comprehensive
Subscribed Capital Receivable Deficit Loss Total
---------- ------- ---------- ------- ---- -----
$ - $ - $ - $ - $ - $ -
- 521,200 - (186,943) 46,302 380,559
- - - (146,978) - (146,978)
- - - - (114,244) (114,244)
--------------
(261,222)
- 6,000 - - - 6,000
100 399,900 (400,000) - - -
------------- -------------- -------------- --------------- -------------- --------------
100 927,100 (400,000) (333,921) (67,942) 125,337
--------------
- - - (48,022) - (48,022)
- - - - (21,881) (21,881)
------------- -------------- -------------- --------------- -------------- --------------
(69,903)
100 927,100 (400,000) (381,943) (89,823) 55,434
- - - 95,627 - 95,627
- - - - (51,123) (51,123)
--------------
44,504
- 1,200 - - - 1,200
- 255,975 - - - 256,000
(18) - 73,700 - - 73,726
(82) - 326,300 - - 326,300
------------- -------------- -------------- --------------- -------------- --------------
$ - $ 1,184,275 $ - $ (286,316) $ (140,946) $ 757,164
--------------
F-6
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Changes in Stockholders' Equity
Preferred Shares Common
Stock Outstanding Stock
----- ----------- -----
2001 (Unaudited)
- ---------------------------------------------------------------------------
Comprehensive income:
Net income $ - - $ -
Foreign currency translation adjustment - - -
Total comprehensive income
Non-cash compensation of officer - - -
Issuance of common stock to acquire the remaining ownership
interest in Castledaly Acquisition Corporation - 145,322 44
---------- --------- ------
Balance September 30, 2001 $ - 649,661 $ 195
========== ========= ======
Common stock - par value of $.0001 and $.0003 at December 31, 2000 and September
30, 2001, respectively, due to a one-for-three reverse stock split on April 4,
2001; 10,000,000 shares authorized, 504,339 and 649,661 shares issued at
December 31, 2000 and September 30, 2001, respectively.
Preferred stock - 2,000,000 shares authorized, no shares have been issued.
See notes to consolidated financial statements.
F-7
Accumulated
Common Additional Stock Other
Stock Paid-In Subscriptions Accumulated Comprehensive
Subscribed Capital Receivable Deficit Loss Total
---------- ------- ---------- ------- ---- -----
$ - $ - $ - $ 37,612 $ - $ 37,612
- - - - 27,545 27,545
-----------
65,157
- 900 - - - 900
- - - - - 44
---------- ----------- ----------- ----------- ----------- ------------
$ - $ 1,185,175 $ - $ (248,704) $ (113,401) $ 823,265
========== =========== =========== =========== =========== ============
F-8
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended Nine-Month Periods ended
--------------------------------------- ----------------------------------------
December 31, December 31, September 30, September 30,
2000 1999 2001 2000
--------------------------------------- ----------------------------------------
(Unaudited) (Unaudited)
Operating activities
Net income (loss) $ 47,605 $ (146,978) $ 37,612 $ (48,022)
Adjustments to reconcile net income
(loss) to net cash provided by
(used for) operating activities:
Amortization of goodwill 1,163 775 872 872
Depreciation 34,280 38,672 55,661 24,484
Deferred tax expense (benefit) 4,573 (18,672) 9,312 (4,576)
Non-cash compensation of
officer 1,200 - 900 900
Decrease (increase) in:
Accounts receivable 4,120 (3,291) 722 4,271
Prepaid expense (85,321) - (27,324) -
Inventories (2,196) 3,600 (6,257) (2,246)
Increase (decrease) in:
Bank overdraft (106,177) 20,391 (9,881) (119,460)
Accounts payable (1,908) (14,050) (721) 13,723
Accrued liabilities (3,708) 35,102 1,441 (4,367)
Customer deposits 146,037 119,469 (106,787) 92,668
---------- ---------- ----------- ----------
Net cash provided by (used for)
operating activities 39,668 35,018 (44,450) (41,753)
---------- ---------- ----------- ----------
Investing activities
Purchases of property and
equipment (196,258) (139,957) (371,574) (139,853)
Increase in amounts receivable
from shareholder (5,000) - - (5,000)
Increase in due from related
party (11,882) - - (11,882)
---------- ---------- ----------- ----------
Net cash used for investing
activities (213,140) (139,957) (371,574) (156,735)
---------- ---------- ----------- ----------
See notes to consolidated financial statements.
F-9
HARP & EAGLE, LTD. AND SUBSIDIARIES
Consolidated Statements of Cash Flows, Continued
Years ended Nine-Month Periods ended
---------------------------------------- ------------------------------------------
December 31, December 31, September 30, September 30,
2000 1999 2001 2000
---- ---- ---- ----
(Unaudited) (Unaudited)
Financing activities
Proceeds from:
Note payable $ 118,117 $ 42,000 $ 138,000 $ 53,000
Long-term debt 270,970 168,000 169,796 78,342
Retirement of:
Note payable (75,000) - (40,000) -
Long-term debt (135,485) (28,133) - (20,000)
Costs of issuing stock (62,725) - (59,325) (31,028)
Issuance of common stock 329,000 6,000 - 248,000
------------ ------------ ------------- -------------
Net cash provided by financing
activities 444,877 187,867 208,471 328,314
------------ ------------ ------------- -------------
Effect of exchange rate changes
on cash (10,920) (6,332) (6,133) (9,460)
------------ ------------ ------------- -------------
Cash and cash equivalents
Net increase (decrease) 260,485 76,596 (213,686) 120,366
Beginning of period - 9,060 260,485 -
------------ ------------ ------------- -------------
End of period $ 260,485 $ 85,656 $ 46,799 $ 120,366
============ ============ ============= =============
Supplemental cash flow information
Cash paid for interest $ 42,718 $ 56,818 $ 48,955 $ 49,806
Cash paid for taxes $ - $ - $ - $ -
F-10
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Note 1 - Nature of business and significant accounting policies
Nature of business
Harp & Eagle, Ltd. (Company) was formed in September 1999 under the
laws of the state of Wisconsin for the purpose of acquiring all of the
issued and outstanding common stock of Castledaly Acquisition
Corporation (Castledaly). During the year ended December 31, 2000, the
Company acquired approximately 63% of the outstanding common stock of
Castledaly in a series of transactions. The acquisition of Castledaly
has been accounted for in a manner similar to a pooling of interest
since it was acquired from a company under joint control and common
management. During the nine-month period ended September 30, 2001, the
Company acquired the remaining 37% ownership interest of Castledaly.
Castledaly owns 100% of its subsidiary, Castledaly Manor Limited
(Manor), which owns and operates an Irish manor house inn located in
the village of Castledaly, Ireland. The eleven-room inn opened in May
1998 and serves food and beverages on the premises. Subsequent to
December 31, 2000, the Manor expanded the capacity of the inn to
twenty-three rooms.
A significant portion of the revenues related to the Company are
dependent on travelers from the United States going to the Manor in
Ireland. Any disruption or slow down of this travel could have an
impact on the Company's operations.
Principles of consolidation
As noted above, through a series of transactions, the Company
principally through the exchange of its shares for shares in Castledaly
acquired 100% of the outstanding shares of Castledaly. Both the Company
and Castledaly had a significant number of shareholders in common, were
under common management, and had a majority of board members in common.
As a result, both entities are deemed to be under common control of the
above described control group and accordingly, the acquisition of the
Castledaly shares has been accounted for in a manner similar to
pooling-of-interests accounting.
The Company issued 147,086 shares of common stock plus cash in exchange
for the 63% interest in Castledaly. During the nine-month period ended
September 30, 2001, the Company acquired the remaining 37% ownership
interest of Castledaly exchanging 145,322 shares of the Company for the
remaining shares of Castledaly.
As noted above, Castledaly owns 100% of the Manor which has been
consolidated into Castledaly. All significant intercompany transactions
and accounts have been eliminated.
The financial statements for all periods presented contain the activity
of both Castledaly and the Company as if the business combination
described above occurred on January 1, 1999.
Use of estimates
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
F-11
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 1 - Nature of business and significant accounting policies, continued
Foreign currency translation
The assets and liabilities of the Manor, which are denominated in a
foreign currency, are translated using rates of exchange as of the end
of the period. Revenues and expenses and cash flows are translated at
weighted average rates of exchange in effect during the year. The
cumulative effect resulting from such translation is included in
accumulated other comprehensive income in the consolidated financial
statements.
Cash and cash equivalents
Cash and cash equivalents include liquid investments having a maturity
date of less than three months when originally acquired.
Inventories
Inventories, consist principally of food and beverage and, are stated
at the lower of cost, determined on the first-in, first-out (FIFO)
method, or market.
Property, equipment, and depreciation
Property and equipment are stated at cost. Expenditures for additions
and improvements are capitalized while replacements, maintenance and
repairs which do not improve or extend the lives of the respective
assets are expensed currently as incurred. Properties sold, or
otherwise disposed of, are removed from the property accounts, with
gains or losses on disposal credited or charged to the results of
operations.
Depreciation is provided over the estimated useful lives of the
respective assets, using the straight-line method for financial
reporting purposes, and, in general, accelerated methods for income tax
purposes.
Other assets and amortization
Goodwill represents the excess of the purchase price paid for the
Manor, at the date of its acquisition over the fair market value of the
net assets acquired. Goodwill is being amortized using the
straight-line method over 15 years.
Amounts receivable from shareholder
Amounts receivable from shareholder represent monies advanced by the
Company on behalf of a shareholder which are non-interest bearing and
have no stated maturity date.
Costs of issuing stock
Costs incurred directly related to an anticipated stock offering are
reflected as an asset on the balance sheets based upon management's
belief that the proposed offering will be successful. Pending the
results of the offering, these costs will ultimately offset the equity
proceeds.
Customer deposits
Customer deposits consist of monies received from customers in advance
for trips to the Manor.
F-12
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 1 - Nature of business and significant accounting policies, continued
Income taxes
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the financial
and tax basis of property and equipment, accrued liabilities and net
operating loss carryforwards. The deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred taxes are also
recognized for tax credits that are available to offset future income
taxes. Valuation allowances are established, if necessary, to reduce
any deferred tax assets to the amount that will more likely than not be
realized.
Fair value of financial instruments
Fair value approximates book value for the following financial
instruments due to their short-term nature: cash and cash equivalents,
accounts receivable, and accounts payable. Fair values of notes payable
and long-term debt are based on estimates using present value
techniques.
At December 31, 2000 and 1999 and September 30, 2001 and 2000, the
carrying values of the Company's notes payable and long-term debt
approximated their fair values as the interest rates on such financial
instruments are comparable to market rates and/or remaining principal
is due in a relatively short period of time. Fair value of unused line
of credit arrangements approximate carrying value as the terms are at
current market for similar agreements.
Revenue recognition
The Company records room revenues after guests have completed their
stay at the Manor and also records revenues for food and beverage and
other services as they are delivered to the guests. The Company
includes as part of their package prices, the cost of airfare to
Ireland and recognizes this as revenue when guests complete their stay.
The Company bears the risk of loss on the tickets when purchased until
the guest has utilized the ticket.
Advertising costs
Advertising costs are expensed as incurred. Advertising costs amounted
to $5,521 and $5,509, respectively, for the years ended December 31,
2000 and 1999.
Noncash investing and financing activities
During the year ended December 31, 2000, the Company issued 271,917
shares of its common stock in exchange for approximately 6% of the
ownership interest in County Clare, Ltd. an Irish theme Bed and
Breakfast Inn and Pub in Milwaukee, Wisconsin, and 16,500 options
exercisable for $1 which would increase the Company's ownership
interest in County Clare, Ltd. to approximately 17%. The investment in
County Clare, Ltd. was valued at $326,300 which represented
approximately 6% of the net assets of County Clare, Ltd.
F-13
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 1 - Nature of business and significant accounting policies, continued
Comprehensive income
Statement of Financial Accounting Standards No. 130 (SFAS 130),
Reporting Comprehensive Income, requires that total comprehensive
income be reported in the financial statements. Total comprehensive
income is presented in the consolidated statement of changes in
stockholders' equity.
Impact of recently issued accounting standards
SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities, issued in June 1998, as amended by SFAS No. 137 and SFAS
No. 138, established accounting and reporting requirements for
derivative instruments, including derivative instruments embedded in
other contracts. The provisions of the Statement are effective for
fiscal years beginning after June 15, 2000. The Company adopted this
statement effective January 1, 2001. The adoption of the provisions of
this statement did not have a material impact on the consolidated
financial statements of the Company.
In June 2001, the Financial Accounting Standards Board ("FASB") issued
two Statements of Financial Accounting Standards, No. 141, Business
Combinations (SFAS No. 141), and No. 142, Goodwill and Other Intangible
Assets (SFAS No. 142). SFAS No. 141 addresses financial accounting and
reporting for business combinations and supersedes APB Opinion No. 16,
Business Combinations, and FASB Statement No. 38, Accounting for
Preacquisition Contingencies of Purchased Enterprises. All business
combinations in the scope of SFAS No. 141 are to be accounted for using
one method, the purchase method. The provisions of SFAS No. 141 apply
to all business combinations initiated after June 30, 2001. Use of the
pooling-of-interest method for those business combinations is
prohibited. The Company intends to adopt this statement effective June
30, 2001. The Company expects that adopting the provisions of this
statement will not have a material impact on the consolidated financial
statements of the Company.
SFAS No. 142 addresses financial accounting and reporting for acquired
goodwill and other intangible assets and supersedes APB Opinion No. 17,
Intangible Assets. It addresses how intangible assets that are acquired
individually or with a group of other assets (but not those acquired in
a business combination) should be accounted for in financial statements
upon their acquisition. SFAS No. 142 also addresses how goodwill and
other intangible assets should be accounted for after they have been
initially recognized in the financial statements. Under SFAS No. 142,
goodwill and intangible assets that have indefinite useful lives will
not be amortized but rather will be tested at least annually for
impairment. Intangible assets that have finite useful lives will
continue to be amortized over their useful lives, but without the
constraint of the 40-year maximum life required by SFAS No. 142. The
provisions of SFAS No. 142 are required to be applied starting with
fiscal years beginning after December 15, 2001. The Company expects to
adopt the provisions of SFAS No. 142 effective January 1, 2002. The
Company expects that adopting the provisions of this statement will not
have a material impact on the consolidated financial statements of the
Company.
In June, 2001, the FASB issued the Statement of Financial Accounting
Standards, No. 143, Accounting for Asset Retirement Obligations (SFAS
No. 143). The Statement amends FASB Statement No. 19, Financial
Accounting and Reporting by Oil and Gas Producing Companies. SFAS No.
143 requires that the fair value of a liability for an asset retirement
obligation be recognized in the period it is incurred. The provisions
of this Statement are effective for fiscal years beginning after June
15, 2002. The Company expects that adopting the provisions of this
statement will not have a material impact on the consolidated financial
statements of the Company.
F-14
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 1 - Nature of business and significant accounting policies, continued
Impact of recently issued accounting standards, continued
In August, 2001, the FASB issued the Statement of Financial Accounting
Standards, No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets (SFAS No. 144). The Statement supercedes FASB
Statement 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed Of, and APB Opinion No. 30,
Reporting the Results of Operations - Reporting the Effects of Disposal
of a Segment of a Business, and Extraordinary, Unusual and Infrequently
Occurring Events and Transactions. SFAS No. 144 also amends ARB No. 51,
Consolidated Financial Statements. SFAS No. 144 establishes a single
accounting model, to dispose of by sale, for disposal of long-lived
assets. The provisions of this Statement are effective for fiscal years
beginning after December 15, 2001. The Company expects that adopting
the provisions of this statement will not have a material impact on the
consolidated financial statements of the Company.
Reverse 1 for 3 stock split
Effective April 4, 2001 the Company effected a 1 for 3 reverse stock
split. All share amounts and per share amounts have been presented
giving retroactive effect for this reverse split.
Note 2 - Concentration of credit risk
The Company maintains its cash balances in various financial institutions
located in the United States and Ireland. Balances maintained in financial
institutions located in the United States are insured by the Federal Deposit
Insurance Corporation up to $100,000 per institution. At times, the Company's
bank balances exceed this amount.
Note 3 - Investment in affiliated company
The Company owns approximately 6% of the outstanding common stock of County
Clare, Ltd. which is affiliated with the Company through common ownership. The
investment has been accounted for at cost. At December 31, 2000 the carrying
value of this investment approximated the market value. In addition, at December
31, 2000 the Company holds an option to acquire 16,500 additional shares of
County Clare, Ltd. for $1 per share which would increase its ownership
percentage to 17%.
Note 4 - Notes payable
Related party notes payable consist of the following:
County Clare, Ltd. - Related party
6% note, unsecured, due on demand $ 40,000
Cary O'Dwanny - Stockholder
Non-interest bearing note, unsecured, due on demand 12,700
Richard Peterson - Stockholder
9% note, unsecured, due on demand 100,000
----------------
$ 152,700
================
F-15
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 4 - Notes payable, continued
Other notes payable consists of the following:
Grafton State Bank
10% note, interest payable quarterly, due on demand,
personally guaranteed by three stockholders of the Company $ 33,000
================
Note 5 - Long-term debt
Long-term debt consists of the following:
Ulster Bank, Ireland
Mortgage note, due in monthly installments of $3,211
due February 1, 2013, interest at Irish prime less .5% (7.5% at
December 31, 2000), secured by substantially all real estate
with a net book value of $1,001,692 at December 31, 2000 $ 405,699
Johnson Bank
Line of credit in the amount of $350,000, interest at prime
plus .5% (10% at December 31, 2000), guaranteed by
County Clare, Ltd., as well as a stockholder of the Company,
expiring April 30, 2002 200,117
-----------------
Total long-term debt 605,816
Less current maturities 8,000
-----------------
Long-term debt, less current maturities $ 597,816
=================
Maturities of long-term debt for each of the five years succeeding December 31,
2000 are as follows:
Year ending
December 31,
------------
2001 $ 8,000
2002 209,000
2003 10,000
2004 10,000
2005 11,000
Thereafter 357,816
-----------------
Total $ 605,816
=================
Subsequent to December 31, 2000, the Manor completed its expansion of the inn to
twenty-three rooms. Construction costs incurred during 2001 totaled
approximately $360,000 and were financed with additional bank borrowings of
approximately $190,000.
F-16
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 6 - Income taxes
Deferred taxes are as follows:
Deferred income tax assets:
Total $ 76,722
Valuation allowances (38,361)
------------------
38,361
Total deferred income tax liabilities -
-----------------
Net deferred income tax asset $ 38,361
=================
There was approximately a $4,000 decrease and an $18,000 increase in the
valuation allowance during the years ended December 31, 2000 and 1999,
respectively.
The provision for income taxes consists of:
Years Ended
-----------------------------------------
December 31, December 31,
2000 1999
---- ----
Deferred provision:
Federal $ 21 $ (5,211)
State 5 (1,211)
Foreign 4,547 (12,250)
------------- ---------------
Deferred provision $ 4,573 $ (18,672)
============= ===============
Effective rate reconciliation:
U. S. Statutory Rate 34% 34%
--- ---
U. S. Statutory Rate $ 17,741 $ (56,321)
State income taxes, net 5 (1,211)
International rate differences (13,173) 38,860
------------- ---------------
$ 4,573 $ (18,672)
============= ===============
The net operating losses which principally arose from the Company's Irish
operations may be carried forward indefinitely under Irish law to be used to
offset future business income of the Irish operations.
F-17
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 7 - Earnings per share
Earnings per share has been computed based on the weighted average shares
outstanding for the periods below:
Harp & Eagle, Ltd.
------------------
Income Shares Per-Share
(Numerator) (Denominator) Amount
Basic income per common share:
Income available to common stockholders:
December 31, 2000 $ 47,605 474,359 $ .10
------------ ============
September 30, 2001, (unaudited) $ 37,612 532,332 $ .07
------------ ============
September 30, 2000, (unaudited) $ (48,022) 465,532 $ (.10)
------------ ============
As a result of the significant changes in the capital structure of the Company
as described in Note 1, no calculation of earnings per share has been made for
1999 as in management's estimation, it would not be meaningful.
During December, 2000 the Company granted options to purchase approximately
33,332 shares of common stock to four individuals, all of whom are officers,
directors and/or employees of the Company. These options were granted pursuant
to a plan adopted by the board of directors. All such options are exercisable at
the price of $3 per share for a period of ten years. These options will become
fully vested and exercisable on July 1, 2007, provided that the registration
statement on Form SB-2, relating to the Company's initial public offering of its
common stock, has become effective prior to that date. The exercise price of
these options was determined by the Company to reflect the fair value of the
common stock as of December 31, 2000. These options are contingent on a
registration statement filed with the U.S. Securities and Exchange Commission
becoming effective and accordingly, have not been included in the calculation of
earnings per share. The Company intends to measure compensation expense using
the intrinsic value method prescribed in Accounting Principles Board Opinion No.
25, Accounting for Stock Issued to Employees.
Note 8 - Commitments and contingencies
The Company accepts reservations for trips to the Manor in advance of customers'
travel. As a result, the Company is obligated to provide air travel and other
amenities associated with the trips. The Company prices its trips at a level
expected to cover these costs and provide a profit, accordingly, no provision
for these future costs has been made in these financial statements.
Note 9 - Unaudited interim financial statements
All unaudited interim financial statements included within these financial
statements contain all adjustments (consisting of normal, recurring adjustments)
that are necessary in management's opinion for a fair presentation of financial
position and results of operations for all periods presented.
F-18
HARP & EAGLE, LTD. AND SUBSIDIARIES
Notes to Consolidated Financial Statements, Continued
Note 10 - Net sales by region
Years Ended Nine-Month Period Ended
----------------------------------------- ----------------------------------
December 31, December 31, September 30, September 30,
2000 1999 2001 2000
---- ---- ---- ----
Domestic $ 423,664 $ 63,571 $ 608,589 $ 243,280
Europe 437,999 208,755 476,519 353,167
------------ -------------- ------------- ---------------
Total $ 861,663 $ 272,326 $ 1,085,108 $ 596,447
============ ============== ============= ===============
F-19
EXHIBIT A
1,000,000 SHARES
HARP & EAGLE LTD.
COMMON STOCK
SUBSCRIPTION AGREEMENT
----------------------
Harp & Eagle, Ltd.
1234 North Astor Street
Milwaukee, Wisconsin 53202
Gentlemen:
The undersigned irrevocably subscribe(s) for and agree(s) to purchase
shares of common stock, par value $0.0001 per share ("Common Stock"), of Harp &
Eagle, Ltd. ("Company"), to be registered in the name(s) of the undersigned at
the address appearing below. Delivered concurrently herewith is payment in full
for the Common Stock subscribed for, at the price of $ per share (checks made
payable to "Grafton State Bank, Escrow Agent"). The undersigned agree(s) that
the Company has the right to reject this subscription for any reason and that,
in the event of rejection, all funds delivered herewith will be promptly
returned, without interest or deduction.
WITHHOLDING CERTIFICATION
Each of the undersigned certifies under penalty of perjury that:
(1) The Social Security Number or other Federal Tax I.D. Number entered
below is correct.
(2) The undersigned is not subject to backup withholding because:
(a) The IRS has not informed the undersigned that he/she/it is
subject to backup withholding.
(b) The IRS has notified the undersigned that he/she/it is no longer
subject to backup withholding.
NOTE: If this statement is not true and you are subject to backup
withholding, strike out section (2).
REGISTRATION OF SECURITIES
Common Stock is to be registered as indicated below. (Please type or
print.)
- -----------------------------------------------
-----------------------------------------------
Social Security or Federal Tax I.D. Number
- -----------------------------------------------
Name(s)
- -----------------------------------------------
Street Address Telephone Number ( )
-------------------------
- -----------------------------------------------
City, State, Zip Code
OWNERSHIP: [ ] Individual [ ] Marital Property [ ] Joint Tenants with Right of Survivorship [ ] Tenants in Common
[ ] Corporation [ ] Partnership [ ] Trust [ ] IRA/Qualified Plan [ ] Other
-----------------------------------------
If Common Stock is to be registered jointly, all owners must sign. For
IRAs/Qualified Plans, the trustee must sign. Any registration in the names of
two or more co-owners will, unless otherwise specified, be as joint tenants with
rights of survivorship and not as tenants in common. Each subscriber certifies
that he/she/it has full capacity to enter into this Agreement. This subscription
is subject to acceptance by the Company and will not be accepted unless
accompanied by payment in full.
A-1
SUBSCRIBER SIGNATURES
INDIVIDUALS (All proposed record holders must sign.)
Dated:
-----------------------------------------
- ------------------------------------------------------- ------------------------------------------------------
(Signature) (Signature)
- ------------------------------------------------------- ------------------------------------------------------
(Print or Type Name) (Print or Type Name)
CORPORATIONS, PARTNERSHIPS, TRUSTS AND IRAS/QUALIFIED PLANS (Certificate of
Signatory must be completed.)
Dated:
----------------------------------- ------------------------------------------------------
(Print or Type Name of Entity)
By:
------------------------------------------------------
(Signature of Authorized Representative)
CERTIFICATE OF SIGNATORY
I, , am the
------------------------------------------------- --------------------------------------------------------------
(Print or Type Name of Authorized Representative) (Print or Type Title or Position)
of ("Entity").
-----------------------------------------------------------------------------------------
(Print or Type Name of Subscribing Entity)
I certify that I am fully authorized and empowered by the Entity to execute
this Subscription Agreement and to purchase Common Stock, and that this
Subscription Agreement has been duly executed by me on behalf of the Entity and
constitutes a valid and binding obligation of the Entity in accordance with its
terms.
- -----------------------------------------------------------------------------------------------------------------------------------
(Signature of Authorized Representative)
SALES AGENT
Name of Selected Placement Agent:
-----------------------------------------------------------------------------------------
Name of Registered Representative:
----------------------------------------------------------------------------------------
ACCEPTANCE
Subscription [ ]accepted [ ] rejected as of .
-------------------------
HARP & EAGLE, LTD.
By:
--------------------------------------------------------------------
(Signature of Authorized Officer)
A-2
[Outside back cover]
[Insert Harp & Eagle logo]
UNTIL , 2002 (90 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS THAT BUY, SELL OR TRADE OUR COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Sections 11.01 through 11.03 of the Bylaws of the Registrant authorize such
corporation to indemnify its directors, officers, employees or agents to the
fullest extent permitted by Wisconsin law, as follows:
ARTICLE XI
INDEMNIFICATION
SECTION 11.01. INDEMNIFICATION. The corporation shall, to the
fullest extent authorized by ch. 180, indemnify a director or officer
against liability and reasonable expenses incurred by the director or
officer in a proceeding in which the director or officer was a party
because he or she is or was a director or officer of the corporation.
These indemnification rights shall not be deemed to exclude any other
rights to which the director or officer may otherwise be entitled. The
corporation may, to the fullest extent authorized by ch. 180,
indemnify, reimburse or advance expenses of directors or officers.
A director or officer who seeks indemnification under this
Section shall make a written request to the corporation.
Indemnification under this Section is not required to the extent
limited by the articles of incorporation under Section 11.02.
Indemnification under this Section is not required if the director or
officer has previously received indemnification or allowance of
expenses from any person, including the corporation, in connection
with the same proceeding.
SECTION 11.02. LIMITED INDEMNIFICATION. The corporation's
articles of incorporation may limit its obligation to indemnify under
Section 11.01. A limitation under this Section applies if the first
alleged act or omission of a director or officer for which
indemnification is sought occurred while the limitation was in effect.
SECTION 11.03. INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF
EMPLOYEES AND AGENT. The corporation shall, to the fullest extent
authorized by ch. 180, indemnify an employee who is not a director or
officer of the corporation, to the extent that he or she has been
successful on the merits or otherwise in defense of a proceeding, for
all reasonable expenses incurred in the proceeding if the employee was
a party because he or she was an employee of the corporation. In
addition to the indemnification required by the preceding sentence,
the corporation may indemnify and allow reasonable expenses of an
employee or agent who is not a director or officer of the corporation
to the extent provided by the articles of incorporation or by-laws, by
general or specific action of the board of directors or by contract.
Sections 180.0850 through 180.0859 of the Wisconsin Business Corporation
Law provide for the indemnification of directors, officers and other employees
of the Registrant, as follows:
180.0850 DEFINITIONS APPLICABLE TO INDEMNIFICATION AND INSURANCE
PROVISIONS. In ss. 180.0850 to 180.0859:
(1) "Corporation" means a domestic corporation and any domestic or foreign
predecessor of a domestic corporation where the predecessor corporation's
existence ceased upon the consummation of a merger or other transaction.
(2) "Director or officer" of a corporation means any of the following:
(a) An individual who is or was a director or officer of the
corporation.
(b) An individual who, while a director or officer of the corporation,
is or was serving at the corporation's request as a director, officer,
partner, trustee, member of any governing or decision-making committee,
employee or agent of another corporation or foreign corporation,
partnership, joint venture, trust or other enterprise.
II - 1
(c) An individual who, while a director or officer of the corporation,
is or was serving an employee benefit plan because his or her duties to the
corporation also impose duties on, or otherwise involve services by, the
person to the plan or to participants in or beneficiaries of the plan.
(d) Unless the context requires otherwise, the estate or personal
representative of a director or officer.
(3) "Expenses" include fees. costs, charges. disbursements, attorney fees
and any other expenses incurred in connection with a proceeding.
(4) "Liability" includes the obligation to pay a judgment, settlement,
penalty, assessment, forfeiture or fine, including an excise tax assessed with
respect to an employee benefit plan, and reasonable expenses.
(5) "Party" includes an individual who was or is, or who is threatened to
be made, a named defendant or respondent in a proceeding.
(6) "Proceeding" means any threatened, pending or completed civil,
criminal, administrative or investigative action, suit, arbitration or other
proceeding, whether formal or informal, which involves foreign, federal, state
or local law and which is brought by or in the right of the corporation or by
any other person.
180.0851 MANDATORY INDEMNIFICATION. (1) A corporation shall indemnify a director
or officer, to the extent that he or she has been successful on the merits or
otherwise in the defense of a proceeding, for all reasonable expenses incurred
in the proceeding if the director or officer was a party because he or she is a
director or officer of the corporation.
(2) (a) In cases not included under sub. (1), a corporation shall indemnify
a director or officer against liability incurred by the director or officer in a
proceeding to which the director or officer was a party because he or she is a
director or officer of the corporation, unless liability was incurred because
the director or officer breached or failed to perform a duty that he or she owes
to the corporation and the breach or failure to perform constitutes any of the
following:
1. A wilful failure to deal fairly with the corporation or its
shareholders in connection with a matter in which the director or
officer has a material conflict of interest.
2. A violation of the criminal law, unless the director or officer had
reasonable cause to believe that his or her conduct was lawful or no
reasonable cause to believe that his or her conduct was unlawful.
3. A transaction from which the director or officer derived an improper
personal profit.
4. Wilful misconduct.
(b) Determination of whether indemnification is required under this
subsection shall be made under s. 180.0855.
(c) The termination of a proceeding by judgment, order, settlement or
conviction, or upon a plea of no contest or an equivalent plea, does not, by
itself, create a presumption that indemnification of the director or officer is
not required under this subsection.
(3) A director or officer who seeks indemnification under this section shall
make a written request to the corporation.
(4) (a) Indemnification under this section is not required to the extent
limited by the articles of incorporation under s. 180.0852.
(b) Indemnification under this section is not required if the director
or officer has previously received indemnification or allowance of expenses from
any person, including the corporation, in connection with the same proceeding.
180.0952 CORPORATION MAY LIMIT INDEMNIFICATION. A corporation's articles of
incorporation may limit its obligation to indemnify under s. 180.0851. Any
provision of the articles of incorporation relating to a corporation's power or
obligation to indemnify that was in existence on June 13, 1987, does not
constitute a limitation on the corporation's obligation to indemnify under s.
180.0851. A limitation under this section applies if the first alleged act or
omission of a director or officer for which indemnification is sought occurred
while the limitation was in effect. 180.0853 ALLOWANCE OF EXPENSES AS INCURRED.
Upon written request by a director or officer who is a party to a proceeding, a
corporation may pay or reimburse his or her reasonable expenses as incurred if
the director or officer provides the corporation with all of the following:
II - 2
(1) A written affirmation of his or her good faith belief that he or she
has not breached or failed to perform his or her duties to the corporation.
(2) A written undertaking, executed personally or on his or her behalf, to
repay the allowance and, if required by the corporation, to pay reasonable
interest on the allowance to the extent that it is ultimately determined under
s. 180.0855 that indemnification under s. 180.0851(2) is not required and that
indemnification is not ordered by a court under s. 180.0854(2)(b). The
undertaking under this subsection shall be an unlimited general obligation of
the director or officer and may be accepted without reference to his or her
ability to repay the allowance. The undertaking may be secured or unsecured.
180.0854 COURT-ORDERED INDEMNIFICATION. (1) Except as provided otherwise by
written agreement between the director or officer and the corporation, a
director or officer who is a party to a proceeding may apply for indemnification
to the court conducting the proceeding or to another court of competent
jurisdiction. Application shall be made for an initial determination by the
court under s. 180.0855(5) or for review by the court of an adverse
determination under s. 180.0855(1), (2), (3), (4) or (6). After receipt of an
application, the court shall give any notice that it considers necessary.
(2) The court shall order indemnification if it determines any of the
following:
(a) That the director or officer is entitled to indemnification under s.
180-0851 (1) or (2). If the court also determines that the corporation
unreasonably refused the director's or officer's request for indemnification,
the court shall order the corporation to pay the director's or officer's
reasonable expenses incurred to obtain the court-ordered indemnification.
(b) That the director or officer is fairly and reasonably entitled to
indemnification in view of all the relevant circumstances, regardless of whether
indemnification is required under s.180.0851(2). 180.0955 DETERMINATION OF RIGHT
TO INDEMNIFICATION. Unless otherwise provided by the articles of incorporation
or bylaws or by written agreement between the director or officer and the
corporation, the director or officer seeking indemnification under s.
180.0851(2) shall select one of the following means for determining his or her
right to indemnification:
(1) By a majority vote of a quorum of the board of directors consisting of
directors who are not at the time parties to the same or related proceedings. If
a quorum of disinterested directors cannot be obtained, by majority vote of a
committee duly appointed by the board of directors and consisting solely of 2 or
more directors who are not at the time parties to the same or related
proceedings. Directors who are parties to the same or related proceedings may
participate in the designation of members of the committee.
(2) By independent legal counsel selected by a quorum of the board of
directors or its committee in the manner prescribed in sub. (1) or, if unable to
obtain such a quorum or committee, by a majority vote of the full board of
directors, including directors who are parties to the same or related
proceedings.
(3) By a panel of 3 arbitrators consisting of one arbitrator selected by
those directors entitled under sub. (2) to select independent legal counsel, one
arbitrator selected by the director or officer seeking indemnification and one
arbitrator selected by the 2 arbitrators previously selected.
(4) By an affirmative vote of shares as provided in s.180.0725. Shares
owned by, or voted under the control of, persons who are at the time parties to
the same or related proceedings, whether as plaintiffs or defendants or in any
other capacity, may not be voted in making the determination.
(5) By a court under s.180.0854.
(6) By any other method provided for in any additional right to
indemnification permitted under s.180.0858.
180.0856 INDEMNIFICATION AND ALLOWANCE OF EXPENSES OF EMPLOYEES AND AGENTS. (1)
A corporation shall indemnify an employee who is not a director or officer of
the corporation, to the extent that he or she has been successful on the merits
or otherwise in defense of a proceeding, for all expenses incurred in the
proceeding if the employee was a party because he or she was an employee of the
corporation.
(2) In addition to the indemnification required by sub. (1), a corporation
may indemnify and allow reasonable expenses of an employee or agent who is not a
director or officer of the corporation to the extent provided by the articles of
incorporation or bylaws, by general or specific action of the board of directors
or by contract.
II - 3
180.0857 INSURANCE. A corporation may purchase and maintain insurance on
behalf of an individual who is an employee, agent, director or officer of
the corporation against liability asserted against or incurred by the
individual in his or her capacity as an employee, agent, director or
officer or arising from his or her status as an employee, agent, director
or officer, regardless of whether the corporation is required or authorized
to indemnify or allow expenses to the individual against the same liability
under ss. 180.0851, 180.0853, 180.0856 and 180.0858.
180.0858 ADDITIONAL RIGHTS TO INDEMNIFICATION AND ALLOWANCE OF EXPENSES.
(1) Except as provided in sub. (2), ss. 180.0851 and 180.0853 do not
preclude any additional right to indemnification or allowance of expenses
that a director or officer may have under any of the following:
(a) The articles of incorporation or bylaws.
(b) A written agreement between the director or officer and the
corporation.
(c) A resolution of the board of directors.
(d) A resolution, after notice, by a majority vote of all of the
corporation's voting shares then issued and outstanding.
(2) Regardless of the existence of an additional right under sub. (1),
the corporation may not indemnify a director or officer, or permit a
director or officer to retain any allowance of expenses unless it is
determined by or on behalf of the corporation that the director or officer
did not breach or fail to perform a duty that he or she owes to the
corporation which constitutes conduct under s. 180.0851(2)(a)1, 2, 3 or 4.
A director or officer who is a party to the same or related proceeding for
which indemnification or an allowance of expenses is sought may not
participate in a determination under this subsection.
(3) Sections 180.0850 to 180.0859 do not affect a corporation's power
to pay or reimburse expenses incurred by a director or officer in any of
the following circumstances:
(a) As a witness in a proceeding to which he or she is not a party.
(b) As a plaintiff or petitioner in a proceeding because he or she is
or was an employee, agent, director or officer of the corporation.
180.0859 INDEMNIFICATION AND INSURANCE AGAINST SECURITIES LAW CLAIMS. (1)
It is the public policy of this state to require or permit indemnification,
allowance of expenses and insurance for any liability incurred in
connection with a proceeding involving securities regulation described
under sub. (2) to the extent required or permitted under ss. 180.0850 to
180.0858.
(2) Sections 180.0850 to 180.0858 apply, to the extent applicable to
any other proceeding, to any proceeding involving a federal or state
statute, rule or regulation regulating the offer, sale or purchase of
securities, securities brokers or dealers, or investment companies or
investment advisors.
The Registrant has not purchased insurance against costs which may be
incurred by it pursuant to the foregoing provisions of its Articles of
Incorporation of Incorporation and Bylaws, nor does it insure its officers and
directors against liabilities incurred by them in the discharge of their
functions as such officers and directors.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
All amounts below are based upon the registration of 1,000,000 shares at
$6.50 per share, of which all are assumed to be sold in the offering at $6.00
per share:
SEC registration fee.............................................................. $ 1,625.00
NASD filing fee................................................................... 1,150.00
Brokers' expense allowance........................................................ 120,000.00
Legal fees and expenses........................................................... 41,500.00*
Accounting fees and expenses...................................................... 21,000.00*
Blue Sky fees and expenses........................................................ 3,000.00*
Printing and engraving............................................................ 10,000.00*
Other expenses.................................................................... 1,225.00*
-------------
Total.................................................................... $ 200,000.00*
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* Estimate
II - 4
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
From September 14, 1999 (inception) through November 30, 2000, the
Registrant sold 1,513,000 shares of its common stock in a private offering to 15
individual investors, 11 of whom were shareholders of affiliated corporations,
for an aggregate purchase price of $893,000, consisting of cash in the aggregate
amount of $236,000 and common stock of affiliated corporations valued by the
Registrant at $657,000. These shares were subject to a 1 for 3 reverse stock
split effected April 4, 2001. No selling commission or other compensation was
paid in connection with such transactions. All sales were made in reliance upon
the exemption from registration under the Securities Act of 1933 provided by
Section 4(2) of such Act.
During December, 2000, the Registrant granted options to purchase 100,000
shares of its common stock to four persons, all of whom were officers, directors
and/or employees of the Registrant, pursuant to a plan adopted by its
shareholders as of September 15, 1999 and were subject to a 1 for 3 reverse
stock split effected April 4, 2001, which reduced the aggregate shares subject
to such options to approximately 33,333. All of such options are exercisable for
a period of ten years, at the price of $1.00 per share, determined by the
Registrant to reflect the fair value of its common stock on December 31, 2000,
adjusted for the 1 for 3 reverse stock split referred to above. These options
will become fully vested and exercisable on July 1, 2007, provided that, prior
to that date, the registration statement relating to this offering has become
effective. No selling commission or other compensation was paid in connection
with the respective grants of such options, which were made in reliance upon the
exemption from registration under the Securities Act of 1933 provided by Section
4(2) of such Act.
During 2000 and the first six months of 2001, the Registrant acquired all
of the 1,274 outstanding shares of Castledaly Acquisition Corporation in
exchange for (i) the issuance of Harp & Eagle common stock valued at $466,682
and (ii) assumption of $241,000 in outstanding indebtedness. No selling
commission or other compensation was paid in connection with such transactions.
All shares were issued in reliance upon the exemption from registration under
the Securities Act of 1933 provided by Section 4(2) of such Act.
ITEM 27. EXHIBITS.
Exhibit
Number Description
------ -----------
1.1 Managing Placement Agent (Underwriting) Agreement *
1.2 Form of Selected Placement Agent (Dealer) Agreement *
3.1 Articles of Incorporation of the Registrant *
3.2 Articles of Amendment of the Registrant *
3.3 Bylaws of the Registrant *
3.4 Articles and Plan of Share Exchange between the Registrant and Castledaly Acquisition Corporation *
4.1 Form of Underwriter's Warrant *
5.1 Opinion of Kevin B. Dunn, Esq.*
10.1 Escrow Agreement, among the Registrant, Liss Financial Services and Grafton State Bank *
16.1 Letter of Schenck & Associates, S.C., as to change in accountants*
16.2 Letter of Cherry, Bekaert & Holland, L.L.P., as to change in accountants*
23.1 Consent of Kevin B. Dunn, Esq. (included in Exhibit 5.1)*
23.2 Consent of Kranitz & Philipp *
23.3 Consent of Cherry, Bekaert & Holland, L.L.P.
23.4 Consent of Schenck & Associates, S.C. (included in Exhibit 16.1)*
24.1 Power of Attorney (included at Page II - 7) *
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* Previously filed
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer will provide to the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
II - 5
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.
The undersigned small business issuer will:
(1) For determining any liability under the Act, treat the information
omitted from the form of prospectus filed as part of this registration statement
in reliance upon Rule 430A and contained in a form of prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Act as part of
this registration statement as of the time the Commission declared it effective.
(2) For determining any liability under the Act, treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and the offering of the
securities at that time as the initial bona fide offering of those securities.
(3) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and,
notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of
securities offered would exceed that which was registered)
and any deviation from the high or low end of the estimated
maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(4) For determining liability under the Act, treat each post-effective
amendment as a new registration statement of the securities offered, and the
offering of the securities at that time to be the initial bona fide offering.
(5) File a post-effective amendment to remove from registration any of the
securities which remain unsold at the end of the offering.
II - 6
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 of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Milwaukee, State of Wisconsin on December 10, 2001.
HARP & EAGLE, LTD.
By: /s/ CARY JAMES O'DWANNY
------------------------------------------
Cary James O'Dwanny, President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities and
on the dates stated.
Signature Title
--------- -----
GERARD DUNNE Vice President and Director
DENNIS J. RADTKE Vice President and Director
SEAN D. O'DWANNY Vice President and Director
RICHARD A. KRANITZ Secretary and Director
MICHAEL S. JOYCE Director
THOMAS J. SHEEHAN Director
By: /s/ CARY JAMES O'DWANNY
------------------------------------------------
Cary James O'Dwanny
Signing personally as President (Principal
Executive Officer), Treasurer (Principal Financial
and Accounting Officer) and Director,
and as Attorney-in-Fact for the
directors and officers whose
names appear above, on
December 10, 2001.
Part III-Signatures
1,000,000 SHARES
HARP & EAGLE, LTD.
COMMON STOCK
INDEX TO EXHIBITS
Exhibit
Number Description
------ -----------
1.1 Managing Placement Agent (Underwriting) Agreement *
1.2 Form Selected Placement Agent (Dealer) Agreement *
3.1 Articles of Incorporation of the Registrant *
3.2 Articles of Amendment of the Registrant *
3.3 Bylaws of the Registrant *
3.4 Articles and Plan of Share Exchange between the Registrant and Castledaly Acquisition Corporation *
4.1 Form of Underwriter's Warrant *
5.1 Opinion of Kevin B. Dunn, Esq., as to the legality of the Common Stock
10.1 Escrow Agreement, among the Registrant, Liss Financial Services and Grafton State Bank *
16.1 Letter of Schenck & Associates, S.C., as to change in accountants *
16.2 Letter of Cherry, Bekaert & Holland, L.L.P., as to change in accountants *
23.1 Consent of Kevin B. Dunn, Esq. (included in Exhibit 5.1) *
23.2 Consent of Kranitz & Philipp *
23.3 Consent of Cherry, Bekaert & Holland, L.L.P.
23.4 Consent of Schenck & Associates, S.C. (included in Exhibit 16.1) *
24.1 Power of Attorney (included at Page II - 7) *
- -----------------
* Previously filed.
Exhibit Index