HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 20, 1995
TO THE SHAREHOLDERS OF HARRIS & HARRIS GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 1995 annual meeting of the
shareholders of Harris & Harris Group, Inc. (the "Corporation")
will be held on Friday, October 20, 1995, at 2:00 p.m., local
time, at the Princeton Club, 15 West 43rd Street, New York, New
York. This meeting has been called by the Board of Directors of
the Corporation, and this notice is being issued at its direction.
It has called this meeting for the following purposes:
l. To elect ten (10) directors of the Corporation
to hold office until the next annual meeting of
shareholders and until their respective
successors have been duly elected and qualified.
2. To consider and act upon a proposal to authorize
options to be automatically granted to non-employee
Directors under the 1988 Stock Option Plan.
3. To ratify, confirm and approve the Board of
Directors' selection of Arthur Andersen LLP as
the Corporation's independent public accountant
for its fiscal year ending December 31, 1995.
4. To transact such other business as may properly
come before the meeting or any adjournment or
adjournments thereof.
Holders of common stock of record, at the close of business
on September 11, 1995, will be entitled to vote at the meeting.
Whether or not you expect to be present in person at the
meeting, please sign and date the accompanying proxy and return it
promptly in the enclosed business reply envelope, which requires
no postage if mailed in the United States.
By Order of the Board of Directors
September 14, 1995 Susan Neissa-Carey
New York, New York Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS OCTOBER 20, 1995.
PROXY STATEMENT
HARRIS & HARRIS GROUP, INC.
Annual Meeting of Shareholders
October 20, 1995
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harris & Harris Group, Inc. (the
"Corporation") to be voted at the 1995 Annual Meeting of Shareholders (the
"Annual Meeting") to be held on October 20, 1995 and at any adjournment
thereof.
The Annual Meeting will be held on Friday, October 20, 1995 at 2:00
p.m., local time, at the Princeton Club, 15 West 43rd Street, New York, New
York. At the Annual Meeting, shareholders of the Corporation will be asked to
elect ten directors to serve on the Board of Directors of the Corporation and
to hold office until the next Annual Meeting and to vote on the other matters
stated in the accompanying Notice and described in more detail in this proxy
statement.
The mailing address of the principal executive office of the Corporation
is One Rockefeller Plaza, Rockefeller Center, New York, New York 10020
(telephone 212-332-3600). The enclosed proxy and this proxy statement are
being first transmitted on or about September 14, 1995 to shareholders of the
Corporation.
The Board of Directors has fixed the close of business on September 11,
1995 as the record date for the determination of shareholders of the
Corporation entitled to receive notice of, and to vote at, the Annual Meeting.
At the close of business on the record date, an aggregate of 10,333,902 shares
of common stock were issued and outstanding. Each such share will be entitled
to one vote on each matter to be voted upon at the Annual Meeting. The
presence, in person or by proxy, of the holders of a majority of such
outstanding shares is necessary to constitute a quorum for the transaction of
business at the Annual Meeting.
Solicitation and Revocation; Vote Required
All properly executed proxies received prior to the Annual Meeting will
be voted at the meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are
marked, shares represented by the proxies will be voted "FOR" all the
proposals. Shares voted to "ABSTAIN" in whole or in part will be considered
present at the meeting. Shares represented by broker non-votes will be
disregarded and will have no effect on the outcome of the vote.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time, before it is exercised, by written notification
delivered to the Secretary of the Corporation, by voting in person at the
Annual Meeting, or by executing another proxy bearing a later date. A
shareholder desiring to appoint some person other than the individuals
designated as proxies by the Board of Directors may do so by completing
another form of proxy and delivering it to the Secretary of the Corporation
before the Annual Meeting. It is the responsibility of the shareholder
appointing another person to represent them and to inform such person of this
appointment.
Proxies are being solicited by the Corporation. Proxies will be
solicited by mail. All expenses of preparing, printing, mailing, and
delivering proxies and all materials used in the solicitation of proxies will
be borne by the Corporation. They may also be solicited by officers and
regular employees of the Corporation personally, by telephone or otherwise,
but these persons will not be specifically compensated for such services.
Banks, brokers, nominees, and other custodians and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses in forwarding
solicitation material to their principals, the beneficial owners of common
stock of the Corporation. It is estimated that those costs will be nominal.
Except as stated specifically and except with respect to the election of
directors, which is by plurality of votes cast, each of the matters being
submitted to stockholder vote pursuant to the Notice of Annual Meeting will be
approved if a quorum is present in person or by proxy and a majority of the
votes cast on a particular matter are cast in favor of that matter.
ELECTION OF DIRECTORS
(Proposal No. 1)
The ten director nominees listed below, all of whom currently serve as
directors, have been nominated to serve as directors of the Corporation until
the next Annual Meeting and until their respective successors are duly elected
and qualified. Although it is not anticipated that any of the nominees will
be unable to serve, in the unexpected event that any such nominees should
become unable or decline to serve, it is intended that votes will be cast for
substitute nominees designated by the present Board of Directors of the
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL THE NOMINEES.
Nominees
Set forth below is certain information with respect to the Corporation's
current directors. Each incumbent director is a nominee for election as a
director of the Corporation at the Annual Meeting:
Dr. C. Wayne Bardin, age 60, was elected to the Corporation's Board of
Directors in December 1994. Dr. Bardin's professional appointments have
included: Vice President, The Population Council; Professor of Medicine, Chief
of the Division of Endocrinology, The Milton S. Hershey Medical Center of
Pennsylvania State University; and Senior Investigator, Endocrinology Branch,
National Cancer Institute. Dr. Bardin also serves as a consultant to several
pharmaceutical companies. He has directed basic and clinical research leading
to over 450 publications and patents. He has negotiated 15 licensing and
manufacturing agreements. He is currently directing clinical R&D under 18
INDs filed with the U.S. FDA. Dr. Bardin has been appointed to the editorial
boards of 15 journals. He has also served on national and international
committees and boards for NIH, WHO, The Ford Foundation, and numerous
scientific societies. Dr. Bardin received a B.A. from Rice University; a M.S.
and M.D. from Baylor University and a Ph.D. from the University of Caen.
G. Morgan Browne, age 60, was elected to the Corporation's Board of
Directors in June 1992. Since 1985, Mr. Browne has been Administrative
Director of the Cold Spring Harbor Laboratory, a not-for-profit institution
that conducts research and education programs in the fields of molecular
biology and genetics. In prior years, he was active in the management of
numerous scientifically-based companies as an individual consultant or as an
associate of Laurent Oppenheim Associates, Industrial Management Consultants.
He is a director of Oncogene Science, Inc., (principally engaged in drug
discovery based on gene transcription), a director of the New York
Biotechnology Association, and a director and Treasurer of the Long Island
Research Institute. He is a graduate of Yale University and attended the New
York University Graduate School of Business.
Harry E. Ekblom, age 67, has been a director of the Corporation since
1984. Mr. Ekblom currently serves as Vice Chairman of A.T. Hudson & Co., Inc.
and President of Harry E. Ekblom & Co., Inc., each of which is engaged in the
business of management consulting. He joined A.T. Hudson in March 1985 and
became President of Harry E. Ekblom & Co., Inc. in 1984. Before 1984, he was
employed by European American Bank as the Chairman of its Board of Directors
and Chief Executive Officer. Mr. Ekblom is a director of Panhandle Eastern
Corp. (principally engaged in interstate transmission of natural gas) and The
Commercial Bank of New York. He is a graduate of Columbia College and the New
York University School of Law, a member of the New York Bar, and holds
honorary degrees from Hofstra University and Pace University.
* Charles E. Harris, age 52, has been a director of the Corporation and
Chairman of its Board of Directors since April 1984. He has served as Chief
Executive Officer of the Corporation since July 1984. From April 1990 to
August 1991, he served as Chairman of publicly-owned Ag Services of America,
Inc., in which the Corporation then held an equity interest. From its
formation in November 1989 until June 1990, he served as Chairman and Chief
Executive Officer of publicly-owned Molten Metal Technology, Inc., which the
Corporation co-founded and in which the Corporation then held an equity
interest. From July 1986 to January 1989, he served as Chairman of publicly-
owned Re Capital Corporation, which the Corporation founded and in which the
Corporation then held an equity interest. From July 1984 to July 1985, he
served as a director and was the control person of publicly-owned Alliance
Pharmaceutical, which the Corporation founded and in which the Corporation
then held an equity interest. Prior to 1984, he was Chairman of Wood,
Struthers and Winthrop Management Corp., the investment advisory subsidiary of
Donaldson, Lufkin & Jenrette. Mr. Harris is currently a member of the
Advisory Panel for the Congressional Office of Technology Assessment. He is a
graduate of Princeton University and the Columbia University Graduate School
of Business.
Charles F. Hays, age 49, joined the Board as a director in March
1995. Since 1993, Mr. Hays has been Senior Vice President, Chief Financial and
Administrative Officer of Mid Ocean Reinsurance Company Ltd. His positions
have included: Managing Director & Chief Financial and Administrative Officer
of Marsh & McLennan, Incorporated, from 1984 to 1993; Vice President and
Treasurer of the Guy Carpenter & Company subsidiary of Marsh & McLennan
Companies, from 1979 to 1984; Assistant Vice President of Corporate
Development of Marsh & McLennan Companies, from 1977 to 1979; Assistant
Treasurer of Morgan Guaranty Trust Company, from 1975 to 1977; and Deputy
Director of AmerAsian Group of Companies, from 1971 to 1972. Mr. Hays
graduated from the University of Kansas, earning a B.A. degree, and a M.B.A.
degree from Stanford University.
Jon J. Masters, age 58, was elected to the Corporation's Board of
Directors in February 1992. Since 1976, he has been a member of the law firm
of Christy & Viener, which he co-founded. Mr. Masters is a graduate of
Princeton University and Harvard Law School.
Glenn E. Mayer, age 69, has been a director of the Corporation since
1981. In December 1991, Mr. Mayer joined, as a Senior Vice President, the
Investment Banking division of Reich & Company. Reich & Co. is now a division
of Fahnestock & Company, Inc., a member firm of the New York Stock Exchange.
For fifteen years prior to that, he was employed by Jesup & Lamont Securities
Co. and its successor firms in the Corporate Finance department. Mr. Mayer
holds a B.S. degree from Indiana University.
William R. Polk, age 66, has been a director of the Corporation since
August 1988. For the last six years, Mr. Polk has been an author and self-
employed consultant. He is the former President of the Adlai Stevenson
Institute of International Affairs, a former member of the Policy Planning
Council of the United States Department of State, and a former Professor of
the University of Chicago and of Harvard University. Mr. Polk is a graduate
of Harvard University (B.A. with honors, Ph.D.) and of Oxford University (B.A.
with honors, M.A.).
James E. Roberts, age 49, was elected to the Corporation's Board of
Directors in May 1995. Since May 1995, Mr. Roberts has been Vice Chairman of
Trenwick America Reinsurance Corporation. During the nine years prior to that
Mr. Roberts held the following positions at Re Capital Corporation: President
and Chief Executive Officer of the Company, from 1992 to 1995; President and
Chief Operating Officer, 1991 to 1992; Director since 1989 and Senior Vice
President, 1986 to 1991; President and Chief Executive Officer of the
Company's principal operating subsidiary, Re Capital Reinsurance Corporation
from 1991 to 1995. Mr. Roberts has also served as Senior Vice President and
Chief Underwriting Officer of North Star Reinsurance Corporation, from 1979 to
1986; Vice President of Rollins Burdick Hunter of New York, Inc., 1977 to
1979; Secretary of American Home Assurance/National Union Insurance Group of
American International Group, Inc., 1973 to 1977; and commercial and casualty
underwriter at Continental Insurance Company, 1972 to 1973. Mr. Roberts is a
graduate of Cornell University, earning a B.A. degree.
Philip M. Skidmore, age 54, was elected to the Board of Directors of
the Corporation in April 1989. Mr. Skidmore is a Director and Group Vice
President of Advest, Inc., an investment banking and brokerage firm, having
served in various capacities there since 1986. From 1983 to 1986, he was a
Senior Vice President of Shearson Lehman Brothers. Mr. Skidmore holds a B.S.
degree from Georgia Institute of Technology and a M.B.A. from New York
University.
[FN]
<F1>
* Charles E. Harris is an "interested person" of the Corporation, as
defined in the Investment Company Act of 1940, as an owner of more than five
percent of the Corporation's stock, as a control person and as an officer of the
Corporation.
[/FN]
Committees of the Board of Directors
The Corporation's Board of Directors has five committees comprised of
the following members:
<TABLE>
<CAPTION>
Committees
<S> <C> <C> <C>
Executive Audit Compensation Nominating
Charles E. Harris* William R. Polk* Charles F. Hays* Charles E. Harris*
C. Wayne Bardin Harry E. Ekblom Harry E. Ekblom G. Morgan Browne
Jon J. Masters Glenn E. Mayer Jon J. Masters Harry E. Ekblom
Glenn E. Mayer Philip M. Skidmore James E. Roberts Charles F Hays
James E. Roberts Philip M. Skidmore William R. Polk
<C>
Investment & Valuation
Charles E. Harris*
C. Wayne Bardin
G. Morgan Browne
James E. Roberts
Philip M. Skidmore
<FN>
<F1>
* Chairman of the Committee
</FN>
</TABLE>
The Executive Committee meets from time to time between regular meetings
of the Board of Directors and exercises the authority of the Board to the
extent provided by law. The Executive Committee met once in 1994.
The Audit Committee considers and recommends to the Board of Directors
the selection of the Corporation's auditors, reviews with the auditors the
plan and results of the annual audit and the adequacy of the Corporation's
systems of internal accounting controls. The Audit Committee met twice in
1994.
The Compensation Committee has the full power and authority of the Board
with respect to all matters pertaining to the remuneration of the
Corporation's officers and employees. The Compensation Committee is also
responsible for the administration and award of stock options under the
Corporation's 1988 Stock Option Plan, as amended. The Compensation Committee
met three times and acted once by unanimous written consent in 1994.
The Nominating Committee acts as an advisory committee to the Board by
making recommendations to the Board of potential new directors. The
Nominating Committee does not consider nominations from shareholders. The
Nominating Committee met once and acted once by unanimous written consent in
1994.
The Investment and Valuation Committee has the full power and authority
of the Board in reviewing and approving the valuation of the Corporation's
assets for reporting purposes pursuant to the Corporation's Asset Valuation
Policy Guidelines that were established and approved by the Board of
Directors. The Investment and Valuation Committee met twice in 1994.
In 1994, there were four meetings of the Board of Directors of the
Corporation and the Board acted eight times by unanimous written consent. No
incumbent director attended fewer than 75 percent of the aggregate of Board of
Directors and applicable committee meetings held in 1994 (during the periods
that they so served).
Security ownership of Directors, Nominees, and Officers and other principal
holders of the Corporation's voting securities
The following table sets forth certain information with respect to
beneficial ownership (as that term is defined in the rules and regulations of
the Securities and Exchange Commission) of the Corporation's common stock as
of August 31, 1995 by (1) each person who is known by the Corporation to be
the beneficial owner of more than five percent of the outstanding common
stock, (2) each director of the Corporation, (3) each current executive
officer listed in the Summary Compensation Table, and (4) all directors and
executive officers of the Corporation as a group. Except as otherwise
indicated, to the Corporation's knowledge, all shares are beneficially owned
and investment and voting power is held as stated by the persons named as
owners.
<TABLE>
<S> <C> <C>
Name and Address of Number of Shares of
Beneficial Owner Common Stock Owned Percent of Class (1)
Charles E. and Susan T. Harris
One Rockefeller Plaza
Suite 1430
New York, NY 10020 1,530,988 (2) 14.48%
American Bankers Insurance Group
11222 Quail Roost Drive
Miami, FL 33157 1,075,269 (3) 10.41%
Jordan Financial Services Group
1751 Mound Street, Suite 1A
Sarasota, FL 34236 900,511 (4) 8.71%
C. Wayne Bardin -- *
G. Morgan Browne 50,000 (5) *
C. Richard Childress 394,924 (6) 3.78%
Harry E. Ekblom 55,000 (5) *
Charles F. Hays 6,300 *
David C. Johnson, Jr. 137,574 (7) 1.33%
Jon J. Masters 50,000 (5) *
Glenn E. Mayer 72,000 (5)(8) *
William R. Polk 60,000 (5) *
James E. Roberts -- *
Robert B. Schulz 57,845 (9) *
Philip M. Skidmore 77,500 (5)(10) *
All Directors and Officers
as a group (14 persons) 2,496,931 22.74%
<FN>
<F1>
* Less than one percent of issued and outstanding stock
</FN>
</TABLE>
(1) Shares of common stock subject to options and warrants currently
exercisable or exercisable within sixty days are deemed outstanding for
computing the percentage of class of the person or group holding such
options or warrants, but are not deemed outstanding for computing the
percentage of class of any other person.
(2) Includes 504,732 shares for which Mrs. Harris has sole investment power;
766,655 shares for which Mr. Harris has sole investment power; 21,996
shares owned by a child for which Mrs. Harris has sole voting and
dispositive power; 1,271,387 shares for which Mr. Harris has sole
voting power, and 237,605 shares subject to currently exercisable warrants
for which Mr. Harris has sole investment power. Excludes 130,000 shares
owned by the Susan T. and Charles E. Harris Foundation in which Charles
E. Harris and Susan T. Harris are designated trustees; voting and
dispositive power are vested with the trustees. On August 17, 1995, the
Corporation granted Mr. Harris stock options to purchase 160,000 shares
of common stock that vest over a five year period. These shares have
been excluded from the table.
(3) Represents shares owned by subsidiaries of American Bankers Insurance
Group, Inc.
(4) Represents shares owned by Jordan Financial Services Group per Schedule
13G filed on May 17, 1995. Jordan Financial Services Group is a registered
investment advisor that holds these shares for investment purposes only
on behalf of various clients.
(5) Includes options to purchase 50,000 shares.
(6) Includes 256,965 shares owned jointly with his wife, as to which he has
shared voting and dispositive power,31,801 shares owned by Mr. Childress,
as to which he has sole voting and dispositive power and warrants to
purchase 106,158 shares of common stock owned by Mr. Childress. On
August 17, 1995, the Corporation granted Mr. Childress stock options to
purchase 75,000 shares of common stock that vest over a five year period.
These shares has been excluded from the table.
(7) On August 17, 1995, the Corporation granted Mr. Johnson stock options to
purchase 200,000 shares of common stock that vest over a five year period.
These shares have been excluded from the table.
(8) Includes 2,000 shares owned by Mrs. Mayer.
(9) On August 17, 1995, the Corporation granted Mr. Schulz stock options to
purchase 250,000 shares of common stock that vest over a five year period.
These shares have been excluded from the table.
(10) Includes 3,000 shares owned by Mrs. Skidmore.
Executive Officers
Set forth below is certain information with respect to the executive
officers of the Corporation:
Charles E. Harris, age 52, has served as Chief Executive Officer of the
Corporation since July 1984. He served also as Treasurer from February 1988
to October 1992 and as President from January 1989 to October 1992. For
additional information regarding Mr. Harris, see "Election of Directors."
Robert B. Schulz, age 37, joined the Corporation, effective March 1,
1994, as President and Chief Operating Officer and has served as Chief
Compliance Officer since November 1994. From 1984 until joining the
Corporation, he was employed by CS First Boston Corporation, most recently as
a Director in the Insurance Group. Mr. Schulz received his M.B.A. degree from
Columbia University in 1983. Prior to attending Columbia University, he was
employed as a research engineer in the Alternate Energy Group of Chevron
Research Company and as a project manager in Dynecology, Inc., a high-
technology, family-owned engineering research firm. He graduated from the
Massachusetts Institute of Technology with both a B.S. and M.S. degree in
chemical engineering.
C. Richard Childress, age 44, has served as Executive Vice President of
the Corporation since February 1994 and as Chief Financial Officer since June
1994. Mr. Childress has served in various executive capacities as a senior
officer of the Corporation since February 1986. He served as managing general
partner of Consolidating Banks Fund, an investment partnership, from December
1983 to December 1985, before joining the Corporation. In addition to such
duties, he was self-employed as a consultant from January 1983 to February
1986. He is a certified public accountant and began his career with Coopers
& Lybrand. He received his undergraduate degree from Northern Arizona
University.
David C. Johnson, Jr., age 39, joined the Corporation in February 1994,
as a Senior Vice President and has served as Executive Vice President since
January 1995. From 1984, until joining the Corporation, Mr. Johnson served as
a Vice President for Salomon Brothers Inc. He received his M.B.A. from The
Darden School at the University of Virginia and his undergraduate degree from
the University of North Carolina at Chapel Hill.
Rachel M. Pernia, age 36, has served since January 1992 as a Vice
President and Controller of the Corporation and as Treasurer since November
1994. From 1988, until Ms. Pernia joined the Corporation, she was employed as
Assistant Controller for Cellcom Corp. From 1985 through 1988, she was
employed as a senior corporate accountant by Bristol-Myers Squibb Company.
She is a graduate of Rutgers University and is a certified public accountant.
Susan Neissa-Carey, age 23, has served as Secretary of the Corporation
since July 1995. Ms. Carey joined the Corporation in January of 1995. She is
a graduate of Villanova University.
Compliance with Section 16(a) of The Securities and Exchange Act
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Corporation's officers and directors, and persons who own more
than ten percent of the Corporation's common stock to file reports (including
a year-end report) of ownership and changes in ownership with the Securities
and Exchange Commission (the "SEC") and to furnish the Corporation with copies
of all reports filed.
Based solely on a review of the forms furnished to the Corporation, or
written representations from certain reporting persons, the Corporation
believes that, except for a late filing of Form 4 by Mr. Skidmore in
connection with a sale of shares by his spouse, all persons who were subject
to Section 16(a) in 1994 complied with the filing requirements.
Executive Compensation
Compensation Committee Report Regarding Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee")
is comprised of five outside directors and is responsible for setting and
administrating the policies governing the remuneration of the executive
officers of the Corporation. These policies are based upon the philosophy
that the long-term success of the Corporation is tied to its ability to
attract, retain and provide appropriate incentives to the Corporation's
executive officers. The overall fundamental policy is to enable the
Corporation's executive officers to become significant shareholders of the
Corporation so that their interests are thus aligned with the Corporation's
shareholders. Granting of options under the Corporation's 1988 Stock Option
Plan to executive officers is one means of achieving the overall fundamental
policy. Since such options are exercisable at the current price of the
Corporation's stock at the time of grant, the executive officer is rewarded
only if the price of the Corporation's stock appreciates. Under the
Investment Company Act of 1940, as amended, because the Corporation may award
stock options, it may not award cash bonuses tied to the Corporation's total
return to shareholders or any other measure of investment performance.
The principal elements of compensation for executive officers are base
salary, discretionary bonus payments and stock options granted under the
Corporation's 1988 Stock Option Plan. Because the Corporation makes venture
capital investments for long-term appreciation, its year-to-year growth in net
asset value can vary widely due to developments pertaining to its portfolio
investments. The Committee does not fix executive compensation on the basis
of specific comparison with peer companies, as there are none which are
directly comparable, or on the basis of specific objective measurements of the
Corporation's performance. The judgements made by the Committee are subjective
and are primarily based on the Committee's perception of each executive's
contribution to both the past performance and future long-term growth of the
Corporation. Two of the five executive officers listed in the Summary
Compensation Table (including the Chief Executive Officer) are parties to
Employment Agreements with the Corporation dated in 1990, which expire on
December 31, 1999. These Employment Agreements provide for specified salaries
subject to increases for inflation (see below for a summary of the employment
contracts) and, at the discretion of the Compensation Committee, salary
increases and/or bonuses. The two executives covered by the Employment
Agreements may also be considered by the Compensation Committee for stock
option awards.
The Committee believes that its past compensation policies have
successfully aligned the executive officers with that of the Corporation's
shareholders in creating shareholder wealth.
Compensation Committee: Charles F. Hays (Chairman), Harry E. Ekblom, Jon
J. Masters, James E. Roberts, Philip M. Skidmore. (The current Compensation
Committee was nominated on August 17, 1995. Prior to that the Compensation
Committee consisted of Harry E. Ekblom (Chairman) and Philip M. Skidmore.)
Compensation Committee Interlocks and Insider Participation
The Corporation's Compensation Committee is composed of directors Hays,
Ekblom, Masters, Roberts and Skidmore.
No interlocking relationship exists between the Corporation's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
Summary Compensation Table
The following table sets forth a summary for each of the last three
years of the cash and non-cash compensation awarded to, earned by, or paid to
the Chief Executive Officer of the Corporation and the other executive
officers of the Corporation, whose individual remuneration exceeded $100,000
for the year ended December 31, 1994.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation Long Term
Compensation
Awards
<S> <C> <C> <C> <C> <C> <C> <C>
Other
Annual Restricted All Other
Name and Compen- Stock Stock Compen-
Principal Year Salary Bonus sation Awards Options sation
Position ($) ($) ($) (1) ($) (2) (#) ($) (3)
Charles E. Harris 1994 605,739 -- -- -- -- 9,240
Chairman & CEO 1993 536,273 -- -- -- -- 8,994
(4) 1992 450,558 250,000 -- 500,000 62,881 200
Robert B. Schulz 1994 146,908 500,000 -- -- -- --
President & COO 1993 -- -- -- -- -- --
(7) 1992 -- -- -- -- -- --
David C. Johnson, 1994 158,246 500,000 -- -- -- 9,240
Jr. 1993 -- -- -- -- -- --
EVP (7) 1992 -- -- -- -- -- --
C. Richard 1994 264,458 -- -- -- -- 9,240
Childress 1993 243,891 -- -- -- -- 8,994
CFO & EVP (4)(6) 1992 222,734 82,175 -- 164,350 81,556 --
J. Timothy Ford 1994 155,834 -- -- -- -- --
SVP (5) 1993 119,436 -- -- -- -- 8,994
1992 -- -- -- -- -- --
</TABLE>
(1) Amounts of "Other Annual Compensation" earned by the named executive
officers for the periods presented did not meet the threshold reporting
requirements.
(2) During 1992, 200,000 and 65,740 shares of restricted stock were awarded
under the 1988 Stock Option Plan to the Corporation's Chairman and its
Executive Vice President respectively, which vested on June 30, 1995.
(3) Amounts reported represent payment of the Corporation's contributions on
behalf of the named executive to the Harris & Harris Group, Inc. 401(k)
Plan, described below.
(4) As of August 15, 1990, Messrs. Harris and Childress entered into non-
competition and employment contracts with the Corporation. These
contracts were amended on June 30, 1992, January 3, 1993, and June 30,
1994. The term of the contracts expires on December 31, 1999.
Messrs. Harris and Childress are to receive compensation under their
respective employment contracts, as amended, in the form of salaries and
other benefits.
Annual base salaries are to be increased annually as of January 1 of
each year to reflect inflation and in addition may be increased by such
amounts as the Board deems appropriate.
The employment contracts of Messrs. Harris and Childress, as amended,
provide them with life insurance for the benefit of their designated
beneficiaries in the amount of $2,000,000 and $1,000,000, respectively.
The employment contracts of Messrs. Harris and Childress, as amended,
each provide coverage for uninsured medical reimbursement expenses, not to
exceed $5,000 per annum adjusted for inflation over the period of the
contract, and disability insurance for the benefit of each individual in
the amount of 100 percent of his respective base salary.
The employment contracts of Messrs. Harris and Childress provide
severance pay in the event of termination without cause or by constructive
discharge. The employment contracts also provide for certain death
benefits payable to the surviving spouse, for a period of two years,
equal to the executive's base salary.
In addition, Messrs. Harris and Childress are entitled to receive
severance pay pursuant to severance compensation agreements that each such
individual entered into with the Corporation, effective August 15, 1990.
The severance compensation agreements provide that if following a change in
control of the Corporation, as defined in the agreements, such individual's
employment is terminated by the Corporation without cause or by the
executive within one year of such change in control, the individual shall
be entitled to receive compensation in a lump sum payment equal to 2.99
times the individuals average annualized compensation and payment of other
welfare benefits. If the executive's termination is without cause or is a
constructive discharge, the amount payable under the employment
agreements discussed above will be reduced by the amounts paid pursuant
to the severance compensation agreements.
(5) Mr. Ford resigned as an officer of the Corporation in November 1994 and
included in his remuneration is $22,466 of severance pay.
(6) Excludes $28,960, $28,260 and $27,440 for 1994, 1993 and 1992,
respectively, of non-accountable office expense allowance received by Mr.
Childress.
(7) Bonus amounts represent sign-up remuneration received upon beginning
employment with the Corporation during 1994.
No stock options were granted during the fiscal year ended December 31,
1994 to the executive officers identified in the Summary Compensation Table.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1994 by each of the
executive officers identified in the Summary Compensation Table and the number
and value of unexercised options as of such date.
<TABLE>
<CAPTION>
Aggregated Option Exercises During 1994 and December 31, 1994 Option Value
Number of Value of
Unexercised Unexercised
Options at Options at
12/31/94 12/31/94(1)
<S> <C> <C> <C> <C>
Number of
Shares
Acquired on Value Exercisable/ Exercisable/
Name Exercise Realized Unexercisable Unexercisable
Charles E. Harris -- -- 173,349/0 $ 781,585/0
Robert B. Schulz -- -- -- --
David C. Johnson, Jr. -- -- -- --
C. Richard Childress -- -- 146,753/0 $ 650,862/0
J. Timothy Ford -- -- -- --
<FN>
<F1>
(1) Based upon the difference of exercise price and closing price of the
Corporation's common stock on December 31, 1994.
</FN>
</TABLE>
Employee Benefits
On August 3, 1989, the shareholders of the Corporation approved the 1988
Long Term Incentive Compensation Plan. On June 30, 1994, the shareholders of
the Corporation approved various amendments to the 1988 Long Term Incentive
Compensation Plan: 1) to conform to the provisions of a business development
company ("BDC"), which allow for the issuance of stock options to qualified
participants; 2) to increase the reserved shares under the amended plan; 3) to
call the plan the 1988 Stock Option Plan, as Amended and Restated (the
"Amended 1988 Plan"); and 4) to make various other amendments.
Under the Amended 1988 Plan, the number of shares of common stock of the
Corporation that may be issued upon exercise of options in accordance with the
1940 Act is 20% of the outstanding shares of common stock of the Corporation
at the time of grant. However, so long as warrants, options, and rights
issued to persons other than the Corporation's directors, officers, and
employees at the time of grant remain outstanding, the number of reserved
shares under the Amended 1988 Plan may not exceed 15% of the outstanding
shares of common stock of the Corporation at the time of grant, subject to
certain adjustments. As of August 31, 1995, there were 2,066,780 shares of
common stock reserved for the issuance of awards under the Amended 1988 Plan,
of which 1,391,763 were subject to outstanding options and warrants and
675,017 were available for future awards.
The Amended 1988 Plan provides for the issuance of incentive stock
options and non-qualified stock options to eligible employees as determined by
a committee composed of at least two non-employee outside directors. The
committee also has the authority to construe and interpret the Amended 1988
Plan; to establish rules for the administration of the Amended 1988 Plan; and
subject to certain limitations, amend the terms and conditions of any
outstanding awards. Options may be exercised for up to 10 years from the date
of grant at prices not less than the fair market value of the Corporation's
common stock at the date of grant.
The Amended 1988 Plan provides, subject to committee approval, that
payment by the optionee upon exercise of an option may be made using cash or
common stock of the Corporation held by the optionee.
During the year ended December 31, 1994, no options or other awards were
made under the Amended 1988 Plan, and no options were exercised.
As of January 1, 1989, the Corporation adopted an employee benefits
program covering substantially all employees of the Corporation under a 401(k)
Plan and Trust Agreement. Contributions to the plan are at the discretion of
the Corporation. During 1994, contributions to the plan charged to operations
totaled $38,283.
On June 30, 1994, the Corporation adopted a plan to provide medical and
health insurance for retirees, their spouses and dependents who, at the time
of their retirement, have ten years of service with the Corporation and have
attained 50 years of age or have attained 45 years of age and have 15 years of
service with the Corporation. The coverage is secondary to any government
provided or subsequent employer provided health insurance plans. Based upon
actuarial estimates, the Corporation provided a reserve of $176,520 that was
charged to operations for the period ending June 30, 1994 for estimated future
benefits under the described plan.
Compensation of Directors
During the fiscal year ended December 31, 1994, directors who were not
officers of the Corporation received $1,000 for each meeting of the Board of
Directors and $500 for each committee meeting. The Corporation also
reimburses its directors for travel, lodging and related expenses they incur
in attending Board and committee meetings. The total compensation and
reimbursement for expenses to all directors in 1994 was $52,816. The same
compensation arrangement is in effect for 1995.
Performance Graph
The following graph compares the Corporation's stockholder return, based
on the market price of the common stock, with the Total Return Index for the
Nasdaq Stock Market (U.S. Companies) and with the Total Return Index for Nasdaq
Financial Stocks, both of which indices have been prepared by the Center for
Research in Security Prices at the University of Chicago, for the five year
period beginning December 31, 1989 and ending December 31, 1994. The graph
assumes that the value of an investment in Harris & Harris Group, Inc. ("HHGP")
and each of the indices was $100.00 on December 31, 1989.
Performance Graph is omitted and represented by the following table:
<TABLE>
<CAPTION>
Comparison of Five-Year
Cumulative Total Returns
<S> <C> <C> <C> <C> <C> <C>
$350- |
| *A*
| * *
$300- | * *
| * *
| * *
$250- | * * A
| *
| *
$200- | * * - C - - - - - - C
| - *AC- - - + + B + + + + + + B
| +- +*+B+ + + +
$150- | +- *
| + B +- *
| + - C- * Legend
$100- |ABC*-+ + - * *A* = HHGP
| *- + + + B + - * +B+ = Nasdaq Total Return (US)
| *-*-*-*AC*-* * * * *A* -C- = Nasdaq Financial Stocks
$ 50- |
|
|
$ 0- |_______________________________________________________________________
| | | | | |
12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Index Description 12/31/89 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94
HHGP $ 100.00 $ 65.00 $ 65.00 $ 175.00 $ 330.00 $ 255.00
Nasdaq Total Returns (US) 100.00 84.92 136.28 158.58 180.93 176.92
Nasdaq Financial Stocks 100.00 76.62 118.56 169.54 196.99 197.52
</TABLE>
Directors' and Officers' Liability Insurance
The Corporation has an insurance policy that indemnifies (i) the
Corporation for any obligation incurred as a result of the Corporation's
indemnification of its directors and officers under the provisions of the New
York Business Corporation Law, the Investment Company Act of 1940, as amended,
and the Corporation's bylaws, and (ii) the Corporation's directors and
officers as permitted under the New York Business Corporation Law, the
Investment Company Act of 1940, as amended, and the Corporation's bylaws. The
policy covers all directors and officers of the Corporation.
PROPOSAL TO AUTHORIZE OPTIONS TO BE AUTOMATICALLY GRANTED TO NON-EMPLOYEE
DIRECTORS UNDER THE AMENDED 1988 STOCK OPTION PLAN
(Proposal No. 2)
Certain changes described below are required or permitted as a result of
election of BDC status. The Board recommends that you vote "FOR" the
proposal.
On September 6, 1995 the Corporation adopted an amendment to the Amended
1988 Plan to authorize automatic formula grants of nonqualified stock options
to certain non-employee directors of the Corporation, and to make various
related amendments, as summarized below, subject to the approval of the
shareholders of the Corporation and receipt of an exemptive order from the
SEC. If shareholder approval is not obtained or if the exemptive order is not
received, then such amendments shall have no effect.
The principal objective of the Corporation's stock option program is to
align eligible employees' interests with both the success of the Corporation
and the financial interests of its shareholders. The program is intended to
encourage stock ownership in the Corporation by eligible employees, thus
giving them a proprietary interest in the Corporation's business. The purpose
of the proposed amendment to the Amended 1988 Plan is to similarly align the
interests of certain non-employee directors with both the success of the
Corporation and the financial interests of its shareholders by encouraging
stock ownership in the Corporation and thereby giving certain non-employee
directors a proprietary interest in the Corporation's business. In addition,
by granting non-employee directors options instead of paying cash directors'
fees, the Corporation saves considerable expense. The provisions of the
Investment Company Act relating to BDC's specifically provide for the SEC to
provide exemptive relief to permit issuance of options to non-employee
directors. The Corporation has filed such an exemptive application and
expects that it will be granted, although there can be no absolute assurance
that it will occur. Management and the directors believe strongly in the
value of options.
Summary of the Significant Amendments
Authorization of Awards to Non-Employee Directors
The Amended 1988 Plan, as amended, authorizes the automatic grant of
nonqualified stock options to non-employee directors who have not previously
received options to purchase stock of the Corporation. Each such non-employee,
upon becoming a director, will automatically receive an option to purchase
20,000 shares of common stock (a "Non-Employee Director Option"). Currently
serving non-employee directors who have not previously received any options
will also automatically receive awards of Non-Employee Director Options.
Excluding all options granted under the Amended 1988 Plan, as amended (or any
predecessor thereto), prior to August 31, 1995, a maximum of 200,000 shares
will be available for grants of Non-Employee Director Options. Non-Employee
Director Options will vest in cumulative installments of 20% per year
commencing as of the date of grant, and will have a term of ten years.
Non-Employee Director Options will be exercisable following cessation as a
director, to the extent then exercisable, for 90 days generally, for three
years if such cessation is by reason of retirement, for one year if such
cessation is by reason of disability and for six months if such cessation is
by reason of death. In the event of a "change in control" as defined in the
Amended 1988 Plan, all Non-Employee Director Options will become exercisable
in full (whether or not otherwise exercisable at such time), and will remain
exercisable until they expire pursuant to their respective terms.
The amended section of the Amended 1988 Plan provides that the
provisions in the Amended 1988 Plan that relate to Non-Employee Director
Options may not be amended more than once in any six-month period other than
to conform with changes in the Internal Revenue Code of 1986, as amended (the
"Code"), or the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or the rules or regulations thereunder.
Description of the Material Features of the Amended 1988 Plan
The following is a description of the Amended 1988 Plan. The Amended
1988 Plan is attached as Exhibit A, and the description of the Amended 1988
Plan that appears below is qualified in its entirety by reference thereto.
Other than the changes described above, this description is the same as
provided in the last proxy statement.
Purpose of the Amended 1988 Plan
The Board of Directors believes that the Amended 1988 Plan will advance
the interests of the Corporation by providing a means to attract, retain,
reward and motivate employees of the Corporation and its subsidiaries and
certain non-employee directors of the Corporation, and will encourage stock
ownership in the Corporation by providing employees and certain non-employee
directors with a means to acquire an equity interest in the Corporation.
Administration
The Amended 1988 Plan will be administered by a committee (the
"Committee") of the Board of Directors composed of not fewer than two outside
directors. The composition of the Committee will at all times satisfy the
provisions of Rule 16b-3 and Section 162(m) of the Code, with all grants
approved pursuant to Section 57(o) of the 1940 Act. The Board of Directors
has designated the Corporation's Compensation Committee to act as the
Committee to administer the Amended 1988 Plan.
Participants
The participants in the Amended 1988 Plan (the "Participants") will be
employees of the Corporation or of its subsidiaries, and non-employee
directors who have not previously received options to purchase shares of stock
of the Corporation.
Grant of Options
The number of shares of common stock reserved for issuance of stock
options under the Amended 1988 Plan will be an aggregate of 20% of the
outstanding shares of common stock of the Corporation at the time of grant;
provided, however, that if warrants, options, and rights have been issued and
are outstanding to persons other than the Corporation's directors, officers,
and employees at the time of grant, then the number of reserved shares under
the Amended 1988 Plan will not exceed 15% of the shares of common stock
outstanding at the time of grant unless and until such warrants, options and
rights issued to such persons have been exercised or have expired. No
Participant may be granted options with respect to more than 300,000 shares of
common stock in any calendar year. Shares subject to options that terminate
or expire prior to exercise will be available for further options under the
Amended 1988 Plan. In addition, following the later of the date hereof and the
receipt by the Corporation of an exemptive order from the Securities and
Exchange Commission, as described above, no more than 200,000 shares of common
stock will be reserved for issuance of Non-Employee Director Options under the
Amended 1988 Plan.
Options granted under the Amended 1988 Plan may be either "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Code or
"nonstatutory stock options" ("non-ISOs"). Non-Employee Director Options will
be non-ISOs.
The number of shares available for the grant of options and the number
of shares issuable upon the exercise of options and the purchase price
therefore will be subject to "antidilution" adjustments in the event of any
merger, reorganization, consolidation, separation, liquidation, stock
dividend, stock split, share combination, recapitalization or other change in
corporate structure affecting the outstanding common stock of the Corporation.
As of September 6, 1995, there were seven employees including one
employee director, and nine non-employee directors who were eligible to
participate in the Amended 1988 Plan. The market value of shares of common
stock of the Corporation was $5.25 as of September 5, 1995. In addition, as
of August 31, 1995, there were 2,066,780 shares of common stock reserved for
issuance of awards under the Amended 1988 Plan, of which 1,391,763 were
subject to outstanding options and warrants and 675,017 were available for
future awards.
The exercise price for all options other than Non-Employee Director
Options under the Amended 1988 Plan will be determined by the Committee but
will not be less than the "Fair Market Value" (as defined in the Amended 1988
Plan as the closing market price of the common stock on the date of such
grant) of the Corporation's common stock at the date of grant (110% of Fair
Market Value of the stock at the date of grant with respect to ISOs to
optionees who are control persons as defined in the 1940 Act or who own more
than 10% of the voting power of the Corporation or of any subsidiary). The
exercise price for Non-Employee Director Options will be equal to the Fair
Market Value of the common stock on the date of grant.
Under the Amended 1988 Plan, the aggregate fair market value (determined
as of the date of grant) of stock for which incentive stock options (under all
option plans of the Corporation or its subsidiaries) may be granted to an
individual that are exercisable for the first time in any one calendar year
may not exceed $100,000. This $100,000 limitation will not apply to non-ISOs.
Options granted under the Amended 1988 Plan are exercisable for a period
of ten years from the date of grant (five years with respect to ISOs to
optionees who are control persons or who own more than 10% of the voting power
of the Corporation or any subsidiary) or, with respect to all options other
than Non-Employee Director Options, such shorter period as the Committee may
establish as to any or all shares subject to any such option. All options
other than Non-Employee Director Options will become exercisable, in
accordance with the vesting schedules, and subject to satisfaction of such
conditions as the Committee may determine. Non-Employee Director Options
become exercisable in cumulative installments of 20% per year, commencing as
of the date of grant. All options become automatically exercisable upon the
occurrence of a change in control (as defined in the Amended 1988 Plan) and
remain exercisable until expiration of their respective terms.
When an option is exercised, the shares subject thereto may be paid in
cash or shares of the Corporation's common stock. An employee or director
exercising a nonqualified stock option may elect to have the Corporation
withhold shares of the Corporation's common stock to satisfy tax liabilities
arising from the exercise of such options.
Under the Amended 1988 Plan, generally, upon the termination of
employment of an optionee (or cessation of service as a director, with respect
to non-employee directors), unless otherwise provided by the Committee (but
only with respect to options other than Non-Employee Director Options), or as
described below, an optionee's right to exercise an option expires 90 days
after termination of employment or cessation of service as a director, as the
case may be. Upon termination of employment or cessation of service as a
director, in either case on account of retirement (i.e. with respect to
employees, attainment of age 55, or earlier with the consent of the Committee,
and with respect to non-employee directors, retirement from the Board), an
optionee may, at any time within three months (with respect to an ISO) or
three years (with respect to a non-ISO) after the date of retirement, but not
later than the date of the expiration of the option, exercise the option. If
an optionee holding such an option terminates employment or ceases to serve as
a director by reason of death or disability, the period for such exercise is
twelve months with respect to disability and six months with respect to death
but, in each case, not later than the date of the expiration of the option.
Options are not transferable except on the death of the optionee, by will or
the laws of descent and distribution.
The Board of Directors may terminate, suspend, amend or revise the
Amended 1988 Plan without the approval of shareholders of the Corporation
provided, however, that shareholder approval is required (to the extent such
approval is required) either by applicable law or to comply with Rule 16b-3 or
Section 162(m) of the Code. The provisions in the Amended 1988 Plan that
relate to Non-Employee Director Options may not be amended more than once in
any six-month period other than to conform with changes in the Code or ERISA,
or the rules or regulations thereunder. The Board may not, however, without
the consent of the optionee, alter or impair rights under any option
previously granted except as authorized in the Amended 1988 Plan.
Certain Federal Income Tax Consequences of the Amended 1988 Plan
The following discussion of certain relevant federal income tax effects
applicable to stock options granted under the Amended 1988 Plan is a brief
summary only, and reference is made to the Code and the regulations and
interpretations issued thereunder for a complete statement of all relevant
federal tax consequences.
Incentive Stock Options
No taxable income will be realized by an optionee upon the grant or
timely exercise of an ISO. If shares are issued to an optionee pursuant to
the timely exercise of an ISO and a disqualifying disposition of such shares
is not made by the optionee (i.e. no disposition is made within two years
after the date of grant or within one year after the receipt of shares by such
optionee, whichever is later), then (i) upon sale of the shares, any amount
realized in excess of the exercise price of the ISO will be taxed to the
optionee as a long-term capital gain and any loss sustained will be long-term
capital loss, and (ii) no deduction will be allowed to the Corporation.
However, if shares acquired upon the timely exercise of an ISO are disposed of
prior to satisfying the holding period described above, generally (a) the
optionee will realize ordinary income in the year of disposition in an amount
equal to the excess (if any) of the fair market value of the shares at the
time of exercise (or, if less, the amount realized on the disposition of the
shares) over the exercise price thereof, and (b) subject to the provisions of
Section 162(m) of the Code, the Corporation will be entitled to deduct an
amount equal to such income. Any additional gain recognized by the optionee
upon a disposition of shares prior to satisfying the holding period described
above will be taxed as a short-term or long-term capital gain, as the case may
be, and will not result in any deduction for the Corporation.
If an ISO is not exercised on a timely basis, the option will be treated
as a nonqualified stock option. Subject to certain exceptions, an ISO
generally will not be exercised on a timely basis if it is exercised more than
three months following termination of employment.
The amount that the fair market value of shares of the common stock on
the exercise date of an ISO exceeds the exercise price generally will
constitute an item that increases the optionee's "alternative minimum taxable
income."
In general, the Corporation will not be required to withhold income or
payroll taxes on the timely exercise of an ISO.
Options That Do Not Qualify as Incentive Stock Options
In general, an optionee will not be subject to tax at the time a non-ISO
is granted. Upon exercise of a non-ISO where the exercise price is paid in
cash, the optionee generally must include in ordinary income at the time of
exercise an amount equal to the excess, if any, of the fair market value of
the shares of common stock at the time of exercise over the exercise price.
The optionee's tax basis in the shares acquired upon exercise will equal the
exercise price plus the amount taxable as ordinary income to the optionee.
The federal income tax consequences of an exercise of a non-ISO where the
exercise price is paid in previously owned shares of common stock are
generally similar to those where the exercise price is paid in cash. However,
the optionee will not be subject to tax on the surrender of such shares, and
the tax basis of the shares acquired on exercise that are equal in number to
the shares surrendered will be the same as the optionee's tax basis in such
surrendered shares.
Pursuant to the revised rules under Section 16(b) of the Exchange Act,
the purchase of shares of common stock upon exercise of an option by an
optionee who is subject to reporting under Section 16(a) of the Exchange Act
(generally an executive officer of the Corporation) and would be subject to
liability under Section 16(b) of the Exchange Act (an "Insider") will not be
deemed a "purchase" triggering a six-month period of potential short swing
liability. Accordingly, unless a non-ISO is exercised during the six-month
period following the date of grant of the option, the shares would not be
considered subject to a substantial risk of forfeiture as a result of Section
16(b). Thus, in this context the taxable event for the exercise of a non-ISO
that has been outstanding for at least six months ordinarily will be the date
of exercise. If a non-ISO is exercised within six months after the date of
the grant, then, unless the Insider files an election pursuant to Section
83(b) of the Code to be taxed on the date of exercise under the general rule
described above, taxation ordinarily would be deferred until the date that is
six months after the date of grant, and the amount of income would be based
upon the fair market value of the shares of common stock on such later date.
The Corporation generally will be entitled to a deduction in the amount
of an optionee's ordinary income at the time such income is recognized by the
optionee upon the exercise of a non-ISO, subject to the provisions of Section
162(m) of the Code. Income and payroll taxes are required to be withheld for
employees on the amount of ordinary income resulting from the exercise of a
non-ISO.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
APPROVE AMENDMENTS TO THE AMENDED 1988 STOCK OPTION PLAN.
PROPOSAL TO RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF
ARTHUR ANDERSEN LLP AS THE CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS
FISCAL YEAR ENDING DECEMBER 31, 1995
(Proposal No. 3)
Arthur Andersen LLP has been selected as the independent accountant to
audit the accounts of the Corporation for and during the fiscal year ending
December 31, 1995 by a majority of the Corporation's Board of Directors,
including a majority of the Directors who are not interested persons of the
Corporation, by vote cast in person and subject to ratification by the
shareholders. The Corporation knows of no direct or indirect financial
interest of Arthur Andersen LLP in the Corporation.
A representative of Arthur Andersen LLP is not expected to be present at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF ARTHUR
ANDERSEN LLP AS THE CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS FISCAL
YEAR ENDING DECEMBER 31, 1995.
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters before
the Annual Meeting and, at the date of mailing of this proxy statement, has
not been informed of any matter that others may bring before the Annual
Meeting. However, if any other matters properly come before the Annual
Meeting, it is the intention of the persons named in the accompanying proxy to
vote such proxy in accordance with their judgment on such matters.
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented for inclusion in the
Corporation's proxy statement and form of proxy for the next annual meeting of
shareholders to be held in 1996 must be received in writing by the Secretary
of the Corporation at Harris & Harris Group, Inc., One Rockefeller Plaza,
Rockefeller Center, New York, New York 10020 no later than December 31, 1995
in order for such proposals to be considered for inclusion in the proxy
statement and proxy relating to the 1996 annual meeting of shareholders.
Submission of a proposal does not guarantee inclusion in the proxy statement,
as the requirements of certain federal laws and regulations must be met by
such proposals.
By Order of the Board of Directors
New York, New York Susan Neissa-Carey
September 14, 1995 Secretary
EXHIBIT A
HARRIS & HARRIS GROUP, INC.
1988 STOCK OPTION PLAN
as Amended and Restated
1. PURPOSE
The 1988 Long Term Incentive Compensation Plan (the "1988 Plan") was
adopted by the Board of Directors on November 17, 1988 and approved by the
stockholders of Harris & Harris Group, Inc. (the "Corporation") on August 3,
1989. To enhance the effectiveness of the 1988 Plan, on April 20, 1994, the
Board of Directors amended and restated the 1988 Plan, and renamed it the 1988
Stock Option Plan, as Amended and Restated (the "Plan"). Such amendments were
approved by the stockholders of the Corporation on June 30, 1994. The Board
of Directors subsequently amended and restated the Plan on September 6, 1995,
as set forth herein, to permit issuance of shares to non-employee directors on
September 6, 1995, subject to stockholder approval and receipt of an exemptive
order from the Securities and Exchange Commission, and such amendments shall
become effective on the date that both have occurred (the "Amendment Effective
Date").
The purpose of the Plan is to advance the interests of the Corporation,
by providing a means to attract, retain, reward and motivate employees and
certain directors of the Corporation and its subsidiaries, and to encourage
stock ownership in the Corporation by such employees and directors by
providing them with a means to acquire a proprietary interest in the
Corporation. The Plan provides for awards of either Incentive Stock Options
as provided in section 422 of the Internal Revenue Code of 1986, as amended
(the "Code") or Nonqualified Stock Options, or a combination thereof, to
selected employees and directors.
2. DEFINITIONS
For purposes of the Plan, the following terms shall have the
meanings below unless the context clearly indicates otherwise:
2.1 "Award" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
2.2 "Award Agreement" shall mean an agreement between a Participant and the
Corporation covering the specific terms and conditions of an Award.
2.3 "Board of Directors" shall mean the Board of Directors of the
Corporation.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as it may be
amended from time to time.
2.5 "Committee" shall mean the committee appointed by the Board of
Directors to administer the Plan pursuant to Section 4.
2.6 "Corporation" shall mean Harris & Harris Group, Inc.
2.7 "Disability" shall mean permanent disability within the meaning of
section 22(e)(3) of the Code.
2.8 "Employee" shall mean an employee of the Corporation or any of its
Subsidiaries.
2.9 "Effective Date" shall have the meaning specified in Section 10.
2.10 "Fair Market Value" shall have the meaning specified in Section
6.2(b).
2.11 "Incentive Stock Option" shall mean an option to purchase Stock
granted under Section 6.2 of the Plan, which is designated as an
Incentive Stock Option and is intended to meet the requirements of
section 422 of the Code.
2.12 "Nonqualified Stock Option" shall mean an option to purchase Stock
granted under Section 6.2 of the Plan that is not intended to be an
Incentive Stock Option.
2.13 "Option" shall mean an Incentive Stock Option or a Nonqualified Stock
Option.
2.14 "Option Period" shall mean the period from the date of the grant of
an Option to the date when the Option expires as stated in the terms
of the Award Agreement.
2.15 "Optionee" shall mean an Employee or an Outside Director, as the case
may be, who has been granted an Option under the Plan.
2.16 "Outside Director" shall mean a member of the Board of Directors who
is not an employee of the Corporation or any of its Subsidiaries.
2.17 "Outside Director Option" shall mean a Nonqualified Stock Option
granted to an Outside Director under Section 6.2 of the Plan.
2.18 "Participant" shall mean an Employee or an Outside Director, as the
case may be, who has been granted an Award under the Plan.
2.19 "Plan" shall mean this Harris & Harris Group, Inc. 1988 Stock Option
Plan, as Amended and Restated.
2.20 "Restricted Period" shall mean the period of time from the date of
grant of an Option to the date when the restrictions placed on the
Option lapse.
2.21 "Retirement" shall mean termination of employment with the
Corporation or any of its Subsidiaries after attaining age 55 (or
earlier with the consent of the Board).
2.22 "Stock" shall mean the Corporation's common stock of a par value of
$.01 per share.
2.23 "Subsidiary" shall mean any corporations (other than the Corporation)
in an unbroken chain of corporations beginning with the Corporation if,
at the time of granting an Option, each of the corporations other than
the last corporation in the unbroken chain owns stock possessing fifty
percent (50%) or more of the total combined voting power of all
classes of stock in one of the other corporations in such chain.
2.24 "Termination of Employment" shall be deemed to have occurred at the
close of business on the last day on which an Employee is carried as an
active employee on the records of the Corporation or any of its
Subsidiaries. The Committee shall determine whether an authorized
leave of absence, or other absence on military or government service,
constitutes severance of the employment relationship between the
Corporation or a Subsidiary and the Employee.
3. STOCK SUBJECT TO THE PLAN
3.1 Authorized Stock. Subject to adjustment as provided in this Section,
the aggregate number of shares of Stock subject to an Award under the
Plan shall not exceed 20% of the shares of Stock outstanding on the date
of grant; provided, however, that if warrants, options, and rights of
the Corporation have been issued and are outstanding to persons other
than the Corporation's directors, officers, and employees at the time of
grant, then the aggregate number of shares of Stock subject to an Award
shall not exceed 15% of the shares of Stock outstanding on the date of
grant unless and until such warrants, rights and options issued to such
other persons have been exercised or have expired. Stock delivered
under the Plan may consist, in whole or in part, of authorized and
unissued shares or treasury shares. Upon approval by the Board of
Directors and subject to any applicable regulations and restrictions,
the Corporation may from time to time acquire shares of Stock in the
open market upon such terms as it deems appropriate for reserve in its
treasury in connection with exercises hereunder.
3.2 Effect of Expirations. In the event that any Award granted under the
Plan expires, is canceled or terminates without exercise, the shares of
Stock no longer subject to such Award shall be available to be rewarded
under the Plan.
3.3 Adjustments in Authorized Shares. In the event of any merger,
reorganization, consolidation, capitalization, separation, liquidation,
stock dividend, stock split, share combination, or other change in the
corporate structure of the Corporation affecting the number of shares
of Stock or the kind of shares or securities, an appropriate and
proportionate adjustment shall be made in the number and kind of shares
that may be delivered under the Plan, and in the number and kind of or
price of shares subject to outstanding Awards; provided that the number
of shares subject to any Award shall always be a whole number. Any
adjustment of an Incentive Stock Option under this Section shall be
made in such a manner so as not to constitute a "modification" within
the meaning of section 424(h)(3) of the Code.
3.4 Limitation on Grants. Grants of Options in any one calendar year to
any individual shall be limited to Options to purchase no more than
300,000 shares of Stock.
3.5 Limitation on Outside Director Grants. The number of shares of Stock
subject to an Outside Director Option granted to an Outside Director
under the Plan shall be equal to 20,000. The aggregate number of
shares of Stock that may be granted to Outside Directors under the Plan
shall not exceed 200,000, excluding any shares or options outstanding
on August 31, 1995.
4. ADMINISTRATION
4.1 The Committee. The Plan shall be administered by the Committee
consisting of not fewer than two Outside Directors who shall be
appointed from time to time by and shall serve at the discretion of the
Board of Directors, shall be "disinterested persons" within the meaning
of Rule 16b-3 ("Rule 16b-3") promulgated pursuant to the provisions of
the Securities Exchange Act of 1934 (the "Exchange Act"), and shall
also be "outside directors" within the meaning of section 162(m) of the
Code. Any Award shall also be approved pursuant to section 57(o) of
the Investment Company Act.
4.2 Authority of the Committee. Subject to the provisions of the Plan,
the Committee shall have sole power (i) to construe and interpret the
Plan; (ii) to establish, amend or waive rules and regulations for its
administration; (iii) to determine and accelerate the exercisability of
any Award (other than an Outside Director Option) or the termination of
any Restricted Period under an Award (other than an Outside Director
Option); (iv) to correct inconsistencies in the Plan or in any Award
Agreement or any other instrument relating to an Award; and (v) subject
to the provisions of Section 7, to amend the terms and conditions of any
outstanding Option, to the extent such terms and conditions are within
the discretion of the Committee as provided in the Plan. The Committee,
however, shall have no discretionary authority with respect to Outside
Director Options. Notwithstanding the foregoing, no action of the
Committee may, without the consent of the person or persons entitled to
exercise any outstanding Option or to receive payment of any other
outstanding Award, adversely affect the rights of such person or persons.
4.3 Selection of Participants/Automatic Grants. The Committee shall have
the authority to grant Awards under the Plan from time to time to such
Employees (including officers of the Corporation and any of its
Subsidiaries who are Employees) as the Committee shall determine. In
addition, certain Outside Directors shall automatically receive Outside
Director Options pursuant to Section 6.2 of the Plan.
4.4 Decisions Binding. All determinations and decisions made by the
Committee pursuant to the provisions of the Plan and all related orders
or resolutions of the Board of Directors shall be final, conclusive and
binding on all persons, including the Corporation, Participants and
Participants' estates and beneficiaries.
4.5 Delegation of Certain Responsibilities. The Committee may, in its
sole discretion, delegate to one or more of its members or to one or more
agents the administration of the Plan under this Section 4 as it may deem
advisable. All authority delegated by the Committee under this Section
4.5 shall be exercised in accordance with the provisions of the Plan
and any guidelines for the exercise of such authority that may from
time to time be established by the Committee.
4.6 Procedures of the Committee. All determinations of the Committee
shall be made by not less than a majority of its members present at a
meeting (in person or otherwise) at which a quorum is present, or by
unanimous written consent. A majority of the entire Committee shall
constitute a quorum for the transaction of business. To the fullest
extent permitted by law, no member of the Committee shall be liable,
and the Corporation shall indemnify each Committee member for any act
or omission with respect to his services on the Committee. Service on
the Committee shall constitute service as a director of the Corporation
so that members of the Committee shall be entitled to indemnification
and reimbursement for services as members of the Committee to the same
extent as for services as directors of the Corporation.
5. ELIGIBILITY
Employees of the Corporation and its Subsidiaries who are expected to
contribute to the growth and profitability of the Corporation and its
Subsidiaries, and Outside Directors who have not previously received options
to purchase shares of Stock, are eligible to receive Awards.
6. AWARDS UNDER THE PLAN
6.1 General. Any Award granted under the Plan may be made either alone or
in conjunction with any other Award that may be granted under the Plan.
6.2 Incentive Stock Options/Nonqualified Stock Options/Outside Director
Options.
(a) Grants -- All Options granted under the Plan shall be evidenced by
an Award Agreement in such form as the Committee may from time to time
approve. All Options shall be subject to the terms and conditions
described in the remainder of this Section 6.2 and Options other than
Outside Director Options shall contain such additional terms and
conditions, which need not be the same in each case, not inconsistent
with the provisions of the Plan, as the Committee shall deem desirable.
More than one Award may be granted to the same Employee. With respect
to all Options other than Outside Director Options, the Committee shall
determine vesting periods or other Restricted Periods as it shall deem
desirable, including Restricted Periods that lapse upon the achievement
of performance goals relating to the Corporation.
(b) Outside Director Options -- Notwithstanding any other provision of
the Plan to the contrary, effective as of the Amendment Effective Date,
each Outside Director who has not previously received an option to
purchase shares of Stock, shall automatically receive an Outside
Director Option to purchase 20,000 shares of Stock. Thereafter, each
Outside Director, upon becoming an Outside Director, shall automatically
receive an Outside Director Option to purchase 20,000 shares of Stock;
provided, however, that Outside Directors who have previously received
options to purchase shares of Stock shall not receive Outside Director
Options. Outside Director Options shall vest in cumulative
installments of 20% per year, commencing as of the date of grant.
(c) Option Price -- The purchase price per share of Stock covered by
Options other than Outside Director Options shall be determined by the
Committee but shall not be less than 100% of the Fair Market Value of
such Stock on the date the Option is granted. The purchase price per
share of Stock covered by Outside Director Options shall be equal to
100% of the Fair Market Value of such stock on the date the Outside
Director Option is granted. The "Fair Market Value" shall be the
closing market price of the Stock as reported on the NASDAQ Stock
Market, or on any stock exchange on which the Corporation's shares may
then be listed, on the date of grant, or, if no trades were reported on
that date, the closing price on the most recent trading day immediately
preceding the date of the grant.
An Incentive Stock Option granted to an Optionee who, at the time the
Option is granted, owns (within the meaning of section 424(d) of the
Code) stock possessing more than 10% of the total combined voting power
of all classes of stock of the Corporation or any Subsidiary, shall
have an exercise price that is at least 110% of the fair market value of
the Stock subject to the Option.
(d) Option Period -- The Option Period for all Options other than
Outside Director Options shall be determined by the Committee, but no
Option shall be exercisable later than ten years from the date of grant.
The Option Period for Outside Director Options shall be ten years from
the date of grant. Notwithstanding the foregoing, in the case of an
Optionee owning (within the meaning of section 424(d) of the Code), at
the time an Incentive Stock Option is granted, stock possessing more
than 10% of the total combined voting power of all classes of stock of
the Corporation or any Subsidiary, such Incentive Stock Option shall not
be exercisable later than five years from the date of grant. No Option
may be exercised at any time unless such Option is valid and outstanding
as provided in this Section 6.2.
(e) Limitation on Amount of Incentive Stock Options -- The aggregate
Fair Market Value (determined as of the time the Option is granted) of
the Stock with respect to which incentive stock options are exercisable
for the first time by a Participant during any calendar year under this
and all other stock option plans of the Corporation or any Subsidiary,
shall not exceed $100,000. Options or portions of Options exercisable as
a result of acceleration under Section 8.10 in excess of the $100,000
limit described herein shall be treated as Non-qualified Stock Options
for tax purposes.
(f) Nontransferability of Options -- No Option shall be transferable
by the Optionee otherwise than by will or by the laws of descent and
distribution, and such Option shall be exercisable, during the Optionee's
lifetime, only by the Optionee.
(g) Exercisability -- An Option may be exercised, so long as it is
valid and outstanding, from time to time in part or as a whole, subject
to any limitations with respect to the number of shares for which the
Option may be exercised at a particular time and to such other
conditions (e.g., conditions relating to the achievement of certain
performance goals) as the Committee in its discretion may specify upon
granting the Option (other than with respect to Outside Director
Options) or as otherwise provided in this Section 6.2.
(h) Method of Exercise -- To exercise an Option, the Participant or
the other person(s) entitled to exercise the Option shall give written
notice of exercise to the Corporation, specifying the number of full
shares to be purchased. Such notice shall be accompanied by payment in
full (either in cash or in form of Stock owned by Optionee described
below) for the Stock being purchased plus, in the case of Nonqualified
Stock Options, any required withholding tax as provided in Section 9.
With respect to all Options, payment in full or in part may be made in
the form of Stock owned by the Optionee (based on the Fair Market Value
of the Stock on the date the Option is exercised) evidenced by
negotiable Stock certificates registered either in the sole name of the
Optionee or the names of the Optionee and spouse, or by any combination
of cash or shares. No shares of Stock shall be issued unless the
Optionee has fully complied with the provisions of this Section 6.2(h).
(i) Termination of Employee's Employment -- After an Employee's
Termination of Employment, an Option may be exercised, subject to
adjustment as provided in Section 3.3 or 8.10, only with respect to the
number of shares of Stock that the Employee could have acquired by an
exercise of the Option immediately prior to the Termination of
Employment. Except to the extent otherwise provided by the Committee or
as described below, an Employee's right to exercise any Option shall
terminate 90 days after Termination of Employment. Notwithstanding the
foregoing, in no event shall such exercise occur after the expiration
date of the Option as specified in the applicable Award Agreement.
(i)At the expiration of three months (for Incentive Stock Options)
or three years (for Nonqualified Stock Options) after the Employee's
Retirement; provided, however, that if an Incentive Stock Option is
not exercised after three months, it will be treated as a
Nonqualified Stock Option for purposes of the Plan when it is
exercised; or
(ii)At the expiration of one year in the event of Disability of
the Employee (the determination of the Committee on any question
involving Disability shall be conclusive and binding); or
(iii)At the expiration of six months after the Employee's death if
the Employee's Termination of Employment occurs by reason of death.
Any Option exercised under this subparagraph (iii) may be exercised
in full by the legal representative of the estate of the Employee
or by the person or persons who acquire the right to exercise such
Option by bequest or inheritance.
(j) Cessation of Service as an Outside Director -- After an Outside
Director ceases to serve as an Outside Director, an Outside Director
Option may be exercised, subject to adjustment as provided in Section 3.3
or 8.10, only with respect to the number of shares of Stock that the
Outside Director could have acquired by an exercise of the Option
immediately prior to cessation of service as an Outside Director. Except
as described below, an Outside Director's right to exercise any Option
shall terminate 90 days after cessation of service as an Outside
Director. Notwithstanding the foregoing, in no event shall such
exercise occur after the expiration date of the Option as specified in
the applicable Award Agreement.
(i)At the expiration of three years after the Outside Director's
retirement from the Board; or
(ii)At the expiration of one year in the event of Disability of
the Outside Director; or
(iii) At the expiration of six months after the Outside Director's
death if the Outside Director's cessation of service as an Outside
Director occurs by reason of death. Any Option exercised under this
subparagraph (iii) may be exercised in full by the legal
representative of the estate of the Outside Director or by the
person or persons who acquire the right to exercise such Option by
bequest or inheritance.
(k) Not a Stockholder -- The person or persons entitled to exercise,
or who have exercised, an Option shall not be entitled to any rights as a
stockholder of the Corporation with respect to any shares subject to the
Option until such person or persons shall have become the holder of
record of such shares.
7. AMENDMENTS AND TERMINATION
7.1 Amendments and Termination. The Board may at any time and from time
to time alter, amend, suspend, or terminate the Plan in whole or in part;
provided that, no amendment that requires stockholder approval in order
for the Plan to continue to comply with Rule 16b-3 or section 162(m) of
the Code shall be effective unless the same shall be approved by the
requisite vote of the stockholders of the Corporation. The provisions
of the Plan relating to Outside Director Options shall not be amended
more than once in any six-month period other than to comport with
changes in the Code or the Employee Retirement Income Security Act of
1974, as amended, or the rules or regulations thereunder.
Notwithstanding the foregoing, no amendment shall affect adversely any
of the rights of any Participant without such Participant's consent,
under any Award theretofore granted under the Plan. The power to grant
Awards under the Plan will automatically terminate ten years after the
Effective Date. If the Plan is terminated, any unexercised Option shall
continue to be exercisable in accordance with its terms and the terms of
the Plan in effect immediately prior to such termination.
7.2 Conditions on Awards. In granting an Award other than an Outside
Director Option, the Committee may establish any conditions that it
determines are consistent with the purposes and provisions of the Plan,
including, without limitation, a condition that the granting of an Award
is subject to the surrender for cancellation of any or all outstanding
Awards held by the Participant.
7.3 Selective Amendments. Any amendment or alteration of the Plan may be
limited to, or may exclude from its effect, particular classes of
Participants.
8. GENERAL PROVISIONS
8.1 Unfunded Status of Plan. The Plan is intended to constitute an
"unfunded" plan for incentive compensation, and the Plan is not intended
to constitute a plan subject to the provisions of the Employee
Retirement Income Security Act of 1974, as amended.
8.2 Transfers, Leaves of Absence and Other Changes in Employment Status.
For purposes of the Plan (i) a transfer of an Employee from the
Corporation to a Subsidiary, or vice versa, or from one Subsidiary to
another; or (ii) a leave of absence, duly authorized in writing by the
Corporation, for military service or sickness, or for any other purpose
approved by the Corporation or a subsidiary if the period of such leave
does not exceed 90 days; or (iii) any leave of absence in excess of 90
days approved by the Corporation, shall not be deemed a Termination of
Employment. The Committee, in its sole discretion subject to the terms
of the Award Agreement, shall determine the disposition of all Awards
made under the Plan in all cases involving any substantial change in
employment status other than as specified herein.
8.3 Distribution of Stock--Securities Restrictions. The Committee may
require Participants receiving Stock pursuant to any Award under the
Plan to represent to and agree with the Corporation in writing that the
Participant is acquiring the shares for investment without a view to
distribution thereof. No shares shall be issued or transferred pursuant
to an Award unless such issuance or transfer complies with all relevant
provisions of law, including but not limited to, (i) the limitations, if
any, imposed in the state of issuance or transfer, (ii) the
restrictions, if any, imposed by the Securities Act of 1933, as amended,
the Exchange Act, and the rules and regulations promulgated thereunder,
and (iii) requirements of any stock exchange upon which the
Corporation's shares may then be listed. The certificates for such
shares may include any legend that the Committee deems appropriate to
reflect any restrictions on transfer.
8.4 Governing Law. The Plan and all determinations made and actions taken
pursuant thereto shall be governed by the laws of the State of New York
without giving effect to the conflict of laws principles thereof.
8.5 Stop Transfer Orders. All certificates for shares of Stock delivered
under the Plan pursuant to any Award shall be subject to such stop
transfer orders and other restrictions as the Committee may deem
advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the
Stock is then listed, and any applicable Federal, state or foreign
securities law, and the Committee may cause a legend or legends to be
put on any such certificates to make appropriate reference to such
restrictions.
8.6 Other Compensation Plans. Nothing contained in the Plan shall prevent
the Board of Directors from adopting other compensation arrangements,
subject to stockholder approval if such approval is required.
8.7 Subsidiary Plans. The Committee may approve or adopt incentive
compensation plans of Subsidiaries under the Plan as required to meet the
provisions of the tax laws or any other applicable laws, rules or
regulations in the jurisdictions in which any Subsidiary operates.
Any shares of Stock issued under any such Subsidiary plans shall be
deemed to have been issued under the Plan.
8.8 Interpretation. The Plan is designed and intended to comply with Rule
16b-3 promulgated under the Exchange Act and, to the extent applicable,
with section 162(m) of the Code, and all provisions hereof shall be
construed in a manner to so comply.
8.9 No Right to Employment/Continuation as Director. Neither the action
of the Corporation in establishing the Plan, nor any action taken by it
or by the Board of Directors or the Committee under the Plan or any
Award Agreement, nor any provision of the Plan, shall be construed as
giving to any person the right (a) to be retained in the employ of the
Corporation or any Subsidiary or (b) to continue to serve as director of
the Corporation.
8.10 Change of Control/Tender Offers.
(a) For the purposes of this Section, a "change of control" shall be
deemed to have taken place on the tenth day after:
(i)Any individual, firm, corporation or other entity, or any group
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934
becomes, directly or indirectly, the beneficial owner (as defined in
the General Rules and Regulations of the Securities and Exchange
Commission with respect to Sections 13(d) and 13(g) of the Exchange
Act) of more than 30% of the then outstanding shares of the
Corporation's capital stock entitled to vote generally in the
election of directors of the Corporation; or
(ii)The commencement of, or the first public announcement of the
intention of any individual, firm, corporation or other entity or of
any group (as defined in Section 13(d)(3) of the Exchange Act) to
commence a tender or exchange offer subject to Section 14(d)(1) of
the Act for any class of the Corporation's capital stock; or
(iii)The stockholders of the Corporation approve a definitive
agreement for (A) the merger or other business combination of the
Corporation with or into another corporation pursuant to which the
stockholders of the Corporation do not own, immediately after the
transactions, more than 50% of the voting power of the corporation
that survives and is a publicly owned corporation and not a
subsidiary of another corporation, or (B) the sale, exchange or
other disposition of all or substantially all of the assets of the
Corporation; provided, however, that a "change of control" shall not
be deemed to have taken place if beneficial ownership is acquired by,
or a tender or exchange offer is commenced or announced by, the
Corporation or any of its Subsidiaries, any profit sharing,
employee ownership or other employee benefit plan of the Corporation
or any Subsidiary or any trustee of or fiduciary with respect to any
such plan when acting in such capacity, or any group comprised
solely of such entities.
(b) In the event of a "change of control" as defined in Section
8.10(a), then, unless the provisions of this Section 8.10 are suspended or
terminated by an affirmative vote of a majority of the Board of Directors
before the occurrence of such a change of control, all outstanding Options
shall become exercisable in full whether or not otherwise exercisable at
such time, and shall remain exercisable in full thereafter until they
expire pursuant to their respective terms (to the extent so provided in
the applicable Award Agreement).
8.11 Award Period. No Award granted under the Plan shall be exercisable
or payable more than 10 years from the date of grant.
9. WITHHOLDING
Where a Participant or other person is entitled to receive shares of
Stock pursuant to the exercise of an Option or is otherwise entitled to
receive shares of Stock or cash pursuant to an Award hereunder, the
Corporation shall have the right to require the Participant or such other
person to pay to the Corporation the amount of any taxes that the Corporation
may be required to withhold before delivery to such Participant or other
person of cash or a certificate or certificates representing such shares.
Upon the disposition of shares of Stock acquired pursuant to the exercise of
an Incentive Stock Option, the Corporation shall have the right to require the
payment of the amount of any taxes that are required by law to be withheld
with respect to such disposition.
Unless otherwise prohibited by the Committee or by applicable law, a
Participant may satisfy any such withholding tax obligation by any of the
following methods, or by a combination of such methods: (i) tendering a cash
payment; (ii) authorizing the Corporation to withhold from the shares of Stock
otherwise payable to such Participant one or more of such shares having an
aggregate Fair Market Value, determined as of the date the withholding tax
obligation arises, less than or equal to the amount of the total withholding
tax obligation; or (iii) delivering to the Corporation previously acquired
shares of Stock (none of which may be subject to any claim, lien, security
interest, community property right or other right of spouses or present or
former family members, pledge, option, voting agreement or other restriction
or encumbrance of any nature whatsoever) having an aggregate Fair Market
Value, determined as of the date the withholding tax obligation arises, less
than or equal to the amount of the total withholding tax obligation. A
Participant's election to pay his or her withholding tax obligation (in whole
or in part) by the method described in (ii) above is irrevocable once it is
made, may be disapproved by the Committee and, if made by any director,
officer or other person who is subject to Section 16(b) of the Exchange Act,
must be made (x) only during the period beginning on the third business day
following the date of release of the Corporation's quarterly or annual summary
statement of sales and earnings and ending on the twelfth business day
following the date of such release or (y) not less than six months prior to
the date such Participant's withholding tax obligation arises.
10. EFFECTIVE DATE OF PLAN
The 1988 Plan became effective upon the approval thereof by the
Corporation's stockholders on August 3, 1989 (the "Effective Date"). On April
20, 1994, the Board of Directors amended, restated and renamed the 1988 Plan,
which action was approved by stockholders on June 30, 1994. On September 6,
1995, the Board of Directors amended the Plan, subject to stockholder approval
and receipt of an exemptive order from the Securities and Exchange Commission.
In the absence of such approval of stockholders of the amendments to the Plan or
receipt of an exemptive order from the Securities and Exchange Commission
authorizing the automatic award of Outside Director Options, any Awards
granted under the Plan pursuant to the amendments shall be null and void.
* * * * *
Board Approval:
Secretary's Initials
Stockholder Approval:
