SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(e)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
HARRIS & HARRIS GROUP, INC.
(Name of Issuer)
HARRIS & HARRIS GROUP, INC.
(Name of Person(s) Filing Statement)
Common Stock, par value $.01 per share
(Title of Class of Securities)
413833104
(CUSIP Number of Class of Securities)
Mel P. Melsheimer
Harris & Harris Group, Inc.
One Rockefeller Plaza
Rockefeller Center
New York, NY 10020
(212) 332-3600
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of the Person(s) Filing Statement)
COPY TO:
Thomas A. Hale
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois
(312) 407-0835
July 14, 1999
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
Transaction Amount of
Valuation* Filing Fee
$1,793,000 $359.00
* Calculated solely for purposes of determining the filing fee. This
amount assumes the purchase of 1,100,000 shares of Common Stock of
Harris & Harris Group, Inc. $1.63 per Share. The amount of the filing
fee was calculated in accordance with Section 13(e)(3) of the
Securities Exchange Act of 1934, as amended, and Rule 0-11 thereunder.
Check box if any part of the fee is offset as provided by Rule 0-
11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration No.: N/A Date Filed: N/A
This Issuer Tender Offer Statement on Schedule 13E-4 (the "Statement")
relates to the tender offer by Harris & Harris Group, Inc., a New York
corporation (the "Company"), to purchase up to 1,100,000 shares of its
common stock, par value $0.01 per share, at a price of $1.63 per share the
"Shares"), net to the seller in cash, upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated July 14,1999 (the
"Offer to Purchase") and the related Letter of Transmittal (which, as they
may be amended from time to time, are herein collectively referred to as
the "Offer"). Copies of the Offer to Purchase and Letter of Transmittal
are filed as Exhibits (a)(1) and (a)(2), respectively, to this Statement
and are incorporated herein by reference.
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is Harris & Harris Group, Inc. The
address of its principal executive offices One Rockefeller Plaza,
Rockefeller Center, New York, New York 10020.
(b) The information set forth in "Introduction," "Section 1.
Price; Number of Shares of Common Stock" and "Section 10. Interest of
Directors and Executive Officers; Transactions and Arrangements Concerning
the Common Stock" in the Offer to Purchase is incorporated herein by
reference. The Offer is being made to all holders of Shares, including
officers, directors and affiliates of the Company, although the Company has
been advised that none of its directors or executive officers intends to
tender any Shares pursuant to the Offer.
(c) The information set forth in "Introduction" and "Section 9.
Price Range of Shares of Common Stock; Dividends" in the Offer to Purchase
is incorporated herein by reference.
(d) This Statement is being filed by the issuer.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in "Section 12. Source and Amount
of Funds" in the Offer to Purchase is incorporated herein by reference.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER.
(a)-(j) The information set forth in "Introduction," "Section 7.
Purpose of the Offer," "Section 10. Interest of Directors and Executive
Officers; Transactions and Arrangements Concerning the Shares," "Section
11. Certain Effects of the Offer" and "Section 12. Source and Amount of
Funds" in the Offer to Purchase is incorporated herein by reference.
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information set forth in "Section 10. Interest of Directors and
Executive Officers; Transactions and Arrangements Concerning the Shares" in
the Offer to Purchase is incorporated herein by reference.
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO THE ISSUER'S SECURITIES.
The information set forth in "Introduction," "Section 7. Purpose of
the Offer" and "Section 10. Interest of Directors and Executive Officers;
Transactions and Arrangements Concerning the Shares" in the Offer to
Purchase is incorporated herein by reference.
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
No persons have been employed, retained or are to be compensated by or
on behalf of the Company to make solicitaions or recommendations in
connection with the Offer.
ITEM 7. FINANCIAL INFORMATION.
(a)-(b) Reference is hereby made to the financial statements
included as part of Exhibit (a)(2) attached hereto, which are incorporated
herein by reference.
ITEM 8. ADDITIONAL INFORMATION.
(a) The information set forth in "Introduction," and "Section
10. Interest of Directors and Executive Officers; Transactions and
Arrangements Concerning the Shares" in the Offer to Purchase is
incorporated herein by reference.
(b) Not applicable.
(c) Not applicable.
(d) Not applicable.
(e) The information set forth in the Offer to Purchase and the
related Letter of Transmittal, copies of which are attached hereto as
Exhibits (a)(2) and (a)(3), respectively, is incorporated herein by
reference.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Advertisement printed in The Wall Street Journal
(a)(2) Offer to Purchase dated July 14, 1999 (including Financial
Statements)
(a)(3) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number).
(a)(4) Text of Press Release issued by the Company dated July 14,
1999.
(b) Not applicable.
(c) Letter dated July 1, 1999 from the Company to Ms. Susan
Egli.
(d) Not applicable.
(e) Not applicable.
(f) Not applicable.
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
HARRIS & HARRIS GROUP, INC.
By: /s/ Mel P. Melshimer
---------------------------
Name: Mel P. Melshimer
Title: President and Chief Operating Officer
Dated: July 14, 1999
INDEX TO EXHIBITS
(a)(1) Advertisement printed in The Wall Street Journal
(a)(2) Offer to Purchase dated July 14, 1999 (including Financial
Statements)
(a)(3) Form of Letter of Transmittal (including Guidelines for
Certification of Taxpayer Identification Number).
(a)(4) Text of Press Release issued by the Company dated July 14,
1999.
(b) Not applicable.
(c) Letter dated July 1, 1999 from the Company to Ms. Susan
Egli.
(d) Not applicable
(e) Not applicable.
(f) Not applicable.
This announcement is not an offer to purchase or a solicitation of an
offer to sell shares of Common Stock. The Offer is made only by the Offer
to Purchase dated July 14, 1999 and the related Letter of Transmittal. The
Offer is not being made to, nor will tenders be accepted from or on behalf
of, holders of shares of Common Stock in any jurisdiction in which making
or accepting the Offer would violate that jurisdiction's laws.
HARRIS & HARRIS GROUP, INC.
One Rockefeller Plaza
New York, New York 10020
Notice of Offer to Purchase for Cash up to 1,100,000
of Its Issued and Outstanding
Shares of Common Stock at $1.63 Per Share
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, EASTERN DAYLIGHT
TIME ON AUGUST 11, 1999, UNLESS THE OFFER IS EXTENDED.
Harris & Harris Group, Inc. (the "Company") is offering to purchase up to
1,100,000 of its issued and outstanding shares of common stock, par value
$0.01 per share ("Common Stock"), at a price equal to $1.63 per share as
of 12:00 Midnight, Eastern Daylight time (provided at least 700,000 shares
of Common Stock are duly tendered), on the date the Offer expires, subject
to the terms and conditions set forth in the Offer to Purchase dated July
14, 1999, and the related Letter of Transmittal (which together constitute
the "Offer"). The Offer will expire on August 11, 1999, subject to the
right of the Board of Directors of the Company to extend the Offer. The
Board of Directors does not currently intend to extend the Offer. The
Common Stock is currently traded on the Nasdaq National Market ("Nasdaq")
under the symbol "HHGP." The closing price per share of Common Stock on
June 30, 1999 was $1.78. The Company determines the net asset value per
share on a quarterly basis. On June 30, 1999 the net asset value per share
of Common Stock was $2.35. The purpose of the Offer is to provide
additional liquidity to stockholders and to further the Company's
investment objective, as described in the Offer to Purchase.
The Company will not purchase any shares of Common Stock unless a minimum
of 700,000 shares of Common Stock are duly tendered prior to the
expiration of the Offer. If more than 1,100,000 shares of Common Stock are
duly tendered prior to the expiration of the Offer, the Company presently
intends to, assuming no changes in the factors originally considered by
the Board of Directors when it determined to make the Offer and the other
conditions set forth in the Offer, purchase shares on a pro rata basis.
Shares of Common Stock tendered pursuant to the Offer may be withdrawn at
any time prior to 12:00 Midnight, Eastern Daylight time, on August 11,
1999, or such later time and date to which the Offer is extended and, if
not yet accepted for payment by the Company, shares of Common Stock may
also be withdrawn after 12:00 Midnight, Eastern Daylight time, on
September 9, 1999.
The information required to be disclosed by paragraph (d)(1) of Rule 13E-4
under the Securities Exchange Act of 1934, as amended, is contained in the
Offer to Purchase and is incorporated herein by reference.
The Offer to Purchase and the related Letter of Transmittal contain
important information that should be read carefully before any decision is
made with respect to the Offer.
Each stockholder tendering shares of Common Stock will be required to
submit a check in the amount of $25.00 payable to The Bank of New York
(the "Depositary") which will help defray the costs associated with
effecting the Offer.
Copies of the Offer to Purchase and the Letter of Transmittal will be
furnished promptly to stockholders at no expense to stockholders.
Stockholders who do not own shares of Common Stock directly may also
obtain such information from their broker, dealer, commercial bank, trust
company or other nominee and are required to tender their shares of Common
Stock through such firm. Question and requests for assistance, or for
copies of the Offer to Purchase, the Letter of Transmittal and any other
tender offer documents, may be directed to the Depositary, at the
Depositary's mailing address and at the telephone number below between the
hours of 9:00 a.m. and 5:00 p.m., Eastern Daylight time, Monday through
Friday, except holidays.
Depositary: THE BANK OF NEW YORK
Tender and Exchange Department
P.O. Box 11248
Church Street Station
New York, New York 10286-1248
July 14, 1999 Telephone: 800.507.9357
HARRIS & HARRIS GROUP, INC.
OFFER TO PURCHASE AT LEAST 700,000 AND UP TO 1,100,000
OF ITS ISSUED AND OUTSTANDING SHARES OF COMMON STOCK
AT $1.63 PER COMMON SHARE
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT EASTERN
DAYLIGHT TIME ON AUGUST 11, 1999, UNLESS THE OFFER IS EXTENDED. TO ENSURE
PROCESSING OF YOUR REQUEST, A LETTER OF TRANSMITTAL OR A MANUALLY SIGNED
FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR SHARES OF COMMON STOCK
AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE DEPOSITARY (AS
DEFINED BELOW) ON OR BEFORE AUGUST 11, 1999.
To the Holders of Shares of Common Stock of
HARRIS & HARRIS GROUP, INC.:
Harris & Harris Group, Inc., a venture capital investment company,
operating as a Business Development Company ("BDC") under the Investment
Company Act of 1940 (the "1940 Act") and incorporated under the laws of New
York (the "Company"), is offering to purchase at least 700,000 and up to
1,100,000 of its shares of common stock, with par value of $0.01 per share
("Common Stock"), at a price (the "Purchase Price") of $1.63 per share,
upon the terms and conditions set forth in this Offer to Purchase and the
related Letter of Transmittal (which together constitute the "Offer"). The
Offer is scheduled to terminate as of 12:00 Midnight Eastern Daylight time
on August 11, 1999, unless extended. The Common Stock is currently traded
on the Nasdaq National Market (the "Nasdaq") under the symbol "HHGP". On
June 30, 1999, the closing price per share of Common Stock as reported on
the Nasdaq was $1.78. The Company determines the net asset value ("NAV")
per share of Common Stock on a quarterly basis. The NAV per share on June
30, 1999, the last quarterly date on which the Company determined the NAV
prior to the commencement of this Offer, was $2.35.
The Company will not purchase tendered shares of Common Stock unless a
minimum of 700,000 shares of Common Stock are duly tendered prior to the
expiration of the Offer. If more than 1,100,000 shares of Common Stock are
duly tendered prior to the expiration of the Offer, the Company presently
intends to purchase shares of Common Stock on a pro rata basis, subject to
the condition that there have been no changes in the factors originally
considered by the Board of Directors when it determined to make the Offer
and the other conditions set forth in Section 6. The Board of Directors
does not expect to extend the Offer period or increase the number of shares
of Common Stock that the Company is Offering to purchase, but reserves the
right to do so. See Section 16.
THIS OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE SECTION 6.
THIS OFFER IS BEING MADE TO ALL HOLDERS OF SHARES
OF COMMON STOCK OF THE COMPANY.
IMPORTANT
If you desire to tender all or any portion of your shares of Common
Stock, you should either (1) complete and sign the Letter of Transmittal
(or a photocopy thereof bearing original signature(s) and any required
signature guarantees) and mail or deliver it along with any Common Stock
certificate(s), a check in the amount of $25.00 payable to The Bank of New
York (the "Depositary") and any other required documents to the Depository
or (2) request your broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you. If your shares of Common Stock
are registered in the name of a broker, dealer, commercial bank, trust
company or other nominee, you must contact such broker, dealer, commercial
bank, trust company or other nominee if you desire to tender your shares of
Common Stock.
NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION
TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING ANY OR
ALL OF SUCH STOCKHOLDER'S COMMON STOCK. STOCKHOLDERS ARE URGED TO EVALUATE
CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN INVESTMENT AND
TAX ADVISERS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER SHARES OF
COMMON STOCK AND, IF SO, HOW MANY SHARES OF COMMON STOCK TO TENDER.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION ON BEHALF OF
THE COMPANY AS TO WHETHER STOCKHOLDERS SHOULD TENDER SHARES OF COMMON STOCK
PURSUANT TO THE OFFER. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
OTHER THAN THOSE CONTAINED HEREIN OR IN THE LETTER OF TRANSMITTAL. IF GIVEN
OR MADE, SUCH RECOMMENDATION AND SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY.
Questions and requests for assistance may be directed to the Depository
at the address and telephone number set forth below. Requests for
additional copies of this Offer to Purchase and the Letter of Transmittal
should be directed to the Depository.
July 14, 1999 HARRIS & HARRIS GROUP, INC.
The Depositary for this offer is:
THE BANK OF NEW YORK
By Mail:
The Bank of New York
Tender and Exchange Department
Post Office Box 11248
Church Street Station
New York, New York
10286-1248
By Hand:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive & Deliver Window -
Street Level
New York, New York 10286
For Information:
[(800) 507-9357]
By Overnight Courier:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive & Deliver Window -
Street Level
New York, New York 10286
TABLE OF CONTENTS
SECTION PAGE
1. Price; Number of Shares of Common Stock..................... 4
2. Procedure for Tendering Shares of Common Stock.............. 5
3. Fees and Expenses........................................... 8
4. Withdrawal Rights........................................... 8
5. Payment for Shares of Common Stock.......................... 8
6. Certain Conditions of the Offer............................. 9
7. Purpose of the Offer........................................ 10
8. Plans or Proposals of the Company........................... 12
9. Price Range of Common Stock; Dividends...................... 12
10. Interest of Directors and Executive Officers; Transactions
and Arrangements Concerning the Common Stock........... 13
11. Certain Effects of the Offer................................ 14
12. Source and Amount of Funds.................................. 15
13. Certain Information about the Company....................... 15
14. Additional Information...................................... 15
15. Certain Federal Income Tax Consequences..................... 16
16. Extension of Tender Period; Termination; Amendments......... 16
17. Miscellaneous............................................... 17
EXHIBIT A: Financial Statements
Audited Financial Statements for the years ended
December 31, 1998 and 1997............................. A-1
1. PRICE; NUMBER OF SHARES OF COMMON STOCK.
The Company will, upon the terms and subject to the conditions of the
Offer, accept for payment (and thereby purchase) 1,100,000 or such lesser
number of its issued and outstanding shares of Common Stock which are
properly tendered (and not withdrawn in accordance with Section 4) prior to
12:00 Midnight Eastern Daylight time on August 11, 1999 (such time and date
being hereinafter called the "Initial Expiration Date"); provided that at
least 700,000 shares of Common Stock have been duly tendered (if fewer than
700,000 shares of Common Stock are so tendered, the Company shall have no
obligation to purchase any shares of Common Stock). Although the Company
does not expect to do so, the Company reserves the right to extend the
Offer. See Section 16. The later of the Initial Expiration Date or the
latest time and date to which the Offer is extended is hereinafter called
the "Expiration Date." The Purchase Price of the shares of Common Stock is
$1.63 per share (the "Purchase Price"). The Common Stock is currently
traded on the Nasdaq National Market (the "Nasdaq") under the symbol
"HHGP". On June 30, 1999, the closing price per share of Common Stock as
reported on the Nasdaq was $1.78. The Company determines the net asset
value ("NAV") per share of Common Stock on a quarterly basis. The NAV on
June 30, 1999, the last quarterly date on which the Company determined the
NAV prior to the commencement of this Offer, was $2.35 per share of Common
Stock. The Company will not pay interest on the Purchase Price under any
circumstances.
The Offer is being made to all stockholders of the Company. The
Company does not intend to purchase any shares of Common Stock unless a
minimum of 700,000 shares of Common Stock are duly tendered prior to the
Expiration Date. If the number of shares of Common Stock properly tendered
prior to the Expiration Date and not withdrawn is at least 700,000 but less
than or equal to 1,100,000 shares of Common Stock (or such greater number
of shares of Common Stock as the Company may elect to purchase pursuant to
the Offer), the Company will, upon the terms and subject to the conditions
of the Offer, purchase all shares of Common Stock so tendered at $1.63 per
share. If more than 1,100,000 shares of Common Stock are duly tendered
prior to the expiration of the Offer and not withdrawn, the Company
presently intends to purchase shares of Common Stock on a pro rata basis,
subject to the condition that there have been no changes in the factors
originally considered by the Board of Directors when it determined to make
the Offer and the other conditions set forth in Section 6. The Board of
Directors does not expect to extend the Offer period or increase the number
of shares of Common Stock that the Company is offering to purchase, but
reserves the right to do so. See Section 16.
On July 7, 1999, there were 10,321,400 shares of Common Stock issued
and outstanding. As of February 26, 1999 there were approximately 164
holders of record of shares of Common Stock which, the Company has been
informed, hold the Company's shares of Common Stock for approximately 2,000
beneficial owners. The Company has been advised that no directors or
officers of the Company intend to tender any shares of Common Stock
pursuant to the Offer. The Company has had communications with an affiliate
of the Company, American Bankers Insurance Group ("ABIG"), owner of
1,075,269 shares of Common Stock of the Company. Based upon such
communications, the Company believes that ABIG intends to tender all or a
portion of such shares of Common Stock.
2. PROCEDURE FOR TENDERING SHARES OF COMMON STOCK.
Proper Tender of Common Stock. For shares of Common Stock to be
properly tendered pursuant to the Offer, a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) with
any required signature guarantees, any certificates for such shares of
Common Stock, a check in the amount of $25.00 payable to The Bank of New
York and any other documents required by the Letter of Transmittal, must be
received on or before the Expiration Date by the Depositary at its address
set forth on page 2 of this Offer to Purchase. Letters of Transmittal and
certificates representing tendered shares of Common Stock should NOT be
sent or delivered to the Company. Stockholders who desire to tender shares
of Common Stock registered in the name of a broker, dealer, commercial
bank, trust company or other nominee should contact such firm to effect a
tender on their behalf.
It is a violation of Section 14(e) of the Securities and Exchange Act
of 1934 (the "Exchange Act"), and Rule 14e-4 promulgated thereunder, for a
person to tender shares of Common Stock in a partial tender offer for such
person's own account unless at the time of tender and until such time as
the securities are accepted for payment the person so tendering has a net
long position equal to or greater than the amount tendered in (i) the
shares of Common Stock and will deliver or cause to be delivered such
shares for purposes of tender to the Company prior to or on the Expiration
Date, or (ii) an equivalent security and, upon the acceptance of his or her
tender will acquire the shares of Common Stock by conversion, exchange, or
exercise of such equivalent security to the extent required by the terms of
the Offer, and will deliver or cause to be delivered the shares of Common
Stock so acquired for the purpose of tender to the Company prior to or on
the Expiration Date.
Section 14(e) and Rule 14e-4 provide a similar restriction applicable
to the tender or guarantee of a tender on behalf of another person.
The acceptance of shares of Common Stock by the Company for payment
will constitute a binding agreement between the tendering stockholder and
the Company upon the terms and subject to the conditions of the Offer,
including the tendering stockholder's representation that (i) such
stockholder has a net long position in the shares of Common Stock being
tendered within the meaning of Rule 14e-4 promulgated under the Exchange
Act and (ii) the tender of such shares of Common Stock complies with Rule
14e-4.
Signature Guarantees and Method of Delivery. Signatures on the Letter
of Transmittal are not required to be guaranteed unless (1) the proceeds
for the tendered shares of Common Stock will amount to more than $50,000,
(2) the Letter of Transmittal is signed by someone other than the
registered stockholder tendered therewith, or (3) payment for tendered
shares of Common Stock is to be sent to a payee other than the registered
stockholder and/or to an address other than the registered address of the
registered stockholder. In those instances, all signatures on the Letter of
Transmittal must be guaranteed by a member firm of a national securities
exchange or a commercial bank or trust company having an office, branch or
agency in the United States (an "Eligible Institution"). If shares of
Common Stock are registered in the name of a person or persons other than
the signer of the Letter of Transmittal or (a) if payment is to be made to,
(b) unpurchased shares of Common Stock are to be registered in the name of
or (c) any certificates for unpurchased shares of Common Stock are to be
returned to any person other than the registered owner, then the Letter of
Transmittal and, if applicable, the tendered Common Stock certificates must
be endorsed or accompanied by appropriate authorizations, in either case
signed exactly as such name or names appear on the registration of the
shares of Common Stock with the signatures on the certificates or
authorizations guaranteed by an Eligible Institution. If signature is by
attorney-in-fact, executor, administrator, director, guardian, officer of a
corporation or another acting in a fiduciary or representative capacity,
other legal documents will be required. See Instructions 1 and 4 of the
Letter of Transmittal.
Payment for shares of Common Stock tendered and accepted for payment
pursuant to the Offer will be made only after receipt by the Depositary on
or before the Expiration Date of a properly completed and duly executed
Letter of Transmittal (or manually signed facsimile thereof), a check in
the amount of $25.00 payable to The Bank of New York and any other
documents required by the Letter of Transmittal. If your shares of Common
Stock are evidenced by certificates, those certificates must be received by
the Depositary on or prior to the Expiration Date.
THE METHOD OF DELIVERY OF ANY DOCUMENTS, INCLUDING CERTIFICATES FOR
COMMON STOCK, IS AT THE ELECTION AND RISK OF THE PARTY TENDERING SHARES OF
COMMON STOCK. IF DOCUMENTS ARE SENT BY MAIL, IT IS RECOMMENDED THAT THEY BE
SENT BY REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED.
The Depositary has established an account with The Depository Trust
Company ("DTC") for purposes of the Offer. Any financial institution that
is a participant in DTC's system may make delivery of tendered shares of
Common Stock by causing DTC to transfer such shares into the Depositary's
account in accordance with DTC's procedure for such transfer. Although
delivery of shares of Common Stock may be effected through transfer into
the Depositary's account at DTC, the Letter of Transmittal (or a photocopy
thereof, bearing original signature(s) and any required signature
guarantees), the $25.00 check payable to The Bank of New York, and any
other required documents must, in any case, be transmitted to and received
by the Depositary prior to or on the Expiration Date, at the appropriate
address set forth on page 2 of this Offer to Purchase. Delivery of
documents to DTC in accordance with DTC's procedures does not constitute
delivery to the Depositary.
Notwithstanding the foregoing, if certificates for shares of Common
Stock are not immediately available or time will not permit the Letter of
Transmittal and other required documents to reach the Depositary prior to
or on the Expiration Date, shares of Common Stock may nevertheless be
tendered, provided that all of the following conditions are satisfied:
(a) such tenders are made by or through an Eligible Institution; and
(b) the Depositary receives, prior to or on the Expiration Date, a
properly completed and duly executed Notice of Guaranteed Delivery in the
form provided by the Company; and
(c) the certificates for all tendered shares of Common Stock, or
book-entry confirmation, as the case may be, together with a properly
completed and duly executed Letter of Transmittal (or a photocopy thereof
bearing original signature(s) and any required signature guarantees), the
$25.00 check payable to The Bank of New York, and any other documents
required by the Letter of Transmittal, are received by the Depositary
within five New York Exchange trading days after receipt by the Depositary
of such Notice of Guaranteed Delivery.
Determinations of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of tenders will be
determined by the Company, in its sole discretion, whose determination
shall be final and binding. The Company reserves the absolute right to
reject any or all tenders determined by it not to be in appropriate form or
the acceptance of or payment for which may, in the opinion of the Company's
counsel, be unlawful. The Company also reserves the absolute right to waive
any of the conditions of the Offer or any defect in any tender with respect
to any particular share(s) of Common Stock or any particular shareholder,
and the Company's interpretations of the terms and conditions of the Offer
will be final and binding. Unless waived, any defects or irregularities in
connection with tenders must be cured within such times as the Company
shall determine. Tendered shares of Common Stock will not be accepted for
payment unless the defects or irregularities have been cured within such
time or waived. Neither the Company, the Depositary nor any other person
shall be obligated to give notice of any defects or irregularities in
tenders, nor shall any of them incur any liability for failure to give such
notice.
Federal Income Tax Withholding. To prevent backup federal income tax
withholding equal to 31% of the gross payments made pursuant to the Offer,
each stockholder who has not previously submitted a Substitute Form W-9 to
the Company or does not otherwise establish an exemption from such
withholding must notify the Depositary of such stockholder's correct
taxpayer identification number (or certify that such taxpayer is awaiting a
taxpayer identification number) and provide certain other information by
completing the Substitute Form W-9 enclosed with the Letter of Transmittal.
Foreign stockholders who are resident aliens and who have not previously
submitted a Form W-9, or other foreign stockholders who have not previously
submitted a Form W-8, to the Company must do so in order to avoid backup
withholding.
The Depositary will withhold 30% of the gross payments payable to a
foreign stockholder unless the Depositary determines that a reduced rate of
withholding or an exemption from withholding is applicable. (Exemption from
backup withholding does not exempt a foreign stockholder from the 30%
withholding.) For this purpose, a foreign stockholder, in general, is a
stockholder that is not (i) a citizen or resident of the United States,
(ii) a corporation or partnership created or organized in or under the laws
of the United States or any political subdivision thereof, (iii) an estate
the income of which is subject to United States federal income taxation
regardless of the source of such income or (iv) a trust the administration
of which is subject to the primary jurisdiction of a United States court
and which has one or more United States fiduciaries who have the authority
to control all substantial decisions of the trust. The Depositary will
determine a stockholder's status as a foreign stockholder and eligibility
for a reduced rate of, or an exemption from, withholding by reference to
the stockholder's address and to any outstanding certificates or statements
concerning eligibility for a reduced rate of, or exemption from,
withholding unless facts and circumstances indicate that reliance is not
warranted. A foreign stockholder who has not previously submitted the
appropriate certificates or statements with respect to a reduced rate of,
or exemption from, withholding for which such stockholder may be eligible
should consider doing so in order to avoid over-withholding. A foreign
stockholder may be eligible to obtain a refund of tax withheld if such
stockholder meets one of the three tests for capital gain or loss treatment
described in Section 15 or is otherwise able to establish that no tax or a
reduced amount of tax was due.
For a discussion of certain other federal income tax consequences to
tendering stockholders, see Section 15.
3. FEES AND EXPENSES.
Each person tendering shares of Common Stock will be required to submit
a check in the amount of $25.00 payable to The Bank of New York for the
benefit of the Company to help defray certain costs, including the
processing of tender forms, effecting payment, postage and handling. The
Company expects that the cost to the Company of effecting the Offer will
exceed the aggregate of all charges received from those who tendered their
shares of Common Stock. Costs associated with the Offer will be charged
against capital.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4, tenders of shares of
Common Stock made pursuant to the Offer will be irrevocable. You may
withdraw shares of Common Stock tendered at any time prior to the
Expiration Date and, if the shares of Common Stock have not yet been
accepted for payment by the Company, at any time after 12:00 Midnight,
Eastern Daylight time, on September 9, 1999.
To be effective, a written, telegraphic, telex or facsimile
transmission notice of withdrawal must be timely received by the Depositary
at the address set forth on page 2 of this Offer to Purchase. Any notice of
withdrawal must specify the name of the person having tendered the shares
of Common Stock to be withdrawn, the number of shares of Common Stock to be
withdrawn, and, if certificates representing such shares of Common Stock
have been delivered or otherwise identified to the Depositary, the name of
the registered holder(s) of such shares of Common Stock as set forth in
such certificates if different from the name of the person tendering the
shares of Common Stock. If certificates have been delivered to the
Depositary, then, prior to the release of such certificates, you must also
submit the certificate numbers shown on the particular certificates
evidencing such shares of Common Stock and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution.
All questions as to the form and validity (including time of receipt)
of notices of withdrawal will be determined by the Company in its sole
discretion, whose determination shall be final and binding. None of the
Company, the Depositary or any other person is or will be obligated to give
any notice of any defects or irregularities in any notice of withdrawal,
and none of them will incur any liability for failure to give any such
notice. Shares of Common Stock properly withdrawn shall not thereafter be
deemed to be tendered for purposes of the Offer. However, withdrawn shares
of Common Stock may be reentered by following the procedures described in
Section 2 prior to the Expiration Date.
5. PAYMENT FOR SHARES OF COMMON STOCK.
For purposes of the Offer, the Company will be deemed to have accepted
for payment (and thereby purchased) shares of Common Stock which are
tendered and not withdrawn when, as and if it gives oral or written notice
to the Depositary of its acceptance of such shares of Common Stock for
payment pursuant to the Offer. Pursuant to a rule under the Exchange Act,
the Company is obligated to pay for or return tendered shares of Common
Stock promptly after the termination, expiration or withdrawal of the
Offer. Upon the terms and subject to the conditions of the Offer, the
Company will pay for shares of Common Stock properly tendered promptly
after the Expiration Date.
Payment for shares of Common Stock purchased pursuant to the Offer will
be made by depositing the aggregate purchase price therefor with the
Depositary, which will act as agent for tendering stockholders for the
purpose of receiving payment from the Company and transmitting payment
directly to the tendering stockholders. In all cases, payment for shares of
Common Stock accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary, as required pursuant to the Offer,
of a properly completed and duly executed Letter of Transmittal (or
manually signed facsimile thereof), any certificates representing such
shares of Common Stock, if issued, a check in the amount of $25.00 payable
to The Bank of New York and any other documents required by the Letter of
Transmittal. Certificates for shares of Common Stock not purchased (see
Sections 1 and 6), or for shares of Common Stock not tendered included in
certificates forwarded to the Depositary, will be returned promptly
following the termination, expiration or withdrawal of the Offer, without
expense to the tendering stockholder.
The Company will pay all transfer taxes, if any, payable on the
transfer to it of shares of Common Stock purchased pursuant to the Offer.
If, however, payment of the purchase price is to be made to, or (in the
circumstances permitted by the Offer) if unpurchased shares of Common Stock
are to be registered in the name of any person other than the registered
holder, or if tendered certificates, if any, are registered or the shares
of Common Stock tendered are held in the name of any person other than the
person signing the Letter of Transmittal, the amount of any transfer taxes
(whether imposed on the registered holder or such other person) payable on
account of the transfer to such person will be deducted from the Purchase
Price unless satisfactory evidence of the payment of such taxes, or
exemption therefrom, is submitted. The Company will not pay any interest on
the Purchase Price under any circumstances. In addition, if certain events
occur, the Company may not be obligated to purchase shares of Common Stock
pursuant to the Offer. See Section 6.
ANY TENDERING STOCKHOLDER OR OTHER PAYEE WHO HAS NOT PREVIOUSLY
SUBMITTED A COMPLETED AND SIGNED SUBSTITUTE FORM W-9 AND WHO FAILS TO
COMPLETE FULLY AND SIGN THE SUBSTITUTE FORM W-9 ENCLOSED WITH THE LETTER OF
TRANSMITTAL MAY BE SUBJECT TO REQUIRED FEDERAL INCOME TAX WITHHOLDING OF
31% OF THE GROSS PROCEEDS PAID TO SUCH STOCKHOLDER OR OTHER PAYEE PURSUANT
TO THE OFFER. SEE SECTION 2.
6. CERTAIN CONDITIONS OF THE OFFER.
Notwithstanding any other provision of the Offer, the Company shall not
be required to accept for payment, purchase or pay for any shares of Common
Stock tendered, and may terminate or amend the Offer or may postpone the
acceptance for payment of, the purchase of and payment for shares of Common
Stock tendered, if at any time at or before the time of purchase of any
such shares of Common Stock, any of the following events shall have
occurred (or shall have been determined by the Company to have occurred)
which, in the Company's sole judgment in any such case and regardless of
the circumstances (including any action or omission to act by the Company),
makes it inadvisable to proceed with the Offer or with such purchase or
payment: (1) fewer than 700,000 shares of Common Stock are properly
tendered before the Expiration Date; (2) in the reasonable judgment of the
Directors, there is not sufficient liquidity of the assets of the Company;
(3) such transactions, if consummated, would (a) result in the delisting of
the shares of Common Stock from the Nasdaq or other national securities
exchange (Nasdaq having advised the Company that it would consider
delisting if the aggregate market value of the Company's outstanding
publicly held Common Stock is less than $5,000,000, the number of publicly
held shares of Common Stock falls below 750,000, the number of round-lot
holders falls below 400, the Company has net tangible assets of less than
$4,000,000 or the minimum bid price per share of Common Stock falls below
$1); or (b) impair the Company's ability to elect to be treated as a
regulated investment company under the Internal Revenue Code of 1986, as
amended (which would make the Company a taxable entity, causing the
Company's taxable income to be taxed at the Company level) or (c) result in
a failure to comply with any applicable asset coverage requirements imposed
on the Company by the 1940 Act; (4) the amount of securities tendered would
require liquidation of such a substantial portion of the Company's
securities that the Company would not be able to liquidate portfolio
securities in an orderly manner in light of existing market conditions and
such liquidation would have an adverse effect on the net asset value of the
Company to the detriment of the holders of Common Stock; or (5) there is,
in the Board of Directors' judgment, any (a) material legal action or
proceeding instituted or threatened challenging such transactions or
otherwise materially adversely affecting the Company, (b) suspension of or
limitation on prices for trading securities generally on any United States
national securities exchange(s) or in the over-the-counter market, (c)
declaration of a banking moratorium by federal or state authorities or any
suspension of payment by banks in the United States or New York State, (d)
limitation affecting the Company or the issuers of its portfolio securities
imposed by federal or state authorities on the extension of credit by
lending institutions, (e) threatened or actual conditions or commencement
of war, armed hostilities or other international or national calamity
directly or indirectly involving the United States or (f) other any event
or condition which would have a material adverse effect on the Company its
common stockholders if the tendered shares of Common Stock are purchased.
The foregoing conditions are for the Company's sole benefit and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition (including any action or inaction by the Company), and any
such condition may be waived by the Company in whole or in part, at any
time and from time to time in its sole discretion. The Company's failure at
any time to exercise any of the foregoing rights shall not be deemed a
waiver of any such right; the waiver of any such right with respect to
particular facts and circumstances shall not be deemed a waiver with
respect to any other facts or circumstances; and each such right shall be
deemed an ongoing right which may be asserted at any time and from time to
time. Any determination by the Company concerning the events described in
this Section 6 shall be final and shall be binding on all parties.
If the Company determines to terminate or amend the Offer or to
postpone the acceptance for payment of or payment for shares of Common
Stock tendered, it will, to the extent necessary, extend the period of time
during which the Offer is open as provided in Section 16. Moreover, in the
event any of the foregoing conditions are modified or waived in whole or in
part at any time, the Company will promptly make a public announcement of
such waiver and may, depending on the materiality of the modification or
waiver, extend the Offer period as provided in Section 16.
7. PURPOSE OF THE OFFER.
The discussion in this Section 7 and elsewhere in this Offer to
Purchase contains certain forward-looking statements. These statements
include the plans and objectives of management for future operations and
financial objectives, portfolio growth and availability of funds. These
forward-looking statements are subject to the inherent uncertainties in
predicting future results and conditions. Certain factors that could cause
actual results and conditions to differ materially from those projected in
these forward-looking statements are set forth herein. Other factors that
could cause actual results to differ materially include the uncertainties
of economic, competitive and market conditions, and future business
decisions, all of which are difficult or impossible to predict accurately
and many of which are beyond the control of the Company. Although the
Company believes that the assumptions underlying the forward-looking
statements included herein are reasonable, any of the assumptions could be
inaccurate and therefore there can be no assurance that the forward-
looking statements included or incorporated by reference herein will prove
to be accurate. Therefore, the inclusion of such information should not be
regarded as a representation by the Company or any other person that the
objectives and plans of the Company will be achieved.
In April 1998, the Company announced its intention to repurchase up to
700,000 shares of its Common Stock in the open market from time to time.
The Company stated that it had concluded that its Common Stock was
attractively priced at that time and represented a good investment
opportunity for the Company. As of June 30, 1999, the Company had purchased
a total of 401,878 shares of its Common Stock for a total of $795,529, or
an average of $1.98.
The Company's Board of Directors believes that the Company's financial
condition and outlook and current market conditions, including recent
trading prices of the shares of its Common Stock, make this an attractive
time to repurchase a portion of its outstanding shares of Common Stock. The
Company's Board of Directors believes that the Offer constitutes a prudent
use of the Company's financial resources, given the Company's business
profile, assets and prospects.
The Offer provides stockholders who are considering a sale of all or a
portion of their shares of Common Stock the opportunity to sell those
shares for cash without the usual transaction costs associated with market
sales. As described in Section 3, however, each person tendering shares of
Common Stock will be required to submit a check in the amount of $25.00
payable to The Bank of New York to help defray cost associated with the
Offer. The Company believes that such fee is below brokerage and other
costs associated with open market sales. The Offer also allows holders of
shares of Common Stock to sell a portion of their shares while retaining a
continuing equity interest in the Company.
The Company believes that, upon completion of the Offer, its shares of
Common Stock will continue to be quoted on Nasdaq.
THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE MAKING OF THE
OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY
RECOMMENDATION TO ANY STOCKHOLDER AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ANY OR ALL OF SUCH STOCKHOLDER'S COMMON STOCK AND HAS NOT
AUTHORIZED ANY PERSON TO MAKE ANY SUCH RECOMMENDATION. STOCKHOLDERS ARE
URGED TO EVALUATE CAREFULLY ALL INFORMATION IN THE OFFER, CONSULT THEIR OWN
INVESTMENT AND TAX ADVISORS AND MAKE THEIR OWN DECISIONS WHETHER TO TENDER
SHARES OF COMMON STOCK AND, IF SO, HOW MANY SHARES OF COMMON STOCK TO
TENDER.
Shares of Common Stock that the Company acquires pursuant to the Offer
will be held by the Company as treasury stock and will be available for the
Company to issue without further stockholder action (except as required by
applicable law or the rules of Nasdaq or any other securities exchange on
which the Company's Common Stock is listed) for purposes including, without
limitation, the raising of capital for use in the Company's business and
the satisfaction of obligations under existing or future employee benefit
or compensation programs or compensation programs or stock plan or
compensation programs for directors. The Company has no current plans for
issuance of the shares of Common Stock repurchased pursuant to the Offer.
The Company may in the future purchase additional shares of Common
Stock on the open market, in private transactions, through tender offers or
otherwise. Any additional purchases may be on the same terms or on terms
which are more or less favorable to Common Stockholders than the terms of
the Offer. However, under Exchange Act rules, the Company and its
affiliates are prohibited from purchasing any shares of Common Stock, other
than pursuant to the Offer, until at least ten business days after the
Expiration Date. Any possible future purchases by the Company will depend
on many factors, including the results of the Offer, the market price of
the Common Stock, the Company's business and financial position and general
economic and market conditions.
8. PLANS OR PROPOSALS OF THE COMPANY.
The Company has no present plans or proposals which relate to or would
result in any extraordinary transaction such as a merger, reorganization or
liquidation involving the Company; a sale or transfer of a material amount
of assets of the Company other than in its ordinary course of business; any
material changes in the Company's present capitalization (except as
resulting from the Offer or otherwise set forth herein); or any other
material changes in the Company's structure or business.
9. PRICE RANGE OF SHARES OF COMMON STOCK; DIVIDENDS.
The Common Stock is listed and principally traded on the Nasdaq under
the symbol "HHGP." On June 30, 1999, the Closing Price per share of Common
Stock as reported on the Nasdaq was $1.78. The Company determines the NAV
per share of Common Stock on a quarterly basis. On June 30, 1999, the NAV
per share of Common Stock was $2.35. The following table sets forth, for
calendar quarters indicated, the high and low sales price per share of
Common Stock on the Nasdaq as reported by the Dow Jones News Service during
such quarter, as well as the NAV per share of Common Stock at the end of
such quarter.
Low High NAV
1999:
First Quarter............. $1.31 $2.13 $2.09*
Second Quarter............ $1.63 $2.00 $2.35
1998:
First Quarter............. $2.19 $3.44 $3.15
Second Quarter............ $2.25 $3.69 $2.16**
Third Quarter............. $1.25 $2.38 $1.89
Fourth Quarter............ $1.13 $1.59 $2.13
1997:
First Quarter............. $3.38 $5.13 $3.28
Second Quarter............ $3.50 $4.81 $2.99
Third Quarter............. $2.50 $3.75 $3.05
Fourth Quarter............ $2.50 $4.00 $3.15
* NAV was reduced by the $0.35 dividend declared and paid in the first
quarter of 1999.
**NAV was reduced by the $0.75 dividend declared and paid in the second
quarter of 1998.
Dividends are distributed from time to time at the discretion of the
Board of Directors. Over the twelve month period preceding the commencement
of the Offer, the Company paid a cash dividend of $0.35 per share to
stockholders of record on March 19, 1999, payable on March 25,
1999.
10. INTEREST OF DIRECTORS AND EXECUTIVE OFFICERS; TRANSACTIONS AND
ARRANGEMENTS CONCERNING THE COMMON STOCK.
Except as set forth in this Section 10, as of March 26, 1999, the
Directors and executive officers of the Company as a group beneficially
owned no Shares of Common Stock. As of March 26, 1999, Charles E. Harris,
Chairman and Chief Executive Officer of the Company, and his wife, owned
1,467,561 shares of Common Stock; Dr. C. Wayne Bardin, Director of the
Company, owned 10,286 shares of Common Stock; Dr. Philip A. Bauman,
Director of the Company, owned 11,061 shares of Common Stock; G. Morgan
Browne, Director of the Company, owned 14,108 shares of Common Stock; Harry
E. Ekblom, Director of the Company, owned 8,682 shares of Common Stock;
Dugald A. Fletcher, Director of the Company, owned 4,108 shares of Common
Stock; Glenn E. Mayer, Director of the Company, owned 75,682 shares of
Common Stock; Mel P. Melsheimer, President, Chief Operating Officer and
Chief Financial Officer of the Company, owned 5,072 shares of Common Stock;
Rachel M. Pernia, Vice-President and Controller of the Company, owned 8,000
shares of Common Stock; and James E. Roberts, Director of the Company,
owned 5,335 shares of Common Stock. The Company has been informed that no
Director or executive officer of the Company intends to tender any Shares
of Common Stock pursuant to the Offer.
Except as set forth in this Section 10, based upon the Company's
records and upon information provided to the Company by its Directors,
executive officers and affiliates (as such term is used in the Securities
Exchange Act of 1934), neither the Company nor, to the best of the
Company's knowledge, any of the Directors or executive officers of the
Company, nor any associates of any of the foregoing, has effected any
transactions in the shares of Common Stock during the forty business day
period prior to the date hereof.
Except as set forth in this Offer to Purchase, neither the Company nor,
to the best of the Company's knowledge, any of its affiliates, Directors or
executive officers, is a party to any contract, arrangement, understanding
or relationship with any other person relating, directly or indirectly, to
the Offer with respect to any securities of the Company (including, but not
limited to, any contract, arrangement, understanding or relationship
concerning the transfer or the voting of any such securities, joint
ventures, loan or option arrangements, puts or calls, guaranties of loans,
guaranties against loss or the giving or withholding of proxies, consents
or authorizations). The Company's 1988 Stock Option Plan and all
outstanding stock options were cancelled as of December 31, 1997. The
Company has had communications with an affiliate of the Company, American
Bankers Insurance Group ("ABIG"), owner of approximately 1,075,269 shares
of Common Stock of the Company. Based upon such communications, the Company
believes that ABIG intends to tender all or a portion of such shares of
Common Stock.
The Company currently is a party to a corporate safekeeping account
agreement with Morgan Guaranty Trust Company of New York (the "Trust")
under which the Trust holds certain securities, among other properties, in
a custody account for the Company.
The Company currently is a party to a Demand Promissory Note with the
Trust under which the Company may borrow up to $6,000,000. As described in
Section 12 of this Offer to Purchase, the Company does not intend to draw
upon this Demand Promissory Note in connection with the purchase of any
shares of Common Stock duly tendered in the Offer.
The Company has engaged The Bank of New York to act as Depository with
respect to the Offer. The Depositary will receive a fee for its services
for administering the Offer.
11. CERTAIN EFFECTS OF THE OFFER.
The purchase of shares of Common Stock pursuant to the Offer will have
the effect of increasing the proportionate interest in the Company of
stockholders who do not tender their shares of Common Stock. If you retain
your shares of Common Stock you will be subject to any increased risks that
may result from the reduction in the Company's aggregate assets resulting
from payment for the tendered shares of Common Stock (e.g., greater
volatility due to decreased diversification and higher expenses). All
shares of Common Stock purchased by the Company pursuant to the Offer will
be held in treasury pending disposition.
12. SOURCE AND AMOUNT OF FUNDS.
The total cost to the Company of purchasing the full 1,100,000 shares
of Common Stock at the Purchase Price pursuant to the Offer would be
approximately $1,793,000. The Company anticipates that the Purchase Price
for any shares of Common Stock acquired pursuant to the Offer will be
derived first from cash on hand and then from the proceeds from the sale of
certain portfolio securities held by the Company. The selection of which
portfolio securities to sell will be made by the Company taking into
account investment merit, relative liquidity and applicable investment
restrictions and legal requirements. The Company believes that it has
sufficient liquidity to purchase the Common Stock tendered pursuant to the
Offer without utilizing borrowing. However, if, in the judgment of the
Directors, there is not sufficient liquidity of the assets of the Company
to pay for tendered shares of Common Stock, the Company may terminate the
Offer. See Section 6.
13. CERTAIN INFORMATION ABOUT THE COMPANY.
The Company was incorporated in the State of New York in August 1981
and operates as a Business Development Company ("BDC") under the Investment
Company Act of 1940. The Company's objective is to achieve long-term
capital appreciation, rather than current income, from its investments. The
Company seeks to achieve its investment objective by investing a
substantial portion of its assets in private development stage or start-up
companies and in the development of new technologies in a broad range of
industry segments (as defined in the Company's prospectus).
The principal executive offices of the Company are located at One
Rockefeller Plaza, Rockefeller Center, New York, New York 10020.
Reference is hereby made to Section 9 of this Offer to Purchase and the
financial statements attached hereto as Exhibit A which are incorporated
herein by reference.
14. ADDITIONAL INFORMATION.
The Company has filed an Issuer Tender Offer Statement on Schedule
13E-4 with the Securities and Exchange Commission (the "Commission") which
includes certain additional information relating to the Offer. Such
material may be inspected and copied at prescribed rates at the
Commission's public reference facilities at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549; Jacob K. Javits Federal Building, 26
Federal Plaza, New York, New York 10278; and, Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies
of such material may also be obtained by mail at prescribed rates from the
Public Reference Branch of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. In addition, the Issuer Tender Offer Statement on
Schedule 13E-4 is available along with other related materials at the
Commission's Internet website (http://www.sec.gov).
15. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following discussion is a general summary of the federal income tax
consequences of a sale of shares of Common Stock pursuant to the Offer.
Stockholders should consult their own tax advisers regarding the tax
consequences of a sale of shares of Common Stock pursuant to the Offer, as
well as the effects of state, local and foreign tax laws.
The sale of shares of Common Stock pursuant to the Offer will be a
taxable transaction for federal income tax purposes, either as a "sale or
exchange," or under certain circumstances, as a "dividend." Under the
Internal Revenue Code or 1986, as amended (the "Code"), a sale of shares of
Common Stock pursuant to the Offer generally will be treated as a "sale or
exchange" if the receipt of cash: (a) results in a "complete termination"
of the stockholders interest in the Company, (b) is "substantially
disproportionate" with respect to the stockholder, or (c) is "not
essentially equivalent to a dividend" with respect to the stockholder. In
determining whether any of these tests had been met, shares of Common Stock
actually owned, as well as shares of Common Stock considered to be owned by
the stockholder by reason of certain constructive ownership rules set forth
in the Code, generally must be taken into account. If any of these three
tests for "sale or exchange" treatment is met, a stockholder will recognize
gain or loss equal to the difference between the amount of cash received
pursuant to the Offer and the Stockholder's tax basis in the shares of
Common Stock sold. If such shares of Common Stock are held as a capital
asset, the gain or loss will be a capital gain or loss and will be
long-term capital gain or loss if such shares of Common Stock have been
held for more than one year.
If none of the tests described above is met, amounts received by a
stockholder who sells shares of Common Stock pursuant to the Offer will be
taxable to the stockholder as a "dividend" to the extent of such
stockholder's allocable share of the Company's current or accumulated
earnings and profits, and the excess of such amounts received over the
portion that is taxable as a dividend would constitute a non-taxable return
of capital (to the extent of the stockholder's tax basis in the shares of
Common Stock sold pursuant to the Offer) and any amounts in excess of the
stockholder's tax basis would constitute taxable gain. Thus, a
stockholder's tax basis in the shares of Common Stock sold will not reduce
the amount of the "dividend." Any remaining tax basis in the shares of
Common Stock tendered to the Company will be transferred to any remaining
shares of Common Stock held by such stockholder.
16. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS.
Although the Company does not expect to do so, the Company reserves the
right, at any time and from time to time, to extend the period of time
during which the Offer is pending by making a public announcement thereof.
In the event that the Company so elects to extend the tender period, the
Purchase Price for the shares of Common Stock tendered will be determined
as of 5:00 P.M. Eastern Daylight time on the Expiration Date, as extended,
and the Offer will terminate as of 12:00 Midnight Eastern Daylight time on
the Expiration Date, as extended. During any such extension, all shares of
Common Stock previously tendered and not purchased or withdrawn will remain
subject to the Offer. The Company also reserves the right, at any time and
from time to time up to and including the Expiration Date, to (a) terminate
the Offer and not to purchase or pay for any shares of Common Stock or,
subject to applicable law, postpone payment for shares of Common Stock upon
the occurrence of any of the conditions specified in Section 6, and (b)
amend the Offer in any respect by making a public announcement thereof.
Such public announcement will be issued no later than 9:00 A.M. Eastern
Daylight time on the next business day after the previously scheduled
Expiration Date and will disclose the approximate number of shares of
Common Stock tendered as of that date. Without limiting the manner in which
the Company may choose to make a public announcement of extension,
termination or amendment, except as provided by applicable law (including
Rule 13e-4(e)(2)), the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement, other than
by making a release to the Dow Jones News Service.
If the Company materially changes the terms of the Offer or the
information concerning the Offer, or if it waives a material condition of
the Offer, the Company will extend the Offer to the extent required by Rule
13e-4 promulgated under the Exchange Act. These rules require that the
minimum period during which an offer must remain open following material
changes in the terms of the offer or information concerning the offer
(other than a change in price or a change in percentage of securities
sought) will depend on the facts and circumstances, including the relative
materiality of such terms or information. If (i) the Company increases or
decreases the price to be paid for shares of Common Stock, or the Company
increases the number of shares of Common Stock being sought by an amount
exceeding 2% of the outstanding shares of Common Stock, or the Company
decreases the number of shares of Common Stock being sought and (ii) the
Offer is scheduled to expire at any time earlier than the expiration of a
period ending on the tenth business day from, and including, the date that
notice of such increase or decrease is first published, sent or given, the
Offer will be extended at least until the expiration of such period of ten
business days.
17. MISCELLANEOUS.
The Offer is not being made to, nor will the Company accept tenders
from, owners of shares of Common Stock in any jurisdiction in which the
Offer or its acceptance would not comply with the securities or Blue Sky
laws of such jurisdiction. The Company is not aware of any jurisdiction in
which the making of the Offer or the tender of shares of Common Stock would
not be in compliance with the laws of such jurisdiction. However, the
Company reserves the right to exclude holders in any jurisdiction in which
it is asserted that the Offer cannot lawfully be made. So long as the
Company makes a good-faith effort to comply with any state law deemed
applicable to the Offer, the Company believes that the exclusion of holders
residing in such jurisdiction is permitted under Rule 13e-4(f)(9)
promulgated under the Exchange Act. In any jurisdiction the securities or
Blue Sky laws of which require the Offer to be made by a licensed broker or
dealer, the Offer shall be deemed to be made on the Company's behalf by one
or more registered brokers or dealers licensed under the laws of such
jurisdiction.
July 14, 1999
HARRIS & HARRIS GROUP, INC.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Harris & Harris Group, Inc.:
We have audited the accompanying statements of assets and liabilities of
Harris & Harris Group, Inc. (a New York corporation) as of December 31,
1998 and 1997, including the schedule of investments as of December 31,
1998, and the related statements of operations, cash flows and changes in
net assets for the three years ended December 31, 1998, and the selected
per share data and ratios for each of the five years ended December 31,
1998. These financial statements and selected per share data and ratios are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and selected per share
data and ratios based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
selected per share data and ratios are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1998 and 1997, by
correspondence with the custodian and brokers. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As explained in Note 2, the financial statements include securities valued
at $19,562,386 (86.7 percent of net assets), whose values have been
estimated by the Board of Directors in the absence of readily ascertainable
market values. However, because of the inherent uncertainty of valuation,
those estimated values may differ significantly from the values that would
have been used had a ready market for the securities existed, and the
differences could be material.
In our opinion, the financial statements and selected per share data and
ratios referred to above present fairly, in all material respects, the
financial position of Harris & Harris Group, Inc. as of December 31, 1998
and 1997, the results of its operations, its cash flows and the changes in
its net assets for the three years ended December 31, 1998, and the
selected per share data and ratios for each of the five years ended
December 31, 1998 in conformity with generally accepted accounting
principles.
/s/ Arthur Andersen LLP
New York, New York
February 10, 1999
STATEMENTS OF ASSETS AND LIABILITIES
ASSETS
December 31, 1998 December 31, 1997
Investments, at value (See
accompanying schedule of
investments and notes) $24,532,191 $38,659,230
Cash and cash equivalents 164,143 145,588
Receivable from brokers 380,707 0
Interest receivable 666 111,106
Prepaid expenses 90,649 85,126
Note receivable 32,663 0
Other assets 157,840 272,734
------- -------
TOTAL ASSETS $25,358,859 $39,273,784
=========== ===========
LIABILITIES & NET ASSETS
Accounts payable and accrued liabilities $505,118 $475,683
Accrued bonus (Note 3) 1,323,559 423,808
Deferred rent 42,409 51,662
Deferred income tax liability (Note 6) 931,064 667,697
Demand Promissory Note Payable (Note 7) 0 4,000,000
- ---------
TOTAL LIABILITIES 2,802,150 5,618,850
--------- ---------
Commitments and contingencies (Notes 7 and 8)
NET ASSETS $22,556,709 $33,654,934
=========== ===========
Net assets are comprised of:
Preferred stock, $0.10 par value,
2,000,000 shares authorized;
none issued $0 $0
Common stock, $0.01 par value, 25,000,000
shares authorized; 10,692,971 issued
at 12/31/98 and issued and outstanding
at 12/31/97 106,930 106,930
Additional paid in capital 16,158,381 16,178,979
Accumulated net realized (loss) income (525,177) 12,028,191
Accumulated unrealized appreciation of
investments, net of deferred tax
liability of $3,410,884 at 12/31/98
and $2,817,898 at 12/31/97 6,996,664 5,340,834
Treasury stock, at cost (101,739 shares) (180,089) 0
--------- -
NET ASSETS $22,556,709 $33,654,934
=========== ===========
SHARES OUTSTANDING 10,591,232 10,692,971
---------- ----------
NET ASSET VALUE PER OUTSTANDING SHARE $2.13 $3.15
===== =====
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF OPERATIONS
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
Investment income:
Interest from:
Fixed-income securities $355,591 $490,807 $803,819
Affiliated companies 124,877 40,000 40,779
Dividend income--
unaffiliated companies 2,550 0 8,024
Dividend income--
affiliated companies 50,000 52,500 0
Consulting and
administrative fees 0 29,870 68,185
Other income 102,468 869 92,610
------- --- ------
TOTAL INVESTMENT INCOME 635,486 614,046 1,013,417
Expenses:
Salaries and benefits 831,121 1,507,257 1,524,826
Bonus accrual (Note 3) 899,751 423,808 0
Administration and operations 330,879 392,114 474,537
Professional fees 411,480 327,038 675,241
Depreciation 47,936 48,968 57,426
Rent 159,515 130,092 160,601
Directors' fees and expenses 129,253 100,496 80,702
Custodian fees 10,513 15,517 11,983
Restructuring charges 0 100,000 0
Other expense (Note 7) 728,862 0 0
Interest expense 85,476 0 0
------ - -
Total expenses 3,634,786 3,045,290 2,985,316
--------- --------- ---------
Operating loss
before income taxes (2,999,300) (2,431,244) (1,971,899)
Income tax benefit (Note 6) 234,188 933,103 680,834
------- ------- -------
Net operating loss (2,765,112) (1,498,141) (1,291,065)
Net realized loss on investments:
Realized loss on
sale of investments (1,768,528) (3,199,502) (3,792,576)
----------- ----------- -----------
Total realized loss (1,768,528) (3,199,502) (3,792,576)
Income tax benefit (Note 6) 0 1,119,825 1,327,401
Net realized loss on investments (1,768,528) (2,079,677) (2,465,175)
----------- ----------- ----------
Net realized loss (4,533,640) (3,577,818) (3,756,240)
Net increase in unrealized
appreciation on investments:
Increase as a result of
investment sales 2,135,176 93,999 2,525,548
Decrease as a result of
investment sales (963,680) (2,892,408) 0
Increase on investments held 9,766,320 7,297,164 4,112,413
Decrease on investments held (8,689,000) (3,007,612) (2,072,965)
----------- ----------- -----------
Change in unrealized appreciation
on investments 2,248,816 1,491,143 4,564,996
Income tax provision (Note 6) (592,986) (521,900) (1,597,748)
---------- --------- ---------
Net increase in unrealized
appreciation
on investments 1,655,830 969,243 2,967,248
--------- ------- ---------
Net decrease in net assets
resulting from operations:
Total $(2,877,810) $(2,608,575) $(788,992)
============ ============ ==========
Per outstanding share $(0.27) $(0.24) $(0.08)
======= ======= =======
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CASH FLOWS
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
Cash flows (used in) provided
by operating activities:
Net decrease in net assets
resulting from operations $(2,877,810) $(2,608,575) $(788,992)
Adjustments to reconcile
net decrease in net assets
resulting from operations
to net cash (used in)
provided by operating activities:
Net realized and unrealized
(gain) loss
on investments (480,288) 1,708,359 (772,420)
Deferred income taxes 263,367 (1,442,094) 1,636,817
Depreciation 47,936 48,968 57,426
Other (2,927) 0 (10,144)
Changes in assets and liabilities:
Receivable from brokers (380,707) 0 205,789
Prepaid expenses (5,523) (3,625) 5,475
Interest receivable 110,440 87,236 102,376
Taxes receivable 0 2,119,492 (1,679,377)
Notes receivable (32,663) 0 0
Other assets 86,312 40,296 (103,981)
Accounts payable
and accrued liabilities 81,235 49,555 22,197
Accrued bonus 899,751 423,808 0
Deferred rent (9,253) (9,252) 10,279
Collection on notes receivable 800,000 0 0
Purchase of fixed assets (16,426) (10,169) (35,777)
-------- -------- --------
Net cash (used in) provided
by operating activities (1,516,556) 403,999 (1,350,332)
Cash provided by (used in)
investing activities:
Net sale (purchase) of short-term
investments and
marketable securities 14,715,834 (155,667) 6,035,532
Investment in
private placements and loans (960,308) (4,511,434) (4,981,614)
Net cash provided by
(used in) investing activities 13,755,526 (4,667,101) 1,053,918
Cash flows (used in) provided
by financing activities:
Payment of dividend (8,019,728) 0 0
Purchase of treasury stock (Note 4) (254,786) 0 0
Proceeds from exercise
of stock options (Note 3) 0 253,250 87,500
Proceeds (payment of)
from note payable (Note 7) (4,000,000) 4,000,000 0
Proceeds from sale of
stock (Note 4) 54,099 0 0
------ - -
Net cash (used in) provided
by financing activities (12,220,415) 4,253,250 87,500
Net increase (decrease)
in cash and cash equivalents:
Cash and cash equivalents
at beginning of the year 145,588 155,440 364,354
Cash and cash equivalents
at end of the year 164,143 145,588 155,440
------- ------- -------
Net increase (decrease) in cash and
cash equivalents $18,555 $(9,852) $(208,914)
======= ======== ==========
Supplemental disclosures of
cash flow information:
Income taxes paid $372 $5,909 $57,234
Interest paid $85,378 $0 $0
The accompanying notes are an integral part of these financial statements.
STATEMENTS OF CHANGES IN NET ASSETS
Year Ended Year Ended Year Ended
12/31/98 12/31/97 12/31/96
Changes in net assets
from operations:
Net operating loss $(2,765,112) $(1,498,141) $(1,291,065)
Net realized loss on investments (1,768,528) (2,079,677) (2,465,175)
Net increase (decrease) in
unrealized appreciation on
investments as a result
of sales 1,171,496 (1,818,966) 1,641,606
Net increase in unrealized
appreciation on
investments held 484,334 2,788,209 1,325,642
------- --------- ---------
Net decrease in net assets
resulting from operations (2,877,810) (2,608,575) (788,992)
Changes in net assets from
capital stock transactions:
Payment of dividend (8,019,728) 0 0
Purchase of treasury stock (254,786) 0 0
Proceeds from exercise of
stock options and warrants 0 253,250 87,500
Proceeds from sale of stock 54,099 0 0
Tax benefit of
restricted stock award
and common stock transactions 0 77,656 72,186
- ------ ------
Net (decrease) increase in
net assets resulting from
capital stock transactions (8,220,415) 330,906 159,686
----------- ------- -------
Net decrease in net assets (11,098,225) (2,277,669) (629,306)
Net assets:
Beginning of the year 33,654,934 35,932,603 36,561,909
---------- ---------- ----------
End of the year $22,556,709 $33,654,934 $35,932,603
=========== =========== ===========
The accompanying notes are an integral part of these financial statements.
SCHEDULE OF INVESTMENTS DECEMBER 31, 1998
Method of Shares/
Valuation (3) Principal Value
Investments in Unaffiliated
Companies (10)(11)(12) --
12.0% of total investments
Publicly Traded Portfolio
(Common stock unless noted
otherwise) -- 6.4% of
total investments
Somnus Medical Technology,
Inc. (1)(4) --
Biotechnology and Healthcare related (C) 47,200 $141,600
Nanophase Technologies Corporation
(1)(6) -- Manufactures and markets
inorganic crystals of nanometric
dimensions -- 4.59% of fully
diluted equity
Common Stock (C) 672,916 1,211,249
Princeton Video Image, Inc. (1)
- -- Real time sports and
entertainment advertising --
0.59% of fully diluted equity (C) 62,600 178,410
Voice Control Systems, Inc.(1)(2)
- -- Supplier of speech recognition
and related speech input technology (C) 22,964 39,383
------
Total Publicly Traded Portfolio
(cost: $1,414,202) $1,570,642
----------
Private Placement Portfolio (Illiquid)
- -- 5.6% of total investments
Exponential Business Development
Company (1)(2)(5) --
Venture capital partnership
focused on early stage companies
Limited partnership interest (A) -- $25,000
MedLogic Global Corporation (1)(2)
- -- Medical cyanoacrylate
adhesive -- 0.40% of fully
diluted equity Series B
Convertible Preferred Stock (B) 60,319
Common Stock (B) 25,798 565,978
SciQuest, Inc. (1)(2)(6)(9) --
Internet e-commerce source for
scientific products -- 3.61%
of fully diluted equity
Series C Convertible Preferred Stock (A) 277,163
Warrants at $2.7962 expiring 6/30/07 (A) 26,822 775,000
Total Private Placement Portfolio
(cost: $1,833,774) $1,365,978
----------
Total Investments in
Unaffiliated Companies (cost: $3,247,976) $2,936,620
----------
Private Placement Portfolio
(Illiquid) in Non-Controlled
Affiliates (10)(12) -- 49.9%
of total investments
Genomica Corporation (1)(2)(6)(7)
- -- Develops software that enables the
study of complex genetic diseases
- -- 7.05% of fully diluted equity Common
Stock (B) 199,800 Series A Voting
Convertible Preferred Stock (B) 1,660,200 $1,209,730
InSite Marketing Technology, Inc.
(1)(2)(4) -- Integrates
marketing science and sales
strategy into e-commerce
- -- 7.12% of fully diluted equity
Common Stock (A) 1,351,351 500,000
NBX Corporation (1)(2)(6) --
Exploits innovative
distributed computing
technology for use in small
business telephone systems --
13.95% of fully diluted equity
Promissory Note --
8% due March 16, 2001 (A) $10,000
Series A Convertible Preferred Stock (B) 500,000
Series C Convertible Preferred Stock (B) 240,793
Series D Convertible Preferred Stock (B) 59,965 6,416,064
PHZ Capital Partners Limited
Partnership (2) -- Organizes and
manages investment partnerships --
20.0% of fully diluted equity
Limited partnership interest (D) -- 1,849,054
Questech Corporation (1)(2)(6)
- -- Manufactures and
markets proprietary decorative
tiles and signs -- 12.40% of
fully diluted equity
Common Stock (D) 565,792 2,263,168
Warrants at $4.00 expiring 11/28/01 (A) 166,667 167
---
Private Placement Portfolio
in Non-Controlled Affiliates
(cost: $5,920,308) $12,238,183
-----------
Private Placement Portfolio in
Controlled Affiliates (10)(12)
(Illiquid) -- 24.3% of total investments
NeuroMetrix, Inc. (1)(2)(6)(8) --
Developing devices for: 1) diabetics
to monitor their blood glucose and
2) detection of carpal tunnel
syndrome -- 27.67% of fully diluted equity
Series A Convertible Preferred Stock (B) 175,000
Series B Convertible Preferred Stock (B) 125,000
Series C-2 Convertible Preferred Stock (B) 229,620 $5,958,225
Total Private Placement Portfolio
in Controlled Affiliates (cost: $1,558,100) $5,958,225
----------
U.S. Government Obligations --
13.8% of total investments
U.S. Treasury Bill dated
02/05/98 due date
02/04/99 -- 4.4% yield (K) $300,000 $298,878
U.S. Treasury Bill dated
02/05/98 due date
02/04/99 -- 4.4% yield (K) $600,000 597,756
U.S. Treasury Bill dated
08/13/98 due date
02/11/99 -- 4.3% yield (K) $400,000 398,160
U.S. Treasury Bill dated
03/05/98 due date
03/04/99 -- 4.3% yield (K) $1,550,000 1,538,902
U.S. Treasury Bill dated
11/19/98 due date
05/20/99 -- 4.5% yield (K) $575,000 565,467
-------
Total Investments in
U.S. Government Obligations
(cost: $3,398,259) $3,399,163
----------
Total Investments -- 100%
(cost: $14,124,643) $24,532,191
===========
The accompanying notes are an integral part of this schedule.
Notes to Schedule of Investments
(1) Represents a non-income producing security. Equity investments that
have not paid dividends within the last twelve months are considered to be
non-income producing.
(2) Legal restrictions on sale of investment.
(3) See Footnote to Schedule of Investments for a description of the Method of
Valuation A to L.
(4) These investments were made during 1998. Accordingly, the amounts shown
on the schedule represent the gross additions in 1998.
(5) No changes in valuation occurred in these investments during the year
ended December 31, 1998.
(6) These investments are development stage companies. A development stage
company is defined as a company that is devoting substantially all of its
efforts to establishing a new business, and either has not yet commenced
its planned principal operations or has commenced such operations but has
not realized significant revenue from them.
(7) Genomica Corporation was confounded by the Company, Cold Spring Harbor
Laboratory and Falcon Technology Partners, LP. Mr. G. Morgan Browne serves
on the Board of Directors of the Company and is Administrative Director of
Cold Spring Harbor Laboratory.
(8) The percentage owned by the Company proforma for the January 21, 1999
financing is 18.04%.
(9) SciQuest, Inc. acquired BioSupplyNet, Inc.
(10) Investments in unaffiliated companies consist of investments where
Harris & Harris Group, Inc. (the "Company") owns less than 5 percent of the
investee company. Investments in non-controlled affiliated companies
consist of investments where the Company owns more than 5 percent but less
than 25 percent of the investee company. Investments in controlled
affiliated companies consist of investments where the Company owns more
than 25 percent of the investee company.
(11) The aggregate cost for federal income tax purposes of investments in
unaffiliated companies is $3,247,976. The gross unrealized appreciation
based on tax cost for these securities is $156,440. The gross unrealized
depreciation on the cost for these securities is $467,796.
(12) The percentage ownership of each investee disclosed in the Schedule of
Investments expresses the potential common equity interest in each such
investee. The calculated percentage represents the amount of issuer's
common stock the Company owns or can acquire as a percentage of the
issuer's total outstanding common stock plus common shares reserved for
issued and outstanding warrants, convertible securities and stock options.
The accompanying notes are an integral part of this schedule.
FOOTNOTE TO SCHEDULE OF INVESTMENTS
ASSET VALUATION POLICY GUIDELINES
The Company's investments can be classified into five broad categories
for valuation purposes:
1) EQUITY-RELATED SECURITIES
2) INVESTMENTS IN INTELLECTUAL PROPERTY OR PATENTS OR RESEARCH AND
DEVELOPMENT IN TECHNOLOGY OR PRODUCT DEVELOPMENT
3) LONG-TERM FIXED-INCOME SECURITIES
4) SHORT-TERM FIXED-INCOME INVESTMENTS
5) ALL OTHER INVESTMENTS
The Investment Company Act of 1940 (the "1940 Act") requires periodic
valuation of each investment in the Company's portfolio to determine net
asset value. Under the 1940 Act, unrestricted securities with readily
available market quotations are to be valued at the current market value;
all other assets must be valued at "fair value" as determined in good faith
by or under the direction of the Board of Directors.
The Company's Board of Directors is responsible for 1) determining overall
valuation guidelines and 2) ensuring the valuation of investments within
the prescribed guidelines.
The Company's Investment and Valuation Committee, comprised of at least
three or more Board members, is responsible for reviewing and approving the
valuation of the Company's assets within the guidelines established by the
Board of Directors.
Fair value is generally defined as the amount that an investment could be
sold for in an orderly disposition over a reasonable time. Generally, to
increase objectivity in valuing the assets of the Company, external
measures of value, such as public markets or third-party transactions, are
utilized whenever possible. Valuation is not based on long-term work-out
value, nor immediate liquidation value, nor incremental value for potential
changes that may take place in the future.
Valuation assumes that, in the ordinary course of its business, the Company
will eventually sell its investment.
The Company's valuation policy with respect to the five broad investment
categories is as follows:
EQUITY-RELATED SECURITIES
Equity-related securities are carried at fair value using one or more of
the following basic methods of valuation:
A. Cost: The cost method is based on the original cost to the Company. This
method is generally used in the early stages of a company's development
until significant positive or negative events occur subsequent to the date
of the original investment that dictate a change to another valuation
method. Some examples of such events are: 1) a major recapitalization; 2) a
major refinancing; 3) a significant third-party transaction; 4) the
development of a meaningful public market for the company's common stock;
5) significant positive or negative changes in the company's business.
B. Private Market: The private market method uses actual third-party
transactions in the company's securities as a basis for valuation, using
actual, executed, historical transactions in the company's securities by
responsible third parties. The private market method may also use, where
applicable, unconditional firm offers by responsible third parties as a
basis for valuation.
C. Public Market: The public market method is used when there is an
established public market for the class of the company's securities held by
the Company. The Company discounts market value for securities that are
subject to significant legal, contractual or practical restrictions,
including large blocks in relation to trading volume. Other securities, for
which market quotations are readily available, are carried at market value
as of the time of valuation.
Market value for securities traded on securities exchanges or on the Nasdaq
National Market is the last reported sales price on the day of valuation.
For other securities traded in the over-the-counter market and listed
securities for which no sale was reported on that day, market value is the
mean of the closing bid price and asked price on that day.
This method is the preferred method of valuation when there is an
established public market for a company's securities, as that market
provides the most objective basis for valuation.
D. Analytical Method: The analytical method is generally used to value an
investment position when there is no established public or private market
in the company's securities or when the factual information available to
the Company dictates that an investment should no longer be valued under
either the cost or private market method. This valuation method is
inherently imprecise and ultimately the result of reconciling the judgments
of the Company's Investment and Valuation Committee members, based on the
data available to them. The resulting valuation, although stated as a
precise number, is necessarily within a range of values that vary depending
upon the significance attributed to the various factors being considered.
Some of the factors considered may include the financial condition and
operating results of the company, the long-term potential of the business
of the company, the values of similar securities issued by companies in
similar businesses, the proportion of the company's securities owned by the
Company and the nature of any rights to require the company to register
restricted securities under applicable securities laws.
INVESTMENTS IN INTELLECTUAL PROPERTY OR PATENTS OR RESEARCH AND DEVELOPMENT
IN TECHNOLOGY OR PRODUCT DEVELOPMENT
Such investments are carried at fair value using the following basic
methods of valuation:
E. Cost: The cost method is based on the original cost to the Company. Such
method is generally used in the early stages of commercializing or
developing intellectual property or patents or research and development in
technology or product development until significant positive or adverse
events occur subsequent to the date of the original investment that dictate
a change to another valuation method.
F. Private Market: The private market method uses actual third-party
investments in intellectual property or patents or research and development
in technology or product development as a basis for valuation, using actual
executed historical transactions by responsible third parties. The private
market method may also use, where applicable, unconditional firm offers by
responsible third parties as a basis for valuation.
G. Analytical Method: The analytical method is used to value an investment
after analysis of the best available outside information where the factual
information available to the Company dictates that an investment should no
longer be valued under either the cost or private market method. This
valuation method is inherently imprecise and ultimately the result of
reconciling the judgments of the Company's Investment and Valuation
Committee members. The resulting valuation, although stated as a precise
number, is necessarily within a range of values that vary depending upon
the significance attributed to the various factors being considered. Some
of the factors considered may include the results of research and
development, product development progress, commercial prospects, term of
patent and projected markets.
LONG-TERM FIXED-INCOME SECURITIES
H. Fixed-Income Securities for which market quotations are readily
available are carried at market value as of the time of valuation using the
most recent bid quotations when available.
Securities for which market quotations are not readily available are
carried at fair value using one or more of the following basic methods of
valuation:
I. Fixed-Income Securities are valued by independent pricing services that
provide market quotations based primarily on quotations from dealers and
brokers, market transactions, and other sources.
J. Other Fixed-Income Securities that are not readily marketable are valued
at fair value by the Investment and Valuation Committee.
SHORT-TERM FIXED-INCOME INVESTMENTS
K. Short-Term Fixed-Income Investments are valued at market value at the
time of valuation. Short-term debt with remaining maturity of 60 days or
less is valued at amortized cost.
ALL OTHER INVESTMENTS
L. All Other Investments are reported at fair value as determined in good
faith by the Investment and Valuation Committee.
The reported values of securities for which market quotations are not
readily available and for other assets reflect the Investment and Valuation
Committee's judgment of fair values as of the valuation date using the
outlined basic methods of valuation. They do not necessarily represent an
amount of money that would be realized if the securities had to be sold in
an immediate liquidation. The Company makes many of its portfolio
investments with the view of holding them for a number of years, and the
reported value of such investments may be considered in terms of
disposition over a period of time. Thus valuations as of any particular
date are not necessarily indicative of amounts that may ultimately be
realized as a result of future sales or other dispositions of investments
held.
NOTES TO FINANCIAL STATEMENTS
NOTE 1. THE COMPANY
Harris & Harris Group, Inc. (the "Company") is a venture capital investment
company operating as a business development company ("BDC") under the
Investment Company Act of 1940 ("1940 Act"). A BDC is a specialized type of
investment company under the 1940 Act. The Company operates as an
internally managed investment company whereby its officers and employees,
under the general supervision of its Board of Directors, conduct its
operations.
The Company elected to become a BDC on July 26, 1995, after receiving the
necessary approvals. From September 30, 1992 until the election of BDC
status, the Company operated as a closed-end, non-diversified, investment
company under the 1940 Act. Upon commencement of operations as an
investment company, the Company revalued all of its assets and liabilities
at fair value as defined in the 1940 Act. Prior to such time, the Company
was registered and filed under the reporting requirements of the Securities
and Exchange Act of 1934 as an operating company and, while an operating
company, operated directly and through subsidiaries.
On September 25, 1997, the Company's Board of Directors approved a proposal
to seek qualification as a Regulated Investment Company ("RIC") under
Sub-Chapter M of the Internal Revenue Code. As a RIC, the Company must,
among other things, distribute at least 90 percent of its taxable net
income and may either distribute or retain its taxable net realized capital
gains on investments. (See "Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations - Recent Developments.")
There can be no assurance that the Company will qualify as a RIC or that if
it does qualify, it will continue to qualify. In addition, even if the
Company were to qualify as a RIC, and elected Sub-Chapter M treatment for
that year, the Company might take action in a subsequent year to ensure
that it would be taxed in that subsequent year as a C Corporation, rather
than a RIC.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of significant accounting policies followed in
the preparation of the financial statements:
Cash and Cash Equivalents. Cash and cash equivalents include money market
instruments with maturities of less than three months.
Portfolio Investment Valuations. Investments are stated at "fair value" as
defined in the 1940 Act and in the applicable regulations of the Securities
and Exchange Commission. All assets are valued at fair value as determined
in good faith by, or under the direction of, the Board of Directors. See
the Asset Valuation Policy Guidelines in the Footnote to Schedule of
Investments.
Securities Transactions. Securities transactions are accounted for on the
date the securities are purchased or sold (trade date); dividend income is
recorded on the ex-dividend date; and interest income is accrued as earned.
Realized gains and losses on investment transactions are determined on the
first-in, first-out basis for financial reporting and tax reporting or
purposes.
Income Taxes. Prior to January 1, 1998, the Company recorded income taxes
using the liability method in accordance with the provision of Statement of
Financial Accounting Standards No. 109. Accordingly, deferred tax
liabilities had been established to reflect temporary differences between
the recognition of income and expenses for financial reporting and tax
purposes, the most significant difference of which relates to the Company's
unrealized appreciation on investments.
The December 31, 1998 financial statements include a provision for deferred
taxes on the net unrealized gains as of December 31, 1998, net of the
operating and capital loss carryforwards incurred by the Company through
December 31, 1998. (See Note 6. Income Taxes.)
Reclassifications. Certain reclassifications have been made to the December
31, 1996 and December 31, 1997 financial statements to conform to the
December 31, 1998 presentation.
Estimates by Management. The preparation of the financial statements in
conformity with Generally Accepted Accounting Principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of December 31,1998 and 1997, and the
reported amounts of revenues and expenses for the three years ended
December 31, 1998. Actual results could differ from these estimates.
NOTE 3. STOCK OPTION PLAN AND WARRANTS OUTSTANDING
On August 3, 1989, the shareholders of the Company approved the 1988 Long
Term Incentive Compensation Plan. On June 30, 1994, the shareholders of the
Company approved various amendments to the 1988 Long Term Incentive
Compensation Plan: 1) to conform to the provisions of the BDC regulations
under the 1940 Act, 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 "1988 Plan"); and 4) to make various other amendments. On
October 20, 1995, the shareholders of the Company approved an amendment to
the 1988 Plan authorizing automatic 20,000 share grants of non-qualified
stock options to newly elected non-employee directors of the Company. The
Company's 1988 Plan was cancelled as of December 31, 1997, canceling all
outstanding stock options and eliminating all potential stock option
grants. As a substitution for the 1988 Stock Option Plan, the Company
adopted an employee profit-sharing plan.
The Company accounted for the 1988 Plan under APB Opinion No. 25, under
which no compensation cost has been recognized. Had compensation cost for
the 1988 Plan been determined consistent with the fair value method
required by FASB Statement No. 123 ("FASB No. 123"), the Company's net
realized loss and net asset value per share would have been reduced to the
following pro- forma amounts:
1998 1997 1996
Net Realized Loss:
As Reported N/A $(3,577,818) $(3,756,240)
Pro Forma N/A $(3,921,583) $(4,197,096)
Net Asset Value per share:
As Reported N/A $3.15 $3.44
Pro Forma N/A $3.12 $3.40
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions:
1998 1997 1996
Stock volatility N/A 0.60 0.60
Risk-free interest rate N/A 6.3% 6.8%
Option term in years N/A 7 7
Stock dividend yield N/A - - - -
A summary of the status of the Company's 1988 Plan at December 31, 1997 and
1996 and changes during the years then ended is presented in the table and
narrative below:
December 31, 1997 December 31, 1996
----------------- -----------------
Shares Weighted Shares Weighted
Average Average
------- --------
Exercise Exercise
Price Price
-------- --------
Outstanding at beginning of year 1,080,000 $4.584 1,050,000 $4.445
Granted 300,000 $3.875 160,000 $5.008
Exercised 158,000 $1.603 50,000 $1.750
Forfeited 397,000 $5.267 80,000 $5.375
Expired - - - - - - - -
Canceled 825,000 $4.569 - - - -
Outstanding at end of year 0 0 1,080,000 $4.584
Exercisable at end of year 0 0 390,000 $3.334
Weighted average fair value
of options granted $2.50 - - $3.222 - -
During 1997, the Chairman of the Company exercised a warrant to purchase
237,605 shares of common stock at a price of $2.0641.
As of January 1, 1998, the Company began implementing the Harris & Harris
Group, Inc. Employee Profit Sharing Plan (the "Plan") that provides for
profit sharing equal to 20 percent of the net realized income of the
Company as reflected on the statement of operations of the Company for such
year, less the nonqualifying gain, if any. Under the Plan, net realized
income of the Company includes investment income, realized gains and
losses, and operating expenses (including taxes paid or payable by the
Company), but it will be calculated without regard to dividends paid or
distributions made to shareholders, payments under the Plan, unrealized
gains and losses, and loss carry-overs from other years ("Qualifying
Income"). The portion of net after-tax realized gains attributable to asset
values as of September 30, 1997 will be considered nonqualifying gain,
which will reduce "Qualifying Income."
As soon as practicable following year end, the Board of Directors will
determine whether, and if so how much, "Qualifying Income" exists for a
plan year, and 90 percent of the Qualifying Income will be paid out to Plan
participants pursuant to the distribution percentages set forth in the
Plan. The remaining 10 percent will be paid out after the Company has filed
its federal tax return for that year in which "Qualifying Income" exists.
The distribution amounts for each officer and employee is as follows:
Charles E. Harris, 13.790%; Mel P. Melsheimer, 4.233%; Rachel M. Pernia,
1.524%; and Jacqueline M. Matthews, 0.453%. If a participant leaves the
Company for other than cause, the amount earned will be accrued and paid to
such participant, and the remaining amount allocable under the Plan will be
redistributed by the Compensation Committee and paid to the other
participants.
Notwithstanding any provisions of the Plan, in no event may the aggregate
amount of all awards payable for any Plan year during which the Company
remains a "business development company" within the meaning of the
Investment Company Act of 1940, as amended (the "1940 Act"), be greater
than 20 percent of the Company's "net income after taxes" within the
meaning of Section 57(n)(1)(B) of the 1940 Act. In the event the awards
exceed such amount, the awards will be reduced pro rata.
The Plan may be modified, amended or terminated by the Company's Board of
Directors at any time; provided however, no such modification, amendment or
termination may adversely affect any participant that has not consented to
such modification, amendment or termination.
The Company calculates the Plan accrual at each quarter end based on the
unrealized gains at that date, net of operating expenses for the year. Any
adjustments to the Plan accrual are then reflected in the Statement of
Operations for the quarter. The Plan accrual is not paid out until the
gains are realized. During 1998, the Company accrued bonus expense of
$899,751, bringing the cumulative accrual under the Plan to $1,323,559 at
December 31, 1998.
NOTE 4. CAPITAL TRANSACTIONS
In 1998, the Board of Directors approved that effective January 1, 1998, 50
percent of all Director fees be used to purchase Company common stock from
the Company. However, effective on March 1, 1999, the Directors may
purchase the Company's common stock in the market, rather than from the
Company. During 1998, the directors bought a total of 24,491 shares.
On April 15, 1998, the Company announced that the Board of Directors had
approved the purchase of up to 700,000 shares of Company stock in the open
market. As of December 31, 1998, the Company had purchased a total of
126,230 shares for a total of $254,786 or an average of $2.02 per share.
However, the treasury shares purchased were decreased by the director
purchases of a total of 24,491 shares of Company stock.
NOTE 5. EMPLOYEE BENEFITS
The Company has an employment and severance contract ("Employment
Contract") with its Chairman, Charles E. Harris, pursuant to which he is to
receive compensation in the form of salary and other benefits. On January
1, 1998, Mr. Harris's Employment Contract was amended to reduce his salary
to $200,000 and to allow him to participate in other business opportunities
and investments. The term of the contract expires on December 31, 1999.
Base salary is to be increased annually to reflect inflation and in
addition may be increased by such amount as the Compensation Committee of
the Board of Directors of the Company deems appropriate. In addition, Mr.
Harris would be entitled, under certain circumstances, to receive severance
pay under the employment and severance contracts.
As of January 1, 1989, the Company adopted an employee benefits program
covering substantially all employees of the Company under a 401(k) Plan and
Trust Agreement. During 1998, contributions to the plan that have been
charged to operations totaled approximately $37,000.
On June 30, 1994, the Company 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 Company and have
attained 50 years of age or have attained 45 years of age and have 15 years
of service with the Company. On February 10, 1997, the Company amended this
plan to include employees who "have seven full years of service and have
attained 58 years of age." The coverage is secondary to any government
provided or subsequent employer provided health insurance plans. Based upon
actuarial estimates, the Company provided an original reserve of $176,520
that was charged to operations for the period ending June 30, 1994. As of
December 31, 1998 the Company had a reserve of $283,305 for the plan.
NOTE 6. INCOME TAXES
As of December 31, 1998, the Company had not elected tax treatment
available to RICs under Sub-Chapter M of the Code. Accordingly, for federal
and state income tax purposes, the Company is taxed at statutory corporate
rates on its income, which enables the Company to offset any future net
operating losses against prior years' net income. The Company may carry
back operating losses against net income two years and carryforward such
losses 15 years.
For the years ended December 31, 1998, 1997 and 1996, the Company's income
tax (benefit) provision was allocated as follows:
1998 1997 1996
Investment operations $(234,188) $(933,103) $(680,834)
Realized loss on investments 0 (1,119,825) (1,327,401)
Increase in unrealized
appreciation on investments 592,986 521,900 1,597,748
Total income tax (benefit) ---------- ------------ ------------
provision $358,798 $(1,531,028) $(410,487)
======== ============ ==========
The above tax (benefit) provision consists of the following:
Current -- Federal $95,430 $0 $(2,047,304)
Deferred -- Federal 263,368 (1,531,028) 1,636,817
Total income tax (benefit) --------- ------------ ------------
provision $358,798 $(1,531,028) $(410,487)
======== ============ ==========
The Company's net deferred tax liability at December 31, 1998 and 1997
consists of the following:
1998 1997
Unrealized appreciation on investments $3,410,885 $2,817,898
Net operating and capital loss carryforward (2,479,821) (1,856,989)
Medical retirement benefits - - (81,345)
Other - - (211,867)
--- ---------
Net deferred income tax liability $931,064 $667,697
======== ========
On September 25, 1997, the Company's Board of Directors approved a proposal
to seek qualification as a RIC under Sub-Chapter M of the Code. As a RIC,
the Company annually must distribute at least 90 percent of its investment
company taxable income as a dividend and may either distribute or retain
its taxable net capital gains from investments. To initially qualify as a
RIC, among other requirements, the Company had to pay a dividend to
shareholders equal to the Company's cumulative realized earnings and
profits ("E&P"). On April 9, 1998, the Company declared a one-time cash
dividend of $0.75 per share to meet this requirement (for a total of
$8,019,728). The cash dividend was paid on May 12, 1998. Continued
qualification as a RIC requires the Company to satisfy certain portfolio
diversification requirements in future years. The Company's ability to
satisfy those requirements may not be controllable by the Company. (See
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation - Recent Developments - Sub-Chapter M Status.")
The Company incurred net ordinary and capital losses for a total of
approximately $7.1 million (which results in a tax credit of approximately
$2.5 million) during its C Corporation taxable years that remain available
for use and may be carried forward to its 1999 and subsequent taxable
years. Ordinarily, a corporation that elects to qualify as a RIC may not
use its loss carryforwards from C Corporation taxable years to offset RIC
investment company taxable income or net capital gains. In addition, a
corporation that elects to qualify as a RIC continues to be taxable as a C
Corporation on any gains realized within 10 years of its qualification as a
RIC from sales of assets that were held by the corporation on the effective
date of the election ("C Corporation Assets") to the extent of any gain
built into the assets on such date ("Built-In Gain"). On February 17, 1999,
the Company received a ruling from the IRS concluding that the Company can
carry forward its C Corporation losses to offset any Built-In Gains
resulting from sales of its C Corporation Assets. That ruling may enable
the Company to retain some or all of the proceeds from such sales without
disqualifying itself as a RIC or incurring corporate level income tax,
depending on whether the Company's sale of C Corporation Assets with Built-
In Gains will generate C Corporation E&P. In general, a RIC is not
permitted to have, as of the close of any RIC taxable year, E&P accumulated
during any C Corporation taxable year. However, because the realization of
Built-In Gains will occur while the Company is a RIC, a strong argument
exists that, under current law and IRS pronouncements, the sale of C
Corporation Assets with Built-In Gains during RIC taxable years will not
generate C Corporation E&P. The Company intends to use the $7.1 million
loss carryforward (which results in a tax credit of approximately $2.5
million) to reduce its taxes which are due to Built-In Gains. The December
31, 1998 NAV includes the utilization of ordinary and capital loss
carryforwards of approximately $0.23 per share. The IRS recently announced
an intention to issue formal guidance in 1999 concerning conversions of C
Corporations to RICs. Such guidance may include resolution of the E&P issue
described above and other issues relevant to the Company.
There can be no assurance that the Company will qualify as a RIC or that,
if it does qualify, it will elect RIC status.
NOTE 7. COMMITMENTS AND CONTINGENCIES
During 1993, the Company signed a ten-year lease with sublet provisions for
office space. In 1995, this lease was amended to include additional office
space. Rent expense under this lease for the year ended December 31, 1998,
was $159,515. Future minimum lease payments in each of the following years
are: 1999 -- $176,030; 2000 -- $178,561; 2001 -- $178,561; 2002 --
$178,561; 2003 -- $101,946.
In December 1993, the Company and MIT announced the establishment by the
Company of the Harris & Harris Group Senior Professorship at MIT. Prior to
the arrangement for the establishment of this Professorship, the Company
had made gifts of stock in start-up companies to MIT. These gifts, together
with the contribution of $700,000 in cash in 1993, which was expensed by
the Company in 1993, were used to establish this named chair. During 1993,
1994 and 1995, the Company contributed to MIT securities which were applied
to the MIT Pledge at their market value at the time the shares became
publicly traded or otherwise monetized in a commercial transaction and were
free from restriction as to sale by MIT. On December 31, 1998, the Company
finalized the establishment of the Harris & Harris Group Senior
Professorship by making the final payment of $728,862 due on the pledge.
In June 1997, the Company agreed to provide one of its investee companies
with a $450,000 revolving line of credit, of which $50,000 had been used
through December 31, 1997. During 1998, through September 30, 1998, the
investee company borrowed an additional $250,000 which was repaid in the
fourth quarter of 1998.
In December 1997, the Company signed a Demand Promissory Note for a
$4,000,000 line of credit with J.P. Morgan collateralized by the Company's
U.S. Treasury obligations. In March 1998, the line of credit was increased
to $6,000,000. As of December 31, 1997, the Company had borrowed $4,000,000
against the line of credit. From December 31, 1997 to January 2, 1998, the
rate on the line of credit was prime (8.5 percent). From January 2, 1998 to
April 2, 1998, the interest rate on the line of credit was LIBOR plus 1.5
percent (7.3125 percent). In March 1998, the Company paid down $2,500,000;
in April 1998, the Company paid the remaining balance and did not draw
against the line for the remainder of the year.
NOTE 8. SUBSEQUENT EVENTS
On February 22, 1999, NBX Corporation announced that it had agreed to be
acquired by 3Com Corporation for approximately $90 million in cash plus
additional consideration for employees of NBX. This transaction was
effective on March 5, 1999 and closed on March 8, 1999. On closing, the
Company received a total of $12,432,940 in cash, of which $1,475,276 was
placed in a one-year escrow.
On February 23, 1999, the Board of Directors of the Company declared a cash
dividend of $0.35 per share (approximately $3.7 million) to shareholders of
record on March 19, 1999, payable on March 25, 1999.
On March 18, 1999, the Company invested $1,000,000 in the equity of a
privately held medical device company with a patented product addressing a
very large potential market. At this writing, the Company is still under
non-disclosure with respect to the identity of this company. But this
investment is the Company's first private equity commitment of part of the
proceeds from the capital gains generated by the sale of NBX.
SELECTED PER SHARE DATA AND RATIOS
Per share operating performance:
Year Ended Year Ended Year Ended Year Ended Year Ended
December December December December December
31, 1998 31, 1997 31, 1996 31, 1995 31, 1994
Net asset value,
beginning of period $3.15 $3.44 $3.54 $3.43 $3.66
Net operating
loss (0.26) (0.14) (0.12) (0.11) (0.25)
Net realized
(loss) gain on
investments (0.16) (0.19) (0.24) 0.14 0.01
Net increase
(decrease) in
unrealized
appreciation
as a result of
sales 0.11 (0.17) 0.16 (0.01) (0.11)
Net increase in
unrealized
appreciation on
investments held 0.05 0.26 0.13 0.03 0.01
Net decrease as
a result of
dividend (0.75) -- -- -- --
Net (decrease)
increase from
capital stock
transactions (0.01) (0.05) (0.03) 0.06 0.11
Net asset value,
end of period $2.13 $3.15 $3.44 $3.54 $3.43
----- ----- ----- ----- -----
Market value per
share, end of
period* $1.50 $3.50 $3.75 $7.875 $6.375
===== ===== ===== ====== ======
Deferred income
tax per share $0.09 $0.06 $0.21 $0.050 $0.030
Ratio of expenses
to average net
assets 10.9% 9.1% 8.1% 8.3% 13.6%
Ratio of net
operating loss to
average net assets (10.4)% (4.5)% (3.5)% (3.2)% (7.1)%
Investment return
based on:
Stock price (45.5)% (6.7)% (52.4)% 23.5% (22.7)%
Net asset value (11.3)% (8.4)% (2.8)% 3.2% (6.3)%
Portfolio turnover 19.71% 77.2% 51.3% 51.2% 136.4%
Net assets, end of
period $22,556,709 $33,654,934 $35,932,603 $36,561,909 $31,310,802
Number of shares
outstanding 10,591,232 10,692,971 10,442,682 10,333,902 9,136,747
*The market value as of December 31, 1998 reflects the decline in market
price as a result of the $0.75 dividend paid on May 12, 1998.
The accompanying notes are an integral part of this schedule.
LETTER OF TRANSMITTAL
REGARDING SHARES OF COMMON STOCK
OF
HARRIS & HARRIS GROUP, INC.
TENDERED PURSUANT TO THE OFFER TO PURCHASE
DATED JULY 14, 1999
THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, EASTERN
DAYLIGHT TIME, ON AUGUST 11, 1999, UNLESS THE OFFER IS EXTENDED
The Depositary for the Offer is:
THE BANK OF NEW YORK
By Mail:
The Bank of New York
Tender and Exchange Department
Post Office Box 11248
Church Street Station
New York, New York 10286-1248
By Overnight Courier:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive & Deliver Window--
Street Level
New York, New York 10286
By Hand:
The Bank of New York
Tender and Exchange Department
101 Barclay Street
Receive & Deliver Window--
Street Level
New York, New York 10286
For Information:
(800) 507-9357
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE
THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used (a) if you desire to effect
the tender transaction yourself, (b) if you intend to request your broker,
dealer, commercial bank, trust company or other nominee to effect the
transaction for you and the shares of Common Stock are not registered in
the name of such broker, dealer, commercial bank, trust company or other
nominee, or (c) by a broker, dealer, commercial bank, trust company or
other nominee effecting the transaction as a registered owner or on behalf
of a registered owner. A properly completed and duly executed Letter of
Transmittal (or photocopy thereof bearing original signature(s) and any
required signature guarantees), any certificates representing shares of
Common Stock tendered and any other documents required by this Letter of
Transmittal should be mailed or delivered to the Depositary at the
appropriate address set forth herein and must be received by the Depositary
prior to 12:00 Midnight, Eastern Daylight time, on August 11, 1999, or such
later time and date to which the Offer is extended. Delivery of documents
to a Book-Entry Transfer Facility does not constitute delivery to the
Depositary.
Ladies and Gentlemen:
The undersigned hereby tenders to Harris & Harris Group, Inc. (the
"Company"), a venture capital investment company, operating as a Business
Development Company ("BDC") under the Investment Company Act of 1940 (the
"1940 Act") and incorporated under the laws of New York, shares of Common
Stock, par value $0.01 per share (the "Common Stock"), of the Company owned
by the undersigned as described below in Box No. 1, at a price (the
"Purchase Price") of $1.63 per share, in cash, upon the terms and
conditions set forth in the Offer to Purchase, dated July 14, 1999, receipt
of which is hereby acknowledged, and in this Letter of Transmittal and the
Instructions hereto (which together constitute the "Offer").
Subject to and effective upon acceptance for payment of the shares of
Common Stock tendered hereby in accordance with the terms of the Offer
(including, if the Offer is extended or amended, the terms or conditions of
any such extension or amendment), the undersigned hereby sells, assigns and
transfers to or upon the order of the Company all right, title and interest
in and to all shares of Common Stock tendered hereby that are purchased
pursuant to the Offer and hereby irrevocably constitutes and appoints The
Bank of New York (the "Depositary") as attorney-in-fact of the undersigned
with respect to such shares of Common Stock, with full power of
substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to (a) deliver certificates for such
shares of Common Stock or transfer ownership of such shares of Common Stock
on the Company's books, together in either such case with all accompanying
evidences of transfer and authenticity, to or upon the order of the
Company, upon receipt by the Depositary, as the undersigned's agent, of the
Purchase Price per share of Common Stock with respect to such shares of
Common Stock; (b) present certificates for such shares of Common Stock, if
any, for cancellation and transfer on the Company's books; and (c) receive
all benefits and otherwise exercise all rights of beneficial ownership of
such shares of Common Stock, subject to the next paragraph, all in
accordance with the terms of the Offer.
The undersigned hereby represents and warrants that: (a) the
undersigned has a "net long position" in the shares of Common Stock
tendered hereby within the meaning of Rule 14e-4 promulgated under the
Securities Act of 1934, as amended, and has full power and authority to
validly tender, sell, assign and transfer the shares of Common Stock
tendered hereby; (b) when and to the extent the Company accepts the shares
of Common Stock for purchase, the Company will acquire good, marketable and
unencumbered title to them, free and clear of all security interests,
liens, charges, encumbrances, conditional sales agreements or other
obligations relating to their sale or transfer, and not subject to any
adverse claim; (c) on request, the undersigned will execute and deliver any
additional documents the Depositary or the Company deems necessary or
desirable to complete the assignment, transfer and purchase of the shares
of Common Stock tendered hereby; and (d) the undersigned has read and
agrees to all of the terms of this Offer.
The names and addresses of the registered owners should be printed, if
they are not already printed, in Box 1 as they appear on the registration
of the shares of Common Stock. The number of shares of Common Stock that
the undersigned wishes to tender should be indicated in Box No. 1, which
number may be determined by indicating in Option B of such box the dollar
amount of proceeds the undersigned desires to receive pursuant to the
tender offer. If the shares of Common Stock tendered hereby are in
certificate form, the certificates representing such shares of Common Stock
must be returned together with this Letter of Transmittal.
The undersigned recognizes that under certain circumstances set forth
in the Offer to Purchase, the Company may terminate or amend the Offer or
may not be required to purchase any of the shares of Common Stock tendered
hereby. In any such event, the undersigned understands that certificate(s)
for any shares of Common Stock not purchased, if any, will be returned to
the undersigned at the address indicated below in Box No. 1 unless
otherwise indicated under the Special Payment and Delivery Instructions in
Box No. 2.
The undersigned understands that acceptance of shares of Common Stock
by the Company for payment will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of
the Offer.
The check for the Purchase Price of the tendered shares of Common Stock
purchased will be issued to the order of the undersigned and mailed to the
address indicated below in Box No. 1, unless otherwise indicated in Box No.
2. Stockholders tendering shares of Common Stock remain entitled to receive
dividends declared on such shares of Common Stock up to the settlement date
of the Offer. The Company will not pay interest on the Purchase Price under
any circumstances.
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and all obligations of the
undersigned hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the undersigned. Except as
stated in the Offer, this tender is irrevocable.
THIS LETTER OF TRANSMITTAL IS TO BE USED ONLY IF THE SHARES OF COMMON
STOCK TO BE TENDERED ARE REGISTERED IN THE STOCKHOLDER'S NAME AND THE
NECESSARY DOCUMENTS WILL BE TRANSMITTED TO THE DEPOSITARY BY THE
STOCKHOLDER OR HIS BROKER, DEALER OR OTHER SELLING GROUP MEMBER. DO NOT USE
THIS FORM IF A BROKER, DEALER OR OTHER SELLING GROUP MEMBER IS THE
REGISTERED OWNER OF THE SHARES OF COMMON STOCK AND IS EFFECTING THE
TRANSACTION FOR THE STOCKHOLDER.
IF THE SHARES OF COMMON STOCK TENDERED HEREBY ARE IN CERTIFICATE FORM,
THE CERTIFICATES REPRESENTING SUCH SHARES OF COMMON STOCK MUST BE RETURNED
TOGETHER WITH THIS LETTER OF TRANSMITTAL. PLEASE NOTE THAT WE SUGGEST THAT
SUCH CERTIFICATES BE RETURNED VIA CERTIFIED OR REGISTERED MAIL.
TO ENSURE PROCESSING OF YOUR REQUEST, THIS LETTER OF TRANSMITTAL OR A
MANUALLY SIGNED FACSIMILE OF IT (TOGETHER WITH ANY CERTIFICATES FOR SHARES
OF COMMON STOCK AND ALL OTHER REQUIRED DOCUMENTS) MUST BE RECEIVED BY THE
DEPOSITARY ON OR BEFORE THE EXPIRATION DATE AUGUST 11, 1999.
- ------------------------------------------------------------------------------
BOX NO. 1: DESCRIPTION OF SHARES TENDERED
(SEE INSTRUCTIONS 3 AND 4)
- ------------------------------------------------------------------------------
Name(s) and Address of
Registered Owner(s)
(Please Fill in Exactly the Share Certificate(s) and Share(s) Tendered
Name(s) in Which (Attach additional list, if necessary)
Shares of Common Stock are
Registered)
- ------------------------------------------------------------------------------
Total Number
of Shares
Share Represented by Number of
Certificate Share Shares
Number(s)* Certificate(s)* Tendered**
TOTAL SHARES
- ------------------------------------------------------------------------------
* Need not be completed by Book-Entry Stockholders.
** Unless otherwise indicated, all Shares represented by certificates
delivered to the Depositary are assumed to be tendered.
See Instruction 3.
- ------------------------------------------------------------------------------
Note: If neither of the boxes is checked, any such uncertificated shares
of Common Stock will NOT be tendered.
THE BOXES BELOW ARE TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY
( ) CHECK HERE IF SHARES OF COMMON STOCK ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO AN ACCOUNT MAINTAINED BY THE DEPOSITARY WITH THE
DEPOSITORY TRUST COMPANY ("DTC") AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:__________________________________________
DTC Participant Number: ________________________________________________
( ) CHECK HERE IF SHARES OF COMMON STOCK ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s): _______________________________________
Window Ticket Number (if any): _________________________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Name of Eligible Institution which Guaranteed Delivery: _____________________
DTC Participant Number (if delivered by book-entry transfer): _______________
Unless otherwise indicated herein under "Special Payment Instructions,"
please issue the check for the purchase price and/or return any
certificates for shares of Common Stock not tendered or not accepted for
payment in the name(s) of the registered owner(s) appearing under "Box No.
1: Description of Shares Tendered." Similarly, unless otherwise indicated
under "Special Delivery Instructions," please mail the check for the
purchase price for any shares of Common Stock purchased and/or return any
certificates for shares of Common Stock not tendered or not accepted for
payment (and accompanying documents, as appropriate) to the address(es) of
the registered owner(s) appearing under "Box No. 1: Description of Shares
Tendered." In the event that both the Special Payment Instructions and the
Special Delivery Instructions are completed, please issue the check for the
purchase price and/or return any certificates for shares of Common Stock
not tendered or not accepted for payment in the name of, and deliver such
check and/or return certificates for shares of Common Stock to, the
person(s) so indicated. The undersigned recognizes that the Company has no
obligation pursuant to the Special Payment Instructions to transfer any
shares of Common Stock from the name of the registered owner thereof if the
Company does not accept for payment any of the shares of Common Stock
tendered hereby.
- -----------------------------------------------------------------------------
BOX NO. 2: SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS
- -----------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4, 5, 6 AND 7) (SEE INSTRUCTIONS 4, 5 AND 7)
To be completed ONLY if To be completed ONLY if any
any certificate for shares of certificate for shares of
Common Stock not tendered or Common Stock not tendered or
not purchased and/or any check not purchased and/or any check
for the purchase price of for the purchase price of
shares accepted, is to be shares accepted issued in the
issued in the name of someone name of the registered
other than the registered owner(s), is to be sent to
owner(s). someone other than the
registered owner(s) or is to be
Issue: ( ) Check to: sent to the registered owner(s)
( ) Certificate to: at an address other than that
shown above:
Name(s)_______________________
(Please Print) Mail: ( ) Check to:
( ) Certificate to:
Address ______________________ Name(s)_________________________
(Please Print)
______________________________ Address ________________________
______________________________ ________________________________
(Include Zip Code)
________________________________
_____________________________ (Include Zip Code)
(Tax Identification or Social
Security Number(s))
________________________________
(Tax Identification or Social
Security Number(s))
- -----------------------------------------------------------------------------
BOX NO. 3: SIGNATURES
(SEE INSTRUCTIONS 2, 3 AND 4)
(PLEASE SEE SUBSTITUTE FORM W-9)
Must be signed by registered owner(s) exactly as registered. If
signature is by attorney-in-fact, executor, administrator, trustee,
guardian, officer of the corporation or another acting in a fiduciary or
representative capacity, please set forth the full title. See Instruction
4. Signature guarantees are required in certain circumstances. See
Instruction 1. By signing this Letter of Transmittal, you represent that
you have read the entire Letter of Transmittal.
____________________________________________________________________________
____________________________________________________________________________
(Signature(s) Exactly as Registered)
Dated _______________________, 1991
Name(s)_____________________________________________________________________
____________________________________________________________________________
(Please Print Name(s) of Owner(s) Exactly as Registered)
____________________________________________________________________________
(Tax Identification or Social Security Number(s))
Area Code and Daytime Telephone Number _____________________________________
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTIONS 1 AND 5)
Authorized Signature ______________________________________________________
Name_______________________________________________________________________
(Please Print)
Title _____________________________________________________________________
Name of Firm_______________________________________________________________
Address____________________________________________________________________
___________________________________________________________________________
(Include Zip Code)
Area Code and Telephone Number_____________________________________________
Dated_______________________
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. This Letter of
Transmittal is to be used (a) if you desire to effect the tender
transaction yourself, (b) if you intend to request your broker, dealer,
commercial bank, trust company or other nominee to effect the transaction
for you and the shares of Common Stock are not registered in the name of
such broker, dealer, commercial bank, trust company or other nominee, or
(c) by a broker, dealer, commercial bank, trust company or other nominee
effecting the transaction as a registered owner or on behalf of a
registered owner. A PROPERLY COMPLETED AND DULY EXECUTED LETTER OF
TRANSMITTAL OR MANUALLY SIGNED FACSIMILE OF IT, ANY CERTIFICATES
REPRESENTING SHARES OF COMMON STOCK TENDERED AND ANY OTHER DOCUMENTS
REQUIRED BY THIS LETTER OF TRANSMITTAL SHOULD BE MAILED OR DELIVERED TO THE
DEPOSITARY AT THE ADDRESS SET FORTH IN THIS LETTER OF TRANSMITTAL AND MUST
BE RECEIVED BY THE DEPOSITARY ON OR PRIOR TO THE EXPIRATION DATE AUGUST 11,
1999.
THE METHOD OF DELIVERY OF ALL DOCUMENTS, INCLUDING CERTIFICATES FOR
COMMON STOCK, IS AT THE ELECTION AND RISK OF THE TENDERING SHAREHOLDER. IF
DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED.
THE COMPANY WILL NOT ACCEPT ANY ALTERNATIVE, CONDITIONAL OR CONTINGENT
TENDERS. ALL TENDERING STOCKHOLDERS, BY EXECUTION OF THIS LETTER OF
TRANSMITTAL (OR A MANUALLY SIGNED FACSIMILE OF IT), WAIVE ANY RIGHT TO
RECEIVE
ANY NOTICE OF THE ACCEPTANCE OF THEIR TENDER.
2. COMPLETING THIS LETTER OF TRANSMITTAL. If you intend to tender any
shares of Common Stock pursuant to the Offer, please complete the Letter of
Transmittal as follows:
(a) Read the Letter of Transmittal in its entirety. By signing
the Letter of Transmittal in Box No. 3, you agree to its terms.
(b) Complete Box No. 1 as necessary.
(c) Complete Box No. 2 if certificates for shares of Common Stock
not tendered or not purchased and/or any check issued in the name
of a person other than the signer of the Letter of Transmittal
are to be sent to someone other than such signer or to the signer
at an address other than that shown in Box No. 1.
(d) Complete Box No. 3 in accordance with Instruction 4 set forth
below.
3. PARTIAL TENDERS AND UNPURCHASED COMMON STOCK. If fewer than all of the
certificated shares of Common Stock are to be tendered, fill in the number
of shares of Common Stock which are to be tendered in Box 1 as appropriate.
If any tendered shares of Common Stock are purchased, a new certificate for
the remainder of the shares of Common Stock evidenced by your old
certificate(s) will be issued and sent to the registered owner, unless
otherwise specified in Box No. 2 of this Letter of Transmittal, as soon as
practicable after the Expiration Date of the Offer. All shares of Common
Stock evidenced by any certificates submitted will be deemed to have been
tendered unless otherwise indicated.
4. SIGNATURES ON LETTER OF TRANSMITTAL, AUTHORIZATIONS AND ENDORSEMENTS.
(a) If this Letter of Transmittal is signed by the registered
owner(s) of the shares of Common Stock tendered hereby, the
signature(s) must correspond exactly with the name(s) in which
the shares of Common Stock are registered.
(b) If the shares of Common Stock are held of record by two or
more joint owners, each such owner must sign this Letter of
Transmittal.
(c) If any tendered shares of Common Stock are registered in
different names, it will be necessary to complete, sign and
submit as many separate Letters of Transmittal (or manually
signed facsimiles of it) as there are different registrations of
shares of Common Stock.
(d) When this Letter of Transmittal is signed by the registered
owner(s) of the shares of Common Stock listed and transmitted
hereby, no endorsements of any certificate(s) representing such
shares of Common Stock or separate authorizations are required.
If, however, payment is to be made to a person other than the
registered owner(s), any unpurchased shares of Common Stock are
to be registered in the name of any person other than the
registered owner(s) or any certificates for unpurchased shares of
Common Stock are to be issued to a person other than the
registered owner(s), then the Letter of Transmittal and, if
applicable, the certificate(s) transmitted hereby, must be
endorsed or accompanied by appropriate authorizations, in either
case signed exactly as such name(s) appear on the registration of
the shares of Common Stock and on the face of the certificate(s)
and such endorsements or authorizations must be guaranteed by an
Eligible Institution described in Box No. 3.
(e) If this Letter of Transmittal or any certificates or
authorizations are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or others
acting in a fiduciary or representative capacity, such persons
should so indicate when signing and must submit proper evidence
satisfactory to the of their authority so to act.
(f) Your signature MUST be guaranteed and you MUST complete the
signature guarantee in Box No. 3 if (i) the value of the shares
of Common Stock tendered herewith pursuant to the Offer is
greater than $50,000, (ii) this Letter of Transmittal is signed
by someone other than the registered holder of the shares of
Common Stock tendered herewith, or (iii) you request payment for
the shares of Common Stock tendered herewith to be sent to a
payee other than the registered owner of such shares of Common
Stock and/or to an address other than the registered address of
the registered owner of the shares of Common Stock. An acceptable
guarantee is one made by a bank or trust company; a
broker-dealer; a credit union; a national securities exchange,
registered securities association or clearing agency; a savings
and loan association; or a federal savings bank. The guarantee
must state the words "Signature Guaranteed" along with the name
of the granting institution. Stockholders should verify with the
institution that it is an eligible guarantor prior to signing. A
guarantee from a notary public is not acceptable.
5. TRANSFER TAXES. The Company will pay all share transfer taxes, if any,
payable on the transfer to it of shares of Common Stock purchased pursuant
to the Offer. If, however, (a) payment of the Purchase Price is to be made
to any person other than the registered owner(s), (b) (in the circumstances
permitted by the Offer) unpurchased shares of Common Stock are to be
registered in the name(s) of any person other than the registered owner(s)
or (c) tendered certificates are registered in the name(s) of any person
other than the person(s) signing this Letter of Transmittal, the amount of
any transfer taxes (whether imposed on the registered owner(s) or such
other persons) payable on account of the transfer to such person(s) will be
deducted from the Purchase Price by the Depositary unless satisfactory
evidence of the payment of such taxes, or exemption therefrom, is
submitted.
6. IRREGULARITIES. All questions as to the validity, form, eligibility
(including time of receipt) and acceptance of any tender of shares of
Common Stock will be determined by the Company in its sole discretion,
whose determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any or all tenders determined by it
not to be in appropriate form or the acceptance of or payment for any
shares of Common Stock which may, in the opinion of the Company's counsel,
be unlawful. The Company also reserves the absolute right to waive any of
the conditions of the Offer or any defect or irregularity in tender of any
particular shares of Common Stock or any particular stockholder, and the
Company's interpretations of the terms and conditions of the Offer
(including these Instructions) will be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders
must be cured within such time as the Company shall determine. Tendered
shares of Common Stock will not be accepted for payment unless all defects
and irregularities have either been cured within such time or waived by the
Company. None of the Company, the Depositary, or any other person shall be
obligated to give notice of defects or irregularities in tenders, nor shall
any of them incur any liability for failure to give any such notice.
7. QUESTIONS AND REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to, and additional copies of
the Offer to Purchase and this Letter of Transmittal may be obtained from
the Depositary as described in the Offer to Purchase.
8. FORM W-9. Each tendering stockholder who has not already submitted a
completed and signed Form W-9 to the Company is required to provide the
Depositary with a correct taxpayer identification number ("TIN") on
Substitute Form W-9 provided under "Important Tax Information" below.
Failure to provide the information on the form may subject the tendering
stockholder to 31% federal income tax withholding on the payments made to
the stockholder or other payee with respect to shares of Common Stock
purchased pursuant to the Offer.
9. WITHHOLDING ON FOREIGN STOCKHOLDERS. The Depositary will withhold
federal income taxes equal to 30% of the gross payments payable to a
foreign stockholder unless the Depositary determines that a reduced rate of
withholding or an exemption from withholding is applicable. For this
purpose, a foreign stockholder is any stockholder that is not (i) a citizen
or resident of the United States, (ii) a corporation or partnership created
or organized in or under the laws of the United States or any political
subdivision thereof, (iii) any estate the income of which is subject to
United States federal income taxation regardless of the source of such
income or (iv) a trust whose administration is subject to the primary
jurisdiction of a United States court and which has one or more United
States fiduciaries who have authority to control all substantial decisions
of the trust. The Depositary will determine a stockholder's status as a
foreign stockholder and eligibility for a reduced rate of, or an exemption
from, withholding by reference to the stockholder's address and to any
outstanding certificates or statements concerning eligibility for a reduced
rate of, or exemption from, withholding unless facts and circumstances
indicate that reliance is not warranted. A foreign stockholder who has not
previously submitted the appropriate certificates or statements with
respect to a reduced rate of, or an exemption from, withholding for which
such stockholder may be eligible should consider doing so in order to avoid
overwithholding. A foreign stockholder may be eligible to obtain a refund
of tax withheld if such stockholder meets one of the three tests for
capital gain or loss treatment described in Section 15 of the Offer to
Purchase or is otherwise able to establish that no tax or a reduced amount
of tax was due.
IMPORTANT: THE LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE OF
IT PROPERLY COMPLETED AND DULY EXECUTED, TOGETHER WITH ANY CERTIFICATES FOR
SHARES OF COMMON STOCK AND ALL OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED
BY THE DEPOSITARY ON OR BEFORE THE EXPIRATION DATE.
IMPORTANT INFORMATION
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY. IT MAY NOT BE APPLICABLE TO FOREIGN STOCKHOLDERS.
ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS AS TO THE
SPECIFIC TAX CONSEQUENCES TO THEM OF THE OFFER.
SUBSTITUTE FORM W-9
Under the federal income tax laws, the Depositary may be required to
withhold 31% of the amount of any payment made to certain holders pursuant
to the Offer. In order to avoid such backup withholding, each tendering
holder must provide the Depositary with such holder's correct TIN by
completing the Substitute Form W-9 set forth below. In general, if a holder
is an individual, the TIN is the Social Security number of such individual.
If the Depositary is not provided with the correct TIN, the holder may be
subject to a penalty imposed by the Internal Revenue Service. Certain
holders (including, among others, all corporations) are not subject to
these backup withholding and reporting requirements, but should nonetheless
complete a Substitute Form W-9 to avoid possible erroneous backup
withholding. (In order for a foreign individual to qualify as an exempt
recipient, that holder must submit a statement signed under penalty of
perjury attesting as to that status. Forms for such statement can be
obtained from the Depositary.) For further information regarding backup
withholding and instructions for completing the Substitute Form W-9
(including how to obtain a TIN if you do not have one and how to complete
the Substitute Form W-9 if Shares are held in more than one name), consult
the enclosed Guidelines for Certificate of Taxpayer Identification Number.
CONSEQUENCES OF FAILURE TO FILE SUBSTITUTE FORM W-9
Failure to complete Substitute Form W-9 will not, by itself, cause the
shares of Common Stock to be deemed invalidly tendered but may require the
Depositary to withhold 31% of the amount of any payments made pursuant to
the Offer. Backup withholding is not an additional federal income tax.
Rather, the federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, the holder may claim a refund from the
Internal Revenue Service.
PAYER'S NAME: THE BANK OF NEW YORK
PART 1--PLEASE PROVIDE YOUR TIN (SOCIAL PART 2--
SECURITY NUMBER) AND CERTIFY BY SIGNING
AND DATING BELOW:
______________________________________
Awaiting
TIN ( )
Please
see
below.
CERTIFICATION--UNDER PENALTIES OF PERJURY, I
CERTIFY THAT: (1) THE INFORMATION PROVIDED ON
SUBSTITUTE THIS FORM IS TRUE, CORRECT AND COMPLETE AND (2) I
FORM W-9 AM NOT SUBJECT TO BACKUP WITHHOLDING EITHER
DEPARTMENT OF THE BECAUSE I AM EXEMPT FROM BACKUP WITHHOLDING OR I
TREASURY HAVE NOT BEEN NOTIFIED BY THE INTERNAL REVENUE
INTERNAL SERVICE (THE "IRS") THAT I AM SUBJECT TO BACKUP
REVENUE SERVICE WITHHOLDING AS A RESULT OF A FAILURE TO REPORT
ALL INTEREST OR DIVIDENDS OR THE IRS HAS NOTIFIED
ME THAT I AM NO LONGER SUBJECT TO BACKUP
WITHHOLDING. (YOU MUST CROSS OUT ITEM (2) ABOVE
IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE
PAYER'S REQUEST FOR SUBJECT TO BACKUP WITHHOLDING BECAUSE OF
TAXPAYER UNDERREPORTING INTEREST, OR DIVIDENDS ON YOUR
IDENTIFICATION NUMBER RETURN. HOWEVER, IF AFTER BEING NOTIFIED BY THE
("TIN") IRS THAT YOU WERE SUBJECT TO BACKUP WITHHOLDING
YOU RECEIVED ANOTHER NOTIFICATION FROM THE IRS
THAT YOU ARE NO LONGER SUBJECT TO BACKUP
WITHHOLDING, DO NOT CROSS OUT ITEM (2).)
Name:__________________________________________
(Please Print)
Address:_______________________________________
_______________________________________________
_______________________________________________
(Include Zip Code)
Signature:_________________ Date_______________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
OFFER. PLEASE REVIEW THE "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER" FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number
has not been issued to me, and either (a) I have mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
Internal Revenue Service Center or Social Security Administration Office or
(b) I intend to mail or deliver an application in the near future. I
understand that if I do not provide a Taxpayer Identification Number to the
payer, 31% of all reportable payments due to me pursuant to the Offer will
be withheld until I provide a Taxpayer Identification Number to the payer
and that, if I do not provide my Taxpayer Identification Number within 60
days, such retained amounts shall be remitted to the IRS as backup
withholding.
Signature:______________________ Date ___________________________
FOR IMMEDIATE RELEASE
HARRIS & HARRIS GROUP, INC.
ANNOUNCES COMMENCEMENT OF TENDER OFFER
New York, New York (July 14, 1999) The Board of Directors of Harris &
Harris Group, Inc. (the "Company") announced today that the Company has
commenced an offer to purchase up to 1,100,000 shares of its common stock,
par value $.01 per share (the "Common Stock"), for cash at a price equal to
$1.63 per share. The Company will not purchase any shares of Common Stock
unless a minimum of 700,000 shares are duly tendered. The Common Stock is
currently traded on the Nasdaq National Market ("Nasdaq") under the symbol
"HHGP." The closing price per share of Common Stock on June 30, 1999 was
$1.78. The Company determines its net asset value per share of Common
Stock on a quarterly basis. On June 30, 1999 the net asset value per share
of Common Stock was $2.35. The offer will expire at 12:00 Midnight,
Eastern Standard time, on August 11, 1999 unless extended. The Board of
Directors does not currently intend to extend the Offer. The purpose of
the Offer is to provide additional liquidity to stockholder and to further
the Company's investment objective.
The Offer is being made to all stockholders of the Company. The
Company will not purchase any shares of Common Stock unless a minimum of
700,000 shares of Common Stock are duly tendered prior to the Expiration
Date. If more than 1,100,000 shares are duly tendered prior to the
expiration of the Offer, the Company intends to, assuming no changes in
factors originally considered by the Board of Directors when it determined
to make the Offer and the other conditions set forth in the Offer to
Purchase, purchase shares on a pro rata basis. The Board of Directors may
determine not to purchase shares pursuant to the Offer for reasons set
forth in the tender offer documents.
Detailed information is contained in the Offer to Purchase and the
related Letter of Transmittal, which may be obtained from the Depositary
for the Offer, The Bank of New York, Tender and Exchange Department, 101
Barclay Street, Post Office Box 11248, New York, New York 10286-1248 or by
calling 800.507.9357.
The Company is a venture capital investment company, operating as a
business development company under the Investment Company Act of 1940. Its
primary objective is long-term growth through capital appreciation.
Current income is a secondary objective.
CONTACT: Mel P. Melsheimer
President
July 1, 1999
VIA FEDERAL EXPRESS
Ms. Susan Egli
Director of Investments
American Bankers Insurance Group
11222 Quail Roost Drive
Miami, FL 33157-6596
Dear Susan:
As we just agreed in our telephone conversation, we will move ahead to
put together and file a tender offer for approximately 1,075,269 shares of
Harris & Harris Group, Inc. common shares, at a price equal to 92.5 percent
of the average closing bid price for the sixty trading days preceding the
filing of the tender offer. Our intent is to try to accommodate your
desire to sell American Bankers' position in Harris & Harris Group, Inc.
common stock without disrupting the market for the stock. Harris & Harris
Group will bear all of the expense of the tender.
According to our counsel, Skadden, Arps, we should receive a draft of
the documents by the middle of next week, and we intend to move ahead as
quickly as possible to finalize the documents and file and commence the
actual tender.
Please let me know if you have any questions or if what I have set
forth above is not in accordance with your understanding of our verbal
agreement.
Thank you very much. American Bankers has been a wonderful, extremely
professional shareholder, and we truly will miss having you as our largest
outside shareholder.
Yours Sincerely,
/s/ Charles E. Harris
Charles E. Harris
