SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e) (2)
[ X ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (S) 240.14a-11(c) or (S) 240.14a-12
HARRIS & HARRIS GROUP, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
- ------------------------------------------------------------------------------
Payment of Filing Fee (Check the appropriate box):
[ X ] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14-a-6(i) (1)
and 0-11.
1) Title of each class of securities to which transaction applies:
_______________________________________________________________
2) Aggregate number of securities to which transaction applies:
_______________________________________________________________
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
_______________________________________________________________
4) Proposed maximum aggregate value of transaction:
_______________________________________________________________
5) Total fee paid:
_______________________________________________________________
/1/ Set forth the amount on which the filing fee is calculated and
state how it was determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a) (2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing
for which the offsetting fee was paid previously. Identify
the previous filing by registration statement number, or the Form
or Schedule and the date of its filing.
1) Amount Previously Paid:
_______________________________________________________________
2) Form, Schedule or Registration Statement No.:
_______________________________________________________________
3) Filing Party:
_______________________________________________________________
4) Date Filed:
_______________________________________________________________
HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held April 26, 2000
TO THE SHAREHOLDERS OF HARRIS & HARRIS GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 2000 annual meeting of the
shareholders of Harris & Harris Group, Inc. (the "Company") will
be held on Wednesday, April 26, at 2:00 p.m., local time, at 780
Third Avenue (between 48th and 49th), New York, New York 10017.
This meeting has been called by the Board of Directors of the
Company, and this notice is being issued at its direction. It has
called this meeting for the following purposes:
1. To elect eight (8) directors of the Company to
hold office until the next annual meeting of
shareholders or until their respective
successors have been duly elected and qualified.
2. To approve the performance goals under the
Harris & Harris Group, Inc. Employee Profit-
Sharing Plan, effective as of January 1, 2000.
3. To ratify, confirm and approve the Board of
Directors' selection of Arthur Andersen LLP as
the Company's independent public accountant for
its fiscal year ending December 31, 2000.
4. To transact such other business as may properly
come before the meeting or any adjournment or
adjournments thereof.
Holders of common stock of record, at the close of business
on March 22, 2000 will be entitled to vote at the meeting.
Whether or not you expect to be present in person at the
meeting, please sign and date the accompanying proxy and return it
promptly in the enclosed business reply envelope, which requires
no postage if mailed in the United States.
By Order of the Board of Directors
March 29, 2000 Rachel M. Pernia
New York, New York Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS APRIL 26, 2000.
PROXY STATEMENT
HARRIS & HARRIS GROUP, INC.
Annual Meeting of Shareholders
April 26, 2000
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harris & Harris Group, Inc. (the
"Company") to be voted at the 2000 Annual Meeting of Shareholders (the "Annual
Meeting") to be held on April 26, 2000 and at any adjournment thereof.
The Annual Meeting will be held on Wednesday, April 26, 2000 at 2:00
p.m., local time, at 780 Third Avenue, New York, New York 10017. At the
Annual Meeting, shareholders of the Company will be asked to elect eight
directors to serve on the Board of Directors of the Company and to hold office
until the next Annual Meeting and to vote on the other matters stated in the
accompanying Notice and described in more detail in this proxy statement.
The mailing address of the principal executive office of the Company is
One Rockefeller Plaza, Rockefeller Center, New York, New York 10020 (telephone
212-332-3600). The enclosed proxy card and this proxy statement and annual
report are being first transmitted on or about March 29, 2000 to shareholders
of the Company.
The Board of Directors has fixed the close of business on March 22, 2000
as the record date for the determination of shareholders of the Company
entitled to receive notice of, and to vote at, the Annual Meeting. At the
close of business on the record date, an aggregate of 9,240,831 shares of
common stock were issued and outstanding. Each such share will be entitled to
one vote on each matter to be voted upon at the Annual Meeting. The presence,
in person or by proxy, of the holders of a majority of such outstanding shares
is necessary to constitute a quorum for the transaction of business at the
Annual Meeting.
Solicitation and Revocation; Vote Required
- ------------------------------------------
All properly executed proxies received prior to the Annual Meeting will
be voted at the meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are
marked, shares represented by the proxies will be voted "FOR" all the
proposals.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time, before it is exercised, by written notification
delivered to the Secretary of the Company, by voting in person at the Annual
Meeting, or by executing another proxy bearing a later date. If your shares
1
are held for your account by a broker, bank or other institution or nominee,
you may vote such shares at the Annual Meeting only if you obtain proper
written authority from your institution or nominee that you present at the
Annual Meeting.
Approval of any of the matters submitted for stockholder approval
requires that a quorum be present. The presence, in person or by proxy, of at
least a majority of the total number of outstanding shares of common stock
entitled to vote is necessary to constitute a quorum. Abstentions and broker
non-votes will be counted as shares present at the Annual Meeting for purposes
of determining the existence of a quorum. Broker non-votes are proxies
received by the Company from brokers or nominees when the broker or nominee
has neither received instructions from the beneficial owner or other persons
entitled to vote nor has discretionary power to vote on a particular matter.
For the election of Directors, each nominee must receive the
affirmative vote of a plurality of the votes cast by the shares of common
stock present and in person or represented by proxy and entitled to vote.
Votes that are withheld, abstentions and broker non-votes will not be
included in determining the number of votes cast, and will have no effect on
the election of directors. Except as stated specifically and except with
respect to the election of directors, each of the matters being submitted to
stockholder vote pursuant to the Notice of Annual Meeting will be approved if
a quorum is present in person or by proxy and a majority of the votes cast on
a particular matter are cast in favor of that matter. For such purposes,
abstentions and broker non-votes will not be counted as votes cast or as
votes entitled to be cast on the matter and will have no affect on the result
of the vote.
Proxies are being solicited by the Company. Proxies will be solicited
by mail. All expenses of preparing, printing, mailing, and delivering
proxies and all materials used in the solicitation of proxies will be borne
by the Company. They may also be solicited by officers and regular employees
of the Company personally, by telephone or otherwise, but these persons will
not be specifically compensated for such services. Banks, brokers, nominees,
and other custodians and fiduciaries will be reimbursed for their reasonable
out-of-pocket expenses in forwarding solicitation material to their
principals, the beneficial owners of common stock of the Company. It is
estimated that those costs will be nominal.
ELECTION OF DIRECTORS
(Proposal No. 1)
The eight nominees listed below, all of whom currently serve as
directors, have been nominated to serve as directors of the Company until the
next Annual Meeting or until their respective successors are duly elected and
qualified. Although it is not anticipated that any of the nominees will be
unable or unwilling to serve, in the unexpected event that any such nominees
2
should become unable or decline to serve, it is intended that votes will be
cast for substitute nominees designated by the present Board of Directors of
the Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL THE NOMINEES.
NOMINEES
Certain information, as of February 29, 2000, with respect to each of
the eight nominees for election at the Annual Meeting is set forth below,
including their names, ages and a brief description of their recent business
experience, including present occupations and employment, certain
directorships held by each and the year in which each became a director of
the Company. All nominees are currently directors of the Company.
Directors
- ---------
Dr. C. Wayne Bardin, age 65, was elected to the Company's Board of
Directors in December 1994. He is currently President of Thyreos Corp., a
privately held, start-up pharmaceutical company. From 1978 through 1996, Dr.
Bardin was Vice President of The Population Council. His recent professional
appointments have included: Professor of Medicine, Chief of the Division of
Endocrinology, The Milton S. Hershey Medical Center of Pennsylvania State
University; and Senior Investigator, Endocrinology Branch, National Cancer
Institute. Dr. Bardin also serves as a consultant to several pharmaceutical
companies. He has directed basic and clinical research leading to over 500
publications and patents. He has negotiated 15 licensing and manufacturing
agreements. He has directed clinical R&D under 18 investigational new drug
applications filed with the U.S. FDA. Dr. Bardin has been appointed to the
editorial boards of 15 journals. He has also served on national and
international committees and boards for National Institute of Health, World
Health Organization, The Ford Foundation, and numerous scientific societies.
Dr. Bardin received a B.A. from Rice University; an M.S. and M.D. from Baylor
University and a Doctor Honoris Causa from the University of Caen and the
University of Paris.
Dr. Phillip A. Bauman, age 44, was elected to the Company's Board of
Directors in February 1998. Dr. Bauman is an orthopaedic surgeon in practice
in New York City and is an Assistant Professor at Columbia University. He
has been Vice President of Orthopaedic Associates of New York since 1994 and
is the orthopaedic director of the Miller Health Care Institute in New York
City. He received a bachelor's degree from Harvard University, a master's in
biology from Harvard University in 1977, and his medical degree from Columbia
University in 1981. He is a member of numerous medical societies including
the American Academy of Orthopaedic Surgeons and holds appointments on
several medical advisory boards, including the New York Academy of Medicine.
3
G. Morgan Browne, age 65, was elected to the Company's Board of
Directors in June 1992. Since 1985, Mr. Browne has been Administrative
Director of the Cold Spring Harbor Laboratory, a private not-for-profit
institution that conducts research and education programs in the fields of
molecular biology and genetics. In prior years, he was active in the
management of numerous scientifically based companies as an individual
consultant and as an associate of Laurent Oppenheim Associates, Industrial
Management Consultants. He is a director of OSI Pharmaceuticals, Inc.
(principally engaged in drug discovery based on gene transcription), a
founding director of the New York Biotechnology Association, and a founding
director and Treasurer of the Long Island Research Institute. He is a
graduate of Yale University and attended New York University Graduate School
of Business.
Harry E. Ekblom, age 72, was elected to the Company's Board of
Directors in 1984. Mr. Ekblom is a partner in Ekblom & Ekblom LLC, a law
firm, and President of Harry E. Ekblom & Co., Inc. From 1985 to 1996, he was
Vice Chairman of A.T. Hudson & Co. Inc. Before 1984, he was employed by
European American Bank as the Chairman of its Board of Directors and Chief
Executive Officer. Mr. Ekblom is a director of The Commercial Bank of New
York. He is a graduate of Columbia College and the New York University
School of Law, a member of the New York Bar, and holds honorary degrees from
Hofstra University and Pace University.
Dugald A. Fletcher, age 70, was elected to the Company's Board of
Directors in June 1996. Mr. Fletcher has been President of Fletcher &
Company, Inc., a management consulting firm, for the past five years. He was
also Chairman of Binnings Building Products Company, Inc. until the end of
1997, and is an Advisor to the Gabelli Growth Fund and a Director of the
Gabelli Convertible Securities Fund. His previous business appointments
include: advisor to the Gabelli/Rosenthal LP, a leveraged buyout fund;
Chairman of Keller Industries (building and consumer products); Director and
investor in Mid-Atlantic Coca-Cola Bottling Company; Senior Vice President of
Booz-Allen & Hamilton and President of Booz-Allen Acquisition Services;
Executive Vice President and a Director of Paine Webber, Inc.; and President
of Baker, Weeks and Co., Inc., a New York Stock Exchange member firm. He is
a graduate of Harvard College and of Harvard Business School.
4
*Charles E. Harris, age 57, has been a director of the Company and
Chairman of its Board of Directors since April 1984 and Chief Compliance
Officer since February 1997. He has served as Chief Executive Officer of the
Company since July 1984. He has served as a director, trustee, control
person, chairman and/or chief executive officer of various publicly and
privately held corporations and not-for-profit institutions. Prior to 1984,
he was Chairman of Wood, Struthers and Winthrop Management Corp., the
investment advisory subsidiary of Donaldson, Lufkin & Jenrette. He was a
member of the Advisory Panel for the Congressional Office of Technology
Assessment. He is a member of the New York Society of Security Analysts.
Among his eleemosynary activities, he is currently a Trustee of, and a member
of the President's Council of, the Cold Spring Harbor Laboratory; a Trustee
of the Nidus Center, a life sciences business incubator in St. Louis,
Missouri; and a life-sustaining fellow and a member of the President's
Council of the Massachusetts Institute of Technology. He was graduated from
Princeton University (A.B., 1964) and the Columbia University Graduate School
of Business (M.B.A., 1967).
Glenn E. Mayer, age 74, has been a director of the Company since 1981.
In December 1991, Mr. Mayer joined, as a Senior Vice President, the
Investment Banking division of Reich & Company. Reich & Co. is now a
division of Fahnestock & Company, Inc., a member firm of the New York Stock
Exchange. For 15 years prior to that, he was employed by Jesup & Lamont
Securities Co. and its successor firms, in the Corporate Finance department.
Mr. Mayer is a graduate of Indiana University.
James E. Roberts, age 54, was elected to the Company's Board of
Directors in June 1995. Since October 1999, Mr. Roberts has been Chief
Executive Officer of The Insurance Corporation of New York, Dakota Specialty
Insurance Company, and ReCor Insurance Company Inc. and Vice Chairman of
Chartwell Reinsurance Company. Since May 1995, Mr. Roberts has been Vice
Chairman of Trenwick America Reinsurance Corporation. During the nine years
prior to that, Mr. Roberts held the following positions at Re Capital
Corporation: President and Chief Executive Officer, from 1992 to 1995;
President and Chief Operating Officer, 1991 to 1992; Director since 1989 and
Senior Vice President, 1986 to 1991; President and Chief Executive Officer of
the Company's principal operating subsidiary, Re Capital Reinsurance
Corporation, from 1991 to 1995. All of the preceding companies are part of
Trenwick Group, Inc., which is a property and casualty insurance and
reinsurance company. Mr. Roberts served as Senior Vice President and Chief
Underwriting Officer of North Star Reinsurance Corporation, from 1979 to
1986; Vice President of Rollins Burdick Hunter of New York, Inc., 1977 to
1979; Secretary of American Home Assurance/National Union Insurance Group of
American International Group, Inc., 1973 to 1977; and commercial casualty
underwriter at Continental Insurance Company, 1972 to 1973. Mr. Roberts is a
graduate of Cornell University.
* Charles E. Harris is an "interested person" of the Company, as
defined in the Investment Company Act of 1940, as an owner of more than five
percent of the Company's stock, as a control person and as an officer of the
Company.
5
Meetings of the Board of Directors and Committees
- -------------------------------------------------
In 1999, there were seven meetings of the Board of Directors of the
Company, and the Board acted four times by unanimous written consent. No
incumbent director attended fewer than 75 percent of the aggregate of Board
of Directors' and applicable committee meetings held in 1999 (during the
periods that they so served).
The Company's Board of Directors has five committees comprised of the
following members:
<TABLE>
Committees
<S> <C> <C>
Executive Audit Compensation
Charles E. Harris* Harry E. Ekblom* James E. Roberts*
Dr. C. Wayne Bardin Dr. Phillip A. Bauman Harry E. Ekblom
Glenn E. Mayer Glenn E. Mayer Dugald A. Fletcher
James E. Roberts
<C> <C>
Nominating Investment and Valuation
Charles E. Harris* Charles E. Harris*
G. Morgan Browne G. Morgan Browne
Harry E. Ekblom James E. Roberts
Dr. Phillip A. Bauman Dugald A. Fletcher
- ----------
* Chairman of the Committee
</TABLE>
The Executive Committee meets from time to time between regular
meetings of the Board of Directors and exercises the authority of the Board
to the extent provided by law. The Executive Committee did not meet as a
separate committee in 1999.
The Audit Committee considers and recommends to the Board of Directors
the selection of the Company's auditors, reviews with the auditors the plan
and results of the annual audit and the adequacy of the Company's systems of
internal accounting controls. The Audit Committee met once in 1999.
The Compensation Committee has the full power and authority of the
Board with respect to all matters pertaining to the remuneration of the
Company's officers and employees. The Compensation Committee did not meet as
a separate committee in 1999.
The Nominating Committee acts as an advisory committee to the Board by
making recommendations to the Board of potential new directors. See
"Submission of Shareholder Proposals." The Nominating Committee did not meet
as a separate committee in 1999.
The Investment and Valuation Committee has the full power and authority
of the Board in reviewing and approving the valuation of the Company's assets
for reporting purposes pursuant to the Company's Asset Valuation Policy
Guidelines that were established and approved by the Board of Directors. The
Investment and Valuation Committee met four times in 1999.
6
Security ownership of Directors and Executive Officers and other principal
holders of the Company's voting securities
- --------------------------------------------------------------------------
The following table sets forth certain information with respect to
beneficial ownership (as that term is defined in the rules and regulations of
the Securities and Exchange Commission) of the Company's common stock as of
February 29, 2000 by (1) each person who is known by the Company to be the
beneficial owner of more than five percent of the outstanding common stock,
(2) each director of the Company, (3) each current executive officer listed
in the Summary Compensation Table and (4) all directors and executive
officers of the Company as a group. Except as otherwise indicated, to the
Company's knowledge, all shares are beneficially owned and investment and
voting power is held as stated by the persons named as owners. At this time,
the Company is unaware of any shareholder owning five percent or more of the
outstanding shares of common stock other than the ones noted below.
<TABLE>
<S> <C> <C>
Name and Address of Number of Shares of Percent of
Beneficial Owner Common Stock Owned Class (1)
- ------------------- ------------------- ----------
Charles E. and Susan T. Harris
One Rockefeller Plaza, Suite 1430 984,562 (2) 10.65%
New York, NY 10020
Jordan American Holdings, Inc.
1875 Ski Time Square, Suite 1 602,765 (3) 6.52%
Steamboat Springs, CO 80487
Dr. C. Wayne Bardin 12,036 (4) *
Dr. Phillip A. Bauman 12,586 (5) *
G. Morgan Browne 15,629 *
Harry E. Ekblom 10,357 *
Dugald A. Fletcher 5,408 *
Glenn E. Mayer 79,000 (6) *
Mel P. Melsheimer 10,072 *
James E. Roberts 7,735 *
Rachel M. Pernia -- *
All Directors and Executive
Officers as a group (10 persons) 1,137,385 12.31%
* Less than one percent of issued and outstanding stock.
7
<FN>
<F1>
(1) Shares of common stock subject to warrants and options currently
exercisable or exercisable within 60 days are deemed outstanding for
computing the percentage of class of the person or group holding such
warrants but are not deemed outstanding for computing the percentage of
class of any other person.
<F2>
(2) Includes 875,827 shares for which Mrs. Harris has sole power to vote
and dispose of; 8,500 shares for which Mr. Harris has sole power to
vote and dispose of. Includes 100,235 shares owned by the Susan T.
and Charles E. Harris Foundation, in which Charles E. Harris and
Susan T. Harris are designated trustees; voting and dispositive power
are vested with the trustees.
<F3>
(3) Represents shares owned by Jordan American Holdings, Inc. pursuant to
Schedule 13G, filed on February 14, 2000. Jordan American Holdings,
Inc. is a registered investment advisor that holds these shares for
investment purposes only on behalf of various clients.
<F4>
(4) Includes 2,840 shares owned by Bardin LLC for the Bardin LLC Profit-
Sharing Keogh.
<F5>
(5) Includes 5,637 shares owned by Ms. Milbry C. Polk, Dr. Bauman's wife.
<F6>
(6) Includes 2,000 shares owned by Mrs. Mayer.
</FN>
</TABLE>
Executive Officers
- ------------------
Set forth below is certain information with respect to the executive
officers of the Company:
Charles E. Harris, Chairman, Chief Executive Officer and Chief
Compliance Officer. For additional information about Mr. Harris, please
see the Directors' biographical information section.
Mel P. Melsheimer, age 60, has served as President, Chief Operating
Officer and Chief Financial Officer since February 1997. Previously, Harris
& Harris Group utilized Mr. Melsheimer as a nearly full-time consultant or
officer of an investee company since March 1994. Mr. Melsheimer has had
extensive entrepreneurial experience as well as senior operational and
financial management responsibilities with publicly and privately owned
companies. From November 1992 to February 1994, he served as Executive Vice
President, Chief Operating Officer and Secretary of Dairy Holdings, Inc. From
June 1991 to August 1992, he served as President and Chief Executive Officer
of Land-O-Sun Dairies as well as Executive Vice President of Finevest Foods,
Inc. From March 1989 to May 1991, he served as Vice President, Chief
Financial Officer and Treasurer of Finevest Foods, Inc. From January 1984 to
February 1989, he served as Chairman, Chief Executive Officer and Founder of
PHX Pacific, Inc. and President and Chief Executive Officer of MPM Capital
Corp. From January 1981 to December 1983, he served as Executive Vice
President and Chief Operating Officer of AZL Resources. From November 1975 to
December 1980, he served as Executive Vice President and Chief Financial
Officer of AZL Resources. From January 1968 to November 1975, he served in a
financial capacity before becoming Vice President and Chief Financial Officer
of Pepsi-Cola Company, PepsiCo, Inc. in 1972. He was graduated from the
University of Southern California (M.B.A.) and Occidental College (B.A.,
Economics).
8
Rachel M. Pernia, age 41, has served since January 1992 as a Vice
President and Controller of the Company, as Treasurer since November 1994 and
Secretary since September 1996. From 1988 until Ms. Pernia joined the
Company, she was employed as Assistant Controller for Cellcom Corp. From 1985
through 1988, she was employed as a senior corporate accountant by Bristol-
Myers Squibb Company. She was graduated from Rutgers University (B.A., 1981;
M.B.A., 2000) and is a certified public accountant.
Executive Compensation
Summary Compensation Table
The following table sets forth a summary for each of the last three
years of the cash and non-cash compensation awarded to, earned by, or paid to
the Chief Executive Officer of the Company and the other executive officers of
the Company, whose individual remuneration exceeded $60,000 for the year ended
December 31, 1999.
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Long Term
Annual Compensation Compensation
Awards
--------------------------- ----------
Name and Securities
Principal Other Annual Underlying All Other
Position Year Salary Bonus Compensation Options Compensation
- --------- ---- ------ ----- ------------- ---------- ------------
($) ($)(1) ($) (2) (3) ($) (4)
Charles E.Harris 1999 202,980 785,031 40,674 -- 63,422
Chairman, CEO & 1998 200,000 -- 37,758 -- 15,990
Chief Compliance 1997 574,380 -- 32,801 -- 9,500
Officer (5)
Mel P. Melsheimer 1999 229,690 240,974 -- -- 10,000
President, COO 1998 223,000 -- -- -- 10,000
& CFO (6) 1997 209,852 -- 61,992 300,000 9,500
Rachel M. Pernia 1999 90,092 86,758 -- -- 10,000
Controller, 1998 86,720 -- -- -- 10,000
Treasurer & 1997 83,046 -- -- 50,000 9,500
Secretary
<FN>
<F1>
(1) These amounts represent the approximate amounts earned as a result of
realized gains during the year ended December 31, 1999 under the Harris
& Harris Group Employee Profit-Sharing Plan, effective as of January 1,
1998 (the "1998 Plan") which is described below.
<F2>
(2) Other than Mr. Melsheimer and Mr. Harris, amounts of "Other Annual
Compensation" earned by the named executive officers for the periods
presented did not meet the threshold reporting requirements.
<F3>
(3) The Company's 1988 Stock Option Plan and all outstanding stock options
were canceled as of December 31, 1997. As a substitution for the 1988
Stock Option Plan, the Company adopted the Plan.
<F4>
(4) Except for Mr. Harris's 1999 "All Other Compensation," the amounts
reported represent the Company's contributions on behalf of the named
executive to the Harris & Harris Group, Inc. 401(k) Plan described below.
Mr. Harris's "All Other Compensation" consists of: $10,000 401(k) Plan
employer contribution; $41,442 for accrual for his 1999 SERP contribution;
and $11,980 in life insurance premiums for the benefit of his
beneficiaries.
Except for Mr. Harris, amounts reported represent the Company's
contributions on behalf of the named executive to the Harris & Harris
Group, Inc. 401(k) Plan described below.
<F5>
(5) Mr. Harris has an employment agreement which is discussed below under
"Employment Agreement."
<F6>
(6) Mr. Melsheimer joined the Company as President, Chief Operating Officer
and Chief Financial Officer in February 1997. From 1994 to February 1997,
Mr. Melsheimer was utilized by the Company as a independent consultant.
Included in Mr. Melsheimer=s 1997 Other Annual Compensation is $61,992 in
relocation reimbursements.
</FN>
</TABLE>
Employee Benefits
The Company's 1988 Stock Option Plan and all outstanding stock options
were canceled as of December 31, 1997. As a substitution for the 1988 Stock
Option Plan, the Company adopted an employee profit sharing plan.
Employee Profit-Sharing Plan
- ----------------------------
As of January 1, 1998, the Company began implementing the Harris & Harris
Group, Inc. Employee Profit Sharing Plan (the "1998 Plan") that provides for
profit sharing equal to 20 percent of the net realized income of the Company
as reflected on the consolidated statement of operations of the Company for
such year, less the nonqualifying gain, if any. The distribution percentages
for each officer and employee for 1999 were as follows: Charles E. Harris,
13.790 percent; Mel P. Melsheimer, 4.233 percent; Rachel M. Pernia, 1.524
percent; and Jacqueline M. Matthews, 0.453 percent. Under the 1998 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 is calculated without regard to dividends paid or
distributions made to shareholders, payments under the 1998 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 is considered nonqualifying gain, which
reduces "Qualifying Income."
As soon as practicable following each year end, the Board of Directors
determines whether, and if so how much, "Qualifying Income" exists for a
plan year, and 90 percent of the Qualifying Income is paid out to 1998 Plan
participants pursuant to the distribution percentages set forth in the 1998
Plan. The remaining 10 percent is paid out after the Company has filed its
federal tax return for that year in which "Qualifying Income" exists. If a
participant leaves the Company for other than cause, the amount earned as of
10
that date is accrued and paid to such participant, and the remaining amount
allocable under the 1998 Plan is redistributed by the Compensation Committee
and paid to the other participants.
Notwithstanding any provisions of the 1998 Plan, in no event may the
aggregate amount of all awards payable for any 1998 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 are reduced pro rata.
The 1998 Plan may be modified, amended or terminated by the 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 or amendment.
During 1999, the Company accrued profit-sharing expense of $8,110,908,
bringing the cumulative accrual under the 1998 Plan to $9,434,467 at December
31, 1999. Approximately $8,295,916 represents a profit-sharing accrual on
unrealized gains and will not be paid out until the gains are realized. In
March 2000, the Company paid out 90 percent of the profit sharing on the 1999
realized gains of approximately $1,024,696; the remaining 10 percent or
approximately $113,855 will be paid out on completion and filing of the
Company's 1999 federal tax return.
The 1998 Plan was terminated as of December 31, 1999, subject to the
payment of amounts owed on realized 1999 gains under the 1998 Plan. The Harris
& Harris Group Employee Profit-Sharing Plan was adopted as of January 1, 2000,
with substantially the same terms as the 1998 Plan. (See Proposal 2 "Approval
of Performance Goals Under the Harris & Harris Group, Inc. Employee Profit-
Sharing Plan, effective as of January 1, 2000.")
401(k) Plan
- -----------
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. As of January 1, 1999, the Company adopted the Harris &
Harris Pension Plan and Trust, a money purchase plan that would allow the
11
Company to stay compliant with the 401(k) top-heavy regulations and
deduction limitation regulations. Contributions to the plan are at the
discretion of the Company. During 1999, contributions to both plans
charged to operations totaled approximately $37,000.
Medical Benefits
- ----------------
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 10 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, 1999 the Company had a reserve of $317,600 for the plan.
Employment Agreement
- --------------------
On October 19, 1999, Charles E. Harris signed an Employment Agreement
with the Company ("the Employment Agreement"), which superseded an employment
agreement that was about to expire on December 31, 1999. The Employment
Agreement expires on December 31, 2004 ("Term"); provided, on January 1, 2000
and on each day thereafter, the Term extends automatically by one day unless at
any time the Company or Mr. Harris, by written notice, decides not to extend
the Term, in which case the Term will expire five years from the date of the
written notice.
During the period of employment, Mr. Harris shall serve as the Chairman
and Chief Executive Officer of the Company; be responsible for the general
management of the affairs of the Company and all its subsidiaries, reporting
directly to the Board of Directors of the Company; serve as a member of the
Board for the period of which he is and shall from time to time be elected or
reelected; and serve, if elected, as President of the Company and as an officer
and director of any subsidiary or affiliate of the Company.
Mr. Harris is to receive compensation under his Employment Agreement in
the form of base salary of $202,980, with automatic yearly adjustments to
reflect inflation. In addition, the Board may increase such salary, and
consequently decrease it, but not below the level provided for by the automatic
adjustments described above. Mr. Harris is also entitled to participate in the
Company's Profit-Sharing Plan as well as in all compensation or employee
benefit plans or programs, and to receive all benefits, perquisites, and
emoluments for which salaried employees are eligible. Under the Employment
Agreement, the Company is to furnish Mr. Harris with certain perquisites which
include a company car, membership in certain clubs and up to a $5,000 annual
reimbursement for personal, financial or tax advice.
12
The Employment Agreement provides Mr. Harris with life insurance for the
benefit of his designated beneficiaries in the amount of $2,000,000; provides
reimbursement for uninsured medical expenses, not to exceed $10,000 per annum,
adjusted for inflation, over the period of the contract; provides Mr. Harris
and spouse with long-term care insurance; and disability insurance in the
amount of 100 percent of his base salary. These benefits are for the term of
the contract.
The Employment Agreement provides severance pay in the event of
termination without cause or by constructive discharge as discussed below and
also provides for certain death benefits payable to the surviving spouse equal
to the executive's base salary for a period of two years.
In addition, Mr. Harris is entitled to receive severance pay pursuant
to the severance compensation agreement that he entered into with the
Company, effective August 15, 1990. The severance compensation agreement
provides that if, following a change in control of the Company, as defined in
the agreement, such individual's employment is terminated by the Company
without cause or by the executive within one year of such change in control,
the individual shall be entitled to receive compensation in a lump sum
payment equal to 2.99 times the individual's average annualized compensation
and payment of other welfare benefits. If Mr. Harris's termination is
without cause or is a constructive discharge, the amount payable under the
Employment Agreement will be reduced by the amounts paid pursuant to the
severance compensation agreement.
SERP
- ----
The Employment Agreement provides for the Company to adopt a
supplemental executive retirement plan (the "SERP") for the benefit of Mr.
Harris. Under the SERP, the Company will cause an amount equal to one-
twelfth of the Mr. Harris's current base salary to be credited each month (a
"Monthly Credit") to a special account maintained for this purpose on the
books of the Company for the benefit of Mr. Harris (the "SERP Account"). The
amounts credited to the SERP Account will be deemed invested or reinvested in
such mutual funds or U.S. Government securities as determined by Mr. Harris.
The SERP Account will be credited and debited to reflect the deemed
investment returns, losses and expenses attributed to such deemed investments
and reinvestments. Mr. Harris's benefit under the SERP will equal the
balance in the SERP Account and such benefit will always be 100 percent
vested (i.e., not forfeitable). Mr. Harris will determine the form and
timing of the distribution of the balance in the SERP Account; provided,
however, in the event of the termination, the balance in the SERP Account
will be distributed to Mr. Harris or his beneficiary, as the case may be, in
a lump-sum payment within 30 days of such termination. The Company
established a rabbi trust for the purpose of accumulating funds to satisfy
the obligations incurred by the Company under the SERP. During 1999, the
Company accrued $41,442 in accordance with this provision of the SERP. Mr.
Harris's rights to benefits pursuant to this SERP will be no greater than
those of a general creditor of the Company.
13
Compensation of Directors
- -------------------------
<TABLE>
<S> <C> <C> <C> <C>
Pension Or
Retirement
Benefits Estimated
Accrued As Annual Total
Part Of Benefits Compensation
Name of Aggregate Company's Upon Paid To
Director Compensation Expenses Retirement Directors
- -------- ------------ --------- ---------- ------------
C. Wayne Bardin $13,000 - - - - $13,000
Phillip A. Bauman $13,000 - - - - $13,000
G. Morgan Browne $17,212 (1) - - - - $17,212
Harry E. Ekblom $14,637 (2) - - - - $14,637
Dugald A. Fletcher $17,000 - - - - $17,000
Glenn E. Mayer $14,000 - - - - $14,000
William R. Polk $14,479 (3) - - - - $14,479
James E. Roberts $17,000 - - - - $17,000
<FN>
<F1>
(1) Includes $212 paid to Mr. Browne to reimburse him for travel expenses
to attend Board meetings.
<F2>
(2) Includes $637 paid to Mr. Ekblom to reimburse him for travel expenses
to attend Board meetings.
<F3>
(3) Mr. Polk did not stand for reelection to the Board of Directors at the
1999 Annual Meeting. Includes $9,479 paid to Mr. Polk to reimburse him
for travel expenses to attend Board meetings.
</FN>
</TABLE>
Effective June 18, 1998, directors who were not officers of the
Company received $1,000 for each meeting of the Board of Directors and
$1,000 for each committee meeting they attended in addition to a monthly
retainer of $500. Prior to June 18, 1998, the directors were paid $500 for
Committee meetings and no monthly retainer. The Company also reimburses
its directors for travel, lodging and related expenses they incur in
attending Board and committee meetings. The total compensation and
reimbursement for expenses paid to all directors in 1999 was $120,328.
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
began purchasing the Company's common stock in the open market, rather than
from the Company. During 1999, the Directors bought a total of 5,816
shares directly from the Company and 23,489 shares in the open market.
14
Section 16(a) Beneficial Ownership Reporting Compliance
- -------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than
10 percent of the Company's common stock to file reports (including a year-
end report) of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC") and to furnish the Company with copies of all
reports filed.
Based solely on a review of the forms furnished to the Company, or
written representations from certain reporting persons, the Company believes
that all persons who were subject to Section 16(a) in 1999 complied with the
filing requirements.
APPROVAL OF PERFORMANCE GOALS UNDER THE HARRIS & HARRIS GROUP, INC.
EMPLOYEE PROFIT-SHARING PLAN, EFFECTIVE AS OF JANUARY 1, 2000
(Proposal No. 2)
The Company has adopted the Harris & Harris Group, Inc. Employee
Profit- Sharing Plan (the "Plan") to provide a special incentive for
designated key employees of the Company ("Participants") to increase the
future profits of the Company, by allowing the Participants to share in the
historical after-tax profits of the Company. The Plan became effective as of
January 1, 2000. (A prior version of the Plan, effective as of January 1,
1998 (the "1998 Plan"), was terminated by the Company as of December 31,
1999, subject to the payment of any amounts owed on the 1999 realized gains
under the 1998 Plan.) Set forth below is a brief description of the
principle features of the Plan. Such description is qualified in its
entirety by the full text of the Plan, a copy of which is attached as
Appendix A to this proxy statement. Reference to such exhibit should be made
for a complete description of the Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally provides that a public company such as the Company may not
deduct compensation paid to its chief executive officer or to any of its four
most highly compensated officers (collectively, "Covered Employees") to the
extent that the compensation paid to any such Covered Employee exceeds $1
million in any tax year, unless the payment is made based upon the attainment
of objective performance goals that are approved by the Company's
shareholders. Pursuant to the requirements of Section 162(m) of the Code,
the Company is seeking the approval of its shareholders of the performance
goals under the Plan. (The Company is not seeking the approval of its
shareholders to the other provisions of the Plan.) The performance goals of
the Plan are summarized under "Performance Terms of the Plan."
15
Performance Terms of the Plan
- -----------------------------
Under the Plan, awards will be made utilizing objective criteria for
determining the maximum bonus awards for Covered Employees and other
designated key employees. All employees of the Company are eligible for
participation under the Plan. The Compensation Committee of the Company's
Board of Directors (the "Committee") administers the Plan and designates
employees for participation in the Plan. The Committee is comprised entirely
of "outside directors" within the meaning of Section 162(m) of the Code.
The Plan generally provides for profit sharing equal to a maximum of 20
percent of the net realized income of the Company for each Plan Year, as
reflected on the Consolidated Statement of Operations of the Company for such
year, less the non-qualifying gain, if any.
Under the Plan, the net realized income of the Company includes
investment income, realized gains and losses, and operating expenses
(including taxes paid or payable by the Company), calculated without regard
to dividends paid or distributions made to shareholders, payments under the
Plan, unrealized gains and losses, and loss carryovers from other years
("Qualifying Income"). The portion of net after-tax realized gains
attributable to asset values as of September 30, 1997 is considered non-
qualifying gain, which reduces Qualifying Income.
As soon as practicable following each year-end audit, the Committee
will determine whether, and if so, how much, Qualifying Income exists for a
tax year, and 90 percent of each Participant's applicable percentage of the
Qualifying Income will be paid out to the Participant pursuant to the Plan.
The remaining 10 percent of the Participant's applicable percentage will be
paid out after the Company has filed its federal tax return for the relevant
tax year. The Committee establishes the applicable percentage for each
Participant at the beginning of the tax year.
The following are the current Participants in the Plan and the current
percentages for each such Participant:
<TABLE>
<S> <C>
OFFICER/EMPLOYEE PERCENTAGE
Charles E. Harris 13.790%
Mel P. Melsheimer 4.233%
Rachel M. Pernia 1.524%
Jacqueline M. Matthews 0.453%
</TABLE>
16
If, during a tax year, a Participant's employment with the Company is
terminated for any reason other than Cause (as defined in the Plan), the
Participant will share in the Qualifying Income for that year and subsequent
tax years (based on the Participant's applicable percentage in the
termination year), but not to the extent of post-termination gains.
Similarly, if a new employee becomes a Participant in a tax year, he or she
will share in the Qualifying Income for that year and subsequent tax years
(based on the Participant's applicable percentage in each such year), but not
to the extent of pre-participation gains.
Notwithstanding any provisions of the Plan, in no event may the
aggregate amount of all awards payable for any tax year during which the
Company remains a business development company ("BDC") within the meaning of
the Investment Company Act of 1940, as amended ("1940 Act") be greater than
the maximum percentage of the Company's "net income after taxes" (within the
meaning of Section 57(n)(1)(B) of the 1940 Act) permitted to be paid as
profit sharing under the 1940 Act or other applicable law. In the event the
awards exceed such amount, the awards will be reduced on a pro-rata basis.
Other Aspects of the Plan
- -------------------------
The Plan may be modified, amended or terminated by the Committee at any
time; provided, however, no such modification, amendment or termination may
adversely affect any Participant who has not consented to such modification,
amendment or termination.
The Company calculates the Plan accrual at the end of each calendar
quarter, based on the Company's realized and unrealized gains at that date,
net of operating expenses for the year. Any adjustments to the Plan accrual
are then reflected in the Consolidated Statements of Operations for the
quarter. The Plan accrual is not paid out until gains are realized.
During 1999, the Company accrued profit-sharing expense of $8,110,908,
bringing the cumulative accrual under the 1998 Plan to $9,434,467 at December
31, 1999. Approximately $8,295,916 represents a profit-sharing accrual on
unrealized gains and will not be paid out until the gains are realized. In
March 2000, the Company paid out 90 percent of the profit sharing on the 1999
realized gains of approximately $1,024,696; the remaining 10 percent or
approximately $113,855 will be paid out on completion and filing of the
Company's 1999 federal tax return. The amounts to be paid out under the 1998
Plan for the 1999 year are shown in the "Summary Compensation Table."
17
Federal Income Tax Consequences
- -------------------------------
A Participant will realize income at the time an award is paid to the
Participant under the Plan. The Company will be entitled to a deduction for
the amount of the award at the same time, provided that, with respect to the
deduction to be taken for any award paid to a Covered Employee that exceeds,
when combined with other compensation paid to that individual, $1 million for
the applicable tax year, shareholder approval of the Plan's performance goals
is obtained and the Award qualifies for deduction under Section 162(m) of the
Code.
Vote Required
- -------------
Approval of the performance goals described above must receive the
affirmative vote of the holders of a majority of votes cast at the meeting,
in person or by proxy on this proposal. If the Shareholders do not approve
the performance goals, the Company could implement the 2000 Plan or modify or
terminate the 2000 Plan. At present, the Company has no plans to take any
particular action in the event of a negative Shareholder vote.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PERFORMANCE
GOALS UNDER THE HARRIS & HARRIS GROUP, INC. EMPLOYEE PROFIT-SHARING PLAN
INCLUDED IN PROPOSAL 2.
PROPOSAL TO RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF
ARTHUR ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS
FISCAL YEAR ENDING DECEMBER 31, 2000
(Proposal No. 3)
Arthur Andersen LLP has been selected as the independent accountant to
audit the accounts of the Company for and during the fiscal year ending
December 31, 2000 by a majority of the Company's Board of Directors,
including a majority of the Directors who are not interested persons of the
Company, by vote cast in person. This selection is subject to ratification
or rejection by the stockholders of the Company. The Company knows of no
direct or indirect financial interest of Arthur Andersen LLP in the Company.
A representative of Arthur Andersen LLP is not expected to be present
at the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF ARTHUR
ANDERSEN LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS FISCAL
YEAR ENDING DECEMBER 31, 2000.
18
OTHER BUSINESS
The Board of Directors does not intend to bring any other matters
before the Annual Meeting and, at the date of mailing of this proxy
statement, has not been informed of any matter that others may bring before
the Annual Meeting. However, if any other matters properly come before the
Annual Meeting, it is the intention of the persons named in the accompanying
proxy to vote such proxy in accordance with their judgment on such matters.
19
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented for inclusion in the
Company's proxy statement and form of proxy for the next annual meeting of
shareholders to be held in 2000 must be received in writing by the Secretary
of the Company at Harris & Harris Group, Inc., One Rockefeller Plaza,
Rockefeller Center, New York, New York 10020 no later than November 29, 2000,
in order for such proposals to be considered for inclusion in the proxy
statement and proxy relating to the 2001 annual meeting of shareholders.
Submission of a proposal does not guarantee inclusion in the proxy statement,
as the requirements of certain federal laws and regulations must be met by
such proposals.
Under the Company's Bylaws, nominations for Director may be made only
by the Board or the Nominating Committee, or by a stockholder entitled to
vote who has delivered written notice to the Secretary of the Company
(containing certain information specified in the Bylaws) not less than 90
days nor more than 120 days prior to the anniversary of the date of the
immediately preceding annual meeting of shareholders. The Bylaws also
provide that no business may be brought before an annual meeting of the
stockholders except as specified in the notice of the meeting or as otherwise
properly brought before the meeting by or at the direction of the Board or by
a stockholder entitled to vote who has delivered written notice to the
Secretary of the Company (containing certain information specified in the
Bylaws) not less than 90 days nor more than 120 days prior to the anniversary
of the date of the immediately preceding annual meeting of shareholders.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules
allows the Company to use discretionary voting authority to vote on matters
coming before an annual meeting of stockholders, if the Company does not have
notice of the matter at least 45 days before the anniversary of the date on
which the Company first mailed its proxy materials for the prior year's
annual meeting of stockholders or the date specified by the advance notice
provision in the Company's Bylaws. The Company's Bylaws contain such an
advance notice provision as described above. For the Company's Annual
Meeting of Stockholders expected to be held on April 26, 2001, stockholders
must submit such written notice to the Secretary of the Company on or before
December 29, 2000.
A copy of the full text of the Bylaw provisions discussed above may be
obtained by writing to the Secretary of the Company.
------------------------
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K (EXCLUDING EXHIBITS) FOR
THE YEAR ENDED DECEMBER 31, 1999, WHICH IS REQUIRED TO BE FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, WILL BE MADE AVAILABLE TO STOCKHOLDERS TO
WHOM THIS PROXY STATEMENT IS MAILED, WITHOUT CHARGE, UPON WRITTEN REQUEST TO
THE OFFICE OF THE TREASURER OF HARRIS & HARRIS GROUP, INC., ONE ROCKEFELLER
PLAZA, SUITE 1430, NEW YORK, NY 10020.
By Order of the Board of Directors
New York, New York Rachel M. Pernia
March 29, 2000 Secretary
20
HARRIS & HARRIS GROUP, INC.
EMPLOYEE PROFIT SHARING PLAN
Effective as of January 1, 2000
Purpose of Plan
The purpose of this Plan is to provide a special incentive for
designated key employees of Harris & Harris Group, Inc., a New York
corporation (the "Company") to increase the future profits of the Company, by
allowing such employees to share in the historical after-tax profits of the
Company as set forth herein.
SECTION 1.
Definitions
As used herein, unless otherwise required by the context, the following
terms shall have these meanings:
"Award" shall mean an award made or due to a Participant pursuant
to the provisions of the Plan.
"Award Percentage" shall mean, with respect to any Participant for
any Plan Year, the percentage established by the Committee for such
Participant for such Plan Year (or, in the case of a Terminating Participant,
for the Plan Year in which the Participant became a Terminating Participant);
provided, however, that the aggregate Award Percentages for all Full
Participants and New Participants for any Plan Year may not exceed 20%. For
the Plan Year beginning January 1, 2000, the Award Percentages shall be as
follows for the following named Participants: Charles E. Harris--13.790%; Mel
P. Melsheimer--4.233%; Rachel M. Pernia--1.524%; Jacqueline M. Matthews--
0.453%. An Award Percentage established for a Plan Year may not be changed
during that Plan Year. Except for the Plan Year commencing January 1, 2000,
the Award Percentages shall be established no later than January 1 of each
Plan Year. In the event that the Award Percentages are not established by
that date, the Award Percentages from the prior Plan Year shall continue to
apply.
"Board" shall mean the board of directors of the Company.
"Cause" shall mean: (1) that an employee has materially failed to
perform the duties and responsibilities of his or her position with the
Company for reasons other than disability or has been insubordinate; (2) that
an employee has violated any securities law or regulation, lost appropriate
required licensing, been convicted of a felony or a crime involving moral
turpitude (regardless of whether involving the Company), or has not complied
to a significant degree with any policy of the Company; or (3) that an
employee has committed any act of fraud, embezzlement, or similar conduct
against the Company or any of its shareholders constituting dishonesty,
intentional breach of fiduciary obligation, or intentional and material
21
wrongdoing or gross misfeasance or that results in a material economic
detriment to the assets, business, or prospects of the Company or any of its
shareholders. Whether there is Cause for the termination of any person's
employment shall be determined by the chief executive officer or president of
the Company and, with respect to the chief executive officer or president, the
Board.
"Committee" shall mean the Compensation Committee of the Board.
"Fair Market Value" shall mean, with respect to any asset of the
Company, the value thereof most recently determined by the Committee, using
the valuation methodologies set forth in the Company's 10-K or other filings
under the 1940 Act with respect to the determination of the "net asset value"
of the Company's assets, provided, however, that in no event shall this Plan
be interpreted as giving the Committee the power to determine the "net asset
value" of the Company's assets for purposes of the 1940 Act.
"Full Participant" shall mean any Participant who is neither a
Terminating Participant nor a New Participant.
"Net Realized Income" for a Plan Year shall mean the net realized
income of the Company as reflected in the consolidated statement of operations
of the Company for such Plan Year. For greater clarity, such amount shall
include investment income, fee, service, and other income, realized gains and
losses, and operating expenses (including taxes paid or payable by the Company
for such Plan Year), but shall be calculated without regard to dividends paid
or distributions made to shareholders, payments under this Plan, unrealized
gains or losses, and loss carryovers from other years.
"New Participant" shall mean each Participant who begins
participation in the Plan on or after January 1, 2001. A New Participant may
begin participation in the Plan only as of the first day of a Plan Year.
"New Participant Measuring Date" shall mean, with respect to a New
Participant, the last day of the calendar quarter ending on or immediately
prior to the date such person became an employee of the Company.
"1940 Act" shall mean the Investment Company Act of 1940, as
amended.
"Participant" shall mean each person who is or was designated by
the Committee as a participant in the Plan, including each Full Participant,
Terminating Participant, and New Participant.
"Plan" shall mean the Harris & Harris Group, Inc. Employee Profit
Sharing Plan, as amended from time to time.
"Plan Year" shall mean the calendar year.
"Post-Participation Qualifying Income" for any New Participant for
a Plan Year shall mean the Net Realized Income of the Company for such Plan
22
Year, less the pre-participation nonqualifying gain, if any. With respect to
a New Participant, pre-participation nonqualifying gain is intended to reduce
Net Realized Income by the portion of net after-tax realized gains
attributable to asset values as of such person's New Participant Measuring
Date, and shall be so interpreted. For each New Participant, the pre-
participation nonqualifying gain shall be the aggregate of, with respect to
each portfolio investment position or portion thereof sold or otherwise
disposed of by the Company during the Plan Year (determined on a first-in,
first-out basis): (1) the Fair Market Value as of the respective New
Participant Measuring Date of any such position or portion, minus (2) the sum
of (a) the tax basis of such position or portion as of such date, plus (b) a
portion of the costs of sale or other disposition equal to the ratio of the
excess of (1) above over (2)(a) above, divided by the gain realized by the
Company on the sale or other disposition of such position or portion (ignoring
sale or disposition costs), plus (c) the amount of taxes payable by the
Company for the Plan Year attributable to the excess of (1) above over the sum
of (2)(a) and (b) above, plus (d) an amount equal to the expenses of the
Company for such Plan Year (other than the amount of taxes attributable to
sales or other dispositions of portfolio investment positions or portions
thereof and expenses of such sales or dispositions) multiplied by a fraction
the numerator of which is the excess of (1) above over (2)(a) above and the
denominator of which is the aggregate gross income of the Company for such
Plan Year before expenses and taxes of any sort.
For purposes of this entire definition, any calculation that would
otherwise yield a negative number as the solution to the calculation shall be
deemed to yield an answer of zero.
Solely for purposes of determining the amount of the pre-participation
nonqualifying gain with respect to any New Participant, if the proceeds
received from any sale or other disposition of a portfolio investment position
or portion thereof are less than the Fair Market Value of such position or
portion as of the relevant New Participant Measuring Date, then the Fair
Market Value of such position or portion as of the New Participant Measuring
Date shall be deemed to equal the amount of such proceeds.
In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the pre-participation nonqualifying gain
the aggregate net realized gain, if any, attributable to such sales or
dispositions shall be allocated between or among the gain positions based on
the relative amounts of the gains realized on the gain positions, consistent
with the purpose of this Plan.
"Qualifying Income" shall mean the Net Realized Income of the Company
for such Plan Year, less the nonqualifying gain, if any. Nonqualifying gain
is intended to reduce Net Realized Income by the portion of net after-tax
realized gains attributable to asset values as of September 30, 1997, and
shall be so interpreted. The nonqualifying gain shall be the aggregate of,
with respect to each portfolio investment position or portion thereof sold or
otherwise disposed of by the Company during the Plan Year (determined on a
first-in, first-out basis) and held by the Company on September 30, 1997: (1)
the Fair Market Value as of September 30, 1997 of such position or portion,
minus (2) the sum of (a) the tax basis of such position or portion as of
September 30, 1997, plus (b) a portion of the costs of sale or disposition
equal to the ratio of the excess of (1) over (2)(a) above, divided by the gain
realized by the Company on the sale or other disposition of such position or
23
portion (ignoring sale or disposition costs), plus (c) the amount of taxes
payable by the Company for the Plan Year attributable to the excess of (1)
above over the sum of (2)(a) and (b) above, plus (d) an amount equal to the
expenses of the Company for such Plan Year (other than the amount of taxes
attributable to sales or other dispositions of portfolio investment positions
or portions thereof and expenses of such sales or dispositions) multiplied by
a fraction the numerator of which is the excess of (1) above over (2)(a) above
and the denominator of which is the aggregate gross income of the Company for
such Plan Year before expenses and taxes of any sort.
For purposes of this entire definition, any calculation (or part
thereof) that would otherwise yield a negative number as the solution to the
calculation (or part) shall be deemed to yield an answer of zero.
For purposes of determining the amount of the nonqualifying gain, if the
proceeds received from any sale or other disposition of a portfolio investment
position or portion thereof are less than the Fair Market Value of such
position or portion as of September 30, 1997, then the Fair Market Value of
such position or portion as of September 30, 1997 shall be deemed to equal
such proceeds.
In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the nonqualifying gain the aggregate net
realized gain, if any, attributable to such sales or dispositions shall be
allocated between or among the gain positions based on the relative amounts of
the gains realized on the gain positions, consistent with the purpose of this
Plan.
"Terminating Participant" shall mean a person whose full
participation in Qualifying Income has been terminated pursuant to this Plan.
Following the action or event in a Plan Year that results in a Participant
becoming a Terminating Participant, the person shall remain a Participant for
that Plan Year and for succeeding Plan Years for purposes of such
Participant's rights to Terminating Qualifying Income. A Terminating
Participant shall cease to be a Participant when all portfolio investments
held by the Company at the time such person became a Terminating Participant
are sold or otherwise disposed of by the Company (determined on a first-in,
first-out basis).
"Terminating Qualifying Income" for any Terminating Participant
for a Plan Year shall mean the Net Realized Income of the Company for such
Plan Year, less the terminating nonqualifying gain, if any. With respect to
any Terminating Participant, terminating nonqualifying gain is intended to
reduce Net Realized Income by the portion of net after-tax realized gains
attributable to increases in asset values after the time such person becomes a
Terminating Participant, as well as by the amount of nonqualifying gain (as
defined in "Qualifying Income"), and shall be so interpreted. For each
Terminating Participant, the terminating nonqualifying gain shall be the
aggregate of:
(1) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis) and held by the Company on
September 30, 1997, (a) (i) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), plus (ii) the excess of the
Fair Market Value of such position or portion as of September 30, 1997 over
the tax basis of such position or portion as of September 30, 1997, minus
(iii) the excess of the Fair Market Value of such position or portion as of
the last day of the quarter ending on or immediately prior to the date such
person became a Terminating Participant over the tax basis of such position or
portion thereof as of such date, minus (b) the sum of (i) a portion of the
costs of sale or other disposition equal to the ratio of (a) above divided by
the gain realized by the Company on the sale or other disposition of such
position or portion (ignoring sale or disposition costs), plus (ii) the amount
of taxes payable by the Company for the Plan Year attributable to the excess
of (a) over (b)(i) above, plus
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(2) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis), acquired by the Company after
September 30, 1997, and held by the Company on the date such person became a
Terminating Participant, (a) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), minus the excess of the Fair
Market Value of such position or portion as of the last day of the quarter
ending on or immediately prior to the date such person became a Terminating
Participant over the tax basis of such position or portion as of such date,
minus (b) the sum of (i) a portion of the costs of sale or other disposition
equal to the ratio of (a) above divided by the gain realized by the Company on
the sale or other disposition of such position or portion thereof (ignoring
sale or disposition costs), plus (ii) the amount of taxes payable by the
Company for the Plan Year attributable to the excess of (a) over (b)(i) above,
plus
(3) with respect to all or any portion of any portfolio investment
position sold or otherwise disposed of by the Company during the Plan Year
(determined on a first-in, first-out basis) and acquired by the Company after
the date such person became a Terminating Participant, (a) the gain realized
on such sale or other disposition (ignoring sale or disposition costs), minus
(b) the sum of (i) the costs of sale or other disposition, plus (ii) the
amount of taxes payable by the Company for the Plan Year attributable to such
sale or other disposition, minus
(4) an amount equal to the expenses of the Company for such Plan
Year (other than the amount of taxes attributable to sales or other
dispositions of portfolio investment positions or portions thereof and
expenses of such sales or dispositions) multiplied by a fraction the numerator
of which is the excess of (a) the aggregate net realized gain from the sale or
other disposition of portfolio investment positions or portions thereof
(ignoring sale or disposition costs) over (b) the sum of (1)(a) above, (2)(a)
above, and (3)(a) above and the denominator of which is the aggregate gross
income of the Company for such Plan Year before expenses and taxes of any
sort.
For purposes of this entire definition, any calculation that would
otherwise yield a negative number as the solution to the calculation shall be
deemed to yield an answer of zero.
Solely for purposes of determining the amount of the terminating
nonqualifying gain with respect to any Terminating Participant, (i) if the
proceeds received from any sale or other disposition of a portfolio investment
position or portion thereof are less than the Fair Market Value of such
position or portion as of September 30, 1997, then the Fair Market Value of
such position or portion as of September 30, 1997 shall be deemed to equal the
amount of such proceeds, and (ii) if the proceeds received from any sale or
other disposition of a portfolio investment position or portion thereof are
less than the Fair Market Value of such position or portion as of the last day
of the quarter ending on or immediately prior to the date such person became a
Terminating Participant, then the Fair Market Value of such position or
portion as of the last day of the quarter ending on or immediately prior to
the date such person became a Terminating Participant shall be deemed to equal
the amount of such proceeds.
For purposes of (2) above, in the event the relevant portfolio
investment position or portion thereof was acquired after the last day of the
quarter ending on or immediately prior to the date a person became a
Terminating Participant, the Fair Market Value of such position as of the end
of such quarter shall be the acquisition cost.
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In the event that multiple portfolio investment positions (or portions
thereof) are sold or otherwise disposed of during a Plan Year, some of which
are sold or disposed of at a gain and some of which are sold or disposed of at
a loss, for purposes of calculating the terminating nonqualifying gain the
aggregate net realized gain, if any, attributable to such sales or
dispositions shall be allocated between or among the gain positions based on
the relative amounts of the gains realized on the gain positions, consistent
with the purpose of this Plan.
SECTION 2.
Amount of Award; Payment of Award
As soon as practicable following the end of each Plan Year, the
Committee shall determine whether, and if so, how much, Qualifying Income
exists with respect to such Plan Year and whether, and if so, how much,
Terminating Qualifying Income or Post-Participation Qualifying Income exists
with respect to any Terminating Participant or New Participant. The Committee
shall make a provisional determination, based on accruals provided by
management, within 45 days after the end of each Plan Year.
Not later than 60 days after the end of each Plan Year the Company shall
pay (1) to each Full Participant an Award in an amount equal to the product of
(a) 90% of the estimated Qualifying Income for such Plan Year, multiplied by
(b) such Full Participant's Award Percentage, (2) to each Terminating
Participant an Award in an amount equal to the product of (a) 90% of the
estimated Terminating Qualifying Income for such Terminating Participant for
such Plan Year, multiplied by (b) such Terminating Participant's Award
Percentage, and (3) to each New Participant an Award in an amount equal to the
product of (a) 90% of the estimated Post-Participation Qualifying Income for
such New Participant for such Plan Year, multiplied by (b) such New
Participant's Award Percentage. Not later than 45 days after the filing of
the Company's federal income tax return, the Committee shall finalize the
foregoing determinations and pay to the Participants any remaining Award
amounts owed to the Participants, determined under principles consistent with
the preceding sentence. In the event that any portion of the maximum amount
payable under this Plan for a Plan Year is not required to be paid pursuant to
the foregoing provisions (because a Participant has become a Terminating
Participant or has been terminated for Cause or because of the participation
in the Plan of New Participants), the remaining portion of such maximum amount
shall be paid to the eligible Participants (other than (1) any Terminating
Participants or (2) any New Participants who have participated in the Plan for
less than three years) based on their relative Award Percentages, provided,
however, that the aggregate amount payable to all Participants for a Plan Year
shall not exceed 20% of the Qualifying Income for the Plan Year. In the event
that the aggregate amount of all Awards payable for any Plan Year shall be
greater than 20% of the Qualifying Income for such Plan Year (a "Plan
prohibited payment"), each Participant's Award for such Plan Year shall be
reduced, pro-rata, by the minimum amount necessary to allow the aggregate
Awards for such Plan Year not to constitute a Plan prohibited payment. If
such a reduction is necessary, each Participant shall unconditionally forfeit
the amount of any reduction made pursuant to this paragraph.
Upon the termination of employment of any Full Participant or New
Participant for any reason other than termination by the Company for Cause,
such Full Participant or New Participant shall become a Terminating
Participant. In the event a New Participant becomes a Terminating
Participant, the definition of Terminating Qualifying Income shall be modified
by substituting such Participant's New Participant Measuring Date for
September 30, 1997, wherever the latter date appears in such definition. That
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substitution is intended to ensure that such a Terminating Participant does
not share in any net after-tax realized gains attributable to asset values as
of such person's New Participant Measuring Date, and the provisions of this
Plan shall be so interpreted. If the employment of any Participant is
terminated for Cause, such former employee shall cease to be a Participant and
any Awards not yet paid to or earned by such person shall automatically be
forfeited.
Notwithstanding any other provision of the Plan, in no event shall 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
1940 Act be greater than the maximum percentage of the Company's "net income
after taxes" (within the meaning of Section 57(n)(1)(B) of the 1940 Act or any
successor provision thereto) permitted to be paid as profit sharing under the
1940 Act or other applicable law. In the event that any portion of any Award
may not be paid pursuant to the limitation set forth in the preceding sentence
(a "1940 Act prohibited payment"), each Participant's Award for such Plan Year
shall be reduced, pro-rata, by the minimum amount necessary to allow the
aggregate Awards for such Plan Year not to constitute a 1940 Act prohibited
payment. If such a reduction is necessary, each Participant shall
unconditionally forfeit the amount of any reduction made pursuant to this
paragraph.
Further, notwithstanding any provision of this Plan to the contrary, in
the case of any Participant for any Plan Year, no Award of more than the
excess of $1,000,000 over the amount of other compensation paid by the Company
to such Participant for such Plan Year (after any Award reduction described in
this Section 2) shall be paid unless and until the shareholders of the Company
have approved the making of such Awards pursuant to the requirements of
Section 162(m) of the Internal Revenue Code of 1986, as amended.
SECTION 3.
Administration
The Plan shall be administered by the Committee with decisions taken in
accordance with its normal procedures. Members of the Committee shall not be
liable for any acts or omissions to act in the administration of the Plan.
A secretary selected by the Committee shall keep full and accurate
minutes of all meetings and records of the actions of the Committee, and these
minutes and records shall be at all times open to inspection by the members of
the Board. The secretary shall periodically transmit to the Board certified
copies of any statements or schedules prepared in connection with the
administration of the Plan.
SECTION 4.
Amendment, Termination or Modification of the Plan
The Plan at any time and for any reason may be modified, amended, or
terminated by the Committee (subject to the approval of the Board); provided,
however, that no such amendment, modification, or termination of the Plan
27
shall adversely affect the Award rights of any Participant for or during such
Plan Year (or any subsequent Plan Year) unless such Participant has consented
in writing to such action. Nothing in this Plan shall preclude the Committee
from, for any Plan Year subsequent to the current Plan Year, naming additional
Participants in the Plan or changing the Award Percentage of any Full
Participant or New Participant (subject to the overall percentage limitations
contained herein).
SECTION 5.
General Provisions
Compliance with Legal Requirements. The Plan and the granting and
payment of Awards, and the other obligations of the Company under the Plan
shall be subject to all applicable federal and state laws, rules, and
regulations, and to such approvals by any regulatory or governmental agency as
may be required.
Nontransferability. Awards not yet earned shall not be transferable or
subject to assignment or alienation under any circumstances. Awards earned
but not yet paid shall not be transferable by a Participant except by will or
the laws of descent and distribution.
No Right to Continued Employment. Nothing in the Plan or in any Award
granted or other agreement entered into pursuant hereto shall confer upon any
Participant the right to continue in the employ of the Company or to be
entitled to any remuneration or benefits not set forth in the Plan or other
agreement or to interfere with or limit in any way the right of the Company to
terminate such Participant's employment.
Withholding Taxes. Where a Participant or other person is entitled to
receive a cash payment pursuant to an Award hereunder, the Company shall have
the right to withhold any taxes or to require the Participant or such other
person to pay to the Company the amount of any taxes that the Company may be
required to withhold before delivery to such Participant or other person of
such payment.
Unfunded Status of Awards. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to any
payments not yet made to a Participant pursuant to an Award, nothing contained
in the Plan or any Award shall give any such Participant any rights that are
greater than those of a general creditor of the Company.
Governing Law. The Plan and all determinations made and actions taken
pursuant hereto to the extent not governed by federal law shall be governed by
the laws of the State of New York without giving effect to the conflict of
laws principles thereof.
Effective Date. The Plan shall be effective as of January 1, 2000.
Beneficiary. A Participant may file with the Committee a written
designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the Participant's
beneficiary.
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