HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
April 11, 1996
TO THE SHAREHOLDERS OF HARRIS & HARRIS GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 1996 annual meeting of the
shareholders of Harris & Harris Group, Inc. (the "Corporation") will
be held on Thursday, April 11, 1996, at 2:00 p.m., local time, at
the Princeton Club, 15 West 43rd Street, New York, New York. This
meeting has been called by the Board of Directors of the Corporation,
and this notice is being issued at its direction. It has called this
meeting for the following purposes:
l. To elect nine (9) directors of the Corporation to
hold office until the next annual meeting of
shareholders and until their respective successors
have been duly elected and qualified.
2. To ratify, confirm and approve the Board of
Directors' selection of Arthur Andersen LLP as
the Corporation's independent public accountant
for its fiscal year ending December 31, 1996.
3. 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
February 29, 1996, 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 4, 1996 Susan Neissa-Carey
New York, New York Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS APRIL 11, 1996.
PROXY STATEMENT
HARRIS & HARRIS GROUP, INC.
Annual Meeting of Shareholders
April 11, 1996
GENERAL INFORMATION
-------------------
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Harris & Harris Group, Inc. (the
"Corporation") to be voted at the 1996 Annual Meeting of Shareholders (the
"Annual Meeting") to be held on April 11, 1996 and at any adjournment thereof.
The Annual Meeting will be held on Thursday, April 11, 1996 at 2:00 p.m.,
local time, at the Princeton Club, 15 West 43rd Street, New York, New York. At
the Annual Meeting, shareholders of the Corporation will be asked to elect nine
directors to serve on the Board of Directors of the Corporation and to hold
office until the next Annual Meeting and to vote on the other matters stated in
the accompanying Notice and described in more detail in this proxy statement.
The mailing address of the principal executive office of the Corporation
is One Rockefeller Plaza, Rockefeller Center, New York, New York 10020
(telephone 212-332-3600). The enclosed proxy and this proxy statement are
being first transmitted on or about March 4, 1996 to shareholders of the
Corporation.
The Board of Directors has fixed the close of business on February 29,
1996 as the record date for the determination of shareholders of the
Corporation entitled to receive notice of, and to vote at, the Annual Meeting.
At the close of business on the record date, an aggregate of 10,333,902 shares
of common stock were issued and outstanding. Each such share will be entitled
to one vote on each matter to be voted upon at the Annual Meeting. The
presence, in person or by proxy, of the holders of a majority of such
outstanding shares is necessary to constitute a quorum for the transaction of
business at the Annual Meeting.
Solicitation and Revocation; Vote Required
- ------------------------------------------
All properly executed proxies received prior to the Annual Meeting will be
voted at the meeting in accordance with the instructions marked thereon or
otherwise as provided therein. Unless instructions to the contrary are marked,
shares represented by the proxies will be voted "FOR" all the proposals.
Shares voted to "ABSTAIN" in whole or in part will be considered present at the
meeting. Shares represented by broker non-votes will be disregarded and will
have no effect on the outcome of the vote.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time, before it is exercised, by written notification
delivered to the Secretary of the Corporation, by voting in person at the
Annual Meeting, or by executing another proxy bearing a later date. A
shareholder desiring to appoint some person other than the individuals
designated as proxies by the Board of Directors may do so by completing another
form of proxy and delivering it to the Secretary of the Corporation before the
Annual Meeting. It is the responsibility of the shareholder appointing another
person to represent them and to inform such person of this appointment.
2
Proxies are being solicited by the Corporation. Proxies will be solicited
by mail. All expenses of preparing, printing, mailing, and delivering proxies
and all materials used in the solicitation of proxies will be borne by the
Corporation. They may also be solicited by officers and regular employees of
the Corporation personally, by telephone or otherwise, but these persons will
not be specifically compensated for such services. Banks, brokers, nominees,
and other custodians and fiduciaries will be reimbursed for their reasonable
out-of-pocket expenses in forwarding solicitation material to their principals,
the beneficial owners of common stock of the Corporation. It is estimated that
those costs will be nominal.
Except as stated specifically and except with respect to the election of
directors, which is by plurality of votes cast, each of the matters being
submitted to stockholder vote pursuant to the Notice of Annual Meeting will be
approved if a quorum is present in person or by proxy and a majority of the
votes cast on a particular matter are cast in favor of that matter.
ELECTION OF DIRECTORS
---------------------
(Proposal No. 1)
The nine director nominees listed below, all of whom currently serve as
directors, have been nominated to serve as directors of the Corporation until
the next Annual Meeting and until their respective successors are duly elected
and qualified. Although it is not anticipated that any of the nominees will be
unable to serve, in the unexpected event that any such nominees should become
unable or decline to serve, it is intended that votes will be cast for
substitute nominees designated by the present Board of Directors of the
Corporation.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" ALL THE NOMINEES.
Nominees
- --------
Set forth below is certain information with respect to the Corporation's
current directors. Each incumbent director is a nominee for election as a
director of the Corporation at the Annual Meeting:
Dr. C. Wayne Bardin, age 61, was elected to the Corporation's Board of
Directors in December 1994. Dr. Bardin currently serves as President of
Bardin, LLC. and as Scientist for the National Institute of Health. Dr.
Bardin's professional appointments have included: Vice President, The
Population Council; Professor of Medicine, Chief of the Division of
Endocrinology, The Milton S. Hershey Medical Center of Pennsylvania State
University; and Senior Investigator, Endocrinology Branch, National Cancer
Institute. Dr. Bardin also serves as a consultant to several pharmaceutical
companies. He has directed basic and clinical research leading to over 450
publications and patents. He has negotiated 15 licensing and manufacturing
agreements. He is currently directing clinical R&D under 18 INDs filed with
the U.S. FDA. Dr. Bardin has been appointed to the editorial boards of 15
journals. He has also served on national and international committees and
boards for NIH, WHO, The Ford Foundation, and numerous scientific societies.
Dr. Bardin received a B.A. from Rice University; a M.S. and M.D. from Baylor
University and a Ph.D. from the University of Caen.
3
G. Morgan Browne, age 60, was elected to the Corporation's Board of
Directors in June 1992. Since 1985, Mr. Browne has been Administrative
Director of the Cold Spring Harbor Laboratory, a not-for-profit institution
that conducts research and education programs in the fields of molecular
biology and genetics. In prior years, he was active in the management of
numerous scientifically-based companies as an individual consultant or as an
associate of Laurent Oppenheim Associates, Industrial Management Consultants.
He is a director of Oncogene Science, Inc., (principally engaged in drug
discovery based on gene transcription), a director of the New York
Biotechnology Association, and a director and Treasurer of the Long Island
Research Institute. He is a graduate of Yale University and attended New York
University Graduate School of Business.
Harry E. Ekblom, age 67, has been a director of the Corporation since
1984. Mr. Ekblom currently serves as Vice Chairman of A.T. Hudson & Co., Inc.
and President of Harry E. Ekblom & Co., Inc., each of which is engaged in the
business of management consulting. He became President of Harry E. Ekblom &
Co., Inc. in 1984 and joined A.T. Hudson in March 1985. 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 Pan Energy Corp.
(principally engaged in interstate transmission of natural gas) and The
Commercial Bank of New York. He is a graduate of Columbia College and the New
York University School of Law, a member of the New York Bar, and holds honorary
degrees from Hofstra University and Pace University.
* Charles E. Harris, age 53, has been a director of the Corporation and
Chairman of its Board of Directors since April 1984. He has served as Chief
Executive Officer of the Corporation since July 1984. From April 1990 to
August 1991, he served as Chairman of publicly-owned Ag Services of America,
Inc., in which the Corporation then held an equity interest. From its
formation in November 1989 until June 1990, he served as Chairman and Chief
Executive Officer of publicly-owned Molten Metal Technology, Inc., which the
Corporation co-founded and in which the Corporation then held an equity
interest. From July 1986 to January 1989, he served as Chairman of publicly-
owned Re Capital Corporation, which the Corporation founded and in which the
Corporation then held an equity interest. From July 1984 to July 1985, he
served as a director and was the control person of publicly-owned Alliance
Pharmaceutical, which the Corporation founded and in which the Corporation then
held an equity interest. Prior to 1984, he was Chairman of Wood, Struthers and
Winthrop Management Corp., the investment advisory subsidiary of Donaldson,
Lufkin & Jenrette. Mr. Harris is currently a member of the Advisory Panel for
the Congressional Office of Technology Assessment. He is a graduate of
Princeton University and the Columbia University Graduate School of Business.
Charles F. Hays, age 49, joined the Board as a director in March 1995.
Since 1993, Mr. Hays has been Senior Vice President, Chief Financial and
Administrative Officer of Mid Ocean Reinsurance Company Ltd. His positions
have included: Managing Director & Chief Financial and Administrative Officer
of Marsh & McLennan, Incorporated, from 1984 to 1993; Vice President and
Treasurer of the Guy Carpenter & Company subsidiary of Marsh & McLennan
Companies, from 1979 to 1984; Assistant Vice President of Corporate Development
of Marsh & McLennan Companies, from 1977 to 1979; Assistant Treasurer of Morgan
Guaranty Trust Company, from 1975 to 1977; and Deputy Director of AmerAsian
Group of Companies, from 1971 to 1972. He is a graduate of the University of
Kansas and Stanford University Graduate School of Business.
4
Jon J. Masters, age 58, was elected to the Corporation's Board of
Directors in February 1992. Since 1976, he has been a member of the law firm
of Christy & Viener, which he co-founded. Mr. Masters is a graduate of
Princeton University and Harvard Law School.
Glenn E. Mayer, age 70, has been a director of the Corporation since 1981.
In December 1991, Mr. Mayer joined, as a Senior Vice President, the Investment
Banking division of Reich & Company. Reich & Co. is now a division of
Fahnestock & Company, Inc., a member firm of the New York Stock Exchange.
For fifteen years prior to that, he was employed by Jesup & Lamont Securities
Co. and its successor firms in the Corporate Finance department. Mr. Mayer is
a graduate of Indiana University.
William R. Polk, age 67, has been a director of the Corporation since
August 1988. For the last seven years, Mr. Polk has been an author and self-
employed consultant. He is the former President of the Adlai Stevenson
Institute of International Affairs, a former member of the Policy Planning
Council of the United States Department of State, and a former Professor of
the University of Chicago and of Harvard University. Mr. Polk is a graduate of
Harvard University and Oxford University.
James E. Roberts, age 50, was elected to the Corporation's Board of
Directors in June 1995. Since May 1995, Mr. Roberts has been Vice Chairman of
Trenwick America Reinsurance Corporation. During the nine years prior to that
Mr. Roberts held the following positions at Re Capital Corporation: President
and Chief Executive Officer, 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 Company from 1991 to 1995. Mr.
Roberts has also served as Senior Vice President and Chief Underwriting Officer
of North Star Reinsurance Company, 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 Corporation, as defined
in the Investment Company Act of 1940, as an owner of more than five percent
of the Corporation's stock, as a control person and as an officer of the
Corporation.
5
Committees of the Board of Directors
- ------------------------------------
The Corporation's Board of Directors has five committees comprised of the
following members:
Committees
Executive Audit Compensation Nominating
- --------- ----- ------------ ----------
Charles E. Harris* William R. Polk* Charles F. Hays* Charles E. Harris*
C. Wayne Bardin Harry E. Ekblom Harry E. Ekblom G. Morgan Browne
Jon J. Masters Glenn E. Mayer Jon J. Masters Harry E. Ekblom
Glenn E. Mayer James E. Roberts Charles F. Hays
James E. Roberts William R. Polk
Investment and
Valuation
- ---------
Charles E. Harris*
C. Wayne Bardin
G. Morgan Browne
James E. Roberts
* Chairman of the Committee
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 in 1995.
The Audit Committee considers and recommends to the Board of Directors the
selection of the Corporation's auditors, reviews with the auditors the plan and
results of the annual audit and the adequacy of the Corporation's systems of
internal accounting controls. The Audit Committee met once in 1995.
The Compensation Committee has the full power and authority of the Board
with respect to all matters pertaining to the remuneration of the Corporation's
officers and employees. The Compensation Committee is also responsible for the
administration and award of stock options under the Corporation's 1988 Stock
Option Plan, as amended. The Compensation Committee met once and acted five
times by unanimous written consent in 1995.
The Nominating Committee acts as an advisory committee to the Board by
making recommendations to the Board of potential new directors. The Nominating
Committee does not consider nominations from shareholders. The Nominating
Committee met once and acted three times by unanimous written consent in 1995.
The Investment and Valuation Committee has the full power and authority of
the Board in reviewing and approving the valuation of the Corporation's assets
for reporting purposes pursuant to the Corporation's Asset Valuation Policy
Guidelines that were established and approved by the Board of Directors. The
Investment and Valuation Committee met four times in 1995.
In 1995, there were three meetings of the Board of Directors of the
Corporation and the Board acted eight times by unanimous written consent. No
incumbent director attended fewer than 75 percent of the aggregate of Board of
Directors' and applicable committee meetings held in 1995 (during the periods
that they so served).
6
Security ownership of Directors, Nominees, and Officers and other principal
- ---------------------------------------------------------------------------
holders of the Corporation's voting securities
- ----------------------------------------------
The following table sets forth certain information with respect to
beneficial ownership (as that term is defined in the rules and regulations of
the Securities and Exchange Commission) of the Corporation's common stock as of
February 15, 1996 by (1) each person who is known by the Corporation to be the
beneficial owner of more than five percent of the outstanding common stock, (2)
each director of the Corporation, (3) each current executive officer listed in
the Summary Compensation Table, and (4) all directors and executive officers of
the Corporation as a group. Except as otherwise indicated, to the
Corporation's knowledge, all shares are beneficially owned and investment and
voting power is held as stated by the persons named as owners.
Name and Address of Number of Shares of
Beneficial Owner Common Stock Owned Percent of Class (1)
Charles E. and
Susan T. Harris
One Rockefeller Plaza,
Suite 1430
New York, NY 10020 1,690,988 (2) 15.76%
American Bankers
Insurance Group
11222 Quail Roost Drive
Miami, FL 33157 1,075,269 (3) 10.41%
Jordan Financial
Services Group
1751 Mound Street,
Suite 1A
Sarasota, FL 34236 965,766 (4) 9.35%
C. Wayne Bardin - - *
G. Morgan Browne 50,000 (5) *
C. Richard Childress 469,924 (6) 4.47%
Harry E. Ekblom 55,000 (5) *
Charles F. Hays 6,300 *
David C. Johnson, Jr. 337,574 (7) 3.20%
Jon J. Masters 50,000 (5) *
Glenn E. Mayer 72,000 (5)(8) *
William R. Polk 71,000 (5) *
James E. Roberts - - *
Robert B. Schulz 309,845 (9) 2.93%
All Directors and Officers
as a group (14 persons) 3,175,631 27.20%
* Less than one percent of issued and outstanding stock.
7
(1) Shares of common stock subject to options and warrants are deemed
outstanding for computing the percentage of class of the person or
group holding such options or warrants, but are not deemed outstanding
for computing the percentage of class of any other person.
(2) Includes 504,732 shares for which Mrs. Harris has sole investment power;
766,655 shares for which Mr. Harris has sole investment power; 21,996
shares owned by a child for which Mrs. Harris has sole voting and
dispositive power; 1,271,387 shares for which Mr. Harris has sole voting
power, and 237,605 shares subject to currently exercisable warrants for
which Mr. Harris has sole investment power. Excludes 130,000 shares owned
by the Susan T. and Charles E. Harris Foundation in which Charles E.
Harris and Susan T. Harris are designated trustees; voting and dispositive
power are vested with the trustees. On August 17, 1995, the Corporation
granted Mr. Harris stock options to purchase 160,000 shares of common
stock that vest over a five year period, of which 18,604 have vested.
These shares have been included in the table.
(3) Represents shares owned by subsidiaries of American Bankers Insurance
Group, Inc.
(4) Represents shares owned by Jordan Financial Services Group per Schedule
13G filed on February 15, 1996. Jordan Financial Services Group is a
registered investment advisor that holds these shares for investment
purposes only on behalf of various clients.
(5) Includes options to purchase 50,000 shares.
(6) Includes 256,965 shares owned jointly with Mrs. Childress, as to which he
has shared voting and dispositive power, 31,801 shares owned by Mr.
Childress, as to which he has sole voting and dispositive power and
warrants to purchase 106,158 shares of common stock owned by Mr.
Childress. On August 17, 1995, the Corporation granted Mr. Childress
stock options to purchase 75,000 shares of common stock that vest over a
five year period, of which 7,500 have vested. These shares have been
included in the table.
(7) On August 17, 1995, the Corporation granted Mr. Johnson stock options to
purchase 200,000 shares of common stock that vest over a five year period,
of which 18,604 have vested. These shares have been included in the table.
(8) Includes 2,000 shares owned by Mrs. Mayer.
(9) On August 17, 1995, the Corporation granted Mr. Schulz stock options to
purchase 250,000 shares of common stock that vest over a five year period,
of which 18,604 have vested. These shares have been included in the table.
Executive Officers
- ------------------
Set forth below is certain information with respect to the executive
officers of the Corporation:
Charles E. Harris, age 53, has served as Chief Executive Officer of the
Corporation since July 1984. He served also as Treasurer from February 1988 to
October 1992 and as President from January 1989 to October 1992. For
additional information regarding Mr. Harris, see "Election of Directors."
Robert B. Schulz, age 38, joined the Corporation, effective March 1, 1994,
as President and Chief Operating Officer and has served as Chief Compliance
Officer since November 1994. From 1984 until joining the Corporation, he was
employed by CS First Boston Corporation, most recently as a Director in the
Insurance Group. Mr. Schulz received his M.B.A. degree from Columbia
University in 1983. Prior to attending Columbia University, he was employed as
a research engineer in the Alternate Energy Group of Chevron Research Company
and as a project manager in Dynecology, Inc., a high-technology, family-owned
engineering research firm. He graduated from the Massachusetts Institute of
Technology with both a B.S. and M.S. degree in chemical engineering.
8
C. Richard Childress, age 44, has served as Executive Vice President of
the Corporation since February 1994 and as Chief Financial Officer since June
1994. Mr. Childress has served in various executive capacities as a senior
officer of the Corporation since February 1986. He served as managing general
partner of Consolidating Banks Fund, an investment partnership, from December
1983 to December 1985, before joining the Corporation. In addition to such
duties, he was self-employed as a consultant from January 1983 to February
1986. He is a certified public accountant and began his career with Coopers &
Lybrand. He received his undergraduate degree from Northern Arizona University.
David C. Johnson, Jr., age 39, joined the Corporation in February 1994, as
a Senior Vice President and has served as Executive Vice President since
January 1995. From 1984, until joining the Corporation, Mr. Johnson served as
a Vice President of Salomon Brothers Inc. He received his M.B.A. from The
Darden School at the University of Virginia and his undergraduate degree from
the University of North Carolina at Chapel Hill.
Rachel M. Pernia, age 36, has served since January 1992 as a Vice
President and Controller of the Corporation and as Treasurer since November
1994. From 1988, until Ms. Pernia joined the Corporation, she was employed as
Assistant Controller for Cellcom Corp. From 1985 through 1988, she was
employed as a senior corporate accountant by Bristol-Myers Squibb Company.
She is a graduate of Rutgers University and is a certified public accountant.
Susan Neissa-Carey, age 23, has served as Secretary of the Corporation
since July 1995. Ms. Carey joined the Corporation in January of 1995. She is
a graduate of Villanova University.
Compliance with Section 16(a) of the Securities and Exchange Act
- ----------------------------------------------------------------
Section 16(a) of the Securities and Exchange Act of 1934, as amended,
requires the Corporation's officers and directors, and persons who own more
than ten percent of the Corporation's common stock to file reports (including a
year-end report) of ownership and changes in ownership with the Securities and
Exchange Commission (the "SEC") and to furnish the Corporation with copies of
all reports filed.
Based solely on a review of the forms furnished to the Corporation, or
written representations from certain reporting persons, the Corporation
believes that all persons who were subject to Section 16(a) in 1995 complied
with the filing requirements.
Executive Compensation
- ----------------------
Compensation Committee Report Regarding Executive Compensation
The Compensation Committee of the Board of Directors (the "Committee") is
comprised of four outside directors and is responsible for setting and
administrating the policies governing the remuneration of the executive
officers of the Corporation. These policies are based upon the philosophy that
the long-term success of the Corporation is tied to its ability to attract,
retain and provide appropriate incentives to the Corporation's executive
officers. The overall fundamental policy is to enable the Corporation's
executive officers to become significant shareholders of the Corporation so
that their interests are thus aligned with the Corporation's shareholders.
Granting of options under the Corporation's 1988 Stock Option Plan to executive
officers is one means of achieving the overall fundamental policy. Since such
options are exercisable at the current price of the Corporation's stock at the
time of grant, the executive officer is rewarded only if the price of the
Corporation's stock appreciates. Under the Investment Company Act of 1940, as
amended, because the Corporation may award stock options, it may not award cash
bonuses tied to the Corporation's total return to shareholders or any other
measure of investment performance.
9
The principal elements of compensation for executive officers are base
salary, discretionary bonus payments and stock options granted under the
Corporation's Amended 1988 Stock Option Plan. Because the Corporation makes
venture capital investments for long-term appreciation, its year-to-year growth
in net asset value can vary widely due to developments pertaining to its
portfolio investments. The Committee does not fix executive compensation on
the basis of specific comparison with peer companies, as there are none which
are directly comparable, or on the basis of specific objective measurements of
the Corporation's performance. The judgements made by the Committee are
subjective and are primarily based on the Committee's perception of each
executive's contribution to both the past performance and future long-term
growth of the Corporation. Two of the four executive officers listed in the
Summary Compensation Table (including the Chief Executive Officer) are parties
to Employment Agreements with the Corporation dated in 1990, which expire on
December 31, 1999. These Employment Agreements provide for specified salaries
subject to increases for inflation (see below for a summary of the employment
contracts) and, at the discretion of the Compensation Committee, salary
increases and/or bonuses. The two executives covered by the Employment
Agreements may also be considered by the Compensation Committee for stock
option awards.
The Committee believes that its past compensation policies have
successfully aligned the executive officers with that of the Corporation's
shareholders in creating shareholder wealth.
Compensation Committee: Charles F. Hays (Chairman), Harry E. Ekblom, Jon
J. Masters and James E. Roberts.
Compensation Committee Interlocks and Insider Participation
- -----------------------------------------------------------
The Corporation's Compensation Committee is composed of directors Hays,
Ekblom, Masters and Roberts.
No interlocking relationship exists between the Corporation's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
10
Summary Compensation Table
- --------------------------
The following table sets forth a summary for each of the last three years
of the cash and non-cash compensation awarded to, earned by, or paid to the
Chief Executive Officer of the Corporation and the other executive officers of
the Corporation, whose individual remuneration exceeded $100,000 for the year
ended December 31, 1995.
Long Term
Annual Compensation Compensation
Awards
Name and Other Annual Stock All Other
Principal Year Salary Bonus Compensation Options Compensation
Position ($) ($) ($) (1) (#) ($) (2)
Charles E. Harris 1995 592,400 - - - - 160,000 9,240
Chairman & CEO 1994 605,739 - - - - - - 9,240
(3) 1993 536,273 - - - - - - 8,994
Robert B. Schulz 1995 201,014 - - - - 250,000 9,240
President & COO 1994 146,908 500,000 - - - - - -
(5) 1993 - - - - - - - - - -
C. Richard Childress 1995 254,953 - - - - 75,000 9,240
CFO & EVP (3)(4) 1994 264,458 - - - - - - 9,240
1993 243,891 - - - - - - 8,994
David C. Johnson,Jr. 1995 192,500 - - - - 200,000 9,240
EVP (5) 1994 158,246 500,000 - - - - 9,240
1993 - - - - - - - - - -
(1) Amounts of "Other Annual Compensation" earned by the named executive
officers for the periods presented did not meet the threshold reporting
requirements.
(2) Amounts reported represent the Corporation's contributions on behalf of
the named executive to the Harris & Harris Group, Inc. 401(k) Plan
described below.
(3) As of August 15, 1990, Messrs. Harris and Childress entered into
non-competition and employment contracts with the Corporation that were
amended on June 30, 1992, January 3, 1993, and June 30, 1994 (the
"Employment Contracts"). The term of the Employment Contracts expires
on December 31, 1999.
Messrs. Harris and Childress are to receive compensation under their
Employment Contracts in the form of salaries and other benefits. Annual
base salaries are to be increased annually as of January 1 of each year
to reflect inflation and in addition may be increased by such amounts as
the Board deems appropriate.
The Employment Contracts provide Messrs. Harris and Childress with life
insurance for the benefit of their designated beneficiaries in the
amount of $2,000,000 and $1,000,000, respectively. The Employment
Contracts also provide reimbursement for uninsured medical expenses, not
to exceed $5,000 per annum, adjusted for inflation, over the period of
the contract, and disability insurance for the benefit of each individual
in the amount of 100 percent of his respective base salary.
11
The Employment Contracts provide severance pay in the event of termination
without cause or by constructive discharge and also provide for certain
death benefits payable to the surviving spouse, for a period of two years,
equal to the executive's base salary.
In addition, Messrs. Harris and Childress are entitled to receive
severance pay pursuant to severance compensation agreements that they
entered into with the Corporation, effective August 15, 1990. The
severance compensation agreements provide that if, following a change in
control of the Corporation, as defined in the agreements, such
individual's employment is terminated by the Corporation without cause or
by the executive within one year of such change in control, the individual
shall be entitled to receive compensation in a lump sum payment equal to
2.99 times the individuals average annualized compensation and payment of
other welfare benefits. If the executive's termination is without cause
or is a constructive discharge, the amount payable under the Employment
Contracts will be reduced by the amounts paid pursuant to the severance
compensation agreements.
(4) Excludes $28,960, $28,260 and $27,440 for 1995, 1994 and 1993,
respectively, of non-accountable office expense allowance received by
Mr. Childress.
(5) Bonus amounts represent sign-up remuneration received upon beginning
employment with the Corporation during 1994.
The following table sets forth information concerning stock options
granted during the fiscal year ended December 31, 1995, to each of the
executive officers identified in the Summary Compensation Table.
Name Number % of Exercise Expiration Potential Realizable
of Total Price Date Value at Assumed
Shares Options Annual Rates of
Under Granted Stock Price
Grant to Appreciation for
(1) Employees Option Term (2)
in 1995 5% (3) 10% (4)
Charles E. Harris 160,000 22% $5.375 8/17/05 $540,000 $1,370,400
Robert B. Schulz 250,000 34% $5.375 8/17/05 $843,750 $2,141,250
C. Richard Childress 75,000 10% $5.375 8/17/05 $253,125 $642,375
David C. Johnson,Jr. 200,000 27% $5.375 8/17/05 $675,000 $1,713,000
All Shareholders (5) N/A N/A N/A N/A $34,876,919 $88,509,871
(1) All options become exercisable over a five year period.
(2) The values shown are based on the indicated assumed annual rates of
appreciation compounded annually over the term of the option net of the
option exercise price. Actual gains realized, if any, on stock option
exercises and common stock holdings are dependent on the future
performance of the common stock and overall stock market conditions.
There can be no assurance that the values shown in this table will be
achieved.
(3) Represents an assumed market price per share of common stock of $8.75 on
August 17, 2005.
(4) Represents an assumed market price per share of common stock of $13.94 on
August 17, 2005.
(5) The amounts shown are calculated by multiplying (i) the 10,333,902 shares
of common stock outstanding on August 17, 1995, the date of grant of the
options, times (ii) the excess of the assumed market price per share of
common stock on August 17, 2005 ($8.75 at 5 percent and $13.94 at 10
percent) over the exercise price of the options ($5.375 per share) which
is equal to the market price of the stock on the date of grant of the
options.
12
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1995 by each of the
executive officers identified in the Summary Compensation Table and the number
and value of unexercised options as of such date.
Aggregated Option Exercises During 1995 and December 31, 1995 Option Value
- --------------------------------------------------------------------------
Number of Value of
Unexercised Unexercized
Options at Options at
12/31/95 12/31/95 (1)
Number of
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized (2) Unexercisable Unexercisable
- ---- ----------- ------------ ------------- -------------
Charles E. Harris 173,349 $543,230 18,604/141,396 $46,510/$353,490
Robert B. Schulz - - - - 18,604/231,396 $46,510/$578,490
C. Richard Childress 146,753 $485,761 7,500/67,500 $18,750/$168,750
David C. Johnson, Jr. - - - - 18,604/181,396 $46,510/$453,490
(1) Based upon the difference between the exercise price of the options and
the closing price of the Corporation's common stock on December 31, 1995.
(2) Value realized is calculated as the number of shares acquired on exercise
multiplied by the difference between the closing price of the
Corporation's common stock on the date of exercise and the exercise price
of the options, before any related tax liabilities or transaction costs.
Employee Benefits
- -----------------
On August 3, 1989, the shareholders of the Corporation approved the 1988
Long Term Incentive Compensation Plan. On June 30, 1994, the shareholders of
the Corporation approved various amendments to the 1988 Long Term Incentive
Compensation Plan: 1) to conform to the provisions of a business development
company ("BDC"), which allow for the issuance of stock options to qualified
participants; 2) to increase the reserved shares under the amended plan; 3) to
call the plan the 1988 Stock Option Plan, as Amended and Restated (the "Amended
1988 Plan"); and 4) to make various other amendments. On October 29, 1995, the
shareholders of the Company approved an amendment to the 1988 Plan authorizing
automatic 20,000 share grant of non-qualified stock options to certain
non-employee directors of the Company. This amendment is subject to the
receipt of an exemptive order from the Securities and Exchange Commission
("SEC") which is presently pending.
Under the Amended 1988 Plan, the number of shares of common stock of the
Corporation that may be issued upon exercise of options in accordance with the
1940 Act is 20 percent of the outstanding shares of common stock of the
Corporation at the time of grant. However, so long as warrants, options, and
rights issued to persons other than the Corporation's directors, officers, and
employees at the time of grant remain outstanding, the number of reserved
shares under the Amended 1988 Plan may not exceed 15 percent of the outstanding
shares of common stock of the Corporation at the time of grant, subject to
certain adjustments. As of February 29, 1996, there were 2,066,780 shares of
common stock reserved for the issuance of awards under the Amended 1988 Plan,
of which 1,393,763 were subject to outstanding options and warrants and
673,017 were available for future awards.
13
The Amended 1988 Plan provides for the issuance of incentive stock options
and non-qualified stock options to eligible employees as determined by a
committee composed of at least two non-employee outside directors. The
committee also has the authority to construe and interpret the Amended 1988
Plan; to establish rules for the administration of the Amended 1988 Plan; and
subject to certain limitations, amend the terms and conditions of any
outstanding awards. Options may be exercised for up to ten years from the date
of grant. Exercise prices may not be less than the fair market value of the
Corporation's common stock at the date of grant.
The Amended 1988 Plan provides, subject to committee approval, that
payment by the optionee upon exercise of an option may be made using cash or
common stock of the Corporation held by the optionee.
As of January 1, 1989, the Corporation adopted an employee benefits
program covering substantially all employees of the Corporation under a 401(k)
Plan and Trust Agreement. Contributions to the plan are at the discretion of
the Corporation. During 1995, contributions to the plan charged to operations
totaled $46,283.
On June 30, 1994, the Corporation adopted a plan to provide medical and
health insurance for retirees, their spouses and dependents who, at the time of
their retirement, have ten years of service with the Corporation and have
attained 50 years of age or have attained 45 years of age and have 15 years of
service with the Corporation. The coverage is secondary to any government
provided or subsequent employer provided health insurance plans. Based upon
actuarial estimates, the Corporation provided a reserve of $176,520 that was
charged to operations for the period ending June 30, 1994 for estimated future
benefits under the described plan. During 1995, the Company expensed $16,965
and $13,145 for the plan's service cost and interest expense, respectively.
As of December 31, 1995 the Company had a reserve of $206,630 for the plan.
Compensation of Directors
- -------------------------
During the fiscal year ended December 31, 1995, directors who were not
officers of the Corporation received $1,000 for each meeting of the Board of
Directors and $500 for each committee meeting they attended. The Corporation
also reimburses its directors for travel, lodging and related expenses they
incur in attending Board and committee meetings. The total compensation and
reimbursement for expenses to all directors in 1995 was $40,836. The same
director compensation arrangement is in effect for 1996. As discussed above,
upon SEC approval of the Corporation's pending exemptive order, new directors
who have not previously been granted options will also receive a one-time award
of 20,000 non-qualified stock options.
14
Performance Graph
- -----------------
The following graph compares the Corporation's stockholder return, based
on the market price of the common stock, with the Total Return Index for the
Nasdaq Stock Market (U.S. Companies) and with the Total Return Index for Nasdaq
Financial Stocks, both of which indices have been prepared by the Center for
Research in Security Prices at the University of Chicago, for the five year
period beginning December 31, 1990 and ending December 31, 1995. The graph
assumes that the value of an investment in Harris & Harris Group, Inc. ("HHGP")
and each of the indices was $100.00 on December 31, 1990.
The Performance graph is omitted and represented by the following table.
Comparison of Five-Year
Cumulative Total Returns
$600-|
|
|
$500-| *A*
| * * * *A*
| * * *
$400-| * *A*
| * - -C-
| * -
$300-| * - + +B+
| *A* - - -C- - - - - - -C- - +
| - *- -C- - + +B+ + + + + + +B+ +
$200-| - -* + |-------------------------------|
| -+-+-+BC-+ * + + + +B+ + | Legend |
| -+-+-+ * | *A* = HHGP |
$100-|ABC* * * * * * A* | +B+ = Nasdaq Total Return (US)|
| | -C- = Nasdaq Financial Stocks |
| |-------------------------------|
0-|-|-------------|-------------|-------------|-------------|-------------|-
12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
Index Description 12/31/90 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95
- ----------------- -------- -------- -------- -------- -------- --------
HHGP $ 100.00 $ 100.00 $ 269.23 $ 507.69 $ 392.31 $ 484.62
Nasdaq Total Returns (US) 100.00 160.56 186.87 214.51 209.69 296.30
Nasdaq Financial Stocks 100.00 154.74 221.32 257.23 257.83 375.64
15
Directors' and Officers' Liability Insurance
- --------------------------------------------
The Corporation has an insurance policy that indemnifies (i) the
Corporation for any obligation incurred as a result of the Corporation's
indemnification of its directors and officers under the provisions of the New
York Business Corporation Law, the Investment Company Act of 1940, as amended,
and the Corporation's bylaws, and (ii) the Corporation's directors and officers
as permitted under the New York Business Corporation Law, the Investment
Company Act of 1940, as amended, and the Corporation's bylaws. The policy
covers all directors and officers of the Corporation.
PROPOSAL TO RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF
----------------------------------------------------------------------------
ARTHUR ANDERSEN LLP AS THE CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS
- ------------------------------------------------------------------------------
FISCAL YEAR ENDING DECEMBER 31, 1996
------------------------------------
(Proposal No. 2)
Arthur Andersen LLP has been selected as the independent accountant to
audit the accounts of the Corporation for and during the fiscal year ending
December 31, 1996 by a majority of the Corporation's Board of Directors,
including a majority of the Directors who are not interested persons of the
Corporation, by vote cast in person and subject to ratification by the
shareholders. The Corporation knows of no direct or indirect financial
interest of Arthur Andersen LLP in the Corporation.
A representative of Arthur Andersen LLP is not expected to be present at
the meeting.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THE PROPOSAL TO
RATIFY, CONFIRM AND APPROVE THE BOARD OF DIRECTORS' SELECTION OF ARTHUR
ANDERSEN LLP AS THE CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS FISCAL
YEAR ENDING DECEMBER 31, 1996.
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.
16
SUBMISSION OF SHAREHOLDER PROPOSALS
Any shareholder proposals intended to be presented for inclusion in the
Corporation's proxy statement and form of proxy for the next annual meeting of
shareholders to be held in 1997 must be received in writing by the Secretary of
the Corporation at Harris & Harris Group, Inc., One Rockefeller Plaza,
Rockefeller Center, New York, New York 10020 no later than December 31, 1996 in
order for such proposals to be considered for inclusion in the proxy statement
and proxy relating to the 1997 annual meeting of shareholders. Submission of a
proposal does not guarantee inclusion in the proxy statement, as the
requirements of certain federal laws and regulations must be met by such
proposals.
By Order of the Board of Directors
New York, New York Susan Neissa-Carey
February 29, 1996 Secretary
17