HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
July 29, 1997
TO THE SHAREHOLDERS OF HARRIS & HARRIS GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of
the Shareholders of Harris & Harris Group, Inc. (the
"Corporation") will be held on Tuesday, July 29, 1997, 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:
1. To elect 10 directors of the Corporation
to hold office until the next annual
meeting of shareholders and until their
respective successors have been duly
elected and qualified.
2. To 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, 1997.
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 June 16,1997, 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
June 20, 1997 Rachel M. Pernia
New York, New York Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS JULY 29, 1997.
1
PROXY STATEMENT
HARRIS & HARRIS GROUP, INC.
Annual Meeting of Shareholders
July 29, 1997
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 1997 Annual Meeting of Shareholders
(the "Annual Meeting") to be held on July 29, 1997 and at any adjournment
thereof.
The Annual Meeting will be held on Tuesday, July 29, 1997 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 10 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 Suite 1430, 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
June 20, 1997 to shareholders of the Corporation. Annual reports were
mailed to shareholders on March 21, 1997. Shareholders can obtain, without
charge, a copy of the annual report from the Corporation at the above
address and phone number.
The Board of Directors has fixed the close of business on June 16,
1997 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
10,442,682 shares of common stock was 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 10 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 62, was elected to the Corporation's Board of
Directors in December 1994. Dr. Bardin's professional appointments have
included: Vice President, The Population Council; Professor of Medicine,
Chief of the Division of Endocrinology, The Milton S. Hershey Medical
Center of Pennsylvania State University; and Senior Investigator,
Endocrinology Branch, National Cancer Institute. Dr. Bardin also serves
as a consultant to several pharmaceutical companies. He has directed basic
and clinical research leading to over 500 publications and patents. He has
negotiated 15 licensing and manufacturing agreements. He has directed
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 Doctor
Honoris Causa from the University of Caen and the University of Paris.
3
G. Morgan Browne, age 62, 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 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 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
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 69, has been a director of the Corporation since
1984. Mr. Ekblom has served 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 and retired in
1996. 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.
Dugald A. Fletcher, age 67, was elected to the Corporation'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
is also Chairman of Binnings Building Products Company, Inc., an Advisor
to the Gabelli Growth Fund and a Director of Gabelli Convertible
Securities Fund. Previously, he was an 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. He is a graduate of Harvard College and of Harvard Business
School.
* Charles E. Harris, age 54, 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 cofounded 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
Corp., 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. He was a member of the
Advisory Panel for the Congressional Office of Technology Assessment.
He is a Trustee of The Institute for Genomic Research, and a director of
the insurance company, Dearborn Risk Management, Inc. He is a member of
the New York Society of Security Analysts. Among his eleemosynary
activities, he is a life-sustaining fellow and a member of President's
Council of the Massachusetts Institute of Technology and a member of the
President's Council of Cold Spring Harbor Laboratory. He was graduated
from Princeton University (A.B., 1964) and the Columbia University
Graduate School of Business (MBA, 1967).
4
Charles F. Hays, age 51, 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 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 the Stanford
University Graduate School of Business.
Jon J. Masters, age 60, was elected to the Corporation's Board of
Directors in February 1992. Since July 1996, Mr. Masters has been Vice
Chairman of Robb Peck McCooey Specialist Corporation. Prior to that,
since 1976, he was a member of the law firm of Christy & Viener, which
he cofounded. Mr. Masters is a graduate of Princeton University and
Harvard Law School.
Glenn E. Mayer, age 71, 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 68, 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 was graduated from Harvard University (B.A., Ph.D.) and Oxford
University (B.A., M.A.).
James E. Roberts, age 51, 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; Director from 1989 to 1995; President and Chief Operating Officer,
1991 to 1992; Senior Vice President, 1986 to 1991; and President and
Chief Executive Officer of the Company's principal operating subsidiary,
Re Capital Reinsurance Corporation, from 1991 to 1995. 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 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
Investment and
Executive Audit Compensation Nominating Valuation
- - --------- ----- ------------ ---------- --------------
Charles E. William R. Charles F. Charles E. Charles E.
Harris* Polk* Hays* Harris* Harris*
C. Wayne Harry E. Harry E. G. Morgan G. Morgan
Bardin Ekblom Ekblom Browne Browne
Jon J. Glenn E. Jon J. Harry E. James E.
Masters Mayer Masters Ekblom Roberts
Glenn E. James E. Charles F.
Mayer Roberts Hays
James E. William R.
Roberts Polk
* 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 1996.
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 1996.
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 in 1996.
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 did not meet and acted one time
by unanimous written consent in 1996.
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 and acted one time by unanimous written consent
in 1996.
In 1996, there were seven 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 1996 (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 May 30, 1997 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 Percent of Class (1)
Beneficial Owner Common Stock Owned
Common Stock Owned
Charles E. and Susan T. 1,690,988 (2) 15.60%
Harris
One Rockefeller Plaza, Suite
1430
New York, NY 10020
American Bankers Insurance 1,075,269 (3) 10.30%
Group
11222 Quail Roost Drive
Miami, FL 33157
Jordan American Holdings, Inc.1,640,846 (4) 15.71%
1875 SkiTime Square
Steamboat Springs, CO 80487
C. Wayne Bardin 20,000 (6) *
G. Morgan Browne 50,000 (5) *
Harry E. Ekblom 55,000 (5) *
Dugald A. Fletcher 20,000 (6) *
Charles F. Hays 26,300 (6) *
David C. Johnson, Jr. 337,574 (7) 3.18%
Jon J. Masters 50,000 (5) *
Glenn E. Mayer 72,000 (5)(8) *
Mel P. Melsheimer 305,072 (9) 2.84%
William R. Polk 71,000 (5) *
James E. Roberts 22,000 (6) *
All Directors and Officers
as a group (14 persons) 2,855,034 24.17%
* Less than one percent of issued and outstanding stock.
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 32,000 have vested. The total 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 American Holdings, Inc. as of
June 17, 1997. Jordan American Holdings, Inc. is a registered
investment advisor that holds these shares for investment purposes
only on behalf of various clients.
5. Includes option to purchase 50,000 shares.
6. Includes option to purchase 20,000 shares, which vest over a
five-year period. The total 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 40,000 have vested. The total shares
have been included in the table.
8. Includes 2,000 shares owned by Mrs. Mayer.
9. On February 10, 1997, the Corporation granted Mr. Mel P. Melsheimer
stock options to purchase 300,000 shares of common stock that vest
over a five-year period. The total shares have been included in
this table.
Executive Officers
------------------
Set forth below is certain information with respect to the executive
officers of the Corporation:
Charles E. Harris, age 54, 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."
Mel P. Melsheimer, age 57, has served as President, Chief
Operating Officer and Chief Financial Officer since February 1997.
Harris & Harris Group had employed Mel P. Melsheimer as a nearly full-time
consultant from 1994 to January 1997. Mr. Melsheimer has had
extensive entrepreneurial experience as well as senior operational and
financial management responsibilities with public 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 1968 to 1973, he was employed in various
financial capacities at Pepsi Cola Company, PepsiCo, Inc. before serving
as Vice President and Chief Financial Officer from 1973 to 1975. He was
graduated from the University of Southern California (MBA) and
Occidental College (B.A., Economics).
8
David C. Johnson, Jr., age 41, 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 was
graduated from The Darden School at the University of Virginia (MBA,
1984) and the University of North Carolina at Chapel Hill (B.S., 1978).
Rachel M. Pernia, age 38, 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 was graduated from Rutgers University
(B.A., 1981) and is a certified public accountant.
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 1996 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. Because 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 may vary
widely, reflecting 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 that 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. The Chief Executive Officer is
party to an Employment Agreement with the Corporation dated in 1990,
which expires on December 31, 1999. This Employment Agreement provides
for specified salaries subject to increases for inflation (see below for
a summary of the employment contract) and, at the discretion of the
Compensation Committee, salary increases and/or bonuses and 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 Interlocks and Insider Participation
-----------------------------------------------------------
The members of the Corporation's Compensation Committee are
directors Charles F. Hays (Chairman), Harry E. Ekblom, Jon J. Masters
and James E. 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 $100,000 for the year ended December 31, 1996.
Annual Compensation Long Term
Compensation
Awards
Name and
Principal Other Annual Stock Options All Other
Position Year Salary Bonus Compensation (#) Compensation
($) ($) ($) (1) ($) (2)
- - -------- ---- ------- ----- ------------ ------------- ------------
Charles E. 1996 595,246 - - - - - - 9,500
Harris 1995 592,400 - - - - 160,000 9,240
Chairman & 1994 605,739 - - - - - - 9,240
CEO (3)
Robert B. 1996 207,194 - - - - - - 9,500
Schulz 1995 201,014 - - - - 250,000 9,240
President & 1994 146,908 500,000 - - - - - -
COO (5) (6)
C. Richard 1996 262,200 - - - - - - - -
Childress 1995 254,953 - - - - 75,000 9,240
CFO & EVP (4) 1994 264,458 - - - - - - 9,240
David C. 1996 197,763 - - - - - - 9,500
Johnson, Jr. 1995 192,500 - - - - 200,000 9,240
EVP (5) 1994 158,246 500,000 - - - - 9,240
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, Mr. Harris entered into a non-competition and
employment contract with the Corporation that was amended on June 30,
1992, January 3, 1993 and June 30, 1994 (the "Employment Contract").
The term of the Employment Contract expires on December 31, 1999.
Mr. Harris is to receive compensation under his Employment
Contract in the form of salary and other benefits. Annual base
salary is 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 Contract provides Mr. Harris with life insurance
for the benefit of his designated beneficiaries in the amount of
$2,000,000. The Employment Contract also provides reimbursement for
uninsured medical expenses, not to exceed $5,000 per annum, adjusted
for inflation, over the period of the contract, and disability
insurance in the amount of 100 percent of his base salary.
The Employment Contract provides severance pay in the event of
termination without cause or by constructive discharge and also
provides for certain death benefits payable to the surviving spouse,
for a period of two years, equal to the executive's base salary.
11
In addition, Mr. Harris is entitled to receive severance pay
pursuant to the severance compensation agreement that he entered into
with the Corporation, effective August 15, 1990. The severance
compensation agreement provides that if, following a change in
control of the Corporation, as defined in the agreement, such
individual's employment is terminated by the Corporation without
cause or by the individual 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 the
individual's termination is without cause or is a constructive
discharge, the amount payable under the Employment Contract will be
reduced by the amounts paid pursuant to the severance compensation
agreement.
4. On October 1, 1996, Mr. Childress resigned as Executive Vice
President and Chief Financial Officer of the Corporation. He
currently is a consultant to the Corporation. The compensation
numbers exclude $30,450, $28,960 and $28,260 for 1996, 1995 and 1994,
respectively, of non-accountable office expense allowances received
by Mr. Childress.
5. Bonus amounts represent sign-up remuneration received upon beginning
employment with the Corporation during 1994.
6. Mr. Schulz resigned as President and Chief Operating Officer of the
Corporation in February 1997.
There were no stock options granted to the executive officers
included in the above table during the year ended December 31, 1996.
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
Corporation 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 Corporation.
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 May 30, 1997, there were 2,088,536 shares of common stock reserved
for the issuance of awards under the Amended 1988 Plan, of which
1,367,605 were subject to outstanding options and warrants and 720,931
were available for future awards.
The Amended 1988 Plan provides for the issuance of incentive stock
options and non-qualified stock options to eligible employees as
determined by a committee composed of at least two non-employee outside
directors. The committee also has the authority to construe and
interpret the Amended 1988 Plan; to establish rules for the
administration of the Amended 1988 Plan; and subject to certain
limitations, amend the terms and conditions of any outstanding awards.
Options may be exercised for up to 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.
12
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 1996, contributions to the
plan charged to operations totaled $40,254.
On June 30, 1994, the Corporation adopted a plan to provide
medical and health coverage 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. On February
10, 1997, the Corporation 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 Corporation provided an original reserve of $176,520 that
was charged to operations for the period ending June 30, 1994. As of
December 31, 1996, the Corporation had a reserve of $206,630 for the
plan.
Compensation of Directors
-------------------------
During the fiscal year ended December 31, 1996, 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 1996 was $80,702. The same director compensation
arrangement is in effect for 1997. As discussed above, new directors
who have not previously been granted options will also receive a one-time
award of 20,000 non-qualified stock options, which vest over a five year
period.
13
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,
1991 and ending December 31, 1996. 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, 1991.
Comparison of Five-Year
Cumulative Total Returns
$600-|
|
|
$500-| *A* *A*
| * * *
| * * * * * * * *
$400-| *A* *
| * *
| *
$300-| * +B+
| * + + + + *AC-
| * * *A* + + + +B+ - -
$200-| * + + + + + +B+ + + + + + +B+ + + - -C- - -
| + + + + +B+ -C- - - - - - -C- - - -
| +* - - - - _______________________________
$100-|ABC- - - - - -C- | Legend |
| |*A* = HHGP |
| |+B+ = Nasdaq Financial Stocks |
| |-C- = Nasdaq Total Returns(US)|
0-|---|------------|------------|------------|-------------|------------|-----
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
Index Description 12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
----------------- -------- -------- -------- -------- -------- --------
HHGP $ 100.00 $ 269.23 $ 507.69 $ 392.31 $ 484.62 $ 230.77
Nasdaq Total 100.00 116.37 133.59 130.57 184.67 227.16
Returns (US)
Nasdaq Financial 100.00 143.03 166.23 166.63 242.62 311.06
Stocks
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.
14
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, 1997
(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, 1997 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, 1997.
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.
15
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 1998 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, 1997 in order for such proposals to be
considered for inclusion in the proxy statement and proxy relating to
the 1998 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 Rachel M. Pernia
June 20, 1997 Secretary
16