SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
(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:
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/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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
July 29, 1998
TO THE SHAREHOLDERS OF HARRIS & HARRIS GROUP, INC.:
NOTICE IS HEREBY GIVEN that the 1998 annual meeting of the shareholders
of Harris & Harris Group, Inc. (the "Company") will be held on Wednesday, July
29, 1998, at 12:00 p.m., local time, at 780 Third Avenue (between 48th and
49th), New York, New York. 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 nine (9) 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 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, 1998.
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
19,1998 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 24, 1998 Rachel M. Pernia
New York, New York Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE. THE
MEETING DATE IS JULY 29, 1998.
PROXY STATEMENT
HARRIS & HARRIS GROUP, INC.
Annual Meeting of Shareholders
July 29, 1998
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" or "Corporation") to be voted at the 1998 Annual Meeting of
Shareholders (the "Annual Meeting") to be held on July 29, 1998 and at any
adjournment thereof.
The Annual Meeting will be held on Wednesday, July 29, 1998 at 12:00 p.m.,
local time, at 780 Third Avenue, New York, New York. At the Annual Meeting,
shareholders of the Company will be asked to elect nine 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 and this proxy statement are being first
transmitted on or about June 24, 1998 to shareholders of the Company.
The Board of Directors has fixed the close of business on June 19, 1998 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 10,651,200 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.
1
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.
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.
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 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
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
Set forth below is certain information with respect to the Corporation's
current directors. All nominees are currently directors of the Company:
2
DIRECTORS
Dr. C. Wayne Bardin, age 63, 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 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.
Dr. Phillip A. Bauman, age 42, was appointed to the Company's Board of
Directors in February 1998. Dr. Bauman is an orthopedic surgeon who is in
practice in New York City and has held an academic appointment at Columbia
University since 1988. He is a principal and Vice President of Orthopedic
Associates of New York since 1994. He is also the director of Miller Health
Care Institute associated with St. Luke's/Roosevelt Hospital Center in New
York City since 1995. He holds bachelor's and master's degrees in biology
from Harvard University and a medical degree from Columbia University. Dr.
Bauman was elected a fellow of the American Academy of Orthopedic Surgeons in
1991, is affiliated with the New York Academy of Medicine and is on the
advisory board of a medical research foundation. Dr. Bauman is William R.
Polk's son-in-law.
G. Morgan Browne, age 63, 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 or 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.
3
Harry E. Ekblom, age 70, was elected to the Company's Board of Directors in
1984. Mr. Ekblom is a partner in Ekblom & Ekblom LLC 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 68, 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. and is 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., a New York Stock Exchange member firm. He is a
graduate of Harvard College and of Harvard Business School.
*Charles E. Harris, age 55, 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. From April 1990 to August 1991, he served as
Chairman of publicly owned Ag Services of America, Inc., in which the Company
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 Company cofounded and in which the
Company then held an equity interest. From July 1986 to January 1989, he
served as Chairman of publicly owned Re Capital Corporation, which the Company
founded and in which the Company 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 Company founded and in which the
Company 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 member of the New York
Society of Security Analysts. Among his eleemosynary activities, he is a
Trustee of The Institute for Genomic Research, a life-sustaining fellow 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 (M.B.A.,
1967).
* 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.
4
Glenn E. Mayer, age 72, 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.
William R. Polk, age 69, has been a director of the Company since August
1988. For the last seven years, Mr. Polk has been a self-employed consultant.
The author of some 15 books and over 100 articles, he has been an advisor to a
number of corporations including Schroder Bank, Citibank, Crocker National
Bank, TWA, Teledyne, Volkswagen, Time Inc. and of the United Nations. 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 History of the University of
Chicago and of Harvard University. Mr. Polk is a graduate of Harvard
University (B.A. with Honors and Ph.D.) and of Oxford University (B.A. with
Honors and M.A.) and has received various academic, foundation and
governmental awards. Mr. Polk is the father-in-law of Dr. Phillip A. Bauman.
James E. Roberts, age 52, was elected to the Company'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 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.
5
Committees of the Board of Directors
In 1997, there were eight meetings of the Board of Directors of the
Company and the Board acted 12 times by unanimous written consent. Other than
Mr. James E. Roberts who attended six board meetings and two Investment and
Valuation Committee meetings, no incumbent director attended fewer than 75
percent of the aggregate of Board of Directors' and applicable committee
meetings held in 1997 (during the periods that they so served).
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* James E. Roberts* Charles E. Harris*
C. Wayne Bardin Harry E. Ekblom Harry E. Ekblom G. Morgan Browne
Glenn E. Mayer Glenn E. Mayer Dugald A. Fletcher Harry E. Ekblom
James E. Roberts William R. Polk
Investment and
Valuation
Charles E. Harris*
G. Morgan Browne
James E. Roberts
Dugald A. Fletcher
* 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 as a separate
committee in 1997.
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 1997.
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 did not meet
as a separate committee in 1997.
The Nominating Committee acts as an advisory committee to the Board by
making recommendations to the Board of potential new directors. The
Nominating Committee will not consider nominations from shareholders. The
Nominating Committee did not meet as a separate committee in 1997.
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 1997.
6
Security ownership of Directors, Nominees and 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
June 12, 1998 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.
Name and Address of Number of Shares of
Beneficial Owner Common Stock Owned Percent of Class (1)
Charles E. and Susan T. Harris 1,467,561 (1) 13.77%
One Rockefeller Plaza, Suite 1430
New York, NY 10020
American Bankers Insurance Group 1,075,269 (2) 10.09%
11222 Quail Roost Drive
Miami, FL 33157
Jordan American Holdings, Inc. 1,244,550 (3) 11.68%
1875 Ski Time Square Drive, Suite 1
Steamboat Springs, CO 80487
Dr. C. Wayne Bardin 7,633 (4) *
Dr. Phillip A. Bauman 8,867 (5) *
G. Morgan Browne 1,107 *
Harry E. Ekblom 6,029 *
Dugald A. Fletcher 1,107 *
Jon J. Masters 950 *
Glenn E. Mayer 73,029 (6) *
Mel P. Melsheimer 5,072 *
Rachel M. Pernia 8,000 *
William R. Polk 72,029 *
James E. Roberts 2,793 *
All Directors and Officers as 1,654,177 15.52%
a group (11 persons)
* Less than one percent of issued and outstanding stock.
(1) Includes 1,355,176 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 103,885 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.
(2) Represents shares owned by subsidiaries of American Bankers Insurance
Group, Inc.
7
(3) Represents shares owned by Jordan American Holdings, Inc. as of June 1,
1998. According to its Schedule 13D relating to the Company's common
stock, it is a registered investment advisor that holds these shares for
investment purposes only on behalf of various clients.
(4) Includes 2,840 shares owned by Bardin LLC for the Bardin LLC Profit-
Sharing Keogh.
(5) Includes 5,637 shares owned by Ms. Milbry C. Polk, Dr. Bauman's wife.
(6) Includes 2,000 shares owned by Mrs. Mayer.
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 58, 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 (MBA) and Occidental College (B.A.,
Economics).
Rachel M. Pernia, age 39, 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)
and is a certified public accountant.
8
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 $100,000 for the year ended
December 31, 1997.
Long Term
Annual Compensation Compensation
Awards
-------------------------- ------------
Name and Securities All
Principal Other Annual Underlying Other
Position Year Salary Bonus Compensation Options Compensation
($) ($) ($) (1) (#) ($) (2)
- --------- ---- ------ ----- ------------ ------------ ------------
Charles E. Harris 1997 574,380 -- -- -- 9,500
Chairman, CEO & 1996 557,650 -- -- -- 9,500
Chief Compliance 1995 543,818 -- -- 160,000 9,240
Officer (3)
Mel P. Melsheimer 1997 209,852 -- 61,992 300,000 9,500
President, COO 1996 203,248 -- -- -- --
& CFO (4) 1995 206,434 -- -- -- --
David C. Johnson, 1997 194,100 -- -- -- --
Jr. EVP (5) 1996 197,397 -- -- -- 9,500
1995 192,500 -- -- 200,000 9,240
(1) Other than Mr. Melsheimer, 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 Company's contributions on behalf of the
named executive to the Harris & Harris Group, Inc. 401(k) Plan described
below.
(3) The Company has an employment contract with Charles E. Harris that was
amended on June 30, 1992, January 3, 1993, June 30, 1994 and January 1,
1998 (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 amendment on January 1, 1998 reduced Mr. Harris's
salary to $200,000 and allowed him to pursue other business
opportunities and investments.
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.
9
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 which expires December 31, 1999. 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 the executive'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) 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.
(5) Effective December 15, 1997, Mr. Johnson resigned as Executive Vice-
President of the Company.
The following table sets forth information concerning stock options
granted during the fiscal year ended December 31, 1997 to each of the
executive officers identified in the Summary Compensation Table. No Directors
were granted options during 1997. The Company's 1988 Stock Option Plan and all
outstanding stock options were canceled as of December 31, 1997.
% of
Number of Total Potential Realizable
Securities Options Value at Assumed
Underlying Granted to Annual Rates of Stock
Option Employees Exercise Expiration Price Appreciation
Name Granted(1) in 1997 Price Date for Option Term (2)
-------------------
5% (3) 10% (4)
- ------------ ---------- ---------- -------- ---------- ------ -------
Charles E.
Harris -- -- -- -- -- --
Mel P.
Melsheimer 300,000 100% $3.875 2/10/07 $731,090 $1,852,726
David C.
Johnson, Jr. -- -- -- -- -- --
(1) All options would have 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 $6.312
on February 10, 2007.
(4) Represents an assumed market price per share of common stock of $10.051
on February 10, 2007.
The following table sets forth information concerning each exercise of
stock options during the fiscal year ended December 31, 1997 by each of the
executive officers identified in the Summary Compensation Table and the number
and value of unexercised options as of such date. The Company's 1988 Stock
Option Plan was canceled on December 31, 1997, canceling all outstanding stock
options and eliminating all future stock option grants.
10
Number of Value of
Unexercised Unexercised
Number of Options at Options at
Shares 12/31/97 12/31/97 (1)
Acquired Value ----------------------------
on Realized Exercisable/ Exercisable/
Name Exercise (2) Unexercisable Unexercisable
- ------------- -------- -------- ------------- -------------
Charles E.
Harris -- -- 64,000/96,000 $0/$0
Mel P.
Melsheimer -- -- -- /300,000 $0/$0
David C.
Johnson, Jr. -- -- 80,000/ -- $0/$0
(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,
1997.
(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
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.
As of January 1, 1998, the Company began implementing the Harris & Harris
Group, Inc. Employee Profit Sharing Plan (the "Plan") that provides for profit
sharing equal to 20 percent of the net realized income of the Company as
reflected on the statement of operations of the Company for such year, less
the nonqualifying gain, if any. Under the Plan, net realized income of the
Company includes investment income, realized gains and losses, and operating
expenses (including taxes paid or payable by the Company), but it will be
calculated without regard to dividends paid or distributions made to
shareholders, payments under the Plan, unrealized gains and losses, and loss
carry-overs from other years ("Qualifying Income"). The portion of net
after-tax realized gains attributable to asset values as of September 30,
1997 will be considered nonqualifying gain, which will reduce "Qualifying
Income."
As soon as practicable following year end, the Board of Directors will
determine whether, and if so how much, "Qualifying Income" exists for a plan
year, and 90 percent of the Qualifying Income will be paid out to Plan
participants pursuant to the distribution percentages set forth in the Plan.
The distribution amounts for each officer and employee is as follows: Charles
E. Harris, 13.790%; Mel P. Melsheimer, 4.233%; Rachel M. Pernia, 1.524%; and
Jacqueline M. Matthews, 0.453%. If a participant leaves the Company for other
than cause, the amount earned will be accrued and paid to such participant,
and the remaining amount allocable under the Plan will be redistributed by the
Compensation Committee and paid to the other participants.
Notwithstanding any provisions of the Plan, in no event may the aggregate
amount of all awards payable for any Plan year during which the Company
remains a "business development company" within the meaning of the Investment
Company Act of 1940, as
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amended (the "1940 Act"), be greater than 20 percent of the Company's "net
income after taxes" within the meaning of Section 57(n)(1)(B) of the 1940 Act.
In the event the awards exceed such amount, the awards will be reduced pro
rata.
The Plan may be modified, amended or terminated by the 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.
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. Contributions to the plan are at the discretion of the
Company. During 1997, contributions to the plan charged to operations totaled
approximately $37,000.
On June 30, 1994, the Company adopted a plan to provide medical and health
insurance for retirees, their spouses and dependents who, at the time of their
retirement, have ten years of service with the Company and have attained 50
years of age or have attained 45 years of age and have 15 years of service
with the Company. On February 10, 1997, the Company amended this plan to
include employees who "have seven full years of service and have attained 58
years of age." The coverage is secondary to any government provided or
subsequent employer provided health insurance plans. Based upon actuarial
estimates, the Company provided an original reserve of $176,520 that was
charged to operations for the period ending June 30, 1994. As of December 31,
1997 the Company had a reserve of $232,415 for the plan.
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Compensation of Directors
Pension
Or
Retirement
Benefits Estimated
Accrued Annual Total
As Part Of Benefits Compensation
Name of Aggregate Company's Upon Paid To
Director Compensation Expenses Retirement Directors
C. Wayne Bardin $ 6,500 -- -- $ 6,500
Philip A.Bauman (1) $ 0 -- -- $ 0
G. Morgan Browne $10,295 (2) -- -- $10,295
Harry E. Ekblom $12,518 (3) -- -- $12,518
Dugald A. Fletcher $ 8,345 (4) -- -- $ 8,345
Charles F. Hays (5) $13,742 (6) -- -- $13,742
Jon J. Masters $ 8,500 -- -- $ 8,500
Glenn E. Mayer $ 8,500 -- -- $ 8,500
William R. Polk $23,096 (7) -- -- $23,096
James E. Roberts $ 7,500 -- -- $ 7,500
Robert B. Schulz (8) $ 1,500 -- -- $ 1,500
1. Dr. Bauman was elected to the Board of Directors on February 24, 1998.
2. Includes $295 paid to Mr. Browne to reimburse him for travel expenses to
attend Board meetings.
3. Includes $4,018 paid to Mr. Ekblom to reimburse him for travel expenses
to attend Board meetings.
4. Includes $345 paid to Mr. Fletcher to reimburse him for travel expenses
to attend Board meetings.
5. Mr. Hays resigned as a Director on February 3, 1998.
6. Includes $3,242 paid to Mr. Hays to reimburse him for travel expenses to
attend Board meetings
7. Includes $14,596 paid to Mr. Polk to reimburse him for travel expenses
to attend Board meetings.
8. Mr. Schulz resigned as a Director on May 9, 1997.
During the fiscal year ended December 31, 1997, directors who were not
officers of the Company received $1,000 for each meeting of the Board of
Directors and $500 for each committee meeting they attended. 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 to all directors in 1997 was $100,496. Director
compensation for 1998 has been modified as follows: In 1997, 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 and
effective June 18, 1998, fees for committee meetings will be $1,000,
directors will be paid a retainer of $500 per month, and, as of December 31,
1997, all Directors' outstanding stock options were canceled.
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Compliance with Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities 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 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
except for late filings of Form 4's by Dr. C. Wayne Bardin and Mr. Jon J.
Masters in connection with a purchase of shares and a late filing of Form 5 by
Charles E. Harris in connection with 13 charitable gifts of Harris & Harris
Group, Inc. shares donated by the Susan T. and Charles E. Harris Foundation,
all persons who were subject to Section 16(a) in 1997 complied with the filing
requirements.
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, 1998
(Proposal No. 2)
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, 1998 by a majority of the Corporation's Board of Directors,
including a majority of the Directors who are not interested persons of the
Company, by vote cast in person and subject to ratification by the
shareholders. 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 CORPORATION'S INDEPENDENT PUBLIC ACCOUNTANT FOR ITS FISCAL
YEAR ENDING DECEMBER 31, 1998.
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.
14
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 1999 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 February 25, 1999
in order for such proposals to be considered for inclusion in the proxy
statement and proxy relating to the 1999 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 24, 1998 Secretary
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