UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
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 Under Rule 14a-12
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
HARRIS & HARRIS GROUP, INC.
_________________________________________________________________
(Name of Registrant as Specified in its Charter)
_________________________________________________________________
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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(2) Aggregate number of securities to which transaction applies:
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the filing fee is calculated and state how it was determined):
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was paid previously. Identify the previous filing for which the
offsetting fee was paid previously. Identify the previous filing by
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HARRIS & HARRIS GROUP, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held September 26, 2002
To the Shareholders of Harris & Harris Group, Inc.:
NOTICE IS HEREBY GIVEN that the 2002 Annual Meeting of the
Shareholders of Harris & Harris Group, Inc. (the "Company") will be held on
Thursday, September 26, at 3:00 p.m., local time, on the Concourse Level at
780 Third Avenue (between 48th Street and 49th Street), New York, New York
10017. This meeting has been called by the Board of Directors of the
Company, and this notice is being issued at its direction. It has called
this meeting for the following purposes:
1. To elect 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 Audit Committee's selection of
PricewaterhouseCoopers LLP as the independent public accountant
for the fiscal year ending December 31, 2002;
3. To approve a proposal to authorize the Company to offer rights to
purchase shares of the Company's common stock at an exercise
price that, at the time such rights are issued, will not be less
than the greater of the market value of the Company's common
stock or the net asset value of the Company's common stock. Such
rights may be part of or accompanied by other securities of the
Company (such as convertible preferred stock or convertible
debt);
4. To approve a proposal to authorize the amendment and restatement
of the Company's existing Employee Profit-Sharing Plan; and
5. 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 August
16, 2002 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
August 26, 2002 /s/ Susan T. Harris
New York, New York __________________________
Susan T. Harris
Secretary
IMPORTANT: PLEASE MAIL YOUR PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
THE MEETING DATE IS SEPTEMBER 26, 2002.
Harris & Harris Group, Inc.
One Rockefeller Plaza, Rockefeller Center
New York, New York 10020
(212) 332-3600
PROXY STATEMENT
2002 Annual Meeting of Shareholders
General Information
This proxy statement is being furnished in connection with the
solicitation of proxies by the Board of Directors of Harris & Harris Group,
Inc. (the "Company") to be voted at the 2002 Annual Meeting of Shareholders
(the "Annual Meeting") to be held on September 26, 2002 and at any
adjournment thereof.
The Annual Meeting will be held on Thursday, September 26, 2002 at
3:00 p.m., local time, on the Concourse Level at 780 Third Avenue, New
York, New York 10017. 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. If any other matters properly come before
the Annual Meeting, the persons named on the proxies will, unless the
shareholder otherwise specifies in the proxy, vote upon such matters in
accordance with their best judgment. The enclosed proxy card and this proxy
statement are being first transmitted on or about August 26, 2002 to
shareholders of the Company. The Company's Annual Report on Form 10-K, as
filed with the SEC, is being delivered with this proxy statement to those
shareholders who have not yet received a copy of such Annual Report on Form
10-K as of the mailing of this proxy statement.
The Board of Directors has fixed the close of business on August
16, 2002 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 11,498,845
shares of common stock were issued and outstanding. Each such share will be
entitled to one vote on each matter to be voted upon at the Annual Meeting.
The presence, in person or by proxy, of the holders of a majority of such
outstanding shares is necessary to constitute a quorum for the transaction
of business at the Annual Meeting.
Solicitation and Revocation; Vote Required
All properly executed proxies received prior to the Annual Meeting
will be voted at the meeting in accordance with the instructions marked
thereon or otherwise as provided therein. Unless instructions to the
contrary are marked, shares represented by the proxies will be voted "FOR"
all the proposals.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder at any time, before it is exercised, by written notification
delivered to the Secretary of the Company, by voting in person at the
Annual Meeting, or by executing another proxy bearing a later date. If your
shares are held for your account by a broker, bank or other institution or
nominee, you may vote such shares at the Annual Meeting only if you obtain
proper written authority from your institution or nominee that you present
at the Annual Meeting.
Approval of any of the matters submitted for stockholder approval
requires that a quorum be present. The presence, in person or by proxy, of
at least a majority of the total number of outstanding shares of common
stock entitled to vote is necessary to constitute a quorum. Abstentions and
broker non-votes will be counted as shares present at the Annual Meeting
for purposes of determining the existence of a quorum. Broker non-votes are
proxies received by the Company from brokers or nominees when the broker or
nominee neither has received instructions from the beneficial owner or
other persons entitled to vote nor has discretionary power to vote on the
particular matter.
If a quorum is present (in person or by proxy) and voting, (i) the
directors will be elected by a plurality of the votes cast; (ii) the
proposal to ratify, confirm and approve the independent auditors will be
approved if a majority of the votes cast are cast in favor; and (iii) the
financing proposal will be approved if a majority of all outstanding shares
are voted in favor. All other matters being submitted to shareholder vote
pursuant to the Notice of Annual Meeting will be approved if a quorum is
present in person or by proxy and a majority of the votes cast on a
particular matter are cast in favor of that matter. For purposes of the
election of directors, approval of the auditors and other unspecified
matters that come before the meeting, votes withheld, abstentions and
broker non-votes will not be counted as votes cast on the matter and will
have no affect on the result of the vote. For purposes of the financing
proposal, abstentions and broker non-votes will not be counted as votes
cast and consequently will have the same effect as a vote against the
matter in question.
Proxies are being solicited by the Company. Proxies will be
solicited by mail. All expenses of preparing, printing, mailing, and
delivering proxies and all materials used in the solicitation of proxies
will be borne by the Company. They may also be solicited by officers and
regular employees of the Company personally, by telephone or otherwise, but
these persons will not be specifically compensated for such services.
Banks, brokers, nominees, and other custodians and fiduciaries will be
reimbursed for their reasonable out-of-pocket expenses in forwarding
solicitation material to their principals, the beneficial owners of common
stock of the Company. It is estimated that those costs will be nominal.
ELECTION OF DIRECTORS
(Proposal No. 1)
The nine nominees listed below, nine 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
Certain information, as of July 25, 2002, with respect to each of
the nine nominees for election at the Annual Meeting is set forth below,
including their names, ages and a brief description of their recent
business experience, including present occupations and employment, certain
directorships held by each and the year in which each became a director of
the Company. The nominees for election as directors of the Company have
been divided into two groups -- interested directors and independent
directors. Interested directors are "interested persons" as defined in the
Investment Company Act of 1940 or persons who may be considered an
"interested person" because of consulting work done for the Company. All
nine nominees are currently directors of the Company.
Independent Directors
Dr. C. Wayne Bardin, age 68, was elected to the Company's Board of
Directors in 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 professional appointments
have included: Professor of Medicine, Chief of the Division of
Endocrinology, The Milton S. Hershey Medical Center of Pennsylvania State
University; and Senior Investigator, Endocrinology Branch, National Cancer
Institute. Dr. Bardin also serves as a consultant to several pharmaceutical
companies. He has directed basic and clinical research leading to over 500
publications and patents. He has negotiated 15 licensing and manufacturing
agreements. He has directed clinical R&D under 18 investigational new drug
applications filed with the U.S. FDA. Dr. Bardin has been appointed to the
editorial boards of 15 journals. He has also served on national and
international committees and boards for National Institute of Health, World
Health Organization, The Ford Foundation, and numerous scientific
societies. Dr. Bardin received a B.A. from Rice University; an M.S. and
M.D. from Baylor University and a Doctor Honoris Causa from the University
of Caen, the University of Paris, and the University of Helsinki.
Dr. Phillip A. Bauman, age 47, was elected to the Company's Board
of Directors in 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 has been a principal and Vice President of
Orthopedic Associates of New York since 1994. 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. He holds bachelor's and master's
degrees in biology from Harvard University and a medical degree from
Columbia University.
G. Morgan Browne, age 67, was elected to the Company's Board of
Directors in 1992. Mr. Browne has been the Chief Financial Officer since
January 1, 2001 and from 1985-2000 was the 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 officer, as an individual consultant
and as an associate of Laurent Oppenheim Associates, Industrial Management
Consultants. He is a director of OSI Pharmaceuticals, Inc. (a publicly held
company principally engaged in drug discovery based on gene transcription),
a founding director of the New York Biotechnology Association, and a
founding director of the Long Island Research Institute. He is a graduate
of Yale University and attended New York University Graduate School of
Business.
Dugald A. Fletcher, age 73, was elected to the Company's Board of
Directors in 1996. Mr. Fletcher has been President of Fletcher & Company,
Inc., a management consulting firm, for the past five years. He was also
Chairman of Binnings Building Products Company, Inc. until the end of 1997,
and he is a Trustee of the Gabelli Growth Fund and a Director of the
Gabelli Convertible Securities and Income Fund. His previous business
appointments include: advisor to Gabelli/Rosenthal LP, a leveraged buyout
fund; Chairman of Keller Industries (building and consumer products);
Director of 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.
Glenn E. Mayer, age 77, has been a director of the Company since
1981. In May 2001, Mr. Mayer joined Jesup & Lamont Securities Corporation
as a Senior Vice President. From December 1991 until May 2001, Mr. Mayer
was a Senior Vice President of Reich & Company, a division of Fahnestock &
Company, Inc., a member firm of the New York Stock Exchange. For 15 years
prior to that, he was employed by Jesup & Lamont Securities Co., and its
successor firms, in the Corporate Finance department. Mr. Mayer is a
graduate of Indiana University.
James E. Roberts, age 56, was elected to the Company's Board of
Directors in 1995. Since October 1999, Mr. Roberts has been Chairman and
Chief Executive Officer of The Insurance Corporation of New York, Dakota
Specialty Insurance Company, and ReCor Insurance Company Inc., all of which
are members of Trenwick Group, Ltd. Since March 2000, Mr. Roberts has been
Chairman and Chief Executive Officer of Chartwell Insurance Company, also a
member of Trenwick Group, Ltd. From October 1999 to March 2000, he served
as Vice Chairman of Chartwell Reinsurance Company. From May 1995 to March
2000, Mr. Roberts was Vice Chairman of Trenwick America Reinsurance
Corporation. Mr. Roberts is a graduate of Cornell University.
Interested Directors
Charles E. Harris, age 59, has been a director of the Company and
Chairman of its Board of Directors since April 1984. He was Chief
Compliance Officer from February 1997 to February 2001 and has served as
Chief Executive Officer of the Company since July 1984. He has served as a
director, trustee, control person, chairman and/or chief executive officer
of various publicly and privately held corporations and not-for-profit
institutions. Prior to 1984, he was Chairman of Wood, Struthers and
Winthrop Management Corp., the investment advisory subsidiary of Donaldson,
Lufkin & Jenrette. He was a member of the Advisory Panel for the
Congressional Office of Technology Assessment. He is a member of the New
York Society of Security Analysts. Among his eleemosynary activities, he is
currently a Trustee of, and a member of the President's Council of the Cold
Spring Harbor Laboratory; a Trustee of the Nidus Center, a life sciences
business incubator in St. Louis, Missouri; and a life-sustaining fellow of
the Massachusetts Institute of Technology and a Shareholder of its
Entrepreneurship Center. He is a graduate of Princeton University (A.B.,
1964) and Columbia University Graduate School of Business (MBA, 1967). Mr.
Harris is an "interested person" of the Company, as defined in the
Investment Company Act of 1940, as a beneficial owner of more than five
percent of the Company's stock, as a control person and as an officer of
the Company. In addition, Mr. Harris's wife serves as the Company's
Secretary and is employed by Harris & Harris Enterprises, Inc., a wholly
owned subsidiary of the Company.
Kelly S. Kirkpatrick, age 36, was elected to the Company's Board
of Directors in March 2002. Dr. Kirkpatrick is a consulting materials
scientist. She has served as a consultant to the Company in its due
diligence work on several companies, including one in which the Company has
invested, Optiva, Inc. From 2000 to 2002, she served in the Office of the
Executive Vice Provost of Columbia University as Director, Columbia
Nanotechnology Initiative and Director for Research and Technology
Initiatives. From 1998 to 2000, she served in the White House Office of
Science and Technology Policy as a Senior Policy Analyst, where her
responsibilities for the National Nanotechnology Initiative included
managing representatives from six federal agencies in strategies research
and development plan, implementation plan and a $495 million budget,
organizing the Presidential review panel and co-writing the panel report.
From 1997 to 1998, she was a Science Policy Coordinator for Sandia National
Laboratories. From 1995 to 1996, she served in the Office of Senator Joseph
J. Lieberman as Legislative Assistant, Congressional Science and
Engineering Fellow. She is a graduate of the University of Richmond and
received her Ph.D. in Materials Science and Engineering from Northwestern
University. Dr. Kirkpatrick may be considered an "interested person" of the
Company because of the consulting work she does for the Company.
Lori D. Pressman, age 45, was elected to the Company's Board of
Directors in March 2002. Ms. Pressman, a self-employed business consultant,
provides advisory services to start-ups and venture capital companies.
Among other projects for Harris & Harris Group, she has served as a
consultant to the Company in its due diligence work on Nantero, Inc.,
Nanopharama Corp., NeoPhotonics Corporation and Continuum Photonics, Inc.
From September 1989 to July 2000, she was employed by the Massachusetts
Institute of Technology in the Technology Licensing Office, serving as
Technology Licensing Officer from 1989 to 1995 and Assistant Director from
1996 to 2000. From September 1989 to September 1994, she was Senior
Development Engineer at Lasertron, Inc. From November 1983 to September
1994, she was employed by the American Lung Association. From 1980 to 1982,
she was a member of Solid State Materials Research Laboratory at Bell
Laboratories. She is Chair of the Survey Statistics and Metrics Committee
of the Association of University Technology Managers, for which she edited
a recent report on Academic Technology Transfer of 190 U.S. and Canadian
Institutions. She is a graduate of the Massachusetts Institute of
Technology, Physics (S.B.), and the Columbia School of Engineering (MSEE).
Ms. Pressman may be considered an "interested person" of the Company
because of the consulting work she does for the Company.
Set forth below is the dollar range of equity securities
beneficially owned by each director or nominee as of July 31, 2002.
=============================================================================
Dollar Range of Equity Securities
Name of Director or Nominee Beneficially Owned (1)(2)
-----------------------------------------------------------------------------
Dr. C. Wayne Bardin $50,001 - $100,000
Dr. Phillip A Bauman $50,001 - $100,000
G. Morgan Browne $50,001 - $100,000
Dugald A. Fletcher $10,001 - $50,000
Glenn E. Mayer Over $100,000
James E. Roberts $10,001 - $50,000
Charles E. Harris (3) Over $100,000
Dr. Kelly S. Kirkpatrick (4) 0
Lori D. Pressman (4) $1 - $10,000
=============================================================================
(1) Beneficial ownership has been determined in accordance with Rule
16a-1(a)(2) of the Securities Exchange Act of 1934.
(2) The dollar ranges are: None, $1-$10,000, $10,001-$50,000,
$50,001-$100,000.
(3) Denotes an individual who is an "interested person" as defined in the
Investment Company Act of 1940.
(4) Denotes an individual who may be considered an "interested person"
because of consulting work done for the Company.
Meetings of the Board of Directors and Committees
In 2001, there were four meetings of the Board of Directors of the
Company; the full Board acted 11 times by unanimous written consent, and
the disinterested members of the Board acted once by unanimous written
consent. During 2001, all directors attended 100 percent of the meetings of
the Board of Directors and applicable committee meetings on which each
director served (during the periods that they so served).
The Company's Board of Directors has five committees comprised of
the following members:
Board Committees
- ----------------------------- ------------------------- ------------------------- ------------------------ -----------------------
Investment and
Executive Audit Compensation Nominating Valuation
- ----------------------------- ------------------------- ------------------------- ------------------------ -----------------------
Charles E. Harris (1)(2) Dugald A. Fletcher (1) James E. Roberts (1) G. Morgan Browne (1) Dugald A. Fletcher (1)
Dr. C. Wayne Bardin Dr. Phillip A. Bauman Phillip A. Bauman Dr. C. Wayne Bardin G. Morgan Browne
Glenn E. Mayer Glenn E. Mayer G. Morgan Browne Dr. Phillip A. Bauman James E. Roberts
James E. Roberts Dr. C. Wayne Bardin
- ----------------------------- ------------------------- ------------------------- ------------------------ -----------------------
(1) Denotes the Chairman of each Committee.
(2) Mr. Harris is an interested director of the Company.
Executive 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 and did not act by unanimous written consent in 2001.
Audit Committee
The Audit Committee has been delegated the full power and
authority of the Board with respect to the appointment of the Company's
independent public accountant. The Audit Committee discusses and reviews
the scope and fees of the prospective annual audit, reviews the results
thereof with the independent public accountant, reviews and approves
non-audit services of the independent public accountant, reviews compliance
with existing major accounting and financial policies relative to the
adequacy of the Company's internal accounting controls, reviews compliance
with federal and state laws relating to accounting practices and reviews
and approves transactions, if any, with affiliated parties.
The Audit Committee operates pursuant to a charter approved by the
Company's Board of Directors. The Audit Committee Charter sets out the
responsibilities, authority and duties of the Audit Committee. The members
of the Audit Committee during 2001 were Harry E. Ekblom, Dr. Phillip A.
Bauman and Glenn E. Mayer, and such committee members were considered
independent under the rules promulgated by the Nasdaq Stock Market. The
Audit Committee met once in 2001.
Compensation Committee
The Compensation Committee has the full power and authority of the
Board with respect to all matters pertaining to the remuneration of the
Company's officers and employees. The Compensation Committee did not meet
as a separate committee but acted once by unanimous written consent in
2001.
Nominating Committee
The Nominating Committee acts as an advisory committee to the
Board by making recommendations to the Board of potential new directors,
committee members and officers of the Company. The Board must ratify,
approve or otherwise confirm the Nominating Committee's selections and
appointments to render them effective. The Nominating Committee will
consider nominees for directors recommended by shareholders. The Nominating
Committee did not meet as a separate committee but acted once by unanimous
written consent in 2001.
Investment and Valuation Committee
The Investment and Valuation Committee has the full power and
authority of the Board in reviewing and approving the valuation of the
Company's assets for reporting purposes pursuant to the Company's Asset
Valuation Policy Guidelines that were established and approved by the Board
of Directors. The Investment and Valuation Committee met four times in
2001.
Audit Committee Report
The Audit Committee of the Board of Directors is responsible for
monitoring the integrity of the Company's consolidated financial
statements, its system of internal controls and the independence and
performance of its independent auditors. The Audit Committee also
recommends, subject to shareholder ratification, the selection of the
Company's independent accountant.
Management is responsible for the financial reporting process,
including the system of internal controls, and for the preparation of
consolidated financial statements in accordance with accounting principles
generally accepted in the United States. The Company's independent
accountant is responsible for auditing those financial statements. The
Audit Committee's responsibility is to monitor and review these processes.
However, it is not professionally engaged in the practice of accounting or
auditing and is not expert in the field of accounting or auditing,
including with respect to auditor independence. The Audit Committee relies
without independent verification on the information provided to it and on
the representations made by management and the independent accountant.
Audit Committee meetings are designed to, among other things, facilitate
and encourage communications among the Audit Committee, management and the
Company's independent accountant.
The Committee reviewed and discussed the audited consolidated
financial statements for the fiscal year ended December 31, 2001 with
management and Arthur Andersen LLP.
The Audit Committee met with management and Arthur Andersen LLP in
mid-January 2002 to discuss the significant audit procedures and scope for
the 2001 audit. The Audit Committee met in mid-March 2002 and discussed
with the independent accountant matters required to be discussed with audit
committees under generally accepted auditing standards, including, among
other things, matters related to the conduct of the audit of the Company's
consolidated financial statements and the matters required to be discussed
by the Statement on Auditing Standards No. 61, as amended (Communications
with Audit Committees).
The Company's independent accountant also provided to the Audit
Committee the written disclosures and the letter required by Independence
Standards Board Standards No. 1 (Independence Discussions with Audit
Committees), and it discussed with the independent accountant its
independence from the Company. When considering Arthur Andersen LLP's
independence, the Audit Committee considered whether their provision of
services to the Company beyond those rendered in connection with the audit
and review of the Company's consolidated financial statements was
compatible with maintaining their independence. The Audit Committee
reviewed, among other things, the amount of fees paid to Arthur Andersen
LLP for audit and non-audit services.
Based on their review and these meetings, discussions and reports,
and subject to the limitations on the Audit Committee's role and
responsibilities referred to above and in the Audit Committee Charter, the
Audit Committee recommended to the Board of Directors that the Company's
audited consolidated financial statements for the fiscal year ended
December 31, 2001 be included in the Company's Annual Report on Form 10-K.
During February 2002, the Audit Committee met twice regarding
selection of the Company's independent accountant for the year ended
December 31, 2002. On February 26, 2002, the Committee appointed
PricewaterhouseCoopers LLP as the Company's independent accountant for the
year ended December 31, 2002.
Harry E. Ekblom (Chair)
Dr. Phillip A. Bauman
Glenn E. Mayer
Audit Fees
The aggregate fees for professional services rendered by Arthur
Andersen LLP in connection with their annual audit of the Company's
consolidated financial statements and reviews of the consolidated financial
statements included in the Company's quarterly reports on Form 10-Q for the
fiscal year ended December 31, 2001 was approximately $66,600.
All Other Fees
The aggregate fees for all other services rendered by Arthur
Andersen LLP, including the review of the Company's tax returns, for the
fiscal year ended December 31, 2001 was approximately $20,000.
Security Ownership of Certain Beneficial Owners
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 July 31, 2002 by (1) each director of the Company, (2) each current
executive officer listed in the Summary Compensation Table; (3) all
directors and executive officers of the Company as a group; and (4) each
person who is known by the Company to be the beneficial owner of more than
five percent of the outstanding common stock. Except as otherwise
indicated, to the Company's knowledge, all shares are beneficially owned
and investment and voting power is held as stated by the persons named as
owners. At this time, the Company is unaware of any shareholder owning five
percent or more of the outstanding shares of common stock other than the
ones noted below.
=============================================== ======================================= ===========================
Name and Address of Number of Shares Percent of
Beneficial Owner of Common Stock Owned Class
- ----------------------------------------------- --------------------------------------- ---------------------------
Charles E. and Susan T. Harris 1,055,893 (1) 9.2%
One Rockefeller Plaza, Suite 1430
New York, NY 10020
- ----------------------------------------------- --------------------------------------- ---------------------------
Dr. C. Wayne Bardin 20,828 (2) *
- ----------------------------------------------- --------------------------------------- ---------------------------
Dr. Phillip A. Bauman 22,151 (3) *
- ----------------------------------------------- --------------------------------------- ---------------------------
G. Morgan Browne 34,172 *
- ----------------------------------------------- --------------------------------------- ---------------------------
Harry E. Ekblom 14,776 *
- ----------------------------------------------- --------------------------------------- ---------------------------
Dugald A. Fletcher 11,620 *
- ----------------------------------------------- --------------------------------------- ---------------------------
Dr. Kelly S. Kirkpatrick -- *
- ----------------------------------------------- --------------------------------------- ---------------------------
Glenn E. Mayer 100,000 *
- ----------------------------------------------- --------------------------------------- ---------------------------
Lori D. Pressman 1,000 *
- ----------------------------------------------- --------------------------------------- ---------------------------
James E. Roberts 14,274 *
- ----------------------------------------------- --------------------------------------- ---------------------------
Mel P. Melsheimer 46,671 (4) *
- ----------------------------------------------- --------------------------------------- ---------------------------
Helene B. Shavin -- *
- ----------------------------------------------- --------------------------------------- ---------------------------
All Directors and Executive Officers as a 1,321,385 11.5%
group (13 persons)
- ----------------------------------------------- --------------------------------------- ---------------------------
Jonathan Rothschild 795,043 6.9%
c/o Arterio, Inc.
1061-B Shary Circle
Concord, CA 94518
- ----------------------------------------------- --------------------------------------- ---------------------------
Masters Capital Management LLC 1,000,000 8.7%
3060 Peachtree Road, N.E., Suite 1815
Atlanta, GA 30305
=============================================== ======================================= ===========================
* Less than one percent of issued and outstanding stock.
(1) Includes 1,044,559 shares for which Mrs. Harris has sole power to vote
and dispose of; 11,334 shares for which Mr. Harris has sole power to
vote and dispose of.
(2) Includes 3,786 shares owned by Bardin LLC for the Bardin LLC
Profit-Sharing Keogh.
(3) Includes 5,637 shares owned by Ms. Milbry C. Polk, Dr. Bauman's wife;
100 shares owned by Adelaide Polk-Bauman, daughter; 100 shares owned
by Milbry Polk-Bauman, daughter; 100 shares owned by Mary Polk-Bauman,
daughter. Ms. Milbry C. Polk is the custodian for the accounts of the
three children.
(4) 13,334 shares are held jointly by Mel P. Melsheimer and his wife.
Executive Officers
The executive officers of the Company who are not directors are
set forth below. Information relating to executive officers of the Company
who are directors is set forth under "Election of Directors - Nominees."
Executive officers of the Company are elected to serve until they resign or
are removed, or are otherwise disqualified to serve, or until their
successors are elected and qualified.
Mel P. Melsheimer, age 63, has served as President, Chief
Operating Officer and Chief Financial Officer since February 1997, Chief
Compliance Officer since February 2001 and Treasurer since July 2001.
Previously, since March 1994, Harris & Harris Group utilized Mr. Melsheimer
as a nearly full-time consultant or officer of a portfolio company. 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 from August 1987 to
February 1989 President, Chief Executive Officer and Founder 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 is a graduate of
the University of Southern California (MBA) and Occidental College (B.A.).
Helene B. Shavin, age 49, has served as Vice President and
Controller since November 2001. From 1986 to 2000, Ms. Shavin was employed
at Citicorp Venture Capital Ltd. She was a Vice President at Citicorp
Venture Capital from 1999 to 2000. From 1984 to 1986, she was employed by
KPMG Peat Marwick as a Senior Accountant. Ms. Shavin is a graduate of
Queens College (B.A.) and Baruch College (MBA) and is a certified public
accountant.
Susan T. Harris, 57, has been employed by Harris & Harris
Enterprises, Inc. since July 1999, working primarily in financial public
relations. Since July 2001, she has served as its Secretary and Treasurer.
Harris & Harris Enterprises, Inc. is a wholly owned subsidiary of Harris &
Harris Group, Inc. engaged in financial services. Also since July 2001, Ms.
Harris has served as Secretary of Harris & Harris Group, Inc. She has been
an investor relations consultant since 1972, operating as a sole proprietor
prior to 1999. From 1966 to 1972, she was a securities analyst with several
securities firms, including Eastman Dillion, Union Securities, Inc., where
she was Vice President and Senior Consumer Products Analyst. She is a
graduate of Wellesley College with a B.A. in economics. Ms. Harris's
husband serves as the Chairman and Chief Executive Officer of the Company.
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 and the President of the Company and
the other executive officers of the Company for the year ended December 31,
2001.
=======================================================
Annual Compensation
=========================================================================================================================
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation Compensation
($) ($)(1) ($)(2) ($)(3)
- -------------------------------- ---------- ----------------- ------------------ ------------------ ---------------------
Charles E. Harris 2001 215,510 0 48,453 232,000
Chairman, CEO (4) 2000 208,315 1,600,287 43,267 224,805
1999 202,980 785,031 40,674 63,422
Mel P. Melsheimer 2001 243,869 0 - - 10,500
President, COO, CFO, 2000 235,727 491,227 - - 10,500
Treasurer & Chief 1999 229,690 240,974 - - 10,000
Compliance Officer
Helene B. Shavin 2001 13,333 - - - - 1,867
Controller
Susan T. Harris 2001 12,376 - - - - 1,578
Secretary
=========================================================================================================================
(1) For 1999 and 2000, these amounts represent the actual amounts earned
for the years ended December 31, 1999 and December 31, 2000 and paid
out in 2000 and 2001, respectively. The Harris & Harris Group Employee
Profit-Sharing Plan is described in Employee Benefits.
(2) Other than Mr. Harris, amounts of "Other Annual Compensation" earned
by the named executive officers for the periods presented did not meet
the threshold reporting requirements.
(3) Except for Mr. Harris, amounts reported represent the Company's
contributions on behalf of the named executive to the Harris & Harris
Group, Inc. 401(k) Plan described below. Mr. Harris's 2001 "All Other
Compensation" consists of: $10,500 401(k) Plan employer contribution;
$215,510 for his 2001 SERP contribution; and $5,990 in life insurance
premiums for the benefit of his beneficiaries.
(4) Mr. Harris has an employment agreement which is discussed below under
"Employment Agreement."
Employee Benefits
Employee Profit-Sharing Plan
On August 3, 1989, the shareholders of the Company approved the
1988 Long Term Incentive Compensation Plan (the "1988 Plan"). The Company's
1988 Plan was cancelled as of December 31, 1997, canceling all outstanding
stock options and eliminating all potential stock option grants. As a
substitution for the 1988 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 "1998 Plan") that
provided for profit sharing equal to 20 percent of the net realized income
of the Company as reflected on the Consolidated Statements of Operations
for such year, less the nonqualifying gain, if any. The 1998 Plan was
terminated by the Company as of December 31, 1999, subject to the payment
of any amounts owed on the 1999 realized gains under the 1998 Plan.
In March 2000, the Company paid out 90 percent of the profit
sharing in the amount of $1,024,696 on the 1999 realized gains; the
remaining 10 percent or $113,855 was paid out in September 2000, upon the
completion and filing of the Company's 1999 federal tax return.
As of January 1, 2000, the Company implemented the Harris & Harris
Group, Inc. Employee Profit-Sharing Plan (the "Plan") that provides for
profit sharing by its officers and employees equal to 20 percent of the net
realized income of the Company as reflected on the consolidated statements
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 is 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 is considered
nonqualifying gain, which reduces Qualifying Income.
As soon as practicable following the year-end audit, the
Compensation Committee ("Committee") will determine whether, and if so how
much, Qualifying Income exists for a plan year, and 90 percent of the
Qualifying Income will be paid out to Plan participants pursuant to the
distribution percentages set forth in the Plan. The remaining 10 percent
will be paid out after the Company has filed its federal tax return for
that year in which Qualifying Income exists. Currently, the distribution
amounts for each officer and employee are as follows: Charles E. Harris,
13.790 percent; Mel P. Melsheimer, 4.233 percent; Helene B. Shavin, 1.524
percent; and Jacqueline M. Matthews, 0.453 percent. In one case, for a
former employee, who left the Company for other than cause, the amount
earned will be accrued and may subsequently be paid to such participant.
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 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 Committee
(subject to the approval of the Company's Board of Directors) at any time
with the stipulation that no such modification, amendment or termination
may adversely affect any participant that has not consented to such
modification, amendment or termination. Nothing in this Plan shall preclude
the Committee from, for any Plan Year subsequent to the current Plan Year,
naming additional Participants in the Plan or changing the Award Percentage
of any Full Participant or New Participant (subject to the overall
percentage limitations contained herein).
The amounts payable under the Plan of $2,320,939 for the gains
realized during the year ended December 31, 2000 were paid out as follows:
90 percent in February 2001; the remaining 10 percent upon the completion
and filing of the Company's 2000 federal tax return. Additionally, during
2001, the Company decreased the profit-sharing accrual by $984,021,
bringing the cumulative accrual under the Plan to $178,282 at December 31,
2001.
On April 26, 2000 the shareholders of the Company approved the
performance goals under the Plan in accordance with Section 162(m) of the
Internal Revenue Code of 1986 ("Code"). The Code generally provides that a
public company such as the Company may not deduct compensation paid to its
chief executive officer or to any of its four most highly compensated
officers to the extent that the compensation paid to any such
officer/employee exceeds $1 million in any tax year, unless the payment is
made upon the attainment of objective performance goals that are approved
by the Company's shareholders.
On July 23, 2002, the Board of Directors passed a resolution to
modify the Employee Profit-Sharing Plan to grandfather current employees
with regard to a significant portion of the existing profit-sharing
participation in existing portfolio investments. The grandfathering would
be equal to 90 percent of the current percentage participation in the
existing non-tiny technology investments and 75 percent of the current
percentage participation in the existing tiny-technology investments. The
grandfathered participation would be honored in full (rather than, as under
the current Plan, only to the extent of appreciation through the date of
termination) by the Company whether or not an eligible participant were
still employed by the Company or were still alive (in the event of death,
the grandfathered participations would be paid to the eligible
participant's estate), unless the eligible participant had been dismissed
for cause. With regard to new investments, both current and new employees
would be required to be employed by the Company at the time of distribution
in order to participate in profit sharing. Subject to shareholder approval,
the Company will implement this modification by amending and restating the
Plan. Such shareholder approval is being sought pursuant to Proposal No. 4
of this Proxy Statement, which contains a more detailed description of the
modification.
401(k) Plan
As of January 1, 1989, the Company adopted an employee benefits
program covering substantially all employees of the Company under a 401(k)
Plan and Trust Agreement. As of January 1, 1999, the Company adopted the
Harris & Harris Pension Plan and Trust, a money purchase plan that would
allow the Company to stay compliant with the 401(k) top-heavy regulations
and deduction limitation regulations. In 2001, Congress enacted the
Economic Growth and Tax Relief Reconciliation Act of 2001 which has
increased the deduction limits for plans such as the 401(k) Plan. This
eliminated the need for the Company to maintain two separate plans.
Effective December 31, 2001, the Pension Plan merged into the 401(k) Plan,
with the 401(k) Plan being the surviving plan. Contributions to the plan
are at the discretion of the Company. During 2001, contributions to the
plan charged to operations were approximately $40,000.
Medical Benefits
On June 30, 1994, the Company adopted a plan to provide medical
and health insurance for retirees, their spouses and dependents who, at the
time of their retirement, have 10 years of service with the Company and
have attained 50 years of age or have attained 45 years of age and have 15
years of service with the Company. On February 10, 1997, the Company
amended this plan to include employees who "have seven full years of
service and have attained 58 years of age." The coverage is secondary to
any government 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, 2001 the Company had a reserve of $385,935 for the
plan.
Employment Agreement
On October 19, 1999, Charles E. Harris signed an Employment
Agreement with the Company (the "Employment Agreement"), which superseded
an employment agreement that was about to expire on December 31, 1999. The
Employment Agreement expires on December 31, 2004 ("Term"); provided, on
January 1, 2000 and on each day thereafter, the Term extends automatically
by one day unless at any time the Company or Mr. Harris, by written notice,
decides not to extend the Term, in which case the Term will expire five
years from the date of the written notice.
During the period of employment, Mr. Harris shall serve as the
Chairman and Chief Executive Officer of the Company; be responsible for the
general management of the affairs of the Company and all its subsidiaries,
reporting directly to the Board of Directors of the Company; serve as a
member of the Board for the period of which he is and shall from time to
time be elected or reelected; and serve, if elected, as President of the
Company and as an officer and director of any subsidiary or affiliate of
the Company.
Mr. Harris is to receive compensation under his Employment
Agreement in the form of base salary of $208,315 for 2000, with automatic
yearly adjustments to reflect inflation. In addition, the Board may
increase such salary, and consequently decrease it, but not below the level
provided for by the automatic adjustments described above. Mr. Harris is
also entitled to participate in the Company's Profit-Sharing Plan as well
as in all compensation or employee benefit plans or programs, and to
receive all benefits, perquisites, and emoluments for which salaried
employees are eligible. Under the Employment Agreement, the Company is to
furnish Mr. Harris with certain perquisites which include a company car,
membership in certain clubs and up to a $5,000 annual reimbursement for
personal, financial or tax advice.
The Employment Agreement provides Mr. Harris with life insurance
for the benefit of his designated beneficiaries in the amount of
$2,000,000; provides reimbursement for uninsured medical expenses, not to
exceed $10,000 per annum, adjusted for inflation, over the period of the
contract; provides Mr. Harris and spouse with long-term care insurance; and
disability insurance in the amount of 100 percent of his base salary. These
benefits are for the term of the contract.
The Employment Agreement provides severance pay in the event of
termination without cause or by constructive discharge as discussed below
and also provides for certain death benefits payable to the surviving
spouse equal to the executive's base salary for a period of two years.
In addition, Mr. Harris is entitled to receive severance pay
pursuant to the severance compensation agreement that he entered into with
the Company, effective August 15, 1990. The severance compensation
agreement provides that if, following a change in control of the Company,
as defined in the agreement, such individual's employment is terminated by
the Company without cause or by the executive within one year of such
change in control, the individual shall be entitled to receive compensation
in a lump sum payment equal to 2.99 times the individual's average
annualized compensation and payment of other welfare benefits. If Mr.
Harris's termination is without cause or is a constructive discharge, the
amount payable under the Employment Agreement will be reduced by the
amounts paid pursuant to the severance compensation agreement.
SERP
The Employment Agreement provides for the Company to adopt a
supplemental executive retirement plan (the "SERP") for the benefit of Mr.
Harris. Under the SERP, the Company will cause an amount equal to
one-twelfth of Mr. Harris's current base salary to be credited each month
(a "Monthly Credit") to a special account maintained for this purpose on
the books of the Company for the benefit of Mr. Harris (the "SERP
Account"). The amounts credited to the SERP Account will be deemed invested
or reinvested in such mutual funds or U.S. Government securities as
determined by Mr. Harris. The SERP Account will be credited and debited to
reflect the deemed investment returns, losses and expenses attributed to
such deemed investments and reinvestments. Mr. Harris's benefit under the
SERP will equal the balance in the SERP Account and such benefit will
always be 100 percent vested (i.e., not forfeitable). Mr. Harris will
determine the form and timing of the distribution of the balance in the
SERP Account; provided, however, in the event of the termination, the
balance in the SERP Account will be distributed to Mr. Harris or his
beneficiary, as the case may be, in a lump-sum payment within 30 days of
such termination. The Company established a rabbi trust for the purpose of
accumulating funds to satisfy the obligations incurred by the Company under
the SERP. During 2001, the Company accrued $215,510 in accordance with this
provision of the SERP increasing the cumulative accrual to $482,020 as of
December 31, 2001. Mr. Harris's rights to benefits pursuant to this SERP
will be no greater than those of a general creditor of the Company.
On April 26, 2000 the shareholders of the Company approved the
performance goals under the Plan in accordance with Section 162(m) of the
Internal Revenue Code of 1986 ("Code"). The Code generally provides that a
public company such as the Company may not deduct compensation paid to its
chief executive officer or to any of its four most highly compensated
officers to the extent that the compensation paid to any such
officer/employee exceeds $1 million in any tax year, unless the payment is
made upon the attainment of objective performance goals that are approved
by the Company's shareholders.
Compensation of Directors
====================================================================================================================
Pension Or
Retirement Estimated
Benefits Accrued Annual Benefits Total
As Part Of Upon Retirement Compensation
Aggregate Company's Expenses Paid To
Name of Director Compensation Directors
--------------------------------------------------------------------------------------------------------------------
Dr. C. Wayne Bardin $13,000 - - - - $13,000
Dr. Phillip A. Bauman $11,000 - - - - $11,000
G. Morgan Browne $14,172 (1) - - - - $14,172
Harry E. Ekblom $12,875 (2) - - - - $12,875
Dugald A. Fletcher $14,000 - - - - $14,000
Glenn E. Mayer $11,000 - - - - $11,000
James E. Roberts $14,000 - - - - $14,000
Charles E. Harris (4) $ 0 - - - - $ 0
Dr. Kelly S. Kirkpatrick (3) (5) $ 0 - - - - $ 0
Lori D. Pressman (3) (5) $ 0 - - - - $ 0
====================================================================================================================
For compensation of Compensated Persons, as such term is defined under Item
22 of Regulation 14a, please see Summary Compensation Table.
(1) Includes $172 paid to Mr. Browne to reimburse him for travel expenses
to attend Board meetings.
(2) Includes $1,875 paid to Mr. Ekblom to reimburse him for travel
expenses to attend Board meetings.
(3) Elected to the Board of Directors in 2002.
(4) Denotes an individual who is an "interested person" as defined by the
Investment Company Act of 1940.
(5) Denotes an individual who may be considered an "interested person"
because of consulting work done for the Company.
Effective June 18, 1998, directors who were not officers of the
Company received $1,000 for each meeting of the Board of Directors and
$1,000 for each committee meeting they attended in addition to a monthly
retainer of $500. Prior to June 18, 1998, the directors were paid $500 for
Committee meetings and no monthly retainer. The Company also reimburses its
directors for travel, lodging and related expenses they incur in attending
Board and committee meetings. The total compensation and reimbursement for
expenses paid to all directors in 2001 was $90,047.
In 1998, the Board of Directors approved that effective January 1,
1998, 50 percent of all Director fees be used to purchase Company common
stock from the Company. However, effective on March 1, 1999, the Directors
began purchasing the Company's common stock in the open market, rather than
from the Company. During 2000 and 2001, the Directors bought a total of
15,818 and 7,944 shares in the open market, respectively.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more
than 10 percent of the Company's common stock, to file reports (including a
year-end report) of ownership and changes in ownership with the Securities
and Exchange Commission (the "SEC") and to furnish the Company with copies
of all reports filed.
Based solely on a review of the forms furnished to the Company, or
written representations from certain reporting persons, the Company
believes that all persons who were subject to Section 16(a) in 2001
complied with the filing requirements.
SELECTION OF INDEPENDENT AUDITORS
(Proposal No. 2)
On February 26, 2002, the Company appointed the accounting firm of
PricewaterhouseCoopers LLP as independent public accountants for the
Company for the fiscal year ending December 31, 2002. Arthur Andersen LLP
was dismissed effective upon completion of the December 31, 2001 audit. The
decision to change accountants was approved by the Company's Audit
Committee and is subject to ratification by its stockholders.
In connection with its audits for the two most recent fiscal
years, (1) there were no disagreements with Arthur Andersen on any matter
of accounting principle or practice, financial statement disclosure,
auditing scope or procedure, whereby such disagreements, if not resolved to
the satisfaction of Arthur Andersen, would have caused them to make
reference thereto in their report on the financial statements for such
years; and (2) there have been no reportable events (as defined in Item
304(a)(1)(v) of Regulation S-K).
The reports of Arthur Andersen on the financial statements of the
Company for the past two years contained no adverse opinion or disclaimer
of opinion and were not qualified or modified as to uncertainty, audit
scope or accounting principle.
The Company has not consulted with PricewaterhouseCoopers LLP
during the last two years or subsequent interim periods on either the
application of accounting principles to a specified transaction either
completed or proposed or the type of audit opinion PricewaterhouseCoopers
LLP might issue on the Company's financial statements.
The Company requested that Arthur Andersen furnish a letter
addressed to the Securities and Exchange Commission stating whether or not
Arthur Andersen agreed with the above statements. A copy of such letter to
the SEC, dated March 1, 2002, was filed as Exhibit 16.1 to the Form 8-K
filed with the SEC on March 1, 2002.
Neither a representative of Arthur Andersen LLP nor
PricewaterhouseCoopers LLP is not expected to be present at the meeting.
Unless marked to the contrary, the shares represented by the
enclosed proxy card will be voted for ratification of the appointment of
PricewaterhouseCoopers LLP as the independent public accountant of the
Company.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS
PROPOSAL.
SALE OF RIGHTS TO PURCHASE COMMON STOCK AT NOT
LESS THAN THE GREATER OF THE MARKET VALUE OR THE
NET ASSET VALUE PER SHARE AT THE TIME OF ISSUANCE
(Proposal No. 3)
Proposal
During the coming year the Board of Directors believes it would be
in the best interest of the Company to have the ability to offer long-term
rights (which may be accompanied by or be part of other securities -- e.g.,
convertible debt or convertible preferred securities) to purchase common
stock at an exercise price that will not be less than the greater of the
market value or the net asset value per share at the time of issuance.
Section 61(a) of the Investment Company Act of 1940 (the "1940 Act")
permits a business development company such as the Company to sell such
securities on such terms (and to issue shares of common stock upon their
exercise), only if several conditions are satisfied. Specifically, such
practice must be approved by a majority of the independent directors and
shareholders of the issuer within twelve months prior to sale. In addition,
a majority of the issuer's independent directors must determine in good
faith that the issuance of such securities is in the best interests of the
Company and its shareholders and that the price at which such rights or
other securities are to be sold (which refers to the exercise or conversion
price in the case of rights such as warrants, options or conversion rights)
is not less than a price which closely approximates the market value for
the underlying shares of common stock at the time of issuance of such
rights or other securities. Finally, the long-term rights or other
securities outstanding at any particular time may not be exercisable or
convertible for more than 25% of the common stock outstanding at that time.
The subsequent issuance of shares upon exercise of properly authorized
rights is permitted without regard to net asset value or market value at
the time of exercise. The Company's Board of Directors has approved and
recommends to the shareholders for their approval a proposal authorizing
the Company, over the next year, to issue rights to purchase common stock
(subject to the 25% limitation stated above) at exercise prices that will
not be less than the greater of the market value or the net asset value per
share at the time of issuance of such rights. Upon obtaining the requisite
shareholder approval, the Company will comply with the foregoing
requirements in connection with any financing undertaken pursuant to this
proposal.
Reasons for the Proposal
The Company's management and the Board of Directors have
determined that it would be advantageous to the Company to have the ability
to sell, either alone or as part of another security, warrants, options or
rights to purchase common stock in connection with the financing and
capital raising activities of the Company. This ability may be a
cost-effective way for the Company to raise capital. The Board of Directors
of the Company has determined that it would be in the best interest of the
Company and its shareholders to increase the assets of the Company so that
the Company may be in a better position to make follow-on investments and
take advantage of attractive new investment opportunities in tiny
technology, including nanotechnology, microsystems and microelectro
mechanical systems (MEMS), augment working capital, increase the
diversification of its portfolio and achieve other net benefits to the
Company. The Company believes that its prior investment and expertise in
the tiny technology sector are likely to lead to several attractive
investment opportunities in the tiny technology sector becoming available
to the Company over the next one to two years. The Company does not have
any current plans to issue rights or other securities and would determine
to do so only after reviewing the pace at which it is investing the
proceeds of its recent rights offering and the level and attractiveness of
investment opportunities becoming available.
The Board also believes that increasing its assets will lower the
Company's expense ratio by spreading the Company's fixed costs over a
larger asset base. The issuance of additional common stock may also enhance
the liquidity of the Company's common stock on the Nasdaq National Market.
Although the Company is permitted without shareholder approval to
engage in rights offerings to its existing shareholders to sell common
stock at less than net asset value per share, these offerings must either
be non-transferable, in which case shareholders who decide not to
participate will have no means of capturing any portion of the value of the
right to acquire shares at a discount, or must be limited in such a manner
that the Company, after applying the offering discount, can increase its
capital base by only approximately 25 percent per year. In addition,
offerings of transferable rights whose exercise price is at a discount to
net asset value may be made only once per year. The Company has recently
made such a transferable rights offering and believes that the investment
opportunities in tiny technology over the coming year are likely to be
sufficient to justify raising capital in excess of the gross proceeds of
$5,927,882 raised in the recent offering (the proceeds of which, as of
August 20, 2002, were 100% invested in short-term Treasury Bills). Inasmuch
as the Board of Directors believes that it would not be in the best
interests of shareholders for the Company to engage in large scale
nontransferable rights offerings, it believes that the proposal is the best
way to give the Company the flexibility to take advantage of investment
opportunities that may arise over the next one or two years.
The Board of Directors has approved and is seeking shareholder
approval of the proposal described above to sell, either alone or as part
of another security, warrants, options or rights to purchase common stock.
The final terms of any such sale, including price, term, and vesting
requirements, will be determined by the Board of Directors at the time of
issuance. Also, the nature and amount of consideration that would be
received by the Company at the time of issuance and the use of any such
consideration would be considered and approved by the Board of Directors at
the time of issuance. Any such issuance may be made pursuant to either a
public or non-public offering, as determined by the Board of Directors in
an appropriate manner prior to the time of issuance. Any such sale would be
anticipated to result in a potential increase in the number of outstanding
shares of common stock. The long-term rights or other securities
outstanding at any particular time may not be exercisable or convertible
for more than 25% of the common stock outstanding at that time.
Dilution
Any such sale, other than to existing shareholders, would be
potentially dilutive to the voting power of existing shareholders and could
be dilutive with regard to dividends and other economic aspects of the
common stock. Because the number of shares of common stock that could be so
issued and the timing of any issuance is not currently known, the actual
dilutive effect cannot be predicted. In addition, because the exercise
price per share at the time of exercise would likely be less than the net
asset value per share at the time of exercise and because the Company could
well incur expenses in connection with any such sale, such exercise could
result in a dilution of net asset value per share at the time of exercise
for all shareholders. Such dilution would disproportionately affect
non-subscribing shareholders.
Leverage
Any long-term rights issued may be accompanied by or be part of
other securities, including convertible debt or convertible preferred
securities. If the Company issues convertible debt or convertible preferred
securities accompanied by long-term rights, such issuance would result in
the use of leverage by the Company and would require the Company to make
periodic interest or dividend payments. The use of leverage results in
additional risks and can magnify the effect of any losses. If the income
and gains earned on securities purchased with the proceeds of such
convertible securities are greater than the cost of leverage, the Company's
return on the shares will be greater than if leverage had not been used.
Conversely, if the income or gains from the securities purchased with such
proceeds does not cover the cost of leverage, the return to the Company
will be less than if leverage had not been used. There is no assurance that
a leveraging strategy will be successful.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
AMENDMENT AND RESTATEMENT OF THE COMPANY'S EMPLOYEE PROFIT-SHARING PLAN
(Proposal No. 4)
Proposal
As of July 23, 2002, the Board adopted the Amended and Restated
Harris & Harris Group Inc. Employee Profit-Sharing Plan (the "2002 Plan").
The purpose for the amendment and restatement is to provide for an orderly
transition of Company management over the next several years, by providing
that current participants will continue participation in the Company's
current investments on a reduced basis following their leaving the Company,
while allowing new participants to participate in the Company's current
investments as well as new investments. The following description of the
2002 Plan is subject to the actual terms of the 2002 Plan, which is
attached hereto as Appendix A. The effectiveness of this amendment and
restatement is subject to approval by the Company's shareholders and,
absent such approval, the current terms and conditions of the Employee
Profit Sharing Plan will remain in effect. If approved, the provisions of
the 2002 Plan will go into effect no later than January 1, 2003. The
Company seeks shareholder approval of the 2002 Plan in order that all
payments made pursuant to the 2002 Plan will continue to qualify as
"performance based compensation" within the meaning of Section 162(m) of
the Internal Revenue Code of 1986, as amended.
The modifications implemented under the 2002 Plan will not
increase the aggregate maximum compensation that may be paid to
participants.
As of January 1, 2000, the Company implemented the Harris & Harris
Group, Inc. Employee Profit-Sharing Plan that provides for profit sharing
by its officers and employees up to a maximum of 20 percent of the net
realized income of the Company as reflected on the consolidated statements
of operations of the Company for such year, less the nonqualifying gain, if
any.
Under the 2002 Plan, net realized income of the Company includes
investment income, realized qualifying gains and losses, and operating
expenses (including taxes paid or payable by the Company), but is
calculated without regard to dividends paid or distributions made to
shareholders, payments under the Plan, unrealized gains and losses, and
loss carry-overs from other years ("Qualifying Income"). The portion of net
after-tax realized gains attributable to asset values as of September 30,
1997 is considered nonqualifying gain, which reduces Qualifying Income.
Under the 2002 Plan, awards previously granted to the Plan's four
current Participants (Messrs. Harris and Melsheimer and Mss. Shavin and
Matthews, herein referred to as the "grandfathered participants") will be
reduced by 10% with respect to "Non-Tiny Technology Investments" (as
defined in the 2002 Plan) and by 25% with respect to "Tiny Technology
Investments" (as defined in the 2002 Plan) and will become permanent. These
reduced awards are herein referred to as "grandfathered participations."
The amount by which such awards are reduced will be allocable and
reallocable each year by the Committee among current and new participants
as awards under the 2002 Plan. The grandfathered participations will be
honored by the Company whether or not the grandfathered participant is
still employed by the Company or is still alive (in the event of death, the
grandfathered participations will be paid to the grandfathered
participant's estate), unless the grandfathered participant is dismissed
for cause, in which case all awards, including the grandfathered
participations, will be immediately cancelled and forfeited. With regard to
new investments and follow-on investments made after the date on which the
first new employee begins participating in the 2002 Plan, both current and
new participants will be required to be employed by the Company at the end
of a plan year in order to participate in profit sharing on such
investments with respect to such year.
As soon as practicable following the year-end audit, the
Compensation Committee ("Committee") will determine whether, and if so how
much, Qualifying Income exists for a plan year, and 90 percent of the
awards will be paid out to 2002 Plan participants pursuant to the
distribution percentages for the various categories of Qualifying Income
determined pursuant to the 2002 Plan. The remaining 10 percent will be paid
out after the Company has filed its federal tax return for that year in
which Qualifying Income exists.
Notwithstanding any provisions of the 2002 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
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 would exceed such amount, the awards will be reduced pro
rata.
The 2002 Plan generally may be modified, amended or terminated by
the Committee at any time. Notwithstanding the foregoing, the grandfathered
participations may not be modified further. Nothing in the 2002 Plan will
preclude the Committee from naming additional Participants in the 2002 Plan
or, except for grandfathered participations, changing the Award Percentage
of any Participant (subject to the overall percentage limitations contained
in the 2002 Plan).
New Plan Benefits
The benefits or amounts that will be received by or allocated to
2002 Plan participants are not determinable because awards under the 2002
Plan, other than with respect to the grandfathered participations, are
awarded in the Committee's discretion. The grandfathered participations are
set forth below:
Grandfathered Participations
- ---------------------------------- ---------------------------------- ----------------------------
Officer/Employee Non-Tiny Technology (%) Tiny Technology (%)
- ---------------------------------- ---------------------------------- ----------------------------
Charles E. Harris 12.4110 10.34250
- ---------------------------------- ---------------------------------- ----------------------------
Mel. P. Melsheimer 3.8097 3.17475
- ---------------------------------- ---------------------------------- ----------------------------
Helene Shavin 1.3716 1.14300
- ---------------------------------- ---------------------------------- ----------------------------
Jacqueline M. Matthews .4077 .33975
- ---------------------------------- ---------------------------------- ----------------------------
Accordingly, an additional 2% of Qualifying Income with respect to
grandfathered Non-Tiny Technology Investments, 5% of Qualifying Income with
respect to grandfathered Tiny Technology Investments and the full 20% of
Qualifying Income with respect to new investments are available for
allocation and reallocation from year to year.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE "FOR" THIS PROPOSAL.
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.
Annual Reports on Form 10-K
- ---------------------------
The Company's Annual Report on Form 10-K, as filed with the SEC,
is being delivered with this proxy statement to those shareholders who have
not yet received a copy of such Annual Report on Form 10-K as of the
mailing of this proxy statement.
The Company undertakes to provide, without charge, to each
shareholder as of August 16, 2002, upon the written request of such
shareholder, a copy of the Company's Annual Report on Form 10-K, including
the financial statements and the financial statement schedules, required to
be filed with the SEC for the Company's most recent fiscal year. Any
shareholder who would like to request a copy of the Company's most recent
Annual Report on Form 10-K may do so by submitting a written request, which
shall contain a representation in good faith that such shareholder was a
beneficial owner as of August 16, 2002 of securities of the Company
entitled to vote, to the following address:
Investor Relations
Harris & Harris Group, Inc.
One Rockefeller Plaza, Suite 1430
New York, NY 10020
Submission Of Shareholder Proposals
- -----------------------------------
Any shareholder proposals intended to be presented for inclusion
in the Company's proxy statement and form of proxy for the next annual
meeting of shareholders to be held in 2003 must be received in writing by
the Secretary of the Company at Harris & Harris Group, Inc., One
Rockefeller Plaza, Rockefeller Center, New York, New York 10020 no later
than November 22, 2002, in order for such proposals to be considered for
inclusion in the proxy statement and proxy relating to the 2003 annual
meeting of shareholders. Submission of a proposal does not guarantee
inclusion in the proxy statement, as the requirements of certain federal
laws and regulations must be met by such proposals.
Under the Company's Bylaws, nominations for director may be made
only by the Board or the Nominating Committee, or by a shareholder entitled
to vote who has delivered written notice to the Secretary of the Company
(containing certain information specified in the Bylaws) not less than 90
days nor more than 120 days prior to the anniversary of the date of the
immediately preceding annual meeting of shareholders; provided, however,
that in the event that the annual meeting is called for a date that is not
within 30 days before or after such anniversary date, notice by the
shareholder in order to be timely must be so received not later than the
close of business on the 10th day following the day on which notice of the
date of the annual meeting was mailed or such public disclosure of the date
of the annual meeting was made, whichever first occurs. The Bylaws also
provide that no business may be brought before an annual meeting of the
shareholders except as specified in the notice of the meeting or as
otherwise properly brought before the meeting by or at the direction of the
Board or by a shareholder entitled to vote who has delivered written notice
to the Secretary of the Company (containing certain information specified
in the Bylaws) not less than 90 days nor more than 120 days prior to the
anniversary of the date of the immediately preceding annual meeting of
shareholders; provided, however, that in the event that the annual meeting
is called for a date that is not within 30 days before or after such
anniversary date, notice by the shareholder in order to be timely must be
so received not later than the close of business on the 10th day following
the day on which notice of the date of the annual meeting was mailed or
such public disclosure of the date of the annual meeting was made,
whichever first occurs.
Rule 14a-4 of the Securities and Exchange Commission's proxy rules
allows the Company to use discretionary voting authority to vote on matters
coming before an annual meeting of shareholders, if the Company does not
have notice of the matter at least 45 days before the anniversary of the
date on which the Company first mailed its proxy materials for the prior
year's annual meeting of shareholders or the date specified by the advance
notice provision in the Company's Bylaws. The Company's Bylaws contain such
an advance notice provision as described above. For the Company's Annual
Meeting of Shareholders expected to be held on April 23, 2003, shareholders
must submit such written notice to the Secretary of the Company in
accordance with the Company's advance notice provision, as described above.
A copy of the full text of the Bylaw provisions discussed above
may be obtained by writing to the Secretary of the Company.
By Order of the Board of Directors
New York, New York /s/ Susan T. Harris
August 26, 2002 ---------------------------------------
Susan T. Harris
Secretary
APPENDIX A
----------
HARRIS & HARRIS GROUP, INC.
AMENDED AND RESTATED
EMPLOYEE PROFIT SHARING PLAN
Adopted as of July 23, 2002,
effective as of the Effective Date (as defined herein)
Purpose of Plan
The purpose of this Plan is to provide a special incentive
for designated key employees of Harris & Harris Group, Inc., a New York
corporation (the "Company") to increase the future profits of the Company, by
allowing such employees to share in the historical after-tax profits of the
Company as set forth herein. The purpose of this restatement is to provide for
the participation of additional Participants in the Grandfathered Investments
(as defined herein) and to continue to compensate the Grandfathered
Participants with respect to the Grandfathered Investments following
termination of such individuals' employment with the Company for reasons other
than Cause (as defined herein), in each case as set forth herein.
SECTION 1.
Definitions
As used herein, unless otherwise required by the context,
the following terms shall have these meanings:
"Award" shall mean an award made or due to a Participant
pursuant to the provisions of the Plan.
"Award Percentage" shall mean, with respect to any
Participant for any Plan Year, the percentages established by the Committee
for such Participant for such Plan Year (or, in the case of a Terminating
Participant, for the Plan Year in which the Participant became a Terminating
Participant) with respect to the various subsets of Qualifying Income
contemplated by the Plan; provided, however, that the aggregate Award
Percentages for all Participants for any Plan Year may not exceed 20% of
Qualifying Income; and provided, further, that the Grandfathered Participants'
Grandfathered Award Percentages with respect to the Grandfathered Investments
shall be as set forth in Section 3. Except for the Plan Year in which the
Effective Date occurs, the Award Percentages with respect to the various
subsets of Qualifying Income contemplated by the Plan shall be established no
later than January 1 of each Plan Year. In the event that such Award
Percentages are not established by that date, the Award Percentages from the
prior Plan Year shall continue to apply.
"Board" shall mean the board of directors of the Company.
"Cause" shall mean: (1) that an employee has materially
failed to perform the duties and responsibilities of his or her position with
the Company for reasons other than disability or has been insubordinate; (2)
that an employee has violated any securities law or regulation, lost
appropriate required licensing, been convicted of a felony or a crime
involving moral turpitude (regardless of whether involving the Company), or
has not complied to a significant degree with any policy of the Company; or
(3) that an employee has committed any act of fraud, embezzlement, or similar
conduct against the Company or any of its shareholders constituting
dishonesty, intentional breach of fiduciary obligation, or intentional and
material wrongdoing or gross misfeasance or that results in a material
economic detriment to the assets, business, or prospects of the Company or any
of its shareholders. Whether there is Cause for the termination of any
person's employment shall be determined by the chief executive officer of the
Company and, with respect to the chief executive officer or president of the
Company, the Board.
"Committee" shall mean the Compensation Committee of the
Board.
"Effective Date" with respect to the Plan shall be the date
on which the Plan is approved by the shareholders of the Company or, if the
Committee so determines, any date after such shareholder approval and not
later than January 1, 2003.
"Fair Market Value" shall mean, with respect to any asset of
the Company, the value thereof most recently determined by the Committee,
using the valuation methodologies set forth in the Company's 10-K or other
filings under the 1940 Act with respect to the determination of the "net asset
value" of the Company's assets, provided, however, that in no event shall this
Plan be interpreted as giving the Committee the power to determine the "net
asset value" of the Company's assets for purposes of the 1940 Act.
"Grandfathered Investments" shall mean, collectively, the
Tiny Technology Investments and the Non-Tiny Technology Investments.
"Grandfathered Non-Tiny Technology Award Percentage" shall
mean (a) with respect to each Grandfathered Participant, the reduced
percentage set forth in Section 3 for such Participant with respect to the
Non-Tiny Technology Investments plus, on a Plan-Year by Plan-Year basis, any
Incremental Percentage (as defined in Section 3) awarded to such Participant
for such Plan Year, and (b) with respect to each New Participant, the Award
Percentage, if any, determined by the Committee for such Participant for a
particular Plan Year with respect to Grandfathered Non-Tiny Technology
Qualifying Income for such Plan Year.
"Grandfathered Non-Tiny Technology Qualifying Income" for a
Plan Year shall mean the Qualifying Income of the Company for such Plan Year
attributable to the Non-Tiny Technology Investments, less any Terminating
Qualifying Income for such Plan Year attributable thereto.
"Grandfathered Participants" shall mean the following
persons who are Participants on the date of adoption of the Plan: Charles E.
Harris, Mel P. Melsheimer, Helene Shavin and Jacqueline M. Matthews.
"Grandfathered Participations" shall have the meaning set
forth in Section 3.
"Grandfathered Tiny Technology Award Percentage" shall mean
(a) with respect to each Grandfathered Participant, the reduced percentage set
forth in Section 3 for such Participant with respect to the Tiny Technology
Investments plus, on a Plan- Year by Plan-Year basis, any Incremental
Percentage (as defined in Section 3) awarded to such Participant for such Plan
Year, and (b) with respect to each New Participant, the Award Percentage, if
any, determined by the Committee for such Participant for a particular Plan
Year with respect to Grandfathered Tiny Technology Qualifying Income for such
Plan Year.
"Grandfathered Tiny Technology Qualifying Income" for a Plan
Year shall mean the Qualifying Income of the Company for such Plan Year
attributable to the Tiny Technology Investments, less any Terminating
Qualifying Income for such Plan Year attributable thereto.
"Incremental Percentage" shall have the meaning set forth in
Section 3.
"Net Realized Income" for a Plan Year shall mean the net
realized income of the Company as reflected in the consolidated statement of
operations of the Company for such Plan Year. For greater clarity, such amount
shall include investment income, fee, service, and other income, realized
gains and losses, and operating expenses (including taxes paid or payable by
the Company for such Plan Year), but shall be calculated without regard to
dividends paid or distributions made to shareholders, payments under this
Plan, unrealized gains or losses, and loss carryovers from other years.
"New Investment" shall mean any investment that is made by
the Company after the first New Participant Measuring Date that occurs after
the date of adoption of the Plan, including any additional investment made
after such date in a Grandfathered Investment.
"New Investment Award Percentage" shall mean the Award
Percentage, if any, determined by the Committee for any Participant for a
particular Plan Year with respect to New Investment Qualifying Income for such
Plan Year.
"New Investment Qualifying Income" for a Plan Year shall
mean the Qualifying Income of the Company for such Plan Year attributable to
the New Investments.
"New Participant" shall mean each Participant who begins
participation in the Plan on or after the Effective Date. The Committee shall
determine the date as of which an individual shall become a New Participant or
such other date not earlier than the later of the Effective Date or the last
day of the year prior to the year in which such person became an employee of
the Company.
"New Participant Measuring Date" shall mean, with respect to
a New Participant, such date as the Committee shall determine in writing on or
before the first award of an Award Percentage for any subset of Qualifying
Income to such New Participant.
"1940 Act" shall mean the Investment Company Act of 1940, as
amended.
"Non-Tiny Technology Investments" shall mean the Company's
investments on the first New Participant Measuring Date that occurs after the
date of adoption of the Plan in the following entities: PHZ Capital Partners,
L.P.; AlphaSimplex Group, LLC; Experion Systems, Inc.; Exponential Business
Development Company; Kriton Medical, Inc.; NeuroMetrix, Inc.; Questech
Corporation and investments in other companies that are not involved in
nanotechnology, microelectromechanical systems or microsystems, in any case,
which have been made on or prior to the first New Participant Measuring Date
that occurs under the Plan.
"Participant" shall mean each person who is or was
designated by the Committee as a participant in the Plan, including each
Grandfathered Participant, Terminating Participant, and New Participant.
"Plan" shall mean the Harris & Harris Group, Inc. Amended
and Restated Employee Profit Sharing Plan, adopted as of July 23, 2002, as
amended from time to time.
"Plan Year" shall mean the calendar year.
"Post-Participation Qualifying Income" for any New
Participant for a Plan Year shall mean the New Investment Qualifying Income of
the Company for such Plan Year, less the pre-participation nonqualifying gain,
if any, with respect to such New Participant. With respect to a New
Participant, pre-participation nonqualifying gain is intended to reduce New
Investment Qualifying Income for such person by the portion of net after-tax
realized gains attributable to asset values as of such person's New
Participant Measuring Date, and shall be so interpreted. For each New
Participant, the pre-participation nonqualifying gain shall be the aggregate
of, with respect to each portfolio investment position or portion thereof
constituting a New Investment sold or otherwise disposed of by the Company
during the Plan Year (determined on a first-in, first-out basis): (1) the Fair
Market Value as of such New Participant's New Participant Measuring Date of
any such position or portion, minus (2) the sum of (a) the tax basis of such
position or portion as of such date, plus (b) a portion of the costs of such
sale or other disposition equal to the ratio (which shall not be greater than
1.0) of the excess of (1) above over (2)(a) above, divided by the gain
realized by the Company on the sale or other disposition of such position or
portion (ignoring sale or disposition costs), plus (c) the amount of taxes
payable by the Company for the Plan Year attributable to the excess of (1)
above over the sum of (2)(a) and (b) above, plus (d) an amount equal to the
expenses of the Company for such Plan Year (other than the amount of taxes
attributable to sales or other dispositions of portfolio investment positions
or portions thereof and expenses of such sales or dispositions) multiplied by
a fraction the numerator of which is the excess of (1) above over (2)(a) above
and the denominator of which is the aggregate gross income of the Company for
such Plan Year before expenses and taxes of any sort.
For purposes of this entire definition, any calculation that
would otherwise yield a negative number as the solution to the calculation
shall be deemed to yield an answer of zero.
Solely for purposes of determining the amount of the
pre-participation nonqualifying gain with respect to any New Participant, if
the proceeds received from any sale or other disposition of a New Investment
position or portion thereof are less than the Fair Market Value of such
position or portion as of the relevant New Participant Measuring Date, then
the Fair Market Value of such position or portion as of the New Participant
Measuring Date shall be deemed to equal the amount of such proceeds.
In the event that multiple portfolio investment positions
(or portions thereof) are sold or otherwise disposed of during a Plan Year,
some of which are sold or disposed of at a gain and some of which are sold or
disposed of at a loss, for purposes of calculating the pre-participation
nonqualifying gain the aggregate net realized gain, if any, attributable to
such sales or dispositions shall be allocated between or among the gain
positions based on the relative amounts of the gains realized on the gain
positions, consistent with the purpose of this Plan.
"Qualifying Income" for a Plan Year shall mean the Net
Realized Income of the Company for such Plan Year, less the nonqualifying
gain, if any. Nonqualifying gain is intended to reduce Net Realized Income by
the portion of net after-tax realized gains attributable to asset values as of
September 30, 1997, and shall be so interpreted. The nonqualifying gain shall
be the aggregate of, with respect to each portfolio investment position or
portion thereof sold or otherwise disposed of by the Company during the Plan
Year (determined on a first-in, first-out basis) and held by the Company on
September 30, 1997: (1) the Fair Market Value as of September 30, 1997 of such
position or portion, minus (2) the sum of (a) the tax basis of such position
or portion as of September 30, 1997, plus (b) a portion of the costs of such
sale or disposition equal to the ratio (which shall not be greater than 1.0)
of the excess of (1) over (2)(a) above, divided by the gain realized by the
Company on the sale or other disposition of such position or portion (ignoring
sale or disposition costs), plus (c) the amount of taxes payable by the
Company for the Plan Year attributable to the excess of (1) above over the sum
of (2)(a) and (b) above, plus (d) an amount equal to the expenses of the
Company for such Plan Year (other than the amount of taxes attributable to
sales or other dispositions of portfolio investment positions or portions
thereof and expenses of such sales or dispositions) multiplied by a fraction
the numerator of which is the excess of (1) above over (2)(a) above and the
denominator of which is the aggregate gross income of the Company for such
Plan Year before expenses and taxes of any sort.
For purposes of this entire definition, any calculation (or
part thereof) that would otherwise yield a negative number as the solution to
the calculation (or part) shall be deemed to yield an answer of zero.
For purposes of determining the amount of the nonqualifying
gain, if the proceeds received from any sale or other disposition of a
portfolio investment position or portion thereof are less than the Fair Market
Value of such position or portion as of September 30, 1997, then the Fair
Market Value of such position or portion as of September 30, 1997 shall be
deemed to equal such proceeds.
In the event that multiple portfolio investment positions
(or portions thereof) are sold or otherwise disposed of during a Plan Year,
some of which are sold or disposed of at a gain and some of which are sold or
disposed of at a loss, for purposes of calculating the nonqualifying gain the
aggregate net realized gain, if any, attributable to such sales or
dispositions shall be allocated between or among the gain positions based on
the relative amounts of the gains realized on the gain positions, consistent
with the purpose of this Plan.
"Terminating Participant" shall mean a person whose full
participation in Qualifying Income has been terminated other than for Cause
pursuant to this Plan. Following the action or event in a Plan Year that
results in a Participant becoming a Terminating Participant, the person shall
remain a Participant for that Plan Year and for succeeding Plan Years for
purposes of such Participant's rights to Terminating Qualifying Income. A
Terminating Participant shall cease to be a Participant when all portfolio
investments held by the Company at the time such person became a Terminating
Participant are sold or otherwise disposed of by the Company (determined on a
first-in, first-out basis). As of the Effective Date, one Participant, Rachel
Pernia, is the sole Terminating Participant.
"Terminating Qualifying Income" for any Terminating
Participant for a Plan Year shall mean the Net Realized Income of the Company
for such Plan Year, less the terminating nonqualifying gain, if any. With
respect to any Terminating Participant, terminating nonqualifying gain is
intended to reduce Net Realized Income by the portion of net after-tax
realized gains attributable to increases in asset values after the time such
person becomes a Terminating Participant, as well as by the amount of
nonqualifying gain (as defined in "Qualifying Income"), and shall be so
interpreted. For each Terminating Participant, the terminating nonqualifying
gain shall be the aggregate of:
(1) with respect to all or any portion of any portfolio
investment position sold or otherwise disposed of by the Company during the
Plan Year (determined on a first-in, first-out basis) and held by the Company
on September 30, 1997, (a)(i) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), plus (ii) the excess of the
Fair Market Value of such position or portion as of September 30, 1997 over
the tax basis of such position or portion as of September 30, 1997, minus
(iii) the excess of the Fair Market Value of such position or portion as of
the last day of the quarter ending on or immediately prior to the date such
person became a Terminating Participant over the tax basis of such position or
portion thereof as of such date, minus (b) the sum of (i) a portion of the
costs of sale or other disposition equal to the ratio (which shall not be
greater than 1.0) of (a) above divided by the gain realized by the Company on
the sale or other disposition of such position or portion (ignoring sale or
disposition costs), plus (ii) the amount of taxes payable by the Company for
the Plan Year attributable to the excess of (a) over (b)(i) above, plus
(2) with respect to all or any portion of any portfolio
investment position sold or otherwise disposed of by the Company during the
Plan Year (determined on a first-in, first-out basis), acquired by the Company
after September 30, 1997, and held by the Company on the date such person
became a Terminating Participant, (a) the gain realized on such sale or other
disposition (ignoring sale or disposition costs), minus the excess of the Fair
Market Value of such position or portion as of the last day of the quarter
ending on or immediately prior to the date such person became a Terminating
Participant over the tax basis of such position or portion as of such date,
minus (b) the sum of (i) a portion of the costs of sale or other disposition
equal to the ratio (which shall not be greater than 1.0) of (a) above divided
by the gain realized by the Company on the sale or other disposition of such
position or portion thereof (ignoring sale or disposition costs), plus (ii)
the amount of taxes payable by the Company for the Plan Year attributable to
the excess of(a) over (b)(i) above, plus
(3) with respect to all or any portion of any portfolio
investment position sold or otherwise disposed of by the Company during the
Plan Year (determined on a first-in, first-out basis) and acquired by the
Company after the date such person became a Terminating Participant, (a) the
gain realized on such sale or other disposition (ignoring sale or disposition
costs), minus (b) the sum of(i) the costs of sale or other disposition, plus
(ii) the amount of taxes payable by the Company for the Plan Year attributable
to such sale or other disposition, minus
(4) an amount equal to the expenses of the Company for such
Plan Year (other than the amount of taxes attributable to sales or other
dispositions of portfolio investment positions or portions thereof and
expenses of such sales or dispositions) multiplied by a fraction the numerator
of which is the excess of (a) the aggregate net realized gain from the sale or
other disposition of portfolio investment positions or portions thereof
(ignoring sale or disposition costs) over (b) the sum of (1)(a) above, (2)(a)
above, and (3)(a) above and the denominator of which is the aggregate gross
income of the Company for such Plan Year before expenses and taxes of any
sort.
For purposes of this entire definition, any calculation that
would otherwise yield a negative number as the solution to the calculation
shall be deemed to yield an answer of zero.
Solely for purposes of determining the amount of the
terminating nonqualifying gain with respect to any Terminating Participant,
(i) if the proceeds received from any sale or other disposition of a portfolio
investment position or portion thereof are less than the Fair Market Value of
such position or portion as of September 30, 1997, then the Fair Market Value
of such position or portion as of September 30, 1997 shall be deemed to equal
the amount of such proceeds, and (ii) if the proceeds received from any sale
or other disposition of a portfolio investment position or portion thereof are
less than the Fair Market Value of such position or portion as of the last day
of the quarter ending on or immediately prior to the date such person became a
Terminating Participant, then the Fair Market Value of such position or
portion as of the last day of the quarter ending on or immediately prior to
the date such person became a Terminating Participant shall be deemed to equal
the amount of such proceeds.
For purposes of (2) above, in the event the relevant
portfolio investment position or portion thereof was acquired after the last
day of the quarter ending on or immediately prior to the date a person became
a Terminating Participant, the Fair Market Value of such position as of the
end of such quarter shall be the acquisition cost.
In the event that multiple portfolio investment positions
(or portions thereof) are sold or otherwise disposed of during a Plan Year,
some of which are sold or disposed of at a gain and some of which are sold or
disposed of at a loss, for purposes of calculating the terminating
nonqualifying gain, the aggregate net realized gain, if any, attributable to
such sales or dispositions shall be allocated between or among the gain
positions based on the relative amounts of the gains realized on the gain
positions, consistent with the purpose of this Plan.
"Tiny Technology Investments" shall mean the Company's
investment as of the first New Participant Measuring Date that occurs after
the date of adoption of the Plan in NanoOpto Corporation; Nanopharma Corp.;
Nantero, Inc.; NeoPhotonics Corporation; Continuum Photonics, Inc.,
Nanotechnologies, Inc.; Optiva, Inc. and other investments in other companies
involved in nanotechnology, microelectromechanical systems or microsystems
which have been made on or prior to the Effective Date.
SECTION 2.
Amount of Award: Payment of Award
As soon as practicable following the end of each Plan Year,
the Committee shall determine whether, and if so, how much, Qualifying Income
exists with respect to such Plan Year and whether, and if so, how much,
Terminating Qualifying Income, Grandfathered Non-Tiny Technology Qualifying
Income, Grandfathered Tiny Technology Qualifying Income, New Investment
Qualifying Income and Post-Participation Qualifying Income for each New
Participant exists. The Committee shall make a provisional determination,
based on accruals provided by management, within 45 days after the end of each
Plan Year.
Not later than 60 days after the end of each Plan Year the
Company shall make the following cash payments:
(1) to each Terminating Participant an Award in an amount
equal to the product of (a) 90% of the estimated Terminating Qualifying Income
for such Terminating Participant for such Plan Year, multiplied by (b) such
Terminating Participant's Award Percentage;
(2) to each Grandfathered Participant whose employment has
not been terminated for Cause, and to each New Participant who was employed by
the Company on December 31 of such Plan Year and whose employment has not been
terminated for Cause, an Award in an amount equal to the sum of (a) the
product of (x) 90% of the estimated Grandfathered Non-Tiny Technology
Qualifying Income for such Plan Year, multiplied by (y) such Participant's
Grandfathered Non-Tiny Technology Award Percentage, plus (b) the product of
(x) 90% of the estimated Grandfathered Tiny Technology Qualifying Income for
such Plan Year, multiplied by (y) such Participant's Grandfathered Tiny
Technology Award Percentage;
(3) to each Grandfathered Participant who was employed by
the Company on December 31 of such Plan Year and whose employment has not been
terminated for Cause, an Award in an amount equal to the sum of (a) the
product of (x) 90% of the estimated New Investment Qualifying Income for such
Plan Year, multiplied by (y) such Grandfathered Participant's New Investment
Award Percentage, plus (b) the product of (x) 90% of the estimated excess of
(I) the product of New Investment Qualifying Income for such Plan Year,
multiplied by the aggregate New Investment Award Percentages for such Plan
Year of all New Participants over (II) the amount, calculated separately for
each New Participant and then aggregated, of the product of the
Post-Participation Qualifying Income for each such New Participant for such
Plan Year, multiplied by such New Participant's New Investment Award
Percentage for such Plan Year, multiplied by (y) the product of 1.0 multiplied
by a fraction, the numerator of which is such Grandfathered Participant's New
Investment Award Percentage for such Plan Year and the denominator of which is
the aggregate of the New Investment Award Percentages for such Plan Year of
all Grandfathered Participants; and
(4) to each New Participant who was employed by the Company
on December 31 of such Plan Year and whose employment has not been terminated
for Cause, an Award in an amount equal to the product of (a) 90% of the
estimated Post-Participation Qualifying Income for such New Participant for
such Plan Year, multiplied by (b) such New Participant's New Investment Award
Percentage.
Not later than 45 days after the filing of the Company's
federal income tax return for such Plan Year, the Committee shall finalize the
foregoing determinations and pay to the Participants any remaining Award
amounts owed to the Participants, determined under principles consistent with
the preceding sentence. In the event that any portion of the maximum amount
payable under this Plan with respect to any category of Qualifying Income for
a Plan Year is not required to be paid pursuant to the foregoing provisions
because (subject to Section 3) a Participant's employment terminated on or
prior to December 31 of such Plan Year or for Cause, the remaining portion of
such maximum amount shall be paid to the Participants eligible to participate
in that category of Qualifying Income based on their relative Award
Percentages for that category of Qualifying Income, provided, however, that
the aggregate amount payable to all Participants for a Plan Year shall not
exceed 20% of the Qualifying Income for the Plan Year. In the event that the
aggregate amount of all Awards payable for any Plan Year shall be greater than
20% of the Qualifying Income for such Plan Year (a "Plan prohibited payment"),
each Participant's Award for such Plan Year shall be reduced, pro-rata within
each category of Qualifying Income, by the minimum amount necessary to allow
the aggregate Awards for such Plan Year not to constitute a Plan prohibited
payment. If such a reduction is necessary, each Participant shall
unconditionally forfeit the amount of any reduction made pursuant to this
paragraph.
In order to be eligible to receive an Award under this
Section 2, a Participant must be employed by the Company on the final day of
the Plan Year to which such Award relates; provided, however, that the
foregoing shall not apply to Grandfathered Participants with respect to their
Grandfathered Participations; and provided, further, however, if the
employment of any Participant was terminated for Cause, such former employee
shall cease to be a Participant and any Awards not yet paid to or earned by
such person shall automatically be forfeited.
Notwithstanding any other provision of the Plan, in no event
shall the aggregate amount of all Awards payable for any Plan Year during
which the Company remains a "business development company" within the meaning
of the 1940 Act be greater than the maximum percentage of the Company's "net
income after taxes" (within the meaning of Section 57(n)(l)(B) of the 1940 Act
or any successor provision thereto) permitted to be paid as profit sharing
under the 1940 Act or other applicable law. In the event that any portion of
any Award may not be paid pursuant to the limitation set forth in the
preceding sentence (a "1940 Act prohibited payment"), each Participant's Award
for such Plan Year shall be reduced, pro-rata within each category of
Qualifying Income, by the minimum amount necessary to allow the aggregate
Awards for such Plan Year not to constitute a 1940 Act prohibited payment. If
such a reduction is necessary, each Participant shall unconditionally forfeit
the amount of any reduction made pursuant to this paragraph.
Further, notwithstanding any provision of this Plan to the
contrary, in the case of any Participant for any Plan Year, no Award of more
than the excess of $1,000,000 over the amount of other compensation paid by
the Company to such Participant for such Plan Year (after any Award reduction
described in this Section 2) shall be paid unless and until the shareholders
of the Company have approved the making of such Awards pursuant to the
requirements of Section 162(m) of the Internal Revenue Code of 1986, as
amended.
SECTION 3.
Grandfathered Participations
As of the Effective Date, the Grandfathered Participants'
Award Percentages with respect to the Non-Tiny Technology Investments shall be
reduced by ten percent (10%), as follows: Charles E. Harris, from 13.790% to
12.411%; Mel P. Melsheimer, from 4.233% to 3.8097%; Helene Shavin, from 1.524%
to 1.3716%; and Jacqueline M. Matthews, from 0.453% to 0.4077%. As of the
Effective Date, the Grandfathered Participants' Award Percentages shall be
reduced with respect to the Tiny Technology Investments by twenty-five percent
(25%), as follows: Charles E. Harris, from 13.790% to 10.3425%; Mel P.
Melsheimer, from 4.233% to 3.17475%; Helene Shavin, from 1.524% to 1.143%; and
Jacqueline M. Matthews, from 0.453% to 0.33975%. The reduced Award Percentages
set forth in this paragraph of Section 3 are herein referred to as the
"Grandfathered Participations." The aggregate of the 10% reduction in the
Award Percentages with respect to the Non-Tiny Technology Investments and the
25% reduction in the Award Percentages with respect to the Tiny Technology
Investments is herein referred to as the "Incremental Percentage".
The termination of a Grandfathered Participant's employment
with the Company shall have no adverse effect upon such Participant's
Grandfathered Participations, unless such Grandfathered Participant is
terminated by the Company for Cause, in which case such Grandfathered
Participant's Grandfathered Participations (as well as all other Awards) shall
be immediately cancelled and forfeited. The death of a Grandfathered
Participant shall have no adverse effect upon such Participant's Grandfathered
Participations.
A Grandfathered Participant's rights under the Plan with
respect to such participant's Award Percentage, if any, with respect to a New
Investment or any other investment made by the Company other than the
Grandfathered Investments shall be as determined by the Committee in its sole
discretion and otherwise subject to the terms of the Plan.
The Incremental Percentages shall be allocated as
Grandfathered Non-Tiny Technology Award Percentages and Grandfathered Tiny
Technology Award Percentages each Plan Year among one or more Participants as
the Committee shall determine in its sole discretion (which allocation may
include the Grandfathered Participants).
SECTION 4.
Administration
The Plan shall be administered by the Committee with
decisions taken in accordance with its normal procedures. Members of the
Committee shall not be liable for any acts or omissions to act in the
administration of the Plan.
A secretary selected by the Committee shall keep full and
accurate minutes of all meetings and records of the actions of the Committee,
and these minutes and records shall be at all times open to inspection by the
members of the Board. The secretary shall periodically transmit to the Board
certified copies of any statements or schedules prepared in connection with
the administration of the Plan.
SECTION 5.
Amendment, Termination or Modification of the Plan
The Plan at any time and for any reason may be modified,
amended, or terminated by the Committee; provided, however, that the
Grandfathered Participations may not be modified or amended. Nothing in this
Plan shall preclude the Committee from, for any Plan Year, naming additional
Participants in the Plan or changing the Award Percentage for any category of
Qualifying Income (other than the reduced Grandfathered Non-Tiny Technology
Award Percentages and Grandfathered Tiny Technology Award Percentages set
forth in Section 3) of any Participant or New Participant (subject to the
overall percentage limitations contained herein).
SECTION 6.
Effective Date
The Plan shall be effective on the Effective Date.
SECTION 7.
General Provisions
Compliance with Legal Requirements. The Plan and the
granting and payment of Awards, and the other obligations of the Company under
the Plan shall be subject to all applicable federal and state laws, rules, and
regulations, and to such approvals by any regulatory or governmental agency as
may be required.
Nontransferability. Awards not yet earned shall not be
transferable or subject to assignment or alienation under any circumstances.
Awards earned but not yet paid shall not be transferable by a Participant
except by will or the laws of descent and distribution.
No Right to Continued Employment. Nothing in the Plan or in
any Award granted or other agreement entered into pursuant hereto shall confer
upon any Participant the right to continue in the employ of the Company or to
be entitled to any remuneration or benefits not set forth in the Plan or other
agreement or to interfere with or limit in any way the right of the Company to
terminate such Participant's employment.
Withholding Taxes. Where a Participant or other person is
entitled to receive a cash payment pursuant to an Award hereunder, the Company
shall have the right to withhold any taxes or to require the Participant or
such other person to pay to the Company the amount of any taxes that the
Company may be required to withhold before delivery to such Participant or
other person of such payment.
Unfunded Status of Awards. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant pursuant to an Award,
nothing contained in the Plan or any Award shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
Governing Law. The Plan and all determinations made and
actions taken pursuant hereto to the extent not governed by federal law shall
be governed by the laws of the State of New York without giving effect to the
conflict of laws principles thereof.
Beneficiary. A Participant may file with the Committee a
written designation of a beneficiary on such form as may be prescribed by the
Committee and may, from time to time, amend or revoke such designation. If no
designated beneficiary survives the Participant, the executor or administrator
of the Participant's estate shall be deemed to be the Participant's
beneficiary.
HARRIS & HARRIS GROUP, INC.
ONE ROCKEFELLER PLAZA
ROCKEFELLER CENTER
NEW YORK, NY 10020
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints CHARLES E. HARRIS and HELENE B.
SHAVIN and each of them, with full power of substitution, proxies to vote
at the annual meeting of shareholders to be held on September 26, 2002, or
an adjournment thereof, to represent and to vote all the shares of common
stock of Harris & Harris Group, Inc. that the undersigned is entitled to
vote with all powers the undersigned would have if personally present, on
the following matters as designated on the reverse side and in their
discretion with respect to such other business as may properly come before
the meeting or any adjournment thereof.
The Board of Directors recommends a vote "FOR" all the nominees
listed in item 1 and "FOR" item 2, item 3 and item 4.
When properly executed, this proxy will be voted as specified and
in accordance with the accompanying proxy statement. If no instruction is
indicated, this proxy will be voted "FOR" item 1, 2, 3 and 4.
(Continued and to be dated and signed on the reverse side.)
HARRIS & HARRIS GROUP, INC.
P.O. BOX 11469
NEW YORK, NY 10203-0469
1. ELECTION OF DIRECTORS
FOR all nominees [ ] WITHHOLD AUTHORITY [ ] *EXCEPTIONS [ ]
Listed below. To vote for all nominees listed below.
Nominees:
Dr. C. Wayne Bardin, Dr. Phillip A. Bauman, G. Morgan Browne, Dugald A.
Fletcher, Charles E. Harris, Dr. Kelly S. Kirkpatrick, Glenn E. Mayer, Lori
D. Pressman, James E. Roberts
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark the "Exceptions" box and write that nominee's name in the space
provided below.)
*Exceptions: ______________________________________________________
2. To ratify, confirm and approve the Audit Committee's selection of
PricewaterhouseCoopers LLP as the independent public accountant for the
fiscal year ending December 31, 2002;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve a proposal to authorize the Company to issue, long-term
rights (which may be accompanied by or be part of other securities -- e.g.,
convertible debt or convertible preferred securities) to purchase common
stock at an exercise price that will not be less than the greater of the
market value or the net asset value per share at the time of issuance;
FOR [ ] AGAINST [ ] ABSTAIN [ ]
4. To approve a proposal to authorize the amendment and restatement of the
Company's existing Employee Profit-Sharing Plan; and
FOR [ ] AGAINST [ ] ABSTAIN [ ]
5. At their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournment or
adjournments thereof.
Change of Address and
or Comments Mark Here [ ]
Please sign exactly as name appears to the left. When shares are held by
joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporation name by President or other
authorized officer. If a partnership, please sign in partnership name by
authorized person.
Dated___________________, 2002
____________________________
(Signature)
____________________________
(Signature, if held jointly)
Votes must be indicated [x] in Black or Blue ink.
Sign, Date and Return the Proxy Card Promptly Using the Enclosed Envelope.